After the “pharma bro” and EpiPen, this could be the next big battle in drug pricing.
By Alexander C. Kaufman
Last year, as worries grew that Zika ― a mosquito-borne illness that can lead to devastating birth defects ― might spread north from Latin America, scientists working for the U.S. government got to work on a vaccine.
The Walter Reed Army Institute of Research, which is part of the U.S. Department of Defense, began developing the vaccine in March 2016. In September, the Army announced that it had enlisted Sanofi Pasteur, a division of the Paris-based pharmaceutical giant Sanofi, as its research partner. Sanofi was awarded a $43 million grant to conduct a second phase of trials, set to begin in early 2018. If those prove successful, the government has promised Sanofi another $130 million to conduct the third phase of trials.
But that’s not all Sanofi stands to gain if the Zika vaccine works. The Army intends to grant the company an exclusive license to sell the vaccine in the U.S., according to a notice filed in the Federal Register in December.
That arrangement has consumer watchdogs and U.S. lawmakers, including Sen.
Bernie Sanders (I-Vt.), raising the alarm. Millions of Americans of reproductive age could need this vaccine to protect against a virus that can spread through sex and cause major birth defects in the children of infected women. And Sanofi ― a company that has previously been accused of jacking up drug prices for American customers ― would be the one setting the cost of this much-anticipated vaccine.
There hasn’t been a decision on this proposed short-term monopoly, nor are the details of the deal public. At this point, there isn’t even a vaccine. But when the Army requested a fair pricing promise from Sanofi, the company rejected it. And that has plenty of people worried.
Pregnant women infected with Zika are more likely to give birth to babies with microcephaly, a rare defect that leads to small skulls and undeveloped
A monopoly in the making
Broadly speaking, what’s going on here is not unusual. The U.S. government doesn’t commonly take the lead role in developing a drug for commercial use. Often, it funds university research, and it’s the universities that grant licenses to pharmaceutical manufacturers to actually produce and sell the vaccine or drug.
While the Army led the initial research on the Zika vaccine, government
agencies don’t have the capacity to mass-produce a vaccine and distribute
it to hospitals, clinics and doctors’ offices.
At first glance, Sanofi might seem like a good choice to handle that end of the process. The company has experience developing a vaccine for dengue fever, a virus spread by the same species of mosquito that carries Zika. And it’s one of the world’s biggest vaccine makers, with the ability to produce in large volumes if the Zika virus should ever reach pandemic status.
But watchdog groups warn that granting Sanofi exclusive rights to this particular vaccine could be catastrophic. (Some 32 potential Zika vaccines are in various stages of development around the world, according to the National Institute of Allergy and Infectious Diseases. The Japanese drugmaker Takeda has also won U.S. government funding for phase one trials, albeit at much lower amounts. But it doesn’t appear to be as far along as Sanofi.)
Sanofi has a history of overcharging U.S. customers for its products. The price of its multiple sclerosis drug Aubagio is eight times higher in the U.S. than in France and the United Kingdom, according to Knowledge Ecology International, a Washington-based nonprofit that advocates for fair drug prices and government transparency. Diabetic patients sued Sanofi and two other drugmakers in January for jacking up the cost of insulin. And in April, Sanofi agreed to pay $19.8 million to settle claims that it had
overcharged the Department of Veterans Affairs for two vaccines, albeit as a result of what the company said was a clerical error caused by a computer glitch. (The company said the error led to undercharges, too.)
Critics of the deal say the U.S would lose most of its leverage to negotiate affordable prices once it granted Sanofi an exclusive license to the Zika vaccine ― which means Americans could end up paying more for a drug that their own government played a key role in creating.
“Today, the government can exert leverage, and say, ‘We’ll sign the license over to you, but first let’s talk price,’” said Jamie Love, director of KEI. “It’s harder to have that conversation after there’s only one company you can buy it from because you’ve made them a legal monopoly.”
The Army did not respond to a request for comment.
Dr. Rebekah Gee is the secretary of Louisiana’s Department of Health and
’God forbid we have an outbreak’
The prospect of the Zika virus spreading north into Louisiana, with its large mosquito population and semi-tropical climate, petrifies Dr. Rebekah Gee, the secretary of the state’s Department of Health and Hospitals.
Her department already faces a budget crisis as dwindling tax revenue and low oil prices have left the state with a $1.1 billion shortfall. Money that Congress allotted last year to deal with Zika is running out, and the Trump administration has signaled that future funding for Zika prevention may be targeted for cuts. Gee worries that if the Zika virus does spread in her state, she will have to choose between using her limited Medicaid
budget to maintain other basic health services or using it to provide vaccines for people who are, or want to become, pregnant.
Gee doesn’t want to tell low-income women and their partners that they’re on their own ― that they’d better stock up on mosquito repellent and hope for the best. “I can just imagine the panic on their faces when we tell them we can’t afford it,” she said. “How can we do that?”
Just 123 travel-related Zika cases have been reported in the States so far this year, according to the Centers for Disease Control and Prevention.
U.S. territories, including Puerto Rico, have suffered more, with roughly 500 cases this year. The island declared an end to the epidemic on June 5, but Zika transmissions in Puerto Rico are ongoing. And on the brink of summer, which is peak mosquito season, the risk of an outbreak on the mainland remains high — particularly in places like Louisiana, Texas and Florida, where other mosquito-borne diseases like dengue fever are a major health concern.
The consequences of infection can be devastating. In the continental U.S., 10 percent of pregnant women with confirmed cases of Zika gave birth to babies with brain damage or other serious health issues, according a CDC study released in April. The agency estimates that the lifetime cost of caring for a baby born with microcephaly can top $10 million.
“God forbid we have an outbreak,” Gee said. “Louisiana has the climate as well as the bugs that carry this illness. We have the perfect storm in terