Will Hillary’s Prescription Drug Plan Hinder R&D?

October 2, 2015
Moe Alsumidaie

Applied Clinical Trials

Democratic candidate Hillary Clinton is introducing her Prescription Drug Plan which is meant to benefit patients, however, will Hillary’s plan be good for advancing novel therapies, and will it benefit R&D organizations?

The biopharmaceutical industry has recently taken heat from the media on price gouging, or increasing the price of medical products to amounts that are much more than the value they offer to patients. Since patents ensure exclusivity from generic competition, many claim that the biopharmaceutical industry is profiteering from the opportunity. 

While price gouging tactics have bode well for skyrocketing stock prices and revenues, (particularly for companies focused on M&A), the media attacked Martin Shkreli, hedge fund manager and founder of Turing Pharmaceuticals, for hiking the price of Daraprim (used to treat toxoplasmosis in AIDS patients) by more than 5,400% [1].

While many are attacking the biopharmaceutical industry, it is important to distinguish enterprises that leverage price gouging for profitability and R&D companies that offer valuable medical products. Price gouging does not appear to be a phenomenon that is typically associated with research organizations (i.e., common big pharma, start up specialty biopharmaceuticals, etc.), but, rather with enterprises that specialize in M&A. For example, in February 2015, Valeant Pharmaceuticals, a company that focuses primarily on M&A, acquired Nitropress and Isuprel (life-saving cardiovascular medical products), and hiked pricing by 525%, and 212%, respectively, on the same day [2] (Senator Bernie Sanders opened an investigation on the matter). Moreover, this report demonstrates that Valeant spends 3% of its revenue on R&D compared to the industry norm, which expends 17.5% on average on R&D [7], and shows a slew of pricing hikes on numerous acquired Valeant drugs.  Horizon Pharmaceuticals, also an M&A enterprise, raised the price of Vimovo (to treat rheumatoid arthritis and osteoarthritis) by 597% after acquisition [2]

Democratic candidate Hillary Clinton is using this media backlash to introduce her Prescription Drug Plan which is meant to benefit patients, however, will Clintons plan be good for advancing novel therapies, and will it benefit R&D organizations?  This article will evaluate Clinton’s plan, and elaborate on how this plan may impact the biopharmaceutical industry.

What is Clinton’s Prescription Drug Plan Proposing?

Clinton’s Prescription Drug Plan is quite extensive and covers a variety of areas, most notably [3]:

Promoting R&D by cutting direct to consumer advertising subsidies (expected to save the government billions) and allocating the proceeds towards funds that specialize in biopharmaceutical R&D investments, and supporting the R&D tax credit. Additionally, the plan would require biopharmaceutical enterprises that benefit from federal R&D support to invest a certain amount of their revenue into R&D, compensating patients via rebates, and investing in basic research.

Capping out of pocket costs for prescription drugs for chronic and serious health conditions.  Clinton’s plan would require insurance companies to cap out-of-pocket drug costs at $250/month for FDA approved indications.

Introducing generic competition by clearing FDA’s office of Generic Drugs backlog, reducing new biologics patent coverage from 12 to 7 years, and spurring biosimilar R&D applications via expedited FDA review.  Moreover, the plan will eliminate “pay for delay” agreements to facilitate generics, and allowing US patients to import medical products from outside the US.

Higher focus on medical product value.  Clinton’s plan appears to enforce more stringency on evaluating medical product value when biopharmaceutical enterprises determine pricing.

 

M&A Pharma Will Face Pressures

If Clinton’s Prescription Drug Plan goes into effect, M&A pharmaceutical enterprises (basically, hedge funds in disguise) will likely get hit hard, as those organizations will not be able to sustain significant revenue growth due to limitations on price gouging tactics. Some of these enterprises may even implode, as their financial models do not appear to be sustainable; those enterprises tend to carry high levels of debt (to fund M&A), and may not be able to sustain debt repayment if their revenues are impacted as a result of policy changes; this previously published Applied Clinical Trials article, provides more details on the M&A pharmaceutical company trend.

 

R&D and  Biopharma Will Benefit

It is important to emphasize that while the biopharmaceutical industry is perceived as an immensely profitable industry, the reality is that it is not. Figure 1 demonstrates that pharmaceutical and biological industries, as a whole, have the lowest profitability ratios compared to many other industries.  It is quite possible that low profitability is associated with high failure rates during R&D.

By promoting R&D investment subsidies, Clinton’s plan can help minimize the high risks that the biopharmaceutical industry takes when developing new specialty medical products. Moreover, allocating more revenue towards R&D can help spur new medical breakthroughs.

Albeit some of Clinton’s plan may negatively impact revenues for R&D companies in the short run, the overall effect of investing in and introducing new medical products would likely outweigh revenue losses in the long run.  Most importantly, patients would not only be able to access and afford new medical products, but, also live longer lives from the influx of novel therapies.

 

How Will the Payer System Change?

As mentioned earlier, Clinton’s plan appears to place more pressure on demonstrating medical product value during pricing. Payers are already moving in this direction, as they are getting involved much earlier in the R&D process.  However, personalized medicine is challenging private payers, “the traditional model is untenable; personalized medicines, changing demographics of patient populations, having to slice and dice those consumers to narrower and narrower segments, and trying to treat them more individually is a big challenge for private payers,” said Nathan Tinker, Executive Director at the New York Biotechnology Association in a previous Applied Clinical Trials interview.  Additionally, Clinton’s plan appears to be compatible with a single payer system; “That there is a continual push towards a single payer system.  It is likely at some point, sooner than later, there will be a single payer system because the traditional model is untenable,” added Tinker.

 

References:

[1] http://www.nbcnews.com/news/us-news/drug-ceo-will-lower-price-daraprim-after-outrage-n431926

[2] http://www.wsj.com/articles/pharmaceutical-companies-buy-rivals-drugs-then-jack-up-the-prices-1430096431

[3] https://www.hillaryclinton.com/p/briefing/factsheets/2015/09/21/hillary-clinton-plan-for-lowering-prescription-drug-costs/

[4] http://www.appliedclinicaltrialsonline.com/how-clinical-technologies-and-health-advances-are-disrupting-payers

[5] http://www.nytimes.com/politics/first-draft/2015/09/22/hillary-clinton-to-present-health-care-plan-2/

[6] http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html

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