Ed Schoonveld

In exchange for his support of Donald Trump’s candidacy for president, Robert F. Kennedy threw his own name into the mix, and has officially been nominated by the president-elect as the as next Secretary of Health and Human Services. His stated objective is to focus on food safety, referencing the proliferation of processed foods and additives, and tackle the increase in chronic diseases.

However, given RFK’s reputation as a vaccine denier, putting him in this position could scare some. Setting RFK’s candidacy aside, is there a need to develop a better integrated policy that addresses population health issues and disease prevention with a critical look at our food supply and breaking out of food and pharmaceutical silos?

There is significant evidence that many of the ingredients in food products that we find on the shelves in supermarkets are simply unhealthy. Widespread consumption of high-fructose corn syrup has contributed to multiple health consequences, such as insulin resistance, obesity, liver disorders, and diabetes.

 Poor metabolic health has further been linked to diabetes, cancer and Alzheimer’s disease.

 Many other ingredients in our food products have been found to have a negative impact on our health. Propylene glycol, an emulsifier, is widely used in, for example, low-fat salad dressings and the main ingredient in some deodorants. It can cause very severe allergies, which do not clearly show up in allergy skin tests.

 Ironically, most of the dermatological prescription ointments used to treat the resulting eczema also contain propylene glycol. There is a long list of food ingredients that the FDA deems non-toxic, but that are, nevertheless, causing damage. California has started to ban

 a number of ingredients from public school foods and beverages. In my opinion, the FDA seems to act as a follower rather than a leader in this area.

As mentioned, metabolic disease is thought to be a major contributor in cardiovascular disease, cancer, and Alzheimer’s disease. With a third of the US population being obese, and an additional third overweight, the need for good treatments is humanistically and economically crucial. Alzheimer’s disease alone is projected to bankrupt Medicare,

 state Medicaid programs, and individual patients if effective treatments are not found.

The pharmaceutical industry has been able to provide many new treatment options for debilitating diseases. Some anti-cancer drugs have been able to significantly alter the course of the disease. Progress has been made with Alzheimer’s disease drugs as well, but we are still far off from widespread meaningful treatment solutions for these and many other diseases, some of which are believed to be primarily caused by our unhealthy lifestyles and the foods that we consume.

The glucagon-like peptide-1 (GLP-1) agonists semaglutide and high-dose liraglutide are FDA-approved drugs to help the treatment of obesity. Beyond obese patients, these drugs have helped many overweight and individuals reverse the impact of poor nutrition and lifestyle habits, but we need to ask ourselves whether weight losses are sustainable in the long term and whether they further accommodate poor diets.

Provider organizations are increasingly considering the need for social care for patients in addition to their medical treatments, emphasizing relationships between housing, social setting, and therapy outcomes. Social care programs, such as the National Diabetes Prevention Program, assist patients with getting access to food, housing, healthcare, and other social services.

On a government level, we may also need a better integration between all health-related policies, including food (FDA-approved ingredients and related communications), prevention- and treatment-focused medical care, and sports/recreational investments. Individuals have a personal responsibility to make the right choices, but today, choices may simply not be available or insufficiently communicated and incentivized. Is clear labeling enough, or should certain ingredients (such as the aforementioned high-fructose corn syrup) be banned from foods?

The pharmaceutical industry is currently benefiting from the GLP-1 hype and it may save lives of individual patients. However, what will be the longer-term impact on population health? The next generation of obesity drugs may be very safe and effective, but wouldn’t it be better if less than two-thirds of the population need them?

Ed Schoonveld is a value & access advisor for Schoonveld Advisory and author of The Price of Global Health.

