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Advice and Resources for the Biotech Industry

Advice and Resources for the Biotech Industry

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The Covenant Between BioPharma Companies and Their Customers

Outrageous drug price increases have been a hot-button news story for most of the year. Even those who work in the industry know that drug pricing is incredibly complicated, tied to all sorts of group discounts, bundles, and a
system of rebates (which are themselves tied to market share of the drug) that benefits both drug companies and pharmacy benefit managers. What was once explained by industry wags as the unfortunate actions of just a few exploitative bad actors (e.g. Turing and Valeant) has continued to expand to more firms. Generic drug maker Mylan (seller of the EpiPen) and Taro Pharmaceuticals have now been caught up in the contretemps, as has newcomer Novum Pharma. Venture capitalist Bruce Booth wrote a nicely detailed commentary comparing “innovator” vs. “exploiter” companies, but I’m not so sure that it’s easy to quickly distinguish one from the other. Many of the companies categorized as innovators (meaning they actually do R&D, and generate new products that meet unmet medical needs), are also responsible for some of these outrageous price hikes. These include companies that make drugs for multiple sclerosis and those who peddle high priced insulins.

According to a group of well-known
biotech CEOs, “Massively increasing the price of old generic drugs is not our business model.” This is no doubt true for many biopharma companies. However, the business model for many of the largest companies is to regularly increase the price of the branded drugs that they sell, often twice a year and with double digit increases each time (see Bloomberg’s detailed exposé to learn more about the intricacies of drug pricing). The reasons behind this are pretty simple: most of the industries profits are derived from price hikes on existing products, not the sale of new drugs. While many (myself included) have decried the whining justifications from industry leaders, solutions to the problem have been in short supply.

Enter Allergan CEO Brent Saunders, who's been widely showered with praise for his recent declaration of a number of
consumer-friendly steps his company would take to constrain the price increases for its drugs. These include limiting the percentage of drug price increases to single digits, and raising drug prices only once a year. This announcement was uniformly met with cheers from patient advocates, but for the moment Allegan is the only company rowing in the price-pledge boat. Will anyone else come on board? The silence from other pharma CEOs has been deafening.

Leaders from several miscreant pharma firms have offered to roll back prices after getting tremendous blowback following the deluge of complaints that arose when their price hikes were publicized. How good was their word? When he was CEO of Turing Pharmaceuticals (before resigning in disgrace), Martin Shkreli
declared he would drop the price of their drug Daraprim by 10 percent. He later reneged on that pledge. A subsequent offer to provide the drug to hospitals at a 50 percent discount did little to help individual patients afford the drug. And Valeant’s CEO, while testifying before congress in April, offered hospitals discounts of up to 30 percent off the jacked-up prices of Isuprel and Nitropress. That apparently never happened either. In a face saving move, Valeant recently raised the prices of three poorly selling drugs in its portfolio (with combined yearly sales of a paltry $1.2M) by only 9.9 percent. This was widely seen as an apparent public relations ploy to stay under the 10 percent threshold promised by Brent Saunders.

Saunder’s remarkable pledge led me to think about the kinds of assurances pharma companies make, both now and in years past. I examined a plethora of promises, pledges, mission statements, credos, and covenants to see what they might reveal. The majority of these focus on the issues of integrity, trust, and creating products of value for consumers. I’ll leave it to you to decide whether or not the companies have lived up to the meaning behind their words. Here are just a few examples (some of which are truncated to save space):

Let’s start with the
Johnson & Johnson credo (written in 1943), part of which reads:
“The values that guide our decision making are spelled out in Our Credo. Put simply, Our Credo challenges us to put the needs and well-being of the people we serve first.”
It’s pretty easy to talk the talk, but much more difficult to walk the walk. Is the company living up to the challenge spelled out in its credo, or is this all an empty promise, a quaint legacy written during a simpler time? One can only conclude that these words are false after reading Steven Brill’s devastating exposé of J&Js marketing practices for their neurology drug Risperdal (sold by its Janssen division). Brill’s article, America’s Most Admired Lawbreaker, reveals in great detail how the company illegally promoted this drug, hid its side effects, and earned billions of dollars in the process. Much of the blame is focused on the actions of former Janssen sales manager Alex Gorsky, who rose up the ranks later to become the current CEO.

Johnson & Johnson, of course, is only one company (though a very big one, with a market cap in the neighborhood of $325 billion). Lets turn our attention to industry bellwether
Merck, whose operating principles were laid out in 1950 by company President George W. Merck, son of the company’s founder. He wrote, “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. How can we bring the best of medicine to each and every person? We cannot rest until the way has been found with our help to bring our finest achievements to everyone.”

It’s interesting to contrast this statement with Merck’s current mission statement. The concept of putting patients first looks to have been eliminated, while the idea of creating profits for shareholders has been added: “The mission of Merck is to provide society with superior products and services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of return.” Merck, of course, paid a fine of $650M in 2008 to settle claims of Medicaid fraud and kickbacks over sales of Zocor, Vioxx, and Pepcid.

GSK: “We are committed to performance with integrity. Doing what is right for our patients and consumers must be at the heart of every decision we make. In doing so, we demonstrate integrity in action, at every level, every day.” There was a strong need for this kind of policy after the company pleaded guilty to both civil and criminal charges over its marketing of Paxil and Avandia (and paid a $3B fine), and admitted to a bribery scandal in China for which it paid a $492M fine. In a recent Forbes interview, retiring CEO Sir Andrew Witty admitted to being embarrassed by the scandals, whose ethical shortcomings were apparently set in motion during the reign of his predecessors. Whether or not his successor continues with his stated reform efforts remains to be seen, and will likely be tied to the perceived financial performance of the company.

