Healthy Skepticism Library item: 1741

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Publication type: news

McKinnell H.
Towards a sustainable solution - funding innovative medicines
Pharmapolicy News 2002 Mar

Full text:

Introduction

Beginning shockingly and abruptly, September 11, 2001, the free nations of the world engaged an insidious enemy in a long, twilight struggle. The stuff of novels including bioterrorism is now grim reality. With that reality, pharmaceutical companies inside and outside the United States have stepped up to help shore up defenses and protect the public. Our message is strong and clear as an industry, we are ready and willing to do whatever it takes to help the forces of freedom. We all understand what’s at stake here.

The events of September 11th demonstrate how important it is for freedom-loving nations to have viable and thriving pharmaceutical sectors and how important it is for those sectors to work in productive partnership with the governments who regulate them and, in many cases, are major direct customers.

Pharmaceutical companies today face unprecedented challenges many of them rooted in European governments reluctance to understand or accept the economic foundations of our business.

Let me focus on what I believe is our most serious problem, namely the double bind of rapidly escalating research costs, on the one hand and declining incentives to undertake that on the other.

The blunt reality is that mechanisms ranging from reference pricing to volume controls are denying patients access to the best of our discoveries. I want to center on the problem at hand and on the task of rebuilding the health care partnership here in Europe.

Perhaps the best way to start is with a story about a sign that now appears in all Pfizer research centers.

The sign says, simply but powerfully, “The patient is waiting.” A scientist in what is now a Pfizer discovery center in Ann Arbor, Michigan hand-wrote those words in the early 1990s, and posted them outside his door. He posted the sign more out of frustration than inspiration. He was frustrated with the time and difficulty of drug discovery and development.

Pharmaceutical discovery and development has never been easy. However, today, it takes staggering amounts of time, talent and money to find and develop new biomedical products. Time? Twelve to twenty years so much time, in fact, that a surprising number of career researchers never see one of their discoveries reach the marketplace. Talent? Among the most educated, skilled, committed researchers in the world, twelve thousand of them working for Pfizer alone, tens of thousands in the other research-based drug companies around the world. Money? When that researcher posted his sign in the early 1990s, the cost of developing a new drug was already estimated at around 300 million euros per marketed product.

The situation in 2001
Tufts University, in a recently released study, estimates that the cost of developing one new pharmaceutical product is now 850 million euros, a tripling in just ten years. The escalating costs of research are borne out by the experiences of the member companies of PhRMA, the association of U.S.-based research-centered pharmaceutical companies. Member companies have seen their R&D spending triple in the last decade. Yet, despite that trebling of R&D spending, the number of new drug applications filed with the U.S. FDA has remained level over the past decade, even declining somewhat in recent years.

The bottom line
Massive increases in costs, little increase in output. Big wins in our business are now coming few and far between, and those few big wins have to cover the cost of vastly more expensive research. This would be hard to do under the best of circumstances. It is becoming vastly more complex in the face of an almost singular focus by governments here and in other major markets to lower or limit pharmaceutical usage.

With increasing and depressing regularity, governments in Europe, Japan and other developed markets are shifting healthcare costs to patients in the United States and to pharmaceutical companies themselves. With R&D costs rising, and market incentives declining, is it surprising that the pharmaceutical industry has been through shakeout after shakeout? All too often, industry giants combine in the hope of strengthening their research organizations or reducing their costs to survive the contentious political and pricing environments we are seeing today. Often, mergers take place solely to increase presence in the world’s most open and dynamic pharmaceuticals market, the United States.

The good news is that even the largest drug companies have less than eight percent of the global market, so there is keen competition. The bad news is that industry experts question whether greater industry concentration leads to greater industry productivity. “Is bigger really better?”, they ask, when it comes to discovering and developing new drugs.

Some of the largest drug companies are maintaining a loose confederation of research centers, each with their own budgets and approaches. This may be the easiest way to organize global research, but we believe this approach gives away the benefits of scale. At Pfizer, our strategy is to have global discovery centers where researchers have a degree of freedom to “follow the science.” But once the science is followed to the point we call “proof of concept in man”, then it’s time for sharpened focus, and the transfer of the project to our specialized development scientists at New London, Connecticut, in the United States.

Every research project emerges with findings that, while perhaps not applicable to the project at hand, are intriguing as leads for more research. Currently, most companies cannot use these findings, as they simply don’t have the scale to collect and analyze the huge volumes of data they generate, nor do they have the size and talent to use that data effectively. But the new realities of our industry will mean a series of stern tests for industry leaders. Even as we rewrite the book on pharmaceutical research and development, we know that none of these advances happen in a vacuum. Our success depends on the political will of governments to provide the right mix of incentives for the sector. This political will starts with the understanding that nine out of every ten drugs approved today are discovered in private laboratories.