1. Samuels B. Trump Says He’ll Let RFK Jr. ‘Go Wild’ on Health and Food in Potential Second Term. 

https://thehill.com/homenews/campaign/4956319-trump-says-hell-let-rfk-jr-go-wild-on-health-and-food-in-potential-second-term/

2. Mai, B.H.; Yan, L.J. The Negative and Detrimental Effects of High Fructose on the Liver, With Special Reference to Metabolic Disorders. 

 https://pubmed.ncbi.nlm.nih.gov/31213868/

Outlive: The Science of Art and Longevity.

https://www.euronews.com/green/2019/01/07/the-truth-behind-propylene-glycol#:~:text=Allergy%20risk%20of%20propylene%20glycol&text=The%20US%20Food%20and%20Drug,reported%20in%20the%20scientific%20literature

5. Wick, J.Y. And the Allergen Winner is: Propylene Glycol! 

https://www.contemporaryclinic.com/view/and-the-allergen-winner-is-propylene-glycol

6. Siegner, C. California Bans More Ingredients. 

https://www.foodbusinessnews.net/articles/26905-california-bans-more-ingredients#:~:text=Beginning%20on%20Jan.,Missouri%2C%20New%20York%20and%20Washington

7. Alzheimer’s Association’s Most Expensive Disease Handout. Alzheimer’s Association

https://act.alz.org/site/DocServer/112114_Most_Expensive_Disease_Handout.pdf?docID=40161

Articles

Is the potential of a more formal policy integration for health issues and disease prevention a scary suggestion or a good Idea?

Policy and Population Health

We all had some time to reflect on the published price reductions for the 10 drugs under the Inflation Reduction Act of 2022 (IRA). The Biden administration and the Harris election campaign claim victory, and the drug industry is relieved that the impact has been limited. On the surface, this seems like an unusual win-win. However, experience in other countries shows that once introduced, price controls become a convenient tool to address government budget overruns.

The Democratic party is celebrating its “victory over the powerful drug industry” with the institution of price controls on prescription drugs, lowering Medicare patient cost of insulin to $35 and capping total patient out-of-pocket costs to $2,000 annually. The first price reductions range from 38% to 79% discount off list price for the initial 10 drugs that are part of the initial round; these reductions go into effect in 2026.

Pharma stays muted as it realizes that the actual impact is limited in the following ways:

The negotiated discounts off list price are not much higher than the rebates companies already pay. Since the rebates are confidential, it is hard to calculate actual savings, but 

estimates it at an actual 22% discount over current net prices for the Medicare portion of sales.

 The Centers for Medicare & Medicaid Services (CMS) has exercised some restraint in its pricing demands—even though drug companies have no “negotiation” leverage—and face steep penalties for not accepting the dictated outcome.

Many of the drugs are close to patent expiration, at which time a much higher level of net price reductions automatically occurs with generic competition. 

 also argues that it hurts the generics savings that would otherwise be delivered later.

 This is consistent with experience in Europe, where generic markets have been less attractive in countries with early price controls such as France, Italy, and Spain.

With everybody seemingly happy, the IRA implementation is deemed successful.

As mentioned, the actual drug cost savings starting in 2026 will be very limited. The annual expansion of the list of price-controlled drugs will increase the impact of the program, but it will take several years before this materializes. A new administration may be very tempted to further accelerate the addition of new drugs and expansion to the private market, as already propagated by Sen. Bernie Sanders et al.

Price control laws have been introduced in virtually every high-income country. They seem to always raise the governmental appetite for deeper controls:

Formulated savings goals are hardly ever met, thus feeding appetite for more action.

It is politically much easier to tighten and expand existing controls than it is to first introduce them.

Both Democrats and Republicans have expensive new spending programs for causes that are higher on the sympathy list than pharma.

The negative impact on industry investment and availability of new treatments in the future is less concrete in people’s minds.

Predicting the future in politics is a dangerous endeavor. The attitude toward drug price controls may only be slightly different between Democratic and Republican administrations. Whether a Trump or Harris administration, it will have to deal with the impact of expiration of the 2017 Trump tax cuts at the end of 2025. Trump has also claimed to cut social security taxes, and both parties have committed to eliminating taxes on tips. Both parties also seem committed to sustaining or elevating defense spending and to protect social security, which is facing insolvency.

