In the second in our series of alerts relating to drug pricing, we identify several considerations and potential actions that a pharmaceutical or biotechnology company can take to address the current headwinds impacting medical innovation at both the federal and state levels. The ultimate outcome of the 2016 elections―presidential, congressional and state―will have a tremendous impact upon any analysis of drug pricing concerns. However, several assumptions can be made, no matter the outcome, that a medical innovator can plan for now, even in advance of the election.

To begin, it is important to focus on the central drivers for the current discussions around drug pricing. In the simplest terms, the debate comes down to two primary concerns about current and projected drug prices: (1) their impact on the cost of health care, with a particular focus on Medicare and Medicaid; and (2) their impact on patients' access to drugs, and any limitations to that access created by pricing.

With respect to the first driver, policymakers at the federal and state level are acutely focused on “big ticket” products that have the potential to negatively affect the solvency of Medicaid and Medicare. The enormous benefit of breakthrough therapeutics that cure, not just treat, Hepatitis C have highlighted that the long-term positive pharmcoeconomic[1] value of eliminating the need for liver transplants, and reducing deaths, does not always negate the short-term costs of expensive highly innovative products.

With respect to the second driver, access by patients, the ever-increasing role of patient advocates and patient-centered health care has created powerful grassroots pressure against prohibitively high drug costs, which may deny the most vulnerable populations fair access to life-saving medical innovations. Somewhat ironically, the same groups and forces are the ones pressuring policymakers―including the Food and Drug Administration (FDA)―to remove unnecessary barriers to innovation.

Importantly, neither of these key drivers will be affected by the outcome of the elections.

With this background in mind, we suggest medical innovators that bring to market life-saving therapeutics, vaccines, devices and diagnostics consider the following actions to ensure the current drug pricing debate, and potential ensuing policy changes, do not stifle innovation:

  1. Do your homework upfront before investment. Even with the issue of drug pricing front and center, innovators are not considering the impact of pricing early enough in the investment cycle. Historically, investors often took the view that, when it comes to medicine, if the product works and is approved by the FDA, the product will be “correctly” priced and reimbursed, yielding a reasonable return for investors.

    However, investors now include health outcome, performance, regulatory strategy and pricing as critical decision points when making an investment decision. They therefore need to understand who will pay for the product and how much they'll pay, regardless of whether the technology is a therapeutic, diagnostic or device. Early engagement with an expert in reimbursement and commercial pricing would serve all investors well, including those looking to invest in medicine early in development, to determine whether return on investment is realistic.
  2. Closely monitor and take a role in policy changes. As discussed in our last alert, the Obama administration and Congress, as well as governors and state legislatures, are under tremendous fiscal pressure to address drug pricing, due both to the first driver of cost and political pressure, and to the second driver of patient advocates/access. Extraordinary actions such as invoking federal “march-in” rights have been proposed. As we have noted, for the most part, these proposals have been rebuffed.

    However, without the voice of innovators being heard early and often, the industry as a whole is at grave risk. Significantly, these issues, such as the role of the Bayh-Dole Act, are heavily nuanced and rather complicated. Thus, it is essential to work with an expert in the relevant field, in order to ensure that the political and public relations positions taken by innovators are well grounded.
  3. Consider all implications before going to market. If an innovator has not considered all aspects of pricing early, including reimbursement and the impact upon federal programs, it is essential that all such considerations be analyzed concurrent with completing development of any medical product. Obviously, the economic analysis and business case issues familiar to any commercial entity prior to launch of a product are well known and often considered. However, the better-prepared innovators must take extra steps. These includes early engagement with patient advocates and consideration of the increasing role of a patient-centered, outcome-based private and public health care system.

    It is also critical to examine your footing to defend those positions administratively (through the regulatory process), legislatively (through the political process) and legally (through the courts). All three of these pillars must be thoroughly analyzed and considered, of course along with a traditional marketing and public relations strategy. Given that the issue of drug pricing is at the forefront of the minds of federal and state policymakers, ensuring an early and comprehensive analysis of your actions, and of the likely reactions by regulators, lawmakers and the courts, is key to success.