BarrierstoCompetitionintheUS
pharmaceuticalindustry
FionaScottMorton
Lysle Boller
YaleUniversitySchoolofManagement
May2017
Background
Expendituresonpharmaceuticalsarehighandrising;therearetoomany
examplesofpricesunrelatedtovalue
• Regulationisreallyhardtogetrightwheninnovationisimportant,
innovationcostsaresunk,andmarginalcostsarelow
Þ Competitionbetweendrugsinwell-functioningmarketscanbringdown
pricesandalsogenerateinnovationthatpeoplevalue
•
•
Exactlybecausecompetitionissoeffective,manufacturersattempttoavoid
it–
– Useinfluencewithregulatorstogetregulationsthatdampencompetition
– Useinfluencewithlegislatorstopreventpro-competitivelegislation
– Utilizecreativityincomplexmarketstoreducerivalry
Motivation
• Thispaperarguesthatenablingvigorouscompetitionshouldbethe
firstresponsetotheproblemofhighpharmaspending
• Removebarrierstocompetition
– Somecreatedbymanufacturers
– Somecreatedbyscience
– Somecreatedbyregulators
• Ifregulatorspayattentiontocompetition,enhanceandenableit,
maygetlowerprices,innovation,andnoneedtoregulate
• Caveat:Paperdoesnotaddressuniquepatentedvaluable
treatments(seeearlypaperbyRichardFrank)
Specialty
35%
25%
15%
5%
Pricegrowth:
specialty/biologic
-5%
Traditional
versus
35%
small-moleculedrugs
25%
15%
5%
Utilization
Cost per Script
2016
2015
2014
2013
2012
2011
2010
2009
2008
-5%
200
180
Patent Expiry
160
Price Index
140
Generic
Exclusivity
Expiry
120
Stylizedpricepaths:
biologics(topline)
100
v
small-molecule
drugswithgeneric
entry(bottomline)
80
60
40
20
0
0
6
12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114
Months After FDA Approval
Small-Molecule Price
Biologics Price
Biologics
policy
agency
action
1) Biosimilarentryneeded
FDA
quickentryand
approveinterchangeablebiosimilars
Europehashadbiosimilars since2006.Morethan20onthemarket
todaygeneratingsignificantlylowerprices.
TheUnitedStateshas2biosimilars forsale.
FDAhasapprovedagrandtotalof5biosimilars todate(disputesover
patentsorregulatoryprocedureareblockingthesaleof3)
120
GranixMarketEntry
ZarxioMarketEntry
60
40
20
Mar-16
Sep-15
Mar-15
Sep-14
Mar-14
Sep-13
Mar-13
Sep-12
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
0
Mar-07
Impactoffirst6
monthsofgeneric
entrant(zarxio)
80
Sep-06
Impactofsecond
filgrastim brand
(granix)
Price Index (Q3 2013 = 100)
100
Biologics
policy
agency
action
1)Biosimilarentryneeded
FDA quickentryand
approveinterchangeablebiosimilars
2)Biosimilarnaming
FDA onescientificname
3)Procurement
CMS redesignjcodes
4)Orphandrugs
Leg
reform
Generics
•
•
•
•
•
•
•
Payfordelay
REMS
Producthopping
Smallmarketmonopoly
Approvaldelays
Complexproduct
Shortages
FTC
FTC
FTC
Leg
FDA
FDA
FDA
antitrustenforcement
antitrustenforcement
antitrustenforcement
importation
quickerapprovals
clearerguidelines
keepinspecting
Demandside
•
•
•
•
Ther subst PartD
Ther subst PartB
PBMcompetition
PBMincentives
CMS
CMS/Leg
FTC
FTC/Leg
relaxformularies
referencepricing
6(b)study
rebatesflowdirectly
Confidentialrebatespromotepricecompetition.
If100%ofrebatesflowbacktoplansponsor,canthennegotiatePBM
compensationfrompositionoffullinformation=>mayintensify
competition
Demandside
•
•
•
•
•
Ther subst PartD
Ther subst PartB
PBMcompetition
PBMincentives
Patientkickbacks
– Coupons
– PAPs
– Patientbenefits
CMS
CMS/Leg
FTC
FTC/Leg
relaxformularies
referencepricing
6(b)study
rebatesflowdirectly
OIG,States
IRS,CMS
OIG,CMS
ban
limit,makeunprofitable
limit,ban
Rank
1
2
3
4
Foundation
Bill & Melinda Gates Foundation
Silicon Valley Community Foundation
The Abbvie Patient Assistance Foundation
The Bristol-Myers Squibb Patient Assistance Foundation, Inc.
Total Giving
$3,439,671,894
$956,834,000
$853,356,401
$811,433,684
Johnson & Johnson Patient Assistance Foundation, Inc.
Merck Patient Assistance Program, Inc.
Genentech Access To Care Foundation
Pfizer Patient Assistance Foundation, Inc.
GlaxoSmithKline Patient Access Programs Foundation
The Atlantic Philanthropies
$711,632,110
$518,380,000
14
Ford Foundation
Lilly Cares Foundation, Inc.
Sanofi Foundation for North America
Novartis Patient Assistance Foundation, Inc.
15
The Susan Thompson Buffett Foundation
$416,440,853
5
6
7
8
9
10
11
12
13
PAP
$686,800,564
$680,278,040
$668,050,404
$625,427,284
$521,711,000
$503,299,479
$485,359,572
$456,825,176
LargestUS
foundations.
PAPsaccepttaxfreedonationsof
medicineand
thengivethem
awayasfree
samples.
Exampleintradepresstoillustratetheprofitsgainedfroma
$10millioncontributiontoaPatientAssistanceProgram
1
2
3
4
5
6
7
Charitable Contribution
Charity Overhead
Net Contribution
Market Share
Subsidized Patient Revenue
Insurer Cost Share
Revenue
8 Charitable Margin
$10,000,000
20%
$8,000,000
25%
$2,000,000
88%
$16,000,000
Notetheroleofthe
contributor’smarket
share(25%).
Then$2min“patient”copaymentgenerates$16m
ininsurerpayments.
60%
The$16minincrementalrevenueisgreaterthanthe$10m
contribution.Moreover,thecontributionissubsidizedby
thetaxpayer,asitistaxdeductible.