Race to the Bottom: Where’s the Cavalry?

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode above!

Dan Gorenstein (DG): Welcome to Race to the Bottom, our special series on the problems undermining the generic drugs that we all rely on.

For decades, we’ve counted on generics as this kind of escape hatch from America’s very high drug prices. Yes, blockbuster, brand-name medicines make billions while they’re under monopoly. Eventually, though, generics slash prices by as much as 85%.

News Montage: In the next 14 months, 7 of the world’s 20 best-selling drugs will become available in generic form. // Generics are being shipped to pharmacies as we speak. // That’s when the price can really start to drop, going from hundreds of dollars down to $10 or $20.

DG: But for a new wave of incredibly expensive drugs, copycat competitors are struggling to deliver that same relief.

Jeremy Greene: We are not getting the price reduction that we need for the most expensive drugs ever produced in the history of mankind.

DG: Today, why this system that’s worked so well for so long is now stalling out, and what could be done to bring down the prices of these newer drugs. 

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

Part 3: Where’s the Cavalry?

At the very start of our first episode in this series, we posed this question: Will affordable, high-quality generic drugs continue to be there when we need them?

So here’s the situation: The generic industry is kind of being squeezed on both sides. Intense price competition, in part, is leading to shortages for some older, cheaper drugs. We talked about that in Episode 2.

On the other end of the spectrum, newer, pricier drugs are less reliably going generic at all. Here to talk about why that is let’s welcome back Senior Producer Leslie Walker. 

Leslie, how’s it going?

Leslie Walker (LW): It’s going. Hard to believe this little race of ours is almost over.

DG: I know. This is our last episode. And this one is incredibly important because, as we were saying, the prices of these new drugs are just so high.

LW: Absolutely. Let’s set a baseline here, Dan. We’re talking about $1,000-dollar-a-shot arthritis injections, $15,000-a-month cancer treatments, and when knockoffs of these expensive drugs are slower to get to market or not as cheap as you’d hope when they do arrive, that can put patients in a tough bind.

Take this woman who I met, Candy Meyer. She’s 70 years old.

Candy Meyer (CM): I live in Norman, Oklahoma. 

LW: Though she is quick to tell you she’s a Californian at heart. And for Candy, it’s been a struggle for almost half her life to deal with really severe Crohn’s disease.

CM: They say that it’s like cobblestones in your intestines. You end up having loose stools, you know, a lot of diarrhea, abdominal pain.

LW: It’s gotten so bad for her, Dan, that it’s landed her in the hospital. She’s had to have surgery twice to remove part of her intestine, get it all reconnected. 

About seven years ago, though, Candy got lucky. In 2018, she finally found this drug, Stelara, that seemed to really keep a lot of those awful symptoms in check. But not long after finding that drug, Candy learned her insurance would stop covering basically a big chunk of the cost.

DG: And Leslie, how much was this drug going to cost her?

LW: So, at that time, depending on deductibles and all that fun insurance stuff, Candy could have been on the hook for more than $15,000 a year for this one drug. And that’s for a retired lady on a fixed income who’s got a bunch of other health care costs. 

And the threat of losing coverage for this drug totally terrified her. I mean, like I said, she’d already had to go to the hospital a couple times when she wasn’t on this drug. What could happen next?

CM: I was scared to death that I wasn’t going to be able to be on it. I don’t know what I would do if I didn’t have the drug, truthfully.

LW: And so she starts googling and actually gets lucky — finds a patient assistance program through the company that makes Stelara, J&J.

CM: It was a big relief just knowing that I could get the medication, that it wasn’t going to ruin me financially or cause me to go bankrupt.

LW: The problem here, Dan though, is that Candy realizes this assistance program turns out to be kind of this pair of golden handcuffs, because in order to keep getting that help, Candy and her husband have to stay below this pretty strict income cutoff. 

And so, Candy, who was a nurse for decades, would like to be working some still — she has to turn down offers from recruiters that she gets. And her husband, a musician, he’s passing up on gigs he could be playing. 

DG: And they’re making all of these sacrifices just so she can continue to qualify for this financial assistance to help cover the cost of the drug.

LW: Exactly. Plus, Candy said like, there’s just this cloud hanging over her life all the time, right? Like, what if this company just cuts this charity program?

CM: Are they going to still cover me? Are they going to still have the program? What if they don’t? You have to rely on the goodwill of a pharmaceutical company. 

LW: The sad irony, right, is this drug finally lets Candy live an almost normal life but its price tag is, in a way, also keeping her and her husband from enjoying that life.

CM: At one point, I thought we’d go on the road, get a big RV-type thing and he would play music and we would drive around the country. That was kind of our retirement dream, but we can’t afford to do that. I try to be positive because I know there’s a lot of people worse off but it’s just — you’d like to have a little bit of a reward at the end of a career.

