Life Science Compliance Update

May 09, 2017

Biotechnology Investors Beware?

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One thing the pharmaceutical stock industry has seen over many decades is price sensitivity to small statements and comments made by those in the public eye. Recently, Jim Greenwood, President and CEO of the Biotechnology Innovation Organization (BIO), authored an article on Medium about why those working and investing in the biotechnology industry should not be concerned, industry is on a successful path forward.

Greenwood noted that while investors do not do well with uncertainty, there is now more stability and less of a likelihood that biotech markets will radically move with a just one press conference or interview.

Greenwood also refreshed our memories about the BIO “Value Campaign,” which has two goals: (1) to cultivate political allies and (2) to change the conversation on price to a conversation on value. BIO wants “people to understand that biotech companies do more than manufacture pills and biologics. They offer the most precious thing of all: more time to spend with our loved ones.”

The fact that Donald Trump wants to bring down drug prices has been made evident. However, Greenwood notes that the biopharmaceutical industry shares that goal, but believes that rather than add restrictions and regulation, a greater emphasis needs to be placed on the free market. He has seen the success of diverse CEOs who spend their time gathering information, from a variety of sources, and the correct calls they wind up making.

Greenwood notes,

For instance, some counseled the President to put at the helm of the Food & Drug Administration a leader who might take a radically different approach to drug approvals. Others advised him that it’s critical for patients and innovators for the FDA to remain the global, gold standard. The President has since nominated Scott Gottlieb, who believes we can have meaningful regulatory reform without compromising on safety or efficacy. President Trump has chosen known entities and strong free-market reformers to lead FDA and the Department of Health and Human Services. This is actionable intelligence for investors, far more so than any single Tweet or quote. There’s a saying in Washington that “personnel is policy.” Savvy investors who’ve studied the positions and credentials of President Trump’s key personnel choices are rightly confident about placing bold bets on biotechnology stocks.

Just the Facts, Ma’am

Greenwood goes on to discuss the PR gambit insurance companies and the media have partaken in, wherein they unleashed a torrent of media attacks against drug makers, enlisting universities and think tanks to help them. Patients, unfortunately, have fallen for this nonsense. They pin the fact that the insurance company is refusing to cover their medicine, thereby increasing co-pays, on the drug company instead of the insurer.

However, the national share of health care spending on medicines remains the same today as it was fifty years ago – roughly ten to fourteen percent. Greenwood notes that insurers spend a lot of time pointing the finger at industry for rising premiums, but that is not true. About 75% of insurance premium growth is driven by increasing payments to hospitals and doctors – only 17.7% of premium increases in the ACA market come from prescription drug costs.

This degree of cost-shifting is not happening in other sectors of health care. Patients have to pay just four percent of their hospital bill, on average, but insurers make them pay a cost-sharing percentage five times greater for their medicines.

Greenwood then attempts to set the record straight, noting:

First, drug companies don’t set patients’ out-of-pocket costs. Insurers do. Second, rising drug prices are not the real driver of health care costs. Medicine keeps people out of hospitals and doctor’s offices, which are the primary cost drivers.

Greenwood concludes by mentioning the roll out of www.drugcostfacts.org, a portal filled with facts (each with multiple sources), with information changing regularly, depending on what is being debated in Congress.

May 01, 2017

Drug Shortages, Pricing, and Regulatory Activity

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In a paper titled Drug Shortages, Pricing, and Regulatory Activity, Christopher Stromberg of Bates White Economic Consulting examined “the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States.” The paper explores factors such as regulatory oversight, possible market failures in pricing/reimbursement, and competition. Interestingly, a regression model run using FDA data on inspections and citations indicates a statistically significant relationship between these activities and drug shortage rates.

