ICYMI: Another Reason to Address Patent Reform — Two Studies Show Contrary to Rhetoric, Big Pharma Pads Profits Over Innovation

IN CASE YOU MISSED IT: This morning, Politico Pro and STAT News published two must-read reports from the Campaign for Sustainable Rx Pricing and researchers at Brigham and Women’s Hospital that highlight the negative impact Big Pharma continues to have on the ability of American patients to access innovative treatments and affordable generic drug alternatives. Both reports found that large pharmaceutical companies are not regularly investing their soaring profits into new cures, as they claim, but instead choosing to channel their earnings into share buybacks that boost stock prices.

Big Pharma often justifies their gaming of the patents system with claims that it is necessary to fund innovation, but today’s studies, combined with reporting from Reuters that drugmaker Sanofi SA is ending its research efforts in diabetes and cardiovascular diseases to increase profits, cast significant doubt on whether these excess profits are being used to benefit future patients. This is another reason why the U.S. should pass patent reform.

Key excerpts:

  • Ten U.S. biopharmaceutical companies channeled a windfall from the 2017 Tax Cuts and Jobs Act into dividends and share buybacks to boost stock rather than research and development, according to a new analysis by the Campaign for Sustainable Rx Pricing. Dividends and buybacks increased by 112 percent in the following year while R&D spending went up just 6.4 percent according to data from S&P Capital IQ analyzed by the advocacy group. IF the spending on dividends and share repurchases — a common way to boost stock prices — went to R&D instead, CSRxP estimates there would have been a $51 billion boost to research. — Politico Pro
  • Large pharmaceutical companies did not actually invent most of the drugs they sell. Indeed, it appears they have already reduced their investment in the discovery of new medicines to the point where the threat of additional reductions rings hollow and is no longer a persuasive reason for opposing legislation to lower drug prices. — STAT News

If Congress is serious about lowering prescription drug prices in a bipartisan manner, then they should look to patent reform as a key area where Big Pharma can be reined in. CAPA stands ready to work with all parties in Congress to end Big Pharma’s abuse of the patent system.

Below are links and full text of the articles:

Prescription Pulse—Pelosi Plan Hits Internal Roadblocks With Progressives [Excerpt]
Politico Pro, December 10, 2019

REPORT: U.S. BIOPHARMA SPENT TAX WINDFALL ON SHAREHOLDERS — Ten U.S. biopharmaceutical companies channeled a windfall from the 2017 Tax Cuts and Jobs Act into dividends and share buybacks to boost stock rather than research and development, according to a new analysis by the Campaign for Sustainable Rx Pricing.

Dividends and buybacks increased by 112 percent in the following year while R&D spending went up just 6.4 percent according to data from S&P Capital IQ analyzed by the advocacy group. IF the spending on dividends and share repurchases — a common way to boost stock prices — went to R&D instead, CSRxP estimates there would have been a $51 billion boost to research.

Do Large Pharma Companies Provide Drug Development Innovation? Our Analysis Says No
STAT News, December 10, 2019

Large pharmaceutical companies oppose legislation being considered by Congress to lower the prices of prescription drugs. Reducing their revenues, they contend, will reduce their investment in drug development and the discovery of new medicines, and thus lead to a decline in drug innovation.

If that argument is credible, there should be evidence to show that the large pharmaceutical companies are responsible for discovering innovative new drugs.

To test that claim, we examined the provenance of the highest-selling prescription medicines of Pfizer and Johnson & Johnson, the two largest pharmaceutical and biotechnology companies in 2018.

We found that these large pharmaceutical companies did not actually invent most of the drugs they sell. Indeed, it appears they have already reduced their investment in the discovery of new medicines to the point where the threat of additional reductions rings hollow and is no longer a persuasive reason for opposing legislation to lower drug prices.

Pfizer’s and J&J’s annual reports identify the medications that account for most of each company’s sales of prescription drugs. We gathered information on the discovery and early development of these products from peer-reviewed publications, media reports, and company press releases.

We scoured the companies’ 2017 annual reports. A total of 62 products — 44 from Pfizer and 18 from J&J — were listed in them. The discovery and early development work were conducted in house for just 10 of Pfizer’s 44 products (23%), as listed in Table 1. Only two of J&J’s 18 leading products (11%) were discovered in house, as shown in Table 2.

For example, sildenafil, the phosphodiesterase inhibitor that is the active compound in the erectile dysfunction drug Viagra and the pulmonary hypertension drug Revatio, was synthesized at Pfizer in the 1980s, originally as a cardiovascular medicine. Research leading to the development of risperidone (Risperdal), one of several newer-generation atypical antipsychotic drugs, began at J&J in the 1980s.

