Summary of Clubhouse chat (thanks @BiotechCH)... 5 injustices in a drug NPV model... 1) <100% of patients getting drug they need due to inability to afford out of pocket costs is injustice we mustn’t accept and therefore must push for insurance reforms that lower OOP costs....
2) assumptions of continued high profitability into out-years (eg >15 years) due a drug being hard or impossible to genericize (eg biologics, esp gene therapies) have a far greater cost to society than their contribution to the NPV.
That’s b/c society’s costs are net revenues discounted at 1.5-2%/year but NPV only counts out-year profits discounted at a much higher rate (~8%). So public & Congress is right to challenge drug prices but it’s not that they are too high... it’s that they are high for too long.
Drugs going generic is the natural “price control” we’ve long had and it hasn’t hindered innovation. On the contrary, it’s spurred more innovation as pharma hunts to acquire and develop new products to replace lost revenues. So as some drugs prove too complex to go generic...
...the reform Congress should pursue to reduce costs is to ensure all drugs go generic w/o undue delay (eg reforms like Contractual Genericization that I wrote about in my book, & supported by No Patient Left Behind & many biotech innovators).
3rd injustice of drug NPV models is a steady reduction over the years in assumptions of ex-US (ie Rest of World) revenues and profits. That means these models are increasingly dependent on the US to keep them in positive territory (ie to keep a drug project worth funding).
That angers Americans. But solution is not to lower US revenues (NPVs would turn negative, innovation would cease); it’s to get other countries to pay more.
Until then, EU countries are like bad roommates, merely pitching in. Since every bit of revenues helps, you don’t want to turn them out (ie refuse to sell them drug), but if you insist on them paying the same, they will leave (ie deny their citizens access).
So you have to inspire them to see the merit in paying more for medicines. That requires diplomacy & trade agreements. NAFTA helped get Canada onboard decades ago. It’s possible. Some bills in Congress seem to recognize this.
4) If you use list prices in the model to drive revenues and subtract rebates from SG&A, then model acknowledges injustice of current system in which PBMs insist on higher list prices which they then base patient’s OOP on, drug company gets bad press for raising list price...
...yet pays rebate to PBM that PBM doesn’t return to the patient (instead padding its profits and lowering premiums, thereby making the sick subsidize the healthy). Meanwhile, net drug prices actually have been below inflation for a while, a fact Congress consistently overlook.
So public/Congress hates pharma for list prices, threatens price controls that would decimate NPVs (kill innovation), & fails to see affordability is function of OOP costs imposed by payers and that premiums are impacted by net drug prices, which aren’t actually climbing.
5th injustice of NPV models is discount rates have to increasingly take risk of price controls into account, requiring either higher prices/revenues to keep NPVs positive (which is perverse since it further raises risk of price control)...
...or we have to invest in projects with lower development costs & greater probabilities of success, which are monogenic orphan diseases (whose small numbers of patients require high prices) or lower risk reformulations of existing drugs...
...which can sometimes be important but aren’t driving the cancer moonshot or solving Alzheimer’s. We need to take real risks to make real progress. It’s costing America only 1.2% of GDP to drive that innovation, which is affordable if not dumped on patients via high OOP costs.
So if you’ve encountered these elements of a drug NPV model, then you understand some of what’s really wrong with both affordability & how America rewards innovation. If you happen to know anyone in Congress who understand’s NPVs, forward this to them.
Those who understand NPVs and discount rate arbitrage will readily recognize that the key to driving investment in progress & getting value from innovation is to reward new/better products while spending as little as necessary on old ones.
Save by cutting spending on old drugs by ensuring they go generic; that drops a company’s revenues, but it can also then cut its marketing spend, which it can’t do to offset hit of price controls on a new drug that’s not yet well known to patients and physicians.
Yes, NPV will drop a bit but that’s offset w/ even a modest revenue boost from more patients getting drug they need thanks to reduced OOP. NPV is preserved, costs reduced, more patients treated. Evident from NPV model.
Ie. society should be shifting what it spends on branded drugs towards front end of every drug’s NPV curve so that NPV is high. Money spent on old drugs doesn’t incentivize innovation much. Make ‘em go generic, don’t squash NPVs by price controlling drugs across whole NPV curve.
W/ hospitals & services costs ever climbing (they never go generic, which make them rents), we need to invest in developing drugs that keep us out of hospitals & will eventually go generic (like investing in a home mortgage so your family isn’t stuck forever in rented apartment).
Consider: Generic statins keep millions out of hospitals. If we cut rewards that make NPVs positive (justifying investment in R&D), we’ll be short-sightedly saving on mortgage payments on future generic drugs & will only end up spending far more on hospitals.
So there we have it. Tell your kids & senators. Diagnosis of what ails American healthcare and its relationship w/ drug industry... and solutions... are evident in a typical drug NPV model. Wish NPVs were taught in high school. So fundamental to life.
I should add if you made it this far, agree with these ideas, and wish others would understand these concepts so that the public and lawmakers would be more likely to support smart policies, then spread the message. Here that means retweet, with your view. Standing is essential.
By the way, these reform ideas aren’t just ideas. @NPLB_org is promoting these reforms in Washington and to the public. Check out detailed slides here (definitely read the appendix!):…