Drug Shortages, Pricing, and Regulatory Activity

Stromberg notes there is a distinctive and similar pattern “in the average length of ongoing drug shortages over time for both injectable and non-injectable drugs.” He also notes, “Theories that rely on Medicare reimbursement policies — such as ASP-based Medicare Part-B reimbursement — may serve to explain level differences in shortage rates, but simply don’t apply to noninjectable drugs and aren’t likely to explain the consistent pattern of change over time. Similarly, theories that rely on the specifics of generic injectable production don’t apply to non-injectables.”

Stromberg’s study looks at other explanations that have an influence on both markets. Section 3 of his article explores whether changes in quality monitoring by the FDA can be connected with shortages. He notes this “has not been given rigorous empirical treatment in the past.” But does note that there’s unlikely to be one singular cause of drug shortages, even though they mainly impact generic medications.

Effects of FDA Inspections

Later in the article, Stromberg investigates the link between FDA inspection and detection rates on shortage rates. In his previous section, Stromberg outlines changes in regulatory activity as one of the elements that is expected to have an impact on shortage rages. This is especially true in the short run because manufacturers are expected to adjust to “a new equilibrium.” Stromberg concludes that the models “presented in this section suggest a connection between FDA inspection and citation rates and drug shortages that cuts across both parenteral and non-parenteral drugs.”

FDA inspection and citation data comes from publicly-available databases on the FDA website. Specifically for this study, the database of inspections includes information on 102,160 FDA inspections. The Center for Drug Evaluation and Research (CDER) accounts for 11,410 inspections. 55%, a majority of the inspections, involves the food safety center of the FDA (CFSAN). The majority of CDER’s inspections (8,348, 73% of the 11,410 total) are listed in the “Drug Quality Assurance” (DQA) project area. The next most prevalent project area is “Bioresearch Monitoring”, which accounts for about 21% of CDER’s inspections.

“Within CDER’s DQA inspections it is worth noting that over 50% result in some kind of regulatory action. Although only 4.8% (401) of these inspections result in an ‘Official Action Indicated’ outcome, another 48% (4,011) result in ‘Voluntary Action Indicated’ — suggesting some kind of corrective action is needed, according to the FDA,” notes Stromberg.

Data was then combined with parenteral and non-parenteral shortage data, then pooled into a dataset with 300 total observations. Ultimately, the model suggests a potential effect for the relationship between FDA activity and drug shortages. Stromberg explains the “models are designed to be predictive in nature, and are used to determine if current and past FDA activity has an effect on new drug shortage reports.”

Conclusion

Stromberg offers three possibilities are offered as potentially cross-cutting explanations for shortages: market structure, regulatory activity, and pricing. One of these, regulatory activity, is explored empirically. The regression models presented in this paper identified a consistent and statistically significant predictive relationship between FDA regulatory activity in the drug market (i.e. drug quality inspections and citations) and the incidence of new drug shortages. The models tested indicate that the pattern of this relationship is generally shared across both parenteral and non-parenteral drugs. This result suggests that changes in regulatory activity may be one of the cross-cutting factors contributing to the ongoing wave of drug shortages.

Stromberg does caution against over-interpreting the results. For example, some of the models show only modest correlations. It suggests that the models may be predictive, but there is a fair amount of variation in new shortage starts which remains unexplainable by one single factor. Also, because other factors that may be important are not accounted for in these models, caution is advisable when interpreting the results presented. It is also important to recognize the economic and regulatory context of this result. Changes in FDA oversight activity may signal attempts to reestablish quality thresholds that may have eroded or that have been applied unevenly as the industry has evolved.

April 21, 2017

Dr. Stossel Corrects a Common Misconception

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Thomas P. Stossel, MD, MD (Hon), is a visiting scholar at the American Enterprise Institute and professor emeritus at Harvard Medical School, who has recently published several articles on how to remove barriers to medical innovation, and how medical innovation actually happens. This article highlights the impressive research by Dr. Stossel, supporting his position that private investment does much more to push the progress of medicine along than people think.

One article, published in the Wall Street Journal on January 5, 2017, addressed the assumption that “the root of all medical innovation is university research, primarily funded by federal grants.” He noted that the assumption is incorrect and that it is the “private economy, not the government,” that “actually discovers and develops most of the insights and products that advance health.”

