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AMGEN INC.

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Special Report: Big Pharma wages stealth war on drug price watchdog

09/11/2020 | 09:00am EST
A pedestrian passes Novartis' Institutes for Biomedical Research in Cambridge

As evidence grew this spring that the drug remdesivir was helping COVID-19 patients, some Wall Street investors bet on analysts' estimates that its maker, Gilead Sciences Inc, could charge up to $10,000 (7,806 pounds) for the treatment.

Then a small but increasingly influential drug-pricing research organization, the Institute for Clinical and Economic Review (ICER), said the treatment only justified a price between $2,800 and $5,000. Shortly after, Gilead announced it would charge about $3,100 for a five-day treatment and $5,700 for ten days - in line with the ICER recommendation.

The episode illustrates the growing power of the Boston-based nonprofit to hold down U.S. drug prices. Over the past five years, ICER has pressured drugmakers to lower the cost of nearly 100 drugs. It aims to play a similar role with emerging COVID-19 treatments and vaccines. Health insurers increasingly use ICER's fair-value analyses to limit access to expensive drugs or to negotiate steeper discounts with drugmakers.

(For a graphic on drugs ICER has rated overpriced, click https://graphics.reuters.com/USA-DRUGPRICING-LOBBYING/0100B5JY41G/index.html)

The industry has moved aggressively to combat the threat to its profits in two ways: With open criticism of ICER's formula and with a stealthier campaign to undermine its credibility through proxies, including veterans' groups and organizations that claim to advocate for patients but have ties to the pharmaceutical industry, Reuters found in a review of industry connections and funding among groups targeting ICER.

Two such groups - the Partnership to Improve Patient Care (PIPC) and Value our Health - are led by employees of Thorn Run Partners, a Washington-based lobbying and public relations firm that counts nearly a dozen drugmakers as clients. PIPC denied it is part of a larger industry-financed proxy campaign to undermine ICER's impact. Thorn Run declined to comment, and Value Our Health did not respond to inquiries.

As remdesivir gained momentum, PIPC complained to ICER in a June letter that its methodology, which examines how a drug improves patient quality of life, was unfair for COVID-19 drugs. It also held a webinar for patients criticizing ICER's methods.

The group's chairman, former U.S. Democratic Representative Tony Coelho, argued in the letter that ICER's methods yield a flawed value assessment for COVID-19 drugs that could lead insurers or government programs to limit coverage to the elderly and people with disabilities because ICER's formula attributes a lower value to their medicines than those for healthier patients. In a statement to Reuters, Coelho attacked ICER's formula as a flawed "one-size-fits-all assessment."

Gilead also pushed ICER for a higher price during its remdesivir review. The firm told Reuters that ICER's assessment failed to consider savings from shorter hospital stays and underestimated how much insurers or the government would be willing to pay.

Remdesivir is the only COVID-19 treatment ICER has assessed so far. Steven Pearson, a Harvard academic who started ICER, said it will likely review more coronavirus treatments if they make it to market, including potentially those being developed by Regeneron and Eli Lilly and Co that use antibodies to generate an immune response. The two companies declined to comment.

ICER's assessments are not used to deny care to patients based on their health, Pearson said. Rather, the formula helps insurers or government programs choose the most cost-effective treatment for a specific condition, based on its price and benefit in providing a better quality of life. Pearson pointed out that the formula has long been used in the health systems of countries including England, Canada, the Netherlands and Sweden.

"We don't think of them as hotbeds of discrimination against sick people," he said, "and neither are we."

(Graphic: Overpriced drugs? - https://graphics.reuters.com/USA-DRUGPRICING-LOBBYING/0100B5JY41G/index.html)

PHONY GRASSROOTS CAMPAIGN

The industry has followed the same playbook before: soliciting criticism from outside groups - some of which it finances or staffs - to create the impression of a broad-based patient uprising against ICER's pricing assessments rather than an industry push to protect profits.

Last year, ICER invited input as it revamped its assessment methods. Two of more than 50 comment letters came from six California veterans' groups, who blasted an ICER contract with the U.S. Department of Veterans Affairs (VA), saying its formula denies veterans care and "inherently discriminates" against people with disabilities.

But no one from the veterans' groups wrote the complaints. Officials from the organizations told Reuters they lent their names to letters that were composed instead by Peter Conaty, the pharmaceutical industry's go-to lobbyist in California. A half dozen health policy specialists told Reuters that the veterans' complaints look like part of an "astroturf" campaign - a phony grassroots movement backed by corporate interests. Conaty did not respond to requests for comment.