LW: Here’s the thing, Dan: High-priced drugs like the one Candy is on are becoming a lot more common. There’s one study in JAMA that I found that compared new drugs that launched just back in 2008 to those launched in 2021. And the middle-of-the-road price had soared from about $2,000 per year in 2008 to over $100,000 for new drugs coming out in 2021.

DG: That’s huge. And Leslie, I know there’s several reasons why list prices have gone up so much, but can you just give us like a two-sentence primer on why?

LW: Sure, I’ll try. So, drugmakers will tell you it’s because these newer drugs are fancier, targeting rarer diseases that are tough to treat. Most economists will tell you they charge those prices because they can, and the market’s willing to go with it.

DG: I mean, this is a big deal, right? Because the higher the prices are for these new drugs — the drugs that cure cancer, fight disease, help people like Candy live a normal life — the more that we all end up paying in the form of higher monthly premiums and also more taxpayer money spent on programs like Medicare. 

LW: And, that’s exactly why, Dan, getting cheaper generic competition into these markets is more important than ever.

DG: So is the cavalry coming or what?

LW: There are some faint hoofs in the distance of the cavalry, but by and large the cavalry is either not coming at all, or when it comes, it’s arriving much more slowly or producing much smaller savings than we’re used to seeing with generics.

DG: There’s like two horses.

LW: Yeah, it’s a little bit bleak out there when it comes to the cavalry. So take the drug Candy’s on, Stelara, that drug had the market all to itself — no direct competitors — for 16 years. 

Now it’s finally expected to get some competition starting next year, but over these last 16 years, the company’s had free rein to hike the product’s price. They’ve done that so many times that it now costs around $25,000 per shot.

DG: And, Leslie, as these monopolies get longer and pricier that means when competition finally does arrive, it brings less relief for people. Like 50% off sounds like a steal, but when that discount is off $100,000, obviously it’s less rosy. 

So let’s get into why the market is so sluggish here. Where do you want to start? 

LW: There’s a few reasons that competition is taking so long to arrive here. A big one is that brand companies are basically, Dan, hoarding patents — using them to delay competition. And that’s a tactic that brand companies have been perfecting since the Hatch-Waxman Act passed back in 1984.

DG: And just to remind folks, that law created the modern generic drug industry. 

LW: Right and enshrined this process where a generic company can’t enter a market until all of a brand’s patents are either expired or ruled invalid in court. Here’s Arizona State Professor Bhaven Sampat. 

Bhaven Sampat: It created incentives for drug companies to accumulate patents, sometimes patents of dubious quality or relevance. The average number of patents per drug has more than tripled since 1984 and many of these patents have nothing at all to do with the main active ingredient on the drug.

LW: And when Bhaven says “dubious” there, Dan, he’s talking about innovations like tweaking the dosing of a drug or changing a capsule’s coating. So you basically end up with a thicket of patents that can be a real slog for generic companies to cut through. 

And there’s one other reason that many of these newer copycats are so tough to bring to market, and that’s because all the stuff that Hatch-Waxman did to clear the way for generics, those rules don’t apply to many of these new meds.

DG: What makes them different? 

LW: Well, they’re part of this very fast growing class of special drugs called biologics.

They now make up about 1 in 3 new treatments and close to half of all U.S. spending on drugs.

And because of how they’re made — from living cells, rather than just chemicals — they’re actually impossible to make identical copies of. So Congress created this whole other law that regulates these knockoffs — even gave them a special name: biosimilars.

DG: I see, “biosimilars” because they are similar but not identical.

LW: Right, now clinically, they work the same. There’s no difference for patients. But proving that, takes a ton more time and money under this other law than it does under Hatch-Waxman.

DG: So you’re saying when you’ve got to cut through all that tape and these crazy patent thickets, you’re looking at a much longer, bumpier road to market for these biosimilars.

LW: Yep and for comparison here, a typical generic costs $5 to $15 million to get to market, but generics executive Christine Baeder told me you’re looking at at least 10 times that for biosimilars — with very little guarantee you make all that money back.

Christine Baeder: Biosimilars can be $150 million to $300 million. If you don’t have a path to a clear  return on investment, why would people continue to invest?

DG: And Leslie, when Christine talks about the return on investment there, why isn’t this a slam dunk? I mean, I heard what you just said about getting into this market being hard and expensive. But you’re also telling us the brand versions of these newer drugs rake in $100,000 per patient a year. Seems like there’s plenty of money to be made — even at lower prices.

LW: The bottom line here, Dan: No matter what type of treatment we’re talking about — biologic or not — when a drug’s bringing in that much money, brands are going to fight a lot harder for that market. Take the blockbuster drug Humira, for example. At its peak, that one product was making $20 billion a year in sales. And Marta Wosinska, the Brookings economist who you know I’ve talked to a bunch for this series, here’s how she put it to me. 