The article opens with complimenting Congress for passing the 21st Century Cures Act, claiming that it “will promote medical innovation,” while at the same time telling readers to be “wary, however, of the $4 billion budget boost that the law gives to the National Institutes of Health.” In addition to his Wall Street Journal article, Dr. Stossel wrote a more in-depth article in National Affairs, arguing the same points, with more research and information embedded into the article. 

There were few findings in medical science that could significantly improve health until the late 19th and early 20th centuries, with innovation primarily coming from “physicians in universities and research institutes that were supported by philanthropy.” Dr. Stossel notes, however, that things changed after World War II when the National Institutes of Health became the major backer of medical research, changing incentives. Universities that previously lacked research operations started to develop them, and existing programs were largely expanded. As noted in Dr. Stossel’s article in National Affairs, “for decades, Congress allocated generous and growing funds to the NIH that enabled it to provide many research grants to universities. As a result, universities expanded their laboratory facilities and research faculties — and the government-academic biomedical complex, or GABC, was born.”

Since that time, improvements in health have rapidly occurred. Also during that period, funding for the National Institutes of Health has lagged behind the growth of an aging population in need of medical innovation while private investment in medicine has largely kept pace with the aging population and “is the principal engine for advancement.”

In his National Affairs article, Dr. Stossel discussed research papers submitted for publication, noting:

Although revered by academics as a quality filter, “peer review” of research papers submitted for publication (and of grants for research funding) is a flawed enterprise. As scientific journals found success in providing researchers the priority and credit they were looking for, the volume of submissions began to exceed the supply of journals’ publication space. The practice of peer review — having selected experts render opinions regarding the quality of articles submitted to journals — was designed to solve that problem. Today, electronic publication has eliminated the space problem, but a prestige hierarchy of journals has replaced it with a false scarcity. Researchers covet attention in the most prestigious journals, and the high-profile journals sustain their elevated status by arbitrarily rejecting the majority of articles submitted to them. The monopoly power of these journals, fueled by researchers’ vanity, allows indifferent editors to delay decisions about whether to publish research articles until dueling authors and reviewers come to a resolution. The referees of these disputes provide a quality of service that would be expected from the nature of the reviewers: anonymous, unpaid cronies or competitors of a paper’s authors. As a result, research data can languish in obscurity for months or years while authors work their way down the prestige pecking order and finally obtain a place to publish.

According to Dr. Stossel, more than 80% of new drug approvals originate from work solely performed in private companies and such drug approvals come on average 16 years after the beginning of clinical trials, which typically cost $2.5 billion from start to finish. Therefore, it appears even if academics and NIH really wanted to create a new drug, economic reality would get in the way.

The National Affairs article notes that, “achieving innovation requires wanting to innovate more than trying to impress reviewers of research papers or grant applications. It involves trial-and-error efforts that academic-review committees dismiss as “fishing expeditions” and that violate the scholarly premium on ‘hypothesis-driven’ studies. Success in academe also demands sticking to one’s research ‘brand.’ By contrast, innovation usually requires shifting gears to employ different technologies and experimental approaches. Such inconsistency reliably leads grant-application reviewers to discount an applicant’s qualifications.”

Dr. Stossel closes his Wall Street Journal article by stating:

Despite its exaggerated role, basic research in universities does advance human knowledge, train scientists, and contribute to medical advances—albeit uncommonly and inefficiently. But the system is unsustainable. A better approach would be to encourage academics to join with industry, where the financial resources and drive to innovate reside. Unfortunately, the biomedical complex demonizes corporations. If academic institutions stopped demeaning the activities needed to develop medical products, industry might take a greater interest in supporting their research.

Great advances in health care have been made, but there are still important challenges, from obesity to dementia. One step toward addressing them would be for Washington to adopt the right approach to medical innovation—and to stop simply throwing money at the current inefficient system.

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