As a result, the pharma industry seems to be at high risk of more price control measures. Factors driving that risk include: (1) CMS has all the power to insist on deeper price cuts in the next round of negotiations; (2) a future Harris administration may expand CMS negotiations to more drugs faster and to extend it to the private market; and (3) a future Trump administration may try to repeal elements of the IRA but is not very motivated to touch the drug pricing part of it.

https://www.wsj.com/opinion/biden-drug-prices-inflation-reduction-act-pharma-cms-generics-6be3a99a

2. Schoonveld, E. In Search of the ‘Bad Guy’. 

https://www.pharmaceuticalcommerce.com/view/in-search-of-the-bad-guy-

As the dust settles on the first round of Medicare negotiations, not everything is what it seems.


Reflections on IRA Drug Pricing Negotiations

The pharmaceutical environment is changing rapidly. The Inflation Reduction Act has introduced US price controls.

 Managed care and pharmacy benefit managers have unprecedented market power, allowing them to restrict patient access for new expensive drugs and extract high rebates for undifferentiated drugs. European payers continue to tighten evidence rules. Placebo-controlled trials and single-arm trials typically don’t cut it anymore. Payers warn that evidence gaps frequently lower price and/or limit patient access. Avoiding commercial failure requires risk benefit assessments with a thorough understanding of pricing and access implications of alternative development strategies.

Large pharmas have portfolio management processes that rely on input from clinical, commercial, and access experts to make trade-offs between clinical program options. Focus is on commercial value. Smaller biotechnology firms deliver a large share of early drug innovation. How prepared are they to optimize drug development decision-making?

Biotechs are very focused on developing scientific solutions for devastating diseases. Having that expertise is an essential ingredient for drug innovation success. However, smaller biotechs tend to have limited or no commercial and access expertise in the leadership team and on the board. This can be highly problematic for two reasons:

Phase III clinical programs form the basis for marketing approval by the FDA in the US and by the EMA in Europe. However, these same trials are also the basis for access and pricing approval by payers worldwide. Payers state that wrong clinical trial design, wrong clinical comparator, inappropriate endpoint, and insufficient length of trial are common grounds for payer rejection, access restrictions, and/or inferior price. Avoiding these traps requires analysis and trade-off decisions for Phase II and Phase III trials. Many biotechs are not thinking about these until it's too late.

Biotech firms are often dependent on partnerships with—or acquisition by—large pharmas to fund Phase III development and commercialization. Negotiations focus on the asset’s commercial potential, which can be hampered by lack of evidence or value. This directly impacts pricing, access, and the ability to present strong differentiating value to prescribers. Lack of focus on these aspects can significantly lower the biotech's equity value.

Biotech organizations need to maintain a low investment burn rate, at least in the earlier stages where clinical failure rates can be high. However, it is extremely unwise to ignore the need for at least high-level commercial and access evaluations to guide development decision-making.

How can biotech companies ensure sufficient attention to access and pricing needs, while limiting investments to the essentials? Here are some general suggestions:

Periodically perform commercial/access assessments for a few clearly defined product profiles with some clinical trial design options for each new drug. Consider a range of upside and downside clinical outcome scenarios.

 Focus on a few countries that can serve as a proxy for global potential and evidence needs. While dependent on the therapy area, the list would include the US, Japan, Germany, and France.

 Consider past health technology assessment decisions in each payer system that seem most relevant as analogues for the situation; evaluate each analogue with respect to the healthcare system.

 Evaluate clinical trial design options based on projected commercial results for each trial design option under a range of outcomes and scenarios.

 Ensure that you can call on deep access expertise to guide and validate the analysis and conclusions.

In earlier phases of drug development, payer research may only be needed in cases where the analysis and the hypothesized commercial results have major uncertainties that significantly impact decision-making. Phase III clinical trial design decisions require a higher level of robustness and validation of the access/pricing assumptions through research.

1. Schoonveld, E. The IRA is Industry’s Wake Up Call. 

https://www.pharmaceuticalcommerce.com/view/the-ira-is-industry-s-wake-up-call

Balancing innovation focus with optimized decision-making.