We …. pledge to act with integrity at all times, especially when facing difficulties or challenges. "Integrity" refers to our compliance with the highest ethical standards, our fairness and honesty in conducting every activity, and our perseverance in pursuing the ideal forms for our operations and management. Through the demonstration of these qualities, we show our commitment to building trust and confidence in all the people around us, and our determination to continue to expand the business. These empower our progress in our global endeavors to fulfill our mission to "strive towards better health for patients worldwide through leading innovation in medicine." Takeda (along with partner Eli Lilly) was recently fined some $6B over claims that the company hid the cancer risks of its Diabetes medicine Actos. However, the company wound up settling the case for “only” $2.35 billion.

Abbvie/Abbott: Abbvie was spun out from Abbott in 2013 as its biopharma arm. It actually has a 33-page code of business conduct. Hopefully this was crafted after reflection of Abbott’s major role in the crusade (with Purdue Pharma LP) to push OxyContin on the American public, as recently documented by Stat. This undoubtedly helped to contribute to the opioid epidemic currently enveloping our country. Purdue, by the way, paid a fine of $601M in 2007 to settle claims over its off label promotion of OxyContin. Abbot also paid a $1.5B fine in 2012 for the off-label promotion of the epilepsy drug Depakote.

Pfizer: “At Pfizer, we're inspired by a single goal: your health. That's why we're dedicated to developing new, safe medicines to prevent and treat the world's most serious diseases. And why we are making them available to the people who need them most. We believe that from progress comes hope and the promise of a healthier world.” This is from the same company that paid a $2.3B fine in 2009 to settle allegations that it illegally marketed the painkiller Bextra. It also paid a $430M settlement for the off label promotion of Neurontin in 2004.

Bristol-Myers Squibb: "We pledge -- to our patients and customers, to our employees and partners, to our shareholders and neighbors, and to the world we serve -- to act on our belief that the priceless ingredient of every product is the honor and integrity of its maker." BMS paid a $515M fine to settle claims of off label promotion, kickbacks, and Medicare fraud with its drugs Abilify and Serzone.

Roche: “We commit ourselves to scientific rigour, unassailable ethics, and access to medical innovations for all. We do this today to build a better tomorrow.” Roche has been dealing with the fallout stemming from a failure to properly report drug safety issues to regulators, including some 80,000 such documents in the U.S. In response, Roche said it was “enforcing corrective and preventive actions within the company” and "we're taking this very seriously and are working to make sure it won't happen again."

here for a list of other big pharma financial and regulatory settlements.

The political fog surrounding affordable medicines has already gotten quite thick. Former speaker of the house Newt Gingrich recently blasted Democratic plans for reforming drug pricing, backing the Republican view that the status quo is just fine, thank you. In his
op-ed, he remarked, “It…. is becoming more expensive each year to bring lifesaving new cures to market. This is because drug developers are unable to take advantage of new technology and up-to-date approaches to doing their research and, especially, their clinical trials.” Say what? Big Pharma companies, many of whom are sitting on war chests of tens of billions of dollars, can’t afford to put the latest and greatest advances in gene editing (e.g. CRISPR) and immunotherapy to work? Newt should stick with his day job advising Donald Trump and keep his nose out of subjects he clearly knows nothing about.

Calls for drug pricing regulation during the early 1960s failed to rein in the high cost of medicines, but they did lead to
new regulations that were vehemently opposed by industry. These included a requirement that drug makers actually prove their drugs were efficacious before they could be sold. Biopharma companies are once again facing a “pay me now, or pay me later” moment. If other companies don’t follow Allergan’s lead and start self-regulating their pricing, they may find themselves constrained by legislation that they will certainly find a lot less pleasant. The scandals surrounding the behavior of Turing, Valeant, Mylan, and others have riled up consumer groups and elicited numerous calls for governmental regulation of drug pricing. Federal legislation (The Fair Drug Pricing Act) has recently been introduced that would require drug companies to justify price increases of greater than 10 percent, as well as provide a breakdown of their costs. While the federal government likely won’t succeed in passing legislation around drug pricing, the same can’t be said for the states. Vermont became the first state to require pharma firms to justify price increases on their drugs, and other states, most notably California (Proposition 61), are considering similar legislation or have it on their ballots in November.

Near the end of the courtroom military drama
A Few Good Men, Colonel Jessep (played by Jack Nicolson) makes a long speech explaining his personal philosophy. He says, “We use words like honor, code, loyalty. We use these words as the backbone of a life spent defending something…” His words ring hollow when he’s subsequently arrested for ordering the hazing of a young soldier that led to his death; he clearly doesn’t recognize the hypocritical tenor of his speech. Words, pledges, and covenants are meaningful; they give us an opportunity to judge the character of the individuals and organizations that express them. Those who truly demonstrate integrity will live by their words, whereas others will be exposed as hypocrites when they fail to live up to their promises. Keep this in mind when you examine the integrity of pharma company covenants as well as the candidates who seek the highest office in our country. Put your trust in those who do the best job of keeping their word, and hold everyone accountable for their actions. Integrity still counts.

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