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More from @PeterKolchinsky

10 Feb
This one might tweak your brain. There would be MORE interest in developing new antibiotics if NO ONE needed them today. Huh? Yep... let’s think about it. Today, no one needs drugs for smallpox nor pandemic flu. But those have been developed precisely because... 1/18
...we KNOW that we MIGHT need them in the future. The US contracts through BARDA w/ companies to develop drugs & vaccines (commit to buying a certain number of doses/year at a guaranteed price) b/c it’s buying an insurance policy. Members of Congress understand that. 2/
Media seems to understand that. Academics understand that. Presumably the public understands that. Drugs we don’t need AT ALL today are still worth buying to have in our back pocket JUST IN CASE. Logical. It’s insurance! 3/
Read 19 tweets
4 Feb
Some people think we overpay for only incrementally better medicines. That only home runs deserve high prices. But as in baseball- most are trying as hard as they can & job is to at least get on base. Sometimes, biology allows for a home run, but it’s not the strategy.
However you reward progress, it just takes a certain level of revenues to support industry of certain size, baseball or biopharma. Not paying for singles means paying more for home runs. It means less certain employment since not every disease lends itself to big breakthroughs.
But if you offer little reward for just getting on base in, let’s say, pancreatic cancer or lupus, which are tough pitchers, then no one will bother to step up to the plates against them. Those players will only want to go up against diseases where bigger advances seem possible.
Read 25 tweets
2 Feb
Fascinated by biotech & good it can do? Interested in how industry works & innovators get funding for their ideas? RA Capital opened registration for its virtual Business of Biotech discussion Spring session. Open to students/professionals... lawmakers.…
This is part of ongoing flipped course that RA Capital hosts with lectures, slide decks, & other materials available for anyone to study online anytime... & periodically we host Zooms w/ small breakouts, case studies, & in this case an optional funding pitch competition.
Note: Lots of reading, including of, since we’ll be talking about insurance, drug pricing, & how innovators & investors would be impacted by price controls.
Read 4 tweets
28 Jan
New data from Novavax vaccine just showed that UK & esp South African variants are more problematic in real world than lab experiments suggested. Implications are profound for 2021 and beyond.…
Vaccine worked well to stop original strain (96%), like mRNA vaccines, but less effective for new strains (86% for UK strain, 60% protective against South African strain). My guess is that if mRNA vaccines were tested now in a clinical trial in South Africa...
...they would show similar reduction in effectiveness. Bottom line, new SA strain has evolved SOME (not total) resistance to current vaccines. Current vaccines still help blunt severity, so worth getting even in South Africa.
Read 19 tweets
17 Jan
This new variant is making a lot of people REALLY nervous. Here’s why it should & shouldn’t. I’ll hit on infectivity, lethality, vaccine effectiveness, & some “what ifs”. Yes, it’s more infectious. That means that w/ comparable carelessness... 1/17 variant will infect more people. Once a person is infected... new variant is not more lethal (though like original strain, it’s bad enough). While not more lethal at level of individual person once they are infected, it’s more lethal at societal level b/c more infectious.
Lethality aside for a moment, not enough attention has been given to what this virus does short of killing. For example, it can rob you of sense of smell, which means taste, for weeks or months. Sound mild until you experience it- it’s a pretty miserable condition. 3/17
Read 18 tweets
24 Dec 20
Does being vaccinated mean you don’t have to wear a mask? Answer: no, mask up, please. B/c vaccine protects you from getting sick if you are exposed to virus, but it doesn’t reliably stop virus from hitching a ride in your nose & jumping to someone else. 1/6
We know the vaccines don’t entirely stop people from getting sick if exposed. They reduce risk by 95% (20-fold). But as people start mingling much more after vaccination, they increase their odds of exposure. 2/6
So think of it this way. Social distancing and masks reduce your risk of being exposed to the virus. And a vaccine reduces your risk of getting sick if you are exposed. But if you stop social distancing, you are way more likely to get exposed. 3/6
Read 6 tweets

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