A Nuanced View of the World of Drug Development & its Value to Society

It’s not every day that you have the opportunity to play audience to a preeminent biotech company’s chief executive (in Boston it’s more like every other day), so I couldn’t pass it up when I learned Genzyme CEO David Meeker, MD, would be sitting down with Boston Globe Life Sciences Reporter Robert Weisman for a “fireside chat” (hold the fire) hosted by the MIT Enterprise Forum at the Broad Institute of MIT & Harvard in Cambridge’s Kendall Square. Equally compelling was the thought provoking topic of conversation; “The Value of Drug Development: Can Society Afford Today’s New Wonder Drugs?” Given Dr. Meeker’s previous clinical and academic accomplishments as former Director of the Pulmonary Critical Care Fellowship at the Cleveland Clinic and Assistant Professor at Ohio State University, plus a variety of high-level managerial undertakings with Genzyme prior to becoming CEO, he seemed uniquely positioned to offer a nuanced take on the world of drug development and its value to society.

The drug industry, well represented in this part of town centered on Kendall Square, over its history has played the part of the regular scapegoat for all that is wrong with big business in America. A lifesaving drug might fill a void by addressing a formerly untreatable disease, but with price tags that are known to reach into the five-six digits for an annual regimen, it’s hard to say simply if this is an overall net positive for society. One can’t help but think it might be exchanging one problem for another – now your disease is under control, but your finances aren’t. And how does this look on a societal level with all the different players involved – payers, providers, regulators, patients, etc.? Very quickly we begin to find ourselves in a tangled mess.

Luckily, on this occasion, Dr. Meeker was there to help us sort this out. In particular, he provided insights on a critical piece of the equation: How do drug companies come to price their drugs? Far from an expert on the matter, what I will share is in many ways a shorthand for the intricate process that takes place, as I offer a summary of the discussion from that night:

The drug pricing picture takes initial form with a few key considerations: the cost of development for bringing the drug to market, the prevalence of the condition it’s designed to treat, and the comparative clinical value that the drug provides. In the rare disease world that Genzyme occupies, treatments can sometimes have a target population of less than 10,000 (an example being Gaucher’s disease, for which Genzyme offers several treatment options priced at $300k/yr.) In these cases, for a company to recoup its investments from their sales of the drug and continue to produce innovative treatments, can it only work out if the drug carries a six-figure price tag? Lacking many of the elements of a market system (namely no competitor drugs and “customers” having no choice as to whether or not they have a given condition), how does one arrive at a “fair price” – where all sides win? The payers, e.g. CMS and private insurers, play a key part here, as they take on the role of determining coverage and negotiating what’s reasonable in terms of price (though the exact mechanisms through which these processes take place can differ from country to country). The payers also shield patients from much of the financial burden of affording a given treatment – though in the US, it’s still not too uncommon for patients to face a sizeable enough bill to make me take pause.

As we look to the numbers we see that drugs account for roughly 10% of total health expenditures. So it might be fair to say they’re given a disproportionate amount of the attention when it comes to what drives overall costs to the system. Dr. Meeker also noted that payers typically turn over larger chunks of the cost of drugs to patients compared with hospital care, as average coinsurance coverage amounts to 19% and 5%, respectively. One is left to wonder what sort of effect these types of cost sharing breakdowns have on the system. Is this the best means for extracting the most value from our treatments?

As I find myself mapping out the connections between many of the different players involved, I realize that painting the picture of modern healthcare quickly becomes an overly complex task. For one, a static representation won’t suffice given the lightning pace at which innovation proceeds and the system adapts. 

Looking forward, Dr. Meeker offered his thoughts on some of the major developments that he felt could have broad implications for how we develop and eventually pay for our treatments. Firstly, he acknowledged that the market for biosimilars (generic versions of biologics) is on the horizon with the EU and US having recently laid the regulatory framework for new approvals in this area. This could dramatically impact price as the number of different treatment options for a given condition could multiply rapidly, and lend itself to a price war between new arrivals and off-patent originators. Of similar importance is the healthcare system’s present shift to value-based payment models focused on clinical outcomes. With changing incentives underway, it will be interesting to see how cost structures evolve in the coming years. Similarly, the advancement of more precise means for categorizing conditions and calibrating treatments, what many call “precision medicine”, could also further segment drug markets, as treatments cater to indications comprising smaller and smaller patient cohorts, and affect overall costs.

Coming away from the talk, I was almost dizzy from the number of different thoughts I had swimming around in my head – the primary challenge was to keep it all straight. A task that I think many working in healthcare can relate to. An ever-changing, increasingly complex healthcare system lends itself to many a challenge in organization and coordination, but it’s undeniable the amazing outcomes it can produce – the “wonder drugs” of today being the closest thing our society has to modern miracles. With all the attention paid to big pharma and biotech, due or undue, it’s worth bringing light to the importance that the other players in the system play in creating the types of medical innovations that save lives. Without a piece of it, the whole system might falter. So while the question of whether our drugs are too expensive is fair, one should not expect the answer to fall neatly between binary lines (good or bad). More appropriately, a nuanced view is called for – what should be a far from surprising result in the worlds of health and healthcare.