Dan Morain

Dan Morain: When Big Pharma comes to town, drug costs tend to rise

Dan Morain
Dan Morain

Any time huge pharmaceutical companies descend on the Capitol, it’s a safe bet that patients are going to be paying more for the drugs they need.

That’s the likely result if Gov. Jerry Brown signs Senate Bill 598, legislation dealing with the most costly life-saving drugs that biopharmaceutics use to treat the serious diseases: cancer, multiple sclerosis, HIV and the like.

On its face, the bill by Sen. Jerry Hill, the San Mateo Democrat, is perfectly reasonable. It requires pharmacists to notify physicians if they substitute the biologic equivalent of generic drugs, known in the business as biosimilars.

The notice is intended to give doctors information if patients have bad reactions to the knockoff drugs. The Assembly approved the bill 60-4, and the Senate approved it 30-2.

“There is no upside or downside for any company. The only entity that wins is patients,” said Geoffrey Eich, who oversees regulatory affairs for Amgen, the Thousand Oaks-based company that led the effort for the bill along with Genentech, which is based in Hill’s San Francisco Peninsula district.

No doubt, the bill is about patients. It’s also about those patients’ money.

Genentech’s price for Herceptin, used to treat breast cancer, is $61,000 a year, but could cost patients – or more likely insurance companies – $70,000 after mark-ups. The Generic Pharmaceutical Association, the trade group that led the opposition, said the use of biosimilars could shave 25percent off the cost of such drugs.

Given the stakes, lobbying was intense, and both sides spread around plenty of campaign money. Genentech gave Brown’s campaign $15,000 two weeks ago; Amgen gave him $10,000 last month.

Brown has until Oct. 13 to sign or veto the bill.

Lobbying groups representing doctors supported the bill. Pharmacists opposed it. Unions that build clean rooms where the drugs are made supported it. Many other unions opposed it, as did health-insurance companies, contending that the notification provision would create an impediment to dispensing lower-cost alternatives.

“Full employment,” Hill said of the consultants and lobbyist working on SB 598. “I have been good for business.”

As often happens in such fights, no one shows all their cards. The Generic Pharmaceutical Association contends that SB598 is an underhanded attempt to discredit their products, though the U.S. Food and Drug Administration has yet to approve any of their products.

Nothing in the bill expressly limits the use of alternatives. In fact, a statute is necessary to authorize the sale of biosimilars in California. If Brown signs the bill, and if the notification requirement becomes a problem, the Legislature could revisit it in three years. Hill included a sunset date of 2017 in the bill.

If the generic industry got worked up unnecessarily, biopharmaceutical drug manufactures clearly are worried. They pushed notification bills in 17 states this year.

As part of the Affordable Care Act, Congress in 2010 authorized production of biosimilar drugs, contemplating that they would be less costly than the brand-name biologics. Unlike traditional drugs, biologics are made from live organisms.

In its most recent annual report, Amgen said it expects “to face greater competition in the United States as a result of biosimilars and downward pressure on our product prices and sales, subject to our ability to enforce our patents.”

“This additional competition could have a material adverse effect on our business and results of operations,” the company said.

Although the Generic Pharmaceutical Association led the opposition, one the bill’s leading backers is Actavis Inc. a New Jersey-based drug manufacturer that is the world’s third-largest producer of generic drugs and has a seat on the board of the Generic Pharmaceutical Association.

In a letter to legislators, Actavis’ president, Paul M. Bisaro, took the Amgen-Genentech line: “If an adverse reaction occurs, it is critical that the health care provider, manufacturer and other authorities have a clear record of which products are being used, in order to respond appropriately.”

Bisaro’s letter omitted a fact that might explain its position. According to Actavis’ most recent annual report, the company is investing up to $400million in a deal with Amgen to produce their own biosimilars.

Patient safety must be the priority of any drug company. But affordability is an issue, too, and that is relevant for any patient or taxpayer.

The California Public Employees’ Retirement System, one of the nation’s largest health care purchasers, spends $6.67billion a year on health care for 1.3million active and retired government employees.

CalPERS spends $236million annually on biologic drugs. Although specialty drugs accounted for 1.2percent of all drugs dispensed in 2011, they made up 17percent of CalPERS’ drug costs, and the costs increased 120percent between 2004 and 2011.

CalPERS CEO Anne Stausboll is urging Brown to veto the bill, saying it would impose “unnecessary physician notification requirements on pharmacists that could potentially reduce the number of prescriptions substituted with biosimilars.”

“If CalPERS is unable to realize the full savings from interchangeable biosimilar products,” Stausboll wrote, “we may ultimately be forced to raise prescription drug co-payments or health insurance premiums, shifting the increasingly unaffordable health care costs onto our employers, members and their families.”

Of course, it may come to pass that drug companies create inferior biological alternatives to the brand names. But the FDA is responsible for approving new drugs. In a statement, the FDA said Congress “set a very high bar for a biosimilar product approval.” Biosimilars must be interchangeable with brand-name drugs.

The FDA takes no position on the legislation in California or in any other state. But the agency’s statement said: “Efforts to undermine trust in these products are worrisome and represent a disservice to patients who could benefit from these lower-cost treatments.”

I have no easy answer on this issue. Patient safety must be protected. Drug costs must be contained. A requirement that pharmacists notify doctors may seem like a minor inconvenience. But there is nothing small about the stakes. When Big Pharma comes to town, costs rise.