Marta Wosinska: If you are a company and you have shareholders, it’s your job to protect the asset. It’s a really important asset. 

LW: And I’ve got to say, the brand drugmakers have come up with a pretty creative playbook to protect that asset. That includes things like giving patient assistance or coupons to people to keep them on these drugs. It also includes cutting these really lucrative deals with the middlemen who buy drugs on behalf of insurers and employers to keep patients on these brand drugs rather than switching them to the biosimilar. 

And in the case of Humira, that playbook worked like a charm, Dan. 

Almost two years after biosimilar competition had arrived for what was the best-selling drug in the world — lots of money to be made here — Humira still controlled more than 80% of that market.

DG: SoLeslie, when you actually stop and think about this, it reminds me a little bit of what the generic market looked like in the U.S. before Hatch-Waxman passed in 1984, where the climate is, like, completely inhospitable to generics. It’s expensive to break in. There’s no guarantee if you do break in that, you’re going to make that much money. And it’s just like, why even bother?

LW: That’s actually a really good analogy. You actually see this in the data too. If you remember, Al Engelberg back in our first episode, told us that back in the 70s there were maybe 100 drugs just basically sitting on the shelf whose patents had expired, but that no company was really interested in trying to copy for all the reasons you just laid out. It just wasn’t a good business move. 

And we’re seeing an even more severe trend with those biosimilars. The leading biosimilars trade group estimates that a whopping 86% of brand-name biologics that could have competition currently have no biosimilar under development. 

DG: Leslie, you are painting a picture of a system that sounds broken. You’ve got biosimilars struggling to take hold and all these other high-priced brand drugs that are tough to afford. 

When we come back, how this price pressure has led Washington to do the once unthinkable. 

MIDROLL

DG: Welcome back. We’re with senior reporter Leslie Walker talking about why generic drug companies are struggling to compete in this new era of much costlier, more complex brand-name drugs — drugs that can run over $100,000 dollars a year. 

So Leslie, the last time the generic industry was looking this anemic, Republicans and Democrats came together to pass one of the most sweeping pieces of health policy legislation ever: the Hatch-Waxman Act. 

What’s Washington cooking up now?

LW: Well, if Hatch-Waxman was a health reform feast, I’d say most of what we’re seeing right now are some modest appetizers. 

DG: Like a buffalo wing? You know how I feel about wings.

LW: That actually could be a good one here because a lot of the stuff that’s happening is, kind of, spicy on the outside but not all that filling. Mostly, they’re reforms that nibble at some of those more technical issues we outlined in the first half.

For example, the Federal Trade Commission has started cracking down on a small set of those patent games that brand-name companies play — the most extreme cases.

News clip: The agency is disputing more than 300 of those junk patent listings. The FTC calling some of the patents filed by these companies bogus…

LW: And Dan, the agency did in September file a lawsuit against those middlemen who sometimes cut deals with brand drugmakers to keep generics at bay. Plus Congress is looking at legislation there too.

Sen. Mullin: This isn’t working for Americans. It’s working for you all great. You guys are killing it, but if we’re talking about bringing down prices, what have y’all done to bring down prices?

LW: That was Republican Senator Markwayne Mullin of Oklahoma. 

Now, the FDA, for its part, is pushing to make it easier and cheaper for companies to prove their copies of these more complex drugs are safe and effective. If that came to pass, that could actually be a pretty big deal. 

DG: I see what you mean: a lot of we’ll sees, maybes, down-the-roads…

LW: Yup, that said, Dan, Congress did actually pass one much larger, more ambitious reform aimed at those high-priced brand-name drugs that have resisted generic competition.

Sen. Schumer: For years, the naysayers said we could never take on the big drug companies and lower the cost of prescription drugs, but now we have. 

LW: In 2022, with the passage of the Inflation Reduction Act, Democrats gave the Medicare program this major new power to slash the prices of some of the country’s costliest drugs.

Vice President Harris: We’ve finally allowed Medicare to negotiate the price of medications with big pharma companies to the benefit of 65 million Americans, at least.

LW: Now, as you know, Dan, the power is limited. It only applies to Medicare and what people on Medicare pay. And it targets just 60 drugs over the next few years, all of which have been on the market for almost a decade and likely already made billions of dollars off their monopolies.

DG: But what makes this significant is that Congress could change those limits — decide to negotiate the prices of many more drugs or much newer ones. It’s the, sort of, proverbial camel’s nose under the tent.

LW: Yeah, you know, the law departs in a big way from the free-market approach at the heart of the Hatch-Waxman Act and that other law regulating biosimilars.