Biotech’s Achilles’ Heel

Global price comparisons for prescription drugs continue to draw the attention of politicians, medical groups, and patient organizations. WHO and lower-income countries advocate for income-based pricing to address their low levels of affordability. However, higher-income countries systematically use lower prices around the world to lower their prices through international price referencing. Is the US subsidizing healthcare in other countries around the world? What is fair?

Given different income levels in countries around the world, the question is whether adoption of prices adjusted for gross domestic product (GDP) yields better commercial results for a drug manufacturer than a fixed price across countries (if that was even feasible given price controls). As variable production cost of most pharmaceuticals is relatively low, price adjustments to address local affordability tend to lead to a higher financial contribution to cover global infrastructure and fixed organization cost. However, the use of international price referencing by higher-income countries can pose serious challenges to this strategy.

Fair Prescription Drug Prices for Americans Act

Medicare price controls, introduced through the Inflation Reduction Act of 2022,

 did not satisfy the appetite for US government intervention in prescription drug pricing. The Fair Prescription Drug Prices for Americans Act

 was introduced on April 19, 2023. It includes regulations that the retail list price in the US for a drug or a biological product may not exceed the average retail list price for the drug or biological product among Canada, France, Germany, Italy, Japan, and the UK. This bill proposes to establish maximum US drug prices through the international price referencing principle, using prices in a basket of other countries with a lower income level without any consideration of differences in GDP between countries.

NATO countries are bound to contribute 2% of their GDP to NATO, yet only 11 of the 30 NATO member states contribute the agreed upon income-adjusted share. Former President Trump’s undiplomatic style of raising the issue with European countries was not ideal, but it did raise broader awareness that despite European concerns over Vladimir's Putin’s expansion interests beyond Ukraine, they don’t pay their fair share, even after adjustment for GDP. For drugs, we don’t accept GDP adjustments for price, while for guns, we accept that countries pay less than their GDP adjusted share.

One might ask: Why should I pay more for my medications than my friends in London or Rome? Is it fair to not pay the same? What’s the point of working hard for more income if each product is priced based on income level? On the other hand, if patients cannot afford it, then the cost of covering drug company overhead will have to be funded by the ones who can, but at even higher prices. For this reason, it makes economic and social sense to accept “differential pricing” across countries, provided that individual governments pay their fair share and don’t abuse it through price referencing and authorized importation, as recently authorized by the FDA for Florida.

Government payers use their monopsony powers to demand lower prices. Individual companies usually have no choice other than either accepting the price or staying locked out of local sales. Companies are not allowed to coordinate with other companies to break through the government’s purchasing power, as this would be deemed collusion. Just like with guns, European governments don’t pay their fair share for drugs. Many countries demand price reductions for drugs when they exceed budgets that did not adequately fund aging populations and growing healthcare needs.

,” the National Institute for Health and Care Excellence (NICE) in England has not adjusted its cost-effectiveness standard for inflation in 25 years. Canada is disallowing price premiums of new innovations based on local price levels that are founded in decades of compulsory licensing, allowing generic manufacturers to ignore patents and produce the product for a low royalty of 4% of its generic price. Fair pricing?

Rather than attacking the drug industry on its pricing, shouldn’t the US government help the industry to fight unfair price control practices that systematically leech on US subsidies, similar to lack of funding of the joint NATO task?

1. H.R.5376 - Inflation Reduction Act of 2022. Congress.gov. 

https://www.congress.gov/bill/117th-congress/house-bill/5376/text

2. S.1218 - Fair Prescription Drug Prices for Americans Act. Congress.gov. 

https://www.congress.gov/bill/118th-congress/senate-bill/1218/text

3. FDA Authorizes Florida’s Drug Importation Program. FDA. January 5, 2024. 

https://www.fda.gov/news-events/press-announcements/fda-authorizes-floridas-drug-importation-program

The impact of income-based price controls in healthcare. 