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After COVID-19, where does the US pharma and biotech industry stand?

Neil Raden Profile picture for user Neil Raden May 15, 2020
The push for COVID-19 treatments has stoked the fires on big questions about the US pharmaceutical industry, including drug pricing and conflicting data on drug effectiveness. Here's my unvarnished take.

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I'm a baby-boomer. I remember a time when pharmaceutical companies were the most admired companies on the planet. They delivered vaccines to prevent us from diseases like smallpox and polio, life-saving drugs for heart disease, and palliatives to ease suffering. They attracted the most brilliant and dedicated scientists.

But something happened. They got greedy. The pharmaceutical industry hit bottom in public opinion, ranking last in Gallup's list of 25 industries, according to a new annual poll.

Today we are faced with an emergency for Pharma to solve, and there is reason to suspect we can't trust them. But COVID-19 isn't like cancer or heart disease, complex diseases with many co-factors we don't wholly understand, clearly a case of complex causality. COVID-19 is too, but the co-factors collapse into one thing - transmission networks. And we know how to deal with those even though the will seems to be waning.

But what we need from Pharma, while we hold things at bay, is a fast solution, if not a permanent one. But, afterward, depending on who is in charge and how the pharma companies perform, there could be a fundamental change in the industry. There has to be.

The US government and the pharmaceutical industry found common cause in dealing with the COVID-19 pandemic. As a result, on March 27, 2020, the president signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES), which contained numerous provisions affecting the pharmaceutical industry, including funding for the development of vaccines and treatments in response to the pandemic. Perhaps coincidentally, Gilead Sciences, the owner of the patent for the hoped-for treatment, Remdesivir, spent more on lobbying Congress and the administration in the first quarter of 2020 than it ever has before, according to federal filings. The pharmaceutical company spent $2.45 million on lobbying in the first three months of the year, a 32% increase over the $1.86 million it spent in the first quarter of 2019

It's a myth that pharmaceutical companies fund their own research. Typically, they fund about 60%. Sometimes the basic science comes from academia. The government contributes about a third of the costs, $40 billion through the NIH alone, with foundations, advocacy organizations, and individual donors responsible for the remaining investments. Where is the quid-pro-quo? Early drafts of the legislation included a provision stipulating that COVID-19 vaccines, drugs, and tests be affordable if they were developed with taxpayer funds. But the final bill included additional language that undercut that requirement.

Rep. Jan Schakowsky, D-Ill., says Gilead's track record makes her worry that remdesivir could be priced out of reach. And the company is in a legal battle with the federal government over patents for Truvada, an HIV medicine the FDA also approved for use in protecting people at high risk of infection. Taxpayers helped fund research for remdesivir and other potential vaccines and treatments, so Schakowsky added a line to the CARES Act to make sure drug makers don't set exorbitant prices. During a House Committee on Energy and Commerce hearing in February, Schakowsky asked Health and Human Services Secretary Alex Azar to promise that coronavirus treatments would be affordable for everyone. He declined and told her, "We can't control that price because we need the private sector to invest." Azar is a former Eli Lilly & Co. executive.

What does he mean by that? Here is the current crazy rationale for US drug prices. If we did lower drug prices, we would be making a trade-off. Lowering drug profits would make pharmaceuticals a less desirable industry for investors. And less investment in drugs would mean less research toward new and innovative cures.

Why is that not true in every other country? Swiss pharmaceuticals do just fine with prices 30-50% lower. Drug prices were 3.2 to 4.1 times higher in the US on average than in comparison countries, even after rebates were considered, according to a new study. Using reference pricing, or prices based on what other countries pay for drugs,the authors from the Johns Hopkins Bloomberg School of Public Health compared prices across the US, the United Kingdom, Japan and the Canadian province of Ontario for 79 top-selling single-source brand-name drugs that had been on the market for at least three years.

And it's a feeding frenzy. Not just Gilead. The federal government has pledged one drug company, Moderna, almost $500 million to speed up their coronavirus vaccine work. Their CEO earned $9 million last year, and the company had an effective tax rate of zero.

Remdesivir as a therapy - conflicting data

"The data shows that remdesivir has a clear-cut, significant, positive effect in diminishing the time to recovery'' from COVID-19, said Anthony Fauci, director of the National Institute for Allergy and Infectious Diseases, about a study his institute sponsored. He said the drug would become "the standard of care."

