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U.S. drug pricing pressures build toward the perfect storm

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By Mari Serebrov
Regulatory Editor

A perfect storm is brewing over the U.S. biopharma pricing landscape, and the consequences could be disastrous for an industry that's used to relying on U.S. sales to buoy their profits.

The latest pressure is swirling around orphan drug exclusivities, patient assistance programs, reimportation and direct Medicare negotiations. While the threats aren't new, they're picking up more bipartisan support every time a new drug hits the market with a blustery price or an older drug undergoes a pricing surge.

Just a few days ago, Sen. Chuck Grassley (R-Iowa) said he and his staff are looking into whether unanticipated uses of provisions in the 1983 Orphan Drug Act are contributing to high prices for commonly used drugs. He referenced a recent Kaiser Health News investigation that claimed drug companies are manipulating the orphan drug incentives to maximize their profits and protect niche markets for drugs being taken by millions of patients.

According to the Kaiser report, more than 200 companies have brought nearly 450 designated orphan drugs to market in the 34 years since the Orphan Drug Act was signed into law to incentivize companies to develop therapies for diseases that affect fewer than 200,000 patients. More than 70 of the drugs – including blockbusters like Abilify (Otsuka America Pharmaceutical Inc.), Crestor (Astrazeneca plc) and Humira (Abbvie Inc.) – were approved for broader conditions before they received an orphan indication.

The investigation also identified more than 80 drugs approved for multiple orphan conditions, which resulted in the sponsors qualifying for new incentives with each additional orphan indication. Some orphan drugs, such as Allergan plc's Botox, also went on to be approved for broader conditions after racking up a number of orphan indications.

Altogether, about a third of the FDA's orphan drug approvals have been for repurposed mass market drugs or therapies with multiple orphan indications. And, proportionately, the number of orphan approvals is increasing. In 2010, about 29 percent of the drugs approved by the FDA were for orphan indications. But in each of the past three years, more than 40 percent of the therapies approved were considered orphan drugs. (See BioWorld Insight, Feb. 10, 2017.)

The swell of orphan drugs hitting the market continues to raise pricing concerns. Since orphan drugs enjoy seven years of exclusivity, they have no competition to anchor their prices. Consequently, the net price of orphan drugs and other specialty therapies increased 7.1 percent last year for Express Scripts' clients, compared with a 2.5 percent increase for drug prices overall. The higher prices, combined with greater utilization, resulted in a 13.3 percent total increase in 2016 spending on specialty drugs, according to Express Scripts' annual Drug Trend Report.

Given an ongoing public outcry about drug prices and the potential to stretch orphan drug provisions beyond their original intent, Grassley said he and his staff will meet with interested groups and other Senate staff to get their views on the extent of the problem and how it can be fixed.

MORE STORM CLOUDS

Meanwhile, the Department of Justice (DoJ) is expanding its investigation into biopharma's use of programs to lower the out-of-pocket cost to patients without having to cut their overall price. In its annual report filed with the SEC last week, Regeneron Pharmaceuticals Inc. revealed that it's been swept into the DoJ wave. The company reported that it received a DoJ subpoena last month requesting documents relating to its patient assistance programs (PAPs) and support of charities that provide financial assistance to patients needing prescription drugs, including Regeneron's Eylea, Praluent, Arcalyst and Zaltrap.

A week earlier, Biogen made a similar disclosure, noting that the DoJ wanted documents related to its PAPs for Avonex, Tecfidera, Tysabri and Plegridy. Several other drug companies have been asked about their PAPs, too. Even as the DoJ investigates the programs, some states and payers are banning the use of the coupons many of the programs offer.

More storm clouds are gathering, with lawmakers as idealogically divided as Sens. Bernie Sanders (I-Vt.) and Ted Cruz (R-Texas) agreeing that drug reimportation and direct Medicare negotiations are needed to drive down drug prices. In the midst of the squall, the biopharma industry is finding itself at odds with pharmacy benefit managers (PBMs) and payers, and each is blaming the other for high prices. (See BioWorld Today, Feb. 9, 2017.)

SURVIVAL TACTICS

To fend off the storm, the Biotechnology Innovation Organization has been calling for a holistic approach to tame the rising cost across the entire health care sector. Such a systemic plan would require more transparency from drug companies, PBMs, payers, hospitals and other providers, along with value-based pricing. For its part, the Pharmaceutical Research and Manufacturers of America (PhRMA) has met with the new administration and launched its Go Boldly initiative in an attempt to justify prices and explain the value of the industry to the public and lawmakers. The biopharma industry also is seeking tax reforms and streamlined FDA approval. (See BioWorld Today, Nov. 8, 2016, and Feb. 1, 2017.)

Like PhRMA, the PBM industry has launched its own initiative to tell its side of the story, shaking its finger at drugmakers while pushing its own policy agenda to lower drug prices. Besides an advertising campaign, the initiative includes proposed meetings with the Trump administration and key lawmakers to build a "firewall on Capitol Hill" to protect against anti-PBM legislation, according to a leaked internal memo from Mark Merritt, president and CEO of the the Pharmaceutical Care Management Association (PCMA), the national trade organization for PBMs.

High on the group's agenda is increasing competition – a strategy that echoes calls from the president and Congress. One way the PCMA proposes to do that in Medicare Part D prescription drug programs is by "eliminating unnecessary hurdles to competition, such as removing protected classes and rolling back unnecessary coverage mandates," according to the memo. Under the current program, Part D plans must cover all drugs in certain classes, so a plan can't restrict access to high-priced drugs when cheaper alternatives are available.

While it didn't address Medicare specifically, a Berkeley Research Group study, released last month and funded by PhRMA, showed that competition in recent years hasn't led to lower patient prices. Instead, it said competition has forced brand manufacturers to pay more in discounts and rebates to health plans and PBMs to secure preferential formulary placement. (See BioWorld Today, Jan. 19, 2017.)

Increased competition isn't the only way PCMA is preparing for the pricing storm. The group's officials also are looking for a bigger role for PBMs in managing Part D plans, tackling the opioid epidemic, improving the value of private drug coverage and reducing wasteful spending in Medicaid.

With President Donald Trump's campaign promises to lower drug prices and his directive to biopharma leaders last month to bring prices "way down," both the drug and PBM industries recognize that the pricing storm could hit any time. In the memo to the PCMA board of directors, Merritt noted the need to accelerate the review of its initiative "given the political uncertainty, headline risk and other unique challenges that come with a president more inclined toward quick, instinctive action than the traditional, deliberative decision-making process."