Such under-the-radar PR efforts underscore the industry's determination to protect its pricing power in an era when expensive new drug therapies are increasingly under fire for their role in soaring U.S. healthcare costs. The battle for influence over drug prices could have far-reaching effects on consumers, insurers, employers and the government, industry and policy experts said.

Matt Eyles, president of insurance lobby America's Health Insurance Plans, said ICER plays a key role in holding down "out of control" drug prices. "Big Pharma is doing everything in its power - including pushing other groups to levy false claims of analytical bias and discrimination - to undermine ICER's long history of independence and its commitment to bringing value into drug pricing."

The VA, which covers health care for more than 9 million people - veterans and their family members - started using ICER drug-value assessments in 2017 to negotiate lower prices with pharmaceutical firms. VA spokeswoman Ndidi Mojay said the agency uses ICER's research for those negotiations but not to limit treatments. The VA strives to provide veterans the best possible care and taxpayers the best value, Mojay said.

"ICER helps the department do just that," she said.

PRICING QUALITY OF LIFE

ICER uses a decades-old formula called the quality-adjusted life year (QALY) - the cost of one year of good health for one patient - to estimate fair value. European nations have long used QALY to guide their drug coverage, and ICER defends it as the gold standard.

The organization is filling a void left by the federal government, which does not negotiate drug prices for Medicare, the healthcare program for disabled and older Americans, and Medicaid, which serves the poor. Pharmaceutical industry representatives say they fear that ICER is slowly taking over that function for the government and insurers. Congress banned the Medicare program from using QALY to evaluate drug prices in the 2010 Affordable Care Act - known as Obamacare - after the industry lobbied for such a provision.

The industry's largest U.S. trade group - the Pharmaceutical Research and Manufacturers of America, or PhRMA - has publicly criticized ICER's formula as undervaluing drugs, arguing it fails to consider certain patient benefits, such as the ability to return to work. Randy Burkholder, one of PhRMA's top lobbyists, called the method "fundamentally and intractably" flawed in an interview. The National Pharmaceutical Council, an industry-financed research group, has regularly criticized ICER in the media, arguing drugmakers will invest less in future treatments if ICER's recommendations limit prices.

Groups including PIPC are parroting the industry arguments while claiming to represent patients - without disclosing their industry ties, according to a Reuters review of the groups' press releases, blogs, webcasts and letters. Value our Health - which has been represented by Shea McCarthy, a Thorn Run public relations partner and lobbyist - is one of a half dozen organizations who has regularly flooded health and policy journalists with emails lambasting ICER.

Sara van Geertruyden, PIPC's executive director, is also a Thorn Run public relations partner. She said the group advocates for patients and denied that PIPC is a proxy for pharmaceutical-industry interests or that it has concealed its industry ties. She blasted ICER as a "payer-focused" organization delivering skewed assessments that allow insurers to deny patients access to drugs. "Is it any surprise patients would be concerned?" she asked.

Nicole Longo, spokeswoman for the PhRMA trade group, did not answer detailed questions from Reuters about whether it was directing a campaign through proxies to undermine ICER. Longo provided PhRMA's comments to ICER on its remdesivir pricing assessment, which called its methodology biased and "designed to devalue remdesivir and other COVID-19 treatments."

The National Pharmaceutical Council's Interim Chief Executive Officer Robert DuBois said that it does not advocate or lobby for the drug industry. ICER's methodology is an inaccurate measure that does not fully account for how a drug helps patients or society, he said.

In January, after ICER called new sickle cell treatments too pricey in a draft report, Value our Health, PIPC and sickle-cell patient groups pushed patients and caregivers to report disease-related costs to ICER to "help ICER put a price tag" on sickle-cell expenses. ICER postponed the review process due to COVID-19 and has not issued a final report.

Last fall, Reuters reported that CVS Health Corp, one of the biggest U.S. pharmacy benefit managers, decided to scale back a new program for employers that would exclude coverage of drugs that ICER says are not cost effective. The move followed a pressure campaign by PIPC against CVS. At the time, CVS cited fierce criticism from patient groups as the reason for backtracking. CVS Chief Medical Officer Troy Brennan said, in a statement to Reuters, that CVS still uses ICER's analyses in a drug-coverage plan for its own employees and a small number of other clients.

The PhRMA Foundation - the trade group's nonprofit public health advocacy arm - has spent $3 million on research into alternative methods of determining a drug's value, according to foundation announcements. Foundation President Eileen Cannon said that the foundation consults with PhRMA, the industry group, but makes decisions on academic grants independently.