DG: Right, this one-two punch of offering brand companies strong patent protections to reward them for innovating then banking on competition to kick in down the road to keep costs in check.

LW: Exactly. Instead, lawmakers are now saying look, some brand-name drugs are just too costly. Their monopolies are lasting too long.

DG: We can’t afford to wait for the cavalry.  

LW: Totally. 

DG: So Leslie, let’s go back to Candy Meyer, the 70-year-old woman you introduced us to at the top of the show, who’s really struggled under the cost of this brand-name drug for her Crohn’s.

Candy is on Medicare. So, what’s this new negotiating power going to mean for people like her?

LW: Well, her drug Stelara was actually among the first medicines whose prices Medicare negotiated. The government got a pretty nice 66% discount off the sticker price, but since Candy is on that patient assistance program, the biggest impact for her — and really anyone footing the bill for expensive prescriptions — may be a different part of the law, which starting next year, caps all seniors’ drug costs at $2,000. 

So even if Candy’s patient assistance program goes away — like she’s told me she’s worried it might — she has some protection. 

DG: Leslie, let’s zoom out as we wind down the episode. Obviously, we’re continuing to struggle with drug prices, and this Hatch-Waxman formula that’s guided our policymaking for the last 40 years — patents plus competition — is falling short.

LW: That’s right, and there are a couple of camps that have emerged here to do something about that. A lot of my sources I’d put in the nip-and-tuck category like attorney Kurt Karst. 

Kurt Karst: I think Hatch-Waxman as a general proposition, it’s a good law. It works. But it needs a bit of a facelift, probably. After 40 years, there are some parts of it that are drooping a bit. 

LW: We’re talking dangling a few more carrots for generic companies to keep them making those older, cheaper drugs, maybe knocking down a few other regulatory barriers.

Then you’ve got the big dreamers: People with ideas like say, scrapping the patent system that Hatch-Waxman cemented altogether and replacing it instead with prizes funded by the government. That’s an idea, by the way, embraced by both Bernie Sanders and some conservative economists, for what it’s worth.

DG: Love those odd bedfellow moments!

LW: As do I. But of course, Dan, any kind of reform here comes with real risks. The system you’d be messing with is built on this incredibly delicate balance that, while flawed, has produced some pretty remarkable results.

DG: Totally It’s a system that’s managed to incentivize innovation enough that we can now cure hepatitis C, manage once-killer cancers like chronic diseases, while at the same time keeping costs in check for like 90% of the prescriptions that we fill in this country. This is a pretty high bar to beat.

LW: It is and that may be part of the problem, here. Johns Hopkins history of medicine professor Jeremy Greene really drove home the point that for all of Hatch0Waxman’s success, it might have kind of blinded us to its flaws and to other, possibly better ways of getting the outcomes we all want.

Jeremy Greene: The only way we seem to be able to think about how to make prescription drugs more affordable in the United States is to wait for them to go off patent, and then just believe that the invisible hand of the market and competition will render those formerly expensive drugs now affordable and accessible. And if that’s the only way we can think about how to make innovation equitably accessible to all, we have a very limited mindset.

LW: One of the things that surprised me most during my reporting, Dan, was when Al Engelberg, the generic industry attorney who’s now retired, told me he thinks it’s time to turn the page on the very law he helped craft back in the 80s.

Al Engelberg: It was the right thing at that time. We derived a lot of public benefit from it, but we put it on this perch and made it some kind of an untouchable law. But times have changed. You have to figure out a new paradigm for new times.

LW: The stat that Al told me he finds the most damning here is that brand-name medicines, Dan, only fill 1 in 10 prescriptions in the U.S. but they account for about 85% of our total spending on drugs.

And even though we pay less for generics than most other countries, when you lump in what we also pay for brand-name drugs, then Americans overall are spending far more per person on medicines than any other country.

Engelberg: We have shifted all of the savings that we should have been seeing from a world in which 90% of scripts are being filled with a generic, we’ve shifted all that money back to pharma in the form of higher prices for newer drugs. So now, long perspective: What did we accomplish? [Laughs] Not clear.

LW: Here’s the bottom line, in my mind, after more than three months reporting on this series. On the one hand, we’re seeing all the shortages and questions around quality with those cheaper, older drugs that we talked about in Episode 2, and on the other hand, we’ve got these super long, super pricey monopolies that are making it hard for patients like Candy to get by physically and financially. These issues may be the wakeup call we need to take a hard, serious, even creative look at how to make this system work better for the next 40 years.

DG: Leslie Walker, thanks for all of your work on this series. It’s been a pleasure.

LW: Thanks, Dan.

DG: You can find all three episodes of Race to the Bottom, plus more information on the series at tradeoffs.org/racetothebottom.

I’m Dan Gorenstein. This is Tradeoffs.