Drug R&D Public Funding – The Next Level Of Price Transparency Policies?

French lawmakers are setting the scene for a showdown with manufacturers defending their drug prices with R&D investment figures.

A couple of years ago, I was warning my readers about the fallacy of defending drug prices with drug R&D (Research & Development) investment figures. My point was rather simple – when you’re seating in front of a public payer defending the price of your new product, don’t bring up your R&D investment, because it might backfire. Payers, in general, believe that you have benefited from direct and indirect public funding to progress your asset- tax credits, private-public partnerships, subsidies, etc. Using this argument in price negotiation would then be double counting. Or double-dipping. That blog post was an instant hit that went viral, and companies stopped communicating on R&D investment to defend their new product pricing altogether. [pause]. Just kidding. If anything, that line of communication just grew bigger and bigger. And now, French lawmakers are setting the scene for that backfire I was warning you about.

On this Thanksgiving week, while many of us are turkey-shopping, there is no holiday for Members of Parliament in France. To my utmost surprise, a bill mandating manufacturers to communicate to France’s Drug Price Setting Committee (CEPS) how much public funding they received throughout their product R&D, was adopted. The initial bill prepared by the far-left-wing of Parliament was foreseeing a direct link between the figure and the negotiated price. The final version was softened by the MPs from the presidential majority, making it a transparency requirement only, not a new – and probably impossible to implement – price-setting mechanism.

So what does it mean in practice? What motivated the bill and what is the ultimate goal French MPs are trying to achieve? Can this spill over to other markets and what would be the consequences? Here are some – probably speculative – elements of an answer.


Why the Bill and why now?

As French MPs are legislating on multiple aspects of the 2020 Social Security Financing Law, proposals for more transparency on drug pricing emanated from all parts of the hemicycle. The novelty this year is the desire to go above and beyond the usual demand for more transparency on gross and net prices with the disclosure of public funds that were absorbed in the product R&D process. I do not believe that this push was motivated by an in-depth analysis of macro-economic data showing a disproportionate contribution of public funds to private pharmaceutical R&D. I think it relates, as often, to a handful of prominent cases of recently launched high-cost therapies. Starting with the most debated one of all – Zolgensma. In my recent Pharmaceutical Executive article on AveXis new wonder Spinal Muscular Atrophy treatment, I omitted one important fact – Zolgensma was licensed-out to AveXis by France’s Genethon, a non-profit lab funded mostly through tax-deductible donations and the French National Research Institute INSERM. In an unfortunate sequence of events, the financial terms of the deal between Genethon and AveXis were leaked by the press a few weeks before the announcement of the buy-out by Novartis and then again a few weeks before Zolgensma price in the US and France. And the figures were, respectively:

  • US$15mio (licensing deal from Genethon to AveXis)
  • US$8.7bio (buyout by Novartis)
  • US$2mio (cost of one injection in the US and France)

So how on earth can the publicly funded-Genethon have licensed out a product to a US startup for what would eventually become the revenue generated by just half a dozen patients? That’s a mystery to me, but also to a few activist MPs who took that matter up to the Minister of Health during parliamentary Q&A sessions as you can see here if you read French. And that was, with little doubt, the genesis of the bill.


What can the consequences be?

If the final much-sweetened version of the bill makes the requirement an ‘FYI’ only, there is little doubt that the final game plan is to use this data in price-setting. This is a typical backfiring of the parma industry strategy to constantly focus their pricing rhetoric on inputs – cost of R&D, cost of attrition, cost of manufacturing, short patent life, cost of labor, etc. – instead of solely focusing on outputs – the value created for patients, healthcare systems and society. If legislators and pricing authorities reach the elusive goal to reverse-correlate the price of reimbursed products to the R&D public financing efforts, the consequences will be mixed, at best. The myth of profit-hungry multinational corporations riding the coattails of virtuous government-funded biomedical research labs nested within the NIH or INSERM is indeed a myth. See for instance this fact-check in Science showing that the private sector investment in basic science outpaces the federal investment and will soon become the number 1 source of funding.

Drug discovery is no exception. Overall, the vast majority of newly approved entities will reach the patient without the direct contribution of public research institutes – 80% to 90% of them to be more specific according to this good analysis published in the New England Journal of Medicine. If in an extreme scenario, drug pricing watchdogs such as France’s CEPS believe that that the entire value of public funding into drug discovery should be taken out of reimbursed drug prices, that would lead at best to a 10% to 20% decrease in the overall value of pharmaceuticals.


Can this spillover to other markets?

Yes, most surely. In the United States, where the debate on drug pricing shows no sign of cooling off, several researchers are pointing at the chronic underestimation of the NIH’s contribution to drug discovery. If the above-cited NEJM analysis was focusing on the direct implication of the NIH in the patenting process, this other analysis takes a broader approach by including all publications on biological targets that eventually led to the discovery of a new drug. With this approach, the authors conclude that the NIH was involved in the discovery of… 100% of all FDA-approved drugs since 2010.

On a global scale, the WHO adopted earlier this year a resolution on drug transparency noting:

the importance of both public and private sector funding for research and development of health products, and seeking to improve the transparency of such funding across the value chain

During the organization’s annual assembly earlier this year, it was noted that Member States were showing various levels of support for the resolution, with strong resistance from the UK and some support from the US… but not for the cost of R&D part.


How to wrap this up and what’s next?

Honestly, I have no idea. Kudos to my home country MPs who apparently managed to debunk the problem. For me though, this is a misplaced debate that takes policymakers away from what should be their sole priority – maximizing the health of their constituents under a strict budget constraint. Here is why I believe so

French MPs are opposing public and private research while they should try to make them more symbiotic.

  • Public research vastly focuses on basic science, or upstream research – understanding the biology of what’s pathological vs. what’s normal for instance. That’s how they uncover potential treatment targets.
  • Private research focuses on how to make a drug out of these targets. They talk about ‘drugability’ (not a word a reckon). This downstream research is all about how to use those targets because this what will lead to patents and in return, revenue

It is quite logical that the latter heavily rely on the former to perform their work, and this is not a bad thing. In fact, to close the Zolgensma chapter, Genethon excels mostly at mapping the genome, identifying the faulty genes and in the case of Zogensma, even identifying the viral vector that will allow delivering the ‘corrected gene’. Where companies such as AveXis excel, is at making this promise a drug reality. Licensing out was the right thing to do.

The new French law also seems to be reflective of an outdated, static view of drug R&D. It ignores the fact that public funding of basic science is plateauing in Europe and the US while private funding is steadily growing. It ignores the emergence of new players who are in my view changing the game altogether – private foundations. Because they are largely agnostic to this futile public vs. private funding debate, they can focus on advancing their programs regardless of who provides the funds. One of the most striking examples is the Cystic Fibrosis Foundation. With and R&D ‘pipeline‘ that can stand the comparison with that of many large pharma companies, the foundation has built strong ties with the industry. They have done so because they know that their industry partners are best equipped to rapidly advance their basic science finding to becoming marketed drugs. Win-win.

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