Rising drug prices have caused a national outcry. A number of congressional hearings, lawsuits and bills have attempted to identify what caused or facilitated the drastic price hikes that have drained consumers, taxpayers and providers. Many argue that increasing competition in the generic-drug market will disarm abusers of the system, and one of those voices is Chip Davis, president and CEO of the Association for Accessible Medicines, the trade association for manufacturers and distributors of generic prescription drugs. Davis was previously the executive vice president for advocacy and member relations at Pharmaceutical Research and Manufacturers of America, the trade group representing branded drug manufacturers. Davis spoke with Modern Healthcare hospital operations reporter Alex Kacik. The following is an edited transcript.
Modern Healthcare: Can you talk about some of the trends influencing the market?
Chip Davis: There are a few significant issues driving things. The Harvard T.H. Chan School of Public Health issued a survey recently showing that the top domestic issue for Americans is drug prices, more so even than repealing and replacing the Affordable Care Act.
So at a time when people are understandably concerned about drug costs, generics are actually a deflationary market. From July 2016 to July 2017, our prescriptions are up 2% and our total revenue is down 13%. For the brand name manufacturers, their scripts are down 7% and their revenue is up 5%. And that's not our data, it comes from QuintilesIMS.
So for us, there are three issues: purchaser consolidation; and there's some that we call policy miscues and that includes a state passing a price-gouging bill that gives manufacturers no certainty and actually incentivizes them to get out of manufacturing low-margin products or treating brands and generics the same way for purposes of public policy.
The third is this increase that we're seeing within the context of the Hatch-Waxman Act (Drug Price Competition and Patent Term Restoration Act), which has increased anti-competitive behavior and gamesmanship with patents.
A month ago, few if any of us had spoken a lot about the St. Regis Mohawk tribe in terms of intellectual property, but now they're becoming increasingly a household name.
MH: And that patent issue is being challenged.
Davis: Yes. We co-signed a letter with a bunch of other healthcare industry stakeholders—including the American Hospital Association and the Federation of American Hospitals—and feel as if this is intellectual property inversion.
The good news is Sen. Orrin Hatch is still in the Senate. Go ask him if when they were putting Hatch-Waxman together three decades ago they ever envisioned Native American tribal sovereign immunity getting involved in patent disputes.
(Editor's note: In September, Allergan paid the St. Regis Mohawk tribe in New York $13.75 million and promised $15 million annually thereafter for turning over six patents for Restasis. Allergan's lawyers said the move meant the patents enjoyed "sovereign immunity" against patent reviews and blocked generic competition. On Oct. 16, a federal judge invalidated the patents.)
MH: If there is a patent loophole, this could open the floodgates.
Davis: You have to look at some of these policy miscues. You have the biggest drug in the world in terms of revenue. Humira makes the same amount of money in one year that the National Football League makes—all 32 teams. In the last three years, leading up to the expiration of their main ingredient, AbbVie filed 50 more patents against that product.
Allergan also just settled with another biologic company that will essentially keep Restasis free from competition in the marketplace. Someone did a study suggesting that Allergan could see $11 billion more in revenue if this arrangement with the Native American tribe is allowed to stand and keep Restasis free of competition until 2024.
The question is, do we want a political and policy environment that either tolerates this on one level or goes even further and supports it?
MH: Are there ways to mitigate this issue?
Davis: Yes. It's probably a series of steps that have to take place. One would be the Creating and Restoring Equal Access to Equivalent Samples Act (CREATES), which would allow for the legitimate fair market value sale of samples to be done.
Another thing we have to do is figure out how, when a company is filing as many late-stage patents as they are, make sure there's heightened scrutiny associated with it.
MH: What kind of signals have you seen from the Trump administration?
Davis: When he was campaigning, through the transition period and then early on in his tenure, the president made it clear that he was committed to do things associated with prescription drug prices. From our perspective, what Food and Drug Administration Commissioner Dr. Scott Gottlieb has done is consistent with that. I would actually argue that from the administration's point of view no one has been more forward-leaning in that space than Gottlieb. He has moved at a much quicker pace than anything Congress has been considering.
We believe that he is a really important public health official; he's actually referred to drug costs as being a public health issue. We're hoping that the more he raises the focus and visibility from his position of leadership that more and more people will take the issue into account.
MH: What kind of activity are you seeing around pay-for-delay arrangements?
Davis: It's an issue of patent settlements. The brand company sues to enforce its patents. The company will settle with the generic maker and oftentimes says, "You agree not to come to market until X date" down the road.
Ultimately, our view on patent settlements—pay for delay—is that it can't be looked at within a vacuum. In an environment where anti-competitive practices are increasing on the brand side, it's one of the only ways that our companies actually have certainty on a date in which they can actually go to the market even if it's a lot later than what they had originally hoped for. So in our conversations with proponents of prohibiting these types of things, we've actually said we think it's an increasing symptom of a larger problem. If that's the one you're going to remove from us without addressing the larger issues, then you're going to put even more uncertainty into the generic business model at a time when it is in dire need of more certainty, not less.
MH: What's your take on off-patent generics where you are seeing really sharp price increases?
Davis: The key issue there is the lack of competition. What we need to do is make sure that there's the right level of incentives not just for generics to stay in the market once they get there, but that there's a sufficient incentive for companies to go through the process of filing with the FDA and the FDA is going to accelerate the review process.
MH: What role do pharmacy benefit managers play in all of this?
Davis: There's some variance between brands and generics. The PBM role is very clear: They will negotiate the rebate and discount on behalf of the plan or payer. In a monopolized market, the manufacturer is the one with leverage in terms of price.
So there's a big debate going on between the brands and the PBMs, and the PBMs are saying, "The brands are the ones actually setting the price," and the brands are saying, "You're forcing us to take the price increases because of the extraction."
There's some merit on both sides. In a generic market, which is a commodities market by and large, there's different dynamics and different leverage. Who is in the position of almost being quasi-monopolistic? It's the buyers. So for our companies, their list price, the wholesale acquisition cost. But there's only three buyers. You can think whatever you want about where you are going to price your product at, but the buyer is going to tell you what they're willing to pay and then you're going to have to make a decision as to whether or not you agree to that.
Is PBMs' interest in the generic space increasing? I think the answer to that is yes. Is it to the degree historically that it's been on the branded side? Not yet.
There was an interesting study done recently by the USC Schaeffer Center for Health Policy & Economics. They were able to discern who along the supply chain is making what for every hundred dollars. For the generic manufacturer, its margin is about one-third of that of the brand. And, by way of comparison, the pharmacy take from that $100 script is actually more than the generic manufacturer takes home and tenfold more for a branded drug.
So again, this reflects the reality that when policymakers are being told by their constituents to do something and they rush to judgment saying we're going to treat the entire industry the same way, that's a failure to recognize how these two markets operate.