The majority (81%) of other products were discovered and initially developed by third parties. Some of them came to Pfizer and J&J from the acquisition of other pharmaceutical companies. For example, Pfizer’s highest-selling product, Prevnar 13, a vaccine for pneumococcal disease, was developed at Wyeth, which Pfizer acquired in 2009. Pfizer’s palbociclib (Ibrance), used to treat breast cancer, had its origins at Warner-Lambert and Onyx Pharmaceuticals. J&J’s rivaroxaban (Xarelto), an anticoagulant, originated at Bayer.

Research leading to the discovery and development of other Pfizer and J&J drugs originated in universities and academic centers. J&J’s highest-selling product, infliximab (Remicade), is a monoclonal antibody that was synthesized by researchers at New York University in 1989 in collaboration with the biotechnology company Centocor. The original work showing its efficacy in rheumatoid arthritis was led by Marc Feldmann and Ravinder Maini at Imperial College London.

Etanercept (Enbrel), tofacitinib (Xeljanz), darunavir (Prezista), and daratumumab (Darzalex) are other products for which key discovery or development steps occurred in academic settings.

The 34 Pfizer products discovered by third parties accounted for 86% of the $37.6 billion in revenue that its 44 leading products generated. The 16 J&J products invented elsewhere accounted for 89% of the $31.4 billion that its 18 leading products generated. Clearly, the existence of Pfizer and J&J as profitable pharmaceutical manufacturers is dependent on the acquisition of drugs invented by third parties.

Our finding that few of the top-selling drugs made by Pfizer and J&J had been discovered in-house complements a recent Government Accounting Office report examining where large pharmaceutical companies spend most of their research dollars. It is also consistent with the latest member survey conducted by PhRMA, which indicated that last year only $13 billion was spent on preclinical studies — the basic and translational science that is the foundation for the discovery of innovative drugs.

That is only a fraction of the $39.2 billion taxpayers spent to support the medical research conducted by the National Institutes of Health. More than 80% of the NIH’s funding is awarded through almost 50,000 competitive grants to more than 300,000 researchers at 2,500+ universities, medical schools, and other research institutions in every state and around the world. While it is important to give fair consideration to the cost and risk involved in the development of new drugs, Pfizer and J&J were mostly buying drugs that had already been shown to have efficacy.

The lack of in-house innovation at Pfizer and J&J is relevant to current efforts in the Senate (S. 2543) to limit annual drug price increases to the rate of inflation, and in the House of Representatives (H.R. 3) to cap drug price increases and limit prices based on what is charged for the same drug in other developed countries.

Large pharmaceutical manufacturers have claimed that enactment of this legislation would be an “innovation killer” and trigger a “nuclear winter for the U.S. biopharmaceutical ecosystem.” And President Trump tweeted late last month that the Pelosi drug pricing bill “doesn’t do the trick. FEWER cures! FEWER treatments!”

If our findings are representative of the level of innovation at other large pharmaceutical manufacturers, a reduction in pharmaceutical revenues would not have the supposed devastating impact on the level of biopharmaceutical innovation. Rather, a reduction in revenues as a result of lower drug prices may reduce the astronomical acquisition prices now being paid by the large manufacturers to acquire innovations made by others.

But the biopharmaceutical ecosystem will continue to thrive as long as those who actually innovate are provided with the resources to do so while those who play other roles in bringing new drugs to market are fairly compensated for their contributions to those aspects of the development process.

As a recent report from the National Academies of Medicine concluded, “drugs that are not affordable are of little value and drugs that do not exist are of no value.” The problem of affordability will not be solved if Congress continues to succumb to questionable assertions by lobbyists claiming that excessively high drug prices are essential to maintaining biopharmaceutical innovation.

Passage of legislation to curb ridiculously high medication prices and price increases will not only make medicines more accessible to patients but will also reduce government expenditures on drugs by more than $345 billion dollars over 10 years, according to the Congressional Budget Office. That will enable the government to make greater investments in NIH and produce an even more robust biomedical innovation ecosystem than now exists.

Emily H. Jung is a first-year medical student at Emory School of Medicine in Atlanta and a former research assistant at the Program On Regulation, Therapeutics, And Law (PORTAL) in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital. Alfred Engelberg, J.D., is a retired pharmaceutical intellectual property attorney and philanthropist. Aaron S. Kesselheim, M.D., is a professor of medicine at Harvard Medical School and director of PORTAL. Funding for this work was provided by the Engelberg Foundation, a charitable foundation that focuses on health policy research. Kesselheim’s work is also supported by the Harvard-MIT Center for Regulatory Science and Arnold Ventures.