ICER responds to industry accusations of discrimination by arguing that its review process is flexible and considers additional measures besides QALY when warranted. As an example, ICER points to its verdict on Luxturna, an $850,000-per-patient gene therapy from Spark Therapeutics Inc, now part of Roche Holding AG. Luxturna improves the sight of children who have a rare genetic disease causing blindness. Though the QALY numbers did not support that price, ICER determined that Luxturna was cost-effective because it reduced the burden on the children's' caregivers.

PhRMA director of policy Lauren Neves the Luxturna example was an exception to ICER's typical practice.

DRIVING DOWN DRUG PRICES, PROFITS

ICER started focusing on drug prices in 2015 and has since evaluated nearly 100 treatments, taking on those that insurers worry will raise overall health-care costs. ICER has considered only a handful of those therapies to be cost-effective at full list price, and only a third to be fairly priced after considering drugmaker discounts, according to data that ICER provided to Reuters.

Big Pharma had its first big ICER problem in 2015 when the group recommended to health insurers that two new drugs to treat high cholesterol should cost about one-third of the manufacturers' prices. The analysis prompted insurers to sharply limit use of the treatments and eventually forced drugmakers Amgen Inc , Regeneron Pharmaceuticals Inc and Sanofi to slash prices. The companies declined to comment.

Today, the largest U.S. health insurers, such as Cigna Corp and CVS, use ICER findings to negotiate discounts. New York's Medicaid program has used ICER to push drug companies to lower prices, and other states are considering it.

In July, the New York state Medicaid board voted to demand that Biogen Inc sell its spinal muscular atrophy drug to the state at the ICER-prescribed price of about $77,000 for a typical year of treatments - an 80% discount off Biogen's list price.

Biogen spokeswoman Anna Robinson said that the firm disagreed with the steep discount and hoped to work with New York to ensure patients get the treatment.

PANDEMIC RAISES THE STAKES

With fewer than 30 employees and a budget of about $6 million in 2018, ICER is bankrolled mostly by Houston billionaire John Arnold, the former Enron energy trader and hedge fund owner who has taken on drug-pricing as one of many philanthropic efforts. ICER also takes money from companies on both sides of the drug-pricing debate - insurers and pharma - but says that they together provide only about 20% of its revenue.

Arnold told Reuters in an interview that he finances ICER because past efforts to foster independent drug-price analysis have been co-opted by the pharmaceutical industry and tainted by its money.

"The status quo works very well in the industry, so it is important for them to label any proposed reform as something radical and something that won't work," he said. "There is not much debate about whether the system we have to price pharmaceutical drugs is broken."

ICER's Pearson said the coronavirus pandemic has raised the importance of the organization's work as the pricing of vaccines and treatments will impact millions of Americans amid a faltering economy.

"There is a heightened public awareness and sensitivity to the risk of high prices being unfair," he said.

By Caroline Humer


© Reuters 2020
Stocks mentioned in the article
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AMGEN INC. 1.58% 245.49 Delayed Quote.6.77%
BIOGEN INC. -1.59% 275.84 Delayed Quote.12.65%
CIGNA CORPORATION -0.85% 218.9 Delayed Quote.5.15%
CVS HEALTH CORPORATION 1.61% 76.26 Delayed Quote.11.65%
ELI LILLY AND COMPANY 2.19% 190.77 Delayed Quote.12.99%
GILEAD SCIENCES, INC. 1.49% 63.33 Delayed Quote.8.70%
PEARSON PLC -0.24% 678 Delayed Quote.-0.35%
REGENERON PHARMACEUTICALS 0.00% 517.93 Delayed Quote.7.21%
ROCHE HOLDING AG 1.47% 316.65 Delayed Quote.2.48%
SANOFI 0.69% 81.53 Real-time Quote.3.60%
SPARK ENERGY, INC. -1.36% 10.85 Delayed Quote.13.38%
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Financials (USD)
Sales 2020 25 378 M - -
Net income 2020 7 218 M - -
Net Debt 2020 18 313 M - -
P/E ratio 2020 20,5x
Yield 2020 2,59%
Capitalization 143 B 143 B -
EV / Sales 2020 6,35x
EV / Sales 2021 5,95x
Nbr of Employees 23 400
Free-Float 99,8%
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Average target price 253,92 $
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Robert A. Bradway Chairman, President & Chief Executive Officer
Esteban Santos Executive Vice President-Operations
Peter H. Griffith Chief Financial Officer
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Darryl Sleep Chief Medical Officer & Senior VP-Global Medical
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