The same day, however, a study by Chinese researchers published in The Lancet found remdesivir didn't do better than a placebo when treating seriously ill COVID-19 patients on such measures as survival and time to clinical improvement. Gilead is donating the first 1.5 million doses of Remdesivir, (which it has in stock from its failed Ebola trial), but after that, the company has declined to say what remdesivir price might be.

How does it work? Remdesivir can block replication of a variety of coronaviruses, but until now, it has not been clear how it does so. It seems to block a particular enzyme that is required for viral replication. Coronaviruses replicate by copying their genetic material using an enzyme known as the RNA-dependent RNA polymerase (I know, a mouthful). Until now, it has been challenging to get the polymerase complex that contains multiple proteins to work in a test tube. Using polymerase enzymes from the coronavirus that causes MERS (not CORVIV), scientists found that the enzymes can incorporate Remdesivir, which resembles an RNA building block, into new RNA strands. Shortly after adding remdesivir, the enzyme stops being able to add more RNA subunits. This halts genome replication. But that's all in vitro. Starting to treat people with this is a risky business. 

The pharma "business"

Gilead's pricing of past drugs has drawn criticism. When it launched its hepatitis C cure in 2013, the cost was $1,000 a pill. Truvada has a list price of more than $22,000 a year, according to GoodRx, a website that helps patients get discounts on drugs. The price has kept many patients from gaining access to the drug, patient advocates say. The issue prompted a congressional hearing last year.

Gilead sought and obtained "orphan drug" status for Remdesivir from the US Food and Drug Administration on March 23, 2020. This provision is intended to encourage the development of drugs affecting fewer than 200,000 Americans by granting strengthened and extended legal monopoly rights to the manufacturer, along with waivers on taxes and government fees.

Remdesivir is a candidate for treating COVID-19; at the time the status was granted, fewer than 200,000 Americans had COVID-19, but numbers were climbing rapidly as the COVID-19 pandemic reached the US, and crossing the threshold soon was considered inevitable. Remdesivir was developed by Gilead with over $79 million in U.S. government funding. After facing strong reactions, Gilead gave up the "orphan drug" status for remdesivir on March 25. Gilead retains 20-year remdesivir patents in more than 70 countries.

Bryn Gay, Hepatitis C Project Co-Director at the Treatment Action Group., points to new hepatitis C drugs that have become a global rallying cry for an end to drug patent monopolies. After the NIH funded $62.4 million for the basic science behind the breakthrough drug sofosbuvir, it was purchased by Gilead for $11 billion. Gilead then turned around and priced at up to six-figures, even though a 12-week treatment course costs less than $100 to produce.

Gay says:

Companies have raked in profits of over $70 billion from hep C medicines, yet companies like Gilead and Janssen have walked away from additional hep C research, such as for a preventative vaccine. The impact of NIH-funded research again demonstrates that we need to increase government funding for infectious and neglected diseases. We can't rely on Pharma to set R&D agendas shaped by how much profit can be generated. 

And one thing I've been able to pin down - what is the difference between R and D? How much and what kinds of cost are shoveled into Development to boost the total R&D number?

During a conference call with investors about first-quarter earnings, analysts asked Gilead CEO Daniel O'Day whether they could expect similar returns on remdesivir as they've seen with the company's other products. 

Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator said of the study 

"Drug development remains a costly undertaking despite ongoing efforts across the full spectrum of pharmaceutical and biotech companies to rein in growing R&D costs. Because the R&D process is marked by substantial technical risks, with expenditures incurred for many development projects that fail to result in a marketed product, our estimate links the costs of unsuccessful projects to those that are successful in obtaining marketing approval from regulatory authorities.

A former R&D executive with a big pharma company believes industry consolidation has had a "devastating" effect on pharmaceutical research projects because of the capital required to finance mergers and acquisitions. John L. LaMattina, former president of Pfizer Global Research and Development, wrote in an August 2011 Nature Reviews commentary: 

In major mergers today, not only are R&D cuts made, but entire research sites are eliminated.

My take

My take is all over this article, but it comes down to how Pharma performs in the next 12 months. If they look like saviors again, it will be hard to budge from the status quo. However, I believe the mood in Washington is to allow Medicare to begin to negotiate prices (like the V.A. already does). Historically, it hasn't been a partisan issue, as Pharma has courted both parties equally. Can the US get drug prices down European levels, a drop of 75%? Highly unlikely, but a new era of reigning in the drug companies can have a long-term effect.

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