FTC fears bely a larger tension between pharma, governments

This week I spent two days in New York City hearing from a parade of leaders from the pharma world opining on some of the biggest trends in the business, courtesy of the Financial Times’ live events business. It was a packed two days, filled with representatives from nearly every major global pharma company, and nearly every session ended with a robust audience Q&A.

The timing of the event was auspicious. Right as the event got underway, the news broke that the FTC was moving to block Amgen’s $28 billion dollar acquisition of Horizon Therapeutics. Although Amgen CEO Robert Bradway, who was interviewed during the event, couldn’t really comment, plenty of others weighed in, giving a clear snapshot of pharma’s response to the news. 

The conversation about the FTC fit neatly into a larger narrative that pervaded the event about government intervention in the pharma market – including discussion of European patent law and the US Inflation Reduction Act (IRA). The resulting conversation, about striking the balance between affordability and accessibility of drugs and ensuring that the financial conditions exist to promote pharmaceutical innovation, cut to the heart of one of the most important cultural debates in the pharma world.

Individual patients are angry about their drug prices being too high, and governments are eager to be seen as solving those problems. And, at least in theory, pharmaceutical makers are onboard with the idea of lower prices. With some efforts, like a US cap on insulin prices, pharma companies have cooperated to help solve the problem.

The case against government price-regulation efforts

But the concern among pharma – or at least the company line – is that various measures that affect their ability to make a profit off of drugs will also chill pharmaceutical innovation. 

The argument about the Inflation Reduction Act concerns the Medicare negotiation provisions, which the government calls negotiation and the pharma industry calls government price-setting. Pharma argues that it needs to be able to control the prices of its own drugs in order to balance its books when it comes to R&D.

R&D timelines are long, the argument goes, and the clock on patent expiration starts long before a drug hits the market. Drug companies have a limited time to recoup their investment in not only that drug’s R&D, but also R&D for the drugs that don’t make it to market. And the only way that pharma companies and investors will make those big bets is if they have confidence of a big pay-out. Limit those pay-outs and the bets stop – which means less innovation.

The concern around government intervening in M&A is of a similar nature: biotech investors rely on big buyouts from pharma companies to get their outsized returns. And biotech investing is very high-risk, high-reward. The CEO of Regeneron, Leonard Schleifer, said at the event that his company lost billions of dollars from a rotating slate of investors he likened to a relay race before finally making it big during COVID-19.

"A lot of people thought our strategy was to become an overnight success, and we did become an overnight success - after 25 years," he quipped. 

In today’s world, pharma companies rely on M&A to be competitive in emerging therapies – letting small biotechs take the early-stage risks allows them to keep their risk profile much smaller, while not missing out on crucial areas of innovation. And the hope of a big pharma buy-out keeps the biotech start-up scene crowded and the biotech investments streaming in.

So, in both cases there is a cogent argument to be made that limiting pharma’s ability to make a profit can hamper funding for costly, long-timeline research efforts, ultimately having a chilling effect on pharmaceutical innovation. And this works out well for pharma executives, who can frame these conversations in terms of innovation, instead of in terms of profits. 

Robert Burkholder, VP of policy and research at PhRMA, went as far as to describe the IRA as a law “that says we should treat preferentially one group of patients - the ones who need medicine today - at the expense of patients who need medicine tomorrow.”

The government’s side of the IRA argument is self-evident: patients can’t afford their medications and pharma companies have failed to solve that problem on their own, and so the government is stepping in to protect the most valuable patients. Though less clear-cut, the Amgen merger block, too, looks like it comes down to drug affordability concerns. The FTC’s concerns, around drug bundling and rebates, are the same forces that have been found to greatly inflate drug prices.

Most likely the reality is that these policies will affect innovation, but not to the sky-is-falling extent PhRMA and its constituents want us to believe. That’s the finding of the non-partisan Congressional Budget Office, when it comes to the IRA, anyway. It’s too early to tell the effect the FTC action will have on pharma dealmaking.

But whatever happens, pharma isn’t making mountains out of molehills here. Policy efforts that target a few drugs today, if they succeed in lowering prices, will be followed up by policy efforts that target more drugs tomorrow. One unexpected FTC action could signal a strategy shift by the agency. And when it comes to markets, the fear of regulation can be nearly as powerful as regulation itself. 

The America question

There’s another dimension to this conflict that needs to be pointed out: it is the United States that is the battleground for this fight. Americans pay dramatically more for their prescription drugs than anyone else in the world. Patients (and governments) rightly ask: if R&D and innovation are the reasons drugs are so expensive, why is the United States subsidising innovation that benefits the whole world?

Or is it that pharma has already lost this battle elsewhere, and now the United States is the last place left where they can charge high prices, forcing them to fight tooth and nail against US legislation or policy change that would bring it in line with other nations?

At the event, pharma execs pointed out that in Europe and other countries considerably fewer new drugs are available. In essence, comparing the United States to Europe proves their thesis about innovation. 

“We very much believe in the future of Europe and have a strong desire to see Europe continue to be a place where innovation can flourish,” Teresa Graham, the new CEO of Switzerland-based Roche Pharmaceuticals, stated at the event. “That having been said, if you look back 20 years ago, the US attracted about $2 billion more in research and development than Europe. Today the US attracts $25 billion more than Europe in innovation funding. It will ultimately lose the ability to be competitive if we don’t think about the entire system that we’re shaping.”

At the end of the day, building a sustainable pharma business that both makes drugs available to patients and funds ongoing research into new cures and treatments is a global problem that will require a global solution. Whatever equilibrium there is to be found will have to work for everyone – including the world’s poorest countries, where the need for some life-saving drugs is highest.

Breaking through the dichotomy

The outcome of the actual courts remains to be seen, but in the court of public opinion, this may not be a fight pharma can win. Even with the reframe – affordability vs innovation – the emotional resonance of real people suffering or dying because they don’t have access to the drugs they need will always trump worries about fewer new drugs coming to market. As Merith Basey, executive director of Patients for Affordable Drugs, said at the event: it doesn’t matter if there are more new drugs if patients can’t even afford the old ones.

During the Q&A with Amgen’s Bradway, I asked him how we could have both innovation and affordable drugs, recognising that a “pick one” approach was not really acceptable to anyone.

His answer highlighted a few of the areas where pharma is the most willing to play ball on drug prices – promoting less expensive generics and biosimilars; exploring value-based pricing for expensive drugs; and targeting the middlemen who increase prices artificially. 

“The fundamental challenge is to stand by the value of what we create,” he said. “There are a lot of possible solutions, but it needs to happen under an umbrella of a healthy ecosystem that supports innovation." 

These are all promising approaches to some degree, but I'm skeptical that any creative solution is going to result in significantly lower drug prices without some impact on pharma’s profits and, by extension, internal and external investment in R&D. Right now, pharma is fighting a defensive battle on multiple fronts, trying to maintain a lucrative status quo in the face of a nationally-recognised drug affordability crisis. 

But they aren’t the bad guys here, or at least they don’t need to be. Behind the charged rhetoric are two groups who are passionate about helping patients – policymakers, who want patients to have access to the lifesaving treatments available now, and a pharma industry that wants to be able to keep making new and better treatments. 

For the patients caught in the middle, all they can do is hope these two groups can find a way to work together in good faith.