When it comes to taking science and transforming it into life-saving products, no one does it better than research-based pharmaceutical companies. The best approach that government can take is to trust the market to put more than enough pressure on us to innovate. With the right incentives, our industry’s brainpower will prevail, and it will prevail to the benefit of patients everywhere.

The powerful example of AIDS research

It’s been 20 years now since HIV, the Human Immunodeficiency Virus was first identified and linked to the then-mysterious illness now called AIDS.

A deadly, insidious, complex and highly adaptable virus was killing people. There were no options for treatment. Yet, within six years, faster than some of the road repairs on the M25, the pharmaceutical sector put the first effective medicine for HIV into doctors’ hands. It was discovered and developed by a British company that is now GlaxoSmithKline.

Today, there are some 64 treatments for AIDS and 100 more in development by major pharmaceutical companies. There is increasing hope of an effective vaccine. Why so much progress, so fast? Because of the market incentives to innovate pressures brought on by the nature of our high-risk, high-reward business. And today, a number of those AIDS medicines are going at sharply reduced prices to developing nations to combat the HIV/AIDS crisis in sub-Saharan Africa. Pfizer’s antifungal medicine, Diflucan, is being made available at no charge to stem AIDS-related infections in a number of the world’s poorest countries.

Does anyone believe that, in the absence of market incentives, there would be 64 medicines for AIDS and another 100 in development? There would be a handful, at best, and they wouldn’t now be in the hands of some of the world’s poorest nations. Yes, the public sector can raise awareness and create a climate for innovation. But the strongest engines of innovation remain in the private sector. With the right market incentives, pharmaceutical companies will keep the pressure on themselves to advance biomedical science.

The market in the United States provides a case in point
The US patent system and an open market reward companies that can master the complex product creation cycle. That system and market also provide a stable environment for market development, and a clearly defined end to market exclusivity. Patents eventually expire, opening the door for direct copies of the compounds. This has a dual effect; it helps in health cost management, and it provides further incentives for continued discovery to find patent-protected drugs.

I understand that the markets in America and Europe, the political structures and environments, and the social contracts are clearly different. I also understand that governments everywhere have an appropriate concern for budgets and for the burdens of taxpayers. I have been in this business long enough to also understand that no policymaker on either side of the Atlantic loses votes by speaking against the drug industry. They only lose the drug industry itself to a slow, grinding erosion of research resources. They also hurt society because of decreased patient care, longer patient waiting lists, and overall increasing costs without the corresponding increase in positive outcomes.

Some further examples
Japan’s is the world’s second-largest pharmaceutical market. It has pricing policies considered to be among the most restrictive. Basically, in Japan, a starting price is negotiated with the government. That price is then reduced every two years during the period of patent protection. Prices do not go down any faster after the patent expires. Has this approach affected Japan’s pharmaceutical industry? Investment by the Japanese pharmaceutical industry in research peaked in 1991. Companies, including European companies that provide thousands of jobs here and on the Continent, are finding it harder and harder to bring new drugs to Japan. Is this hurting patients? Yes, it is.

Recently in Japan, the chairman of AstraZeneca, Tom McKillop, said that his company could not afford to introduce its popular drug for asthma, Pulmicort, in Japan. Basically, the Japanese government wanted AstraZeneca to price the product at a rate that would lose money on every patient.

Does anyone think this approach is good for Japan’s patients, its status as an innovative society, or its economy? Does anyone doubt that Japan’s reluctance to provide reasonable pricing hurts jobs here in the UK and in the rest of Europe?

AstraZeneca’s dilemma is one that none of us in this industry want to face. We want new products in the hands of physicians. And yet, as in Japan, the pricing discussions in Europe continue to be highly contentious and in the final analysis, just as in Japan, damaging to the patient. One of the unintended consequences of governments limiting or lowering access to pharmaceuticals is a negative impact on their home pharmaceutical sectors. Consider that as late as the 1980s, Europe was known as “The World’s Medicine Chest.”

The present
Does anyone believe that Europe is still the world’s medicine chest? It is abundantly clear that the United States has displaced Europe as the center of gravity in pharmaceuticals. Since 1980, research investment in the United States has grown by a factor of ten, nearly double the pace in both Japan and Europe. Could this rise be linked to the reality that America represents a far more open market for pharmaceuticals? I will let you be the judge.

The largest American biotech company is, by itself, larger than the entire biotechnology segment in Europe. This is not because American scientists are smarter than European scientists. The choices of biotech companies are being driven by one factor the potential return on investment.

If you are a biotechnology company struggling to develop your first product consider the alternatives.

Bring it out in the United States, where you get market pricing and, even, perhaps, fast-track approval or bring it out in Europe, and face months, even years of contentious, country-by-country negotiations on price and access.

Where, rationally, would you want your biotech company to focus its energies? Clearly, on the market where you have the opportunity to get rewards commensurate with risk. The irony of all this is that the new wave of medicines are the most cost-effective tools in the quest for better health care.

The single largest cause of death in Europe is heart disease with 40 percent of these deaths taking place before age 74. Yet, heart disease is largely treatable, even preventable, through novel medications that deal with hyperlipidemia and hypertension. The drugs are widely available and they are reasonably priced. The roadblocks to them are largely government-imposed. And the costs to society is the social and economic cost of a premature death, which in my opinion is not measurable. But those who try to measure such things tell us that treating heart attacks through the most advanced means, including pharmaceuticals, provides a benefit six times the cost of care.

And so, what to do? It is to go back to that sign, “The Patient Is Waiting.” It is for governments to understand our frustrations when that patient is left behind. By insistence on reimbursement prices that threaten our ability to fund future research. Through volume controls, doctors’ budgets and the other restrictions that discount reasonable patient interests. Through reference prices that compare vastly improved new medicines to older, less-effective, or less-well-tolerated agents. Through access and pricing negotiations that drag on and become de facto restrictions on patient access. Or through standards of care that lag mainstream medical practices the use of statins in some European nations being a prime example.

The best move governments can make, right now, is to aggressively act to unshackle the creative power of the world’s best scientists. Understanding the differences in markets and cultures, let me propose a number of steps to create a more effective marketplace, one more responsive to the interests of patients.

European governments can do the following: remove artificial price supports for generics and subsidies for local companies; stop reimbursing old products with marginal medical value, or at least stop comparing the prices of these products with newer, vastly better medicines; improve access to innovative new products; end parallel trade in medicines, a practice that only benefits middlemen and creates risks to patients; and end “silo budgeting” treating drugs solely as costs without considering the corresponding benefits of innovative medicines. They can continue to harmonize rules and regulations; encourage patients to learn more about their conditions and treatment options; and work in partnership with pharmaceutical companies to create win-win situations in healthcare for patients and society.

Let us in the pharmaceutical industry do what we do best, find the cures of the future. I know that many critics of our industry will say that more access and fewer controls will bust medical insurance budgets. These critics confuse cost with value. A new era of medicines will keep people out of hospitals keep people healthier and more productive, longer. Simply consider the thousands of HIV-infected people here and elsewhere managing their conditions staying at work , thanks to pharmaceutical innovation.

Consider the millions of people on statins marvelous drugs that effectively reduce cholesterol and the heart attacks, premature deaths and family trauma these drugs were discovered to prevent. That’s value that far outweighs the product’s cost. Up there with strong national defense, and access to decent education, better healthcare is the best investment developed nations can make in their futures.

Today, in an era of bioterrorism, one could argue that better healthcare is national defense. We are in the business of better healthcare work with us, in partnership to do the job. My call to action is for a renewal of the constructive partnership between research-based pharmaceutical companies and the European governments on whom we rely for fair regulation.

We in pharmaceuticals are grateful for the strong protection given in Europe to intellectual property. We appreciate the investments made to ensure orderly markets, access to capital, decent regulation and patient protection, education and infrastructure, and clearly, defense. We understand the social contracts, the pressures of government budgets, and the many competing priorities. We ask policymakers to understand us in the research-based pharmaceutical industry. This is a high-risk business, it always has been. High-risk businesses do not survive if they cannot aim for high rewards.

Over the next ten years, pharmaceutical and biotechnology companies will take risks that could never have been imagined. Exciting but hugely expensive new technologies hold the promise of reshaping medicine. Difficult as discovery may presently be, we are on the verge of the long-awaited golden age of medicine. We see the promise of new antibiotics, novel medicines against killers such as AIDS, huge breakthroughs in expensive chronic diseases such as Alzheimer’s, cancer, cardiovascular illness and nervous system disorders.

On all counts, we have superb professionals, amazing new technologies, and the drive to succeed.

We ask those who regulate us don’t take this for granted. Don’t try to remake a high-risk, high-reward business into a high-risk, low-reward business. Remember, high-risk, low-reward businesses don’t last very long. We have a potentially marvelous future, but it is not guaranteed. I ask policymakers here in Europe to value what we do, and to consider the interests not only of patients today, but also of patients tomorrow. Those patients may not yet be born. But they too will depend on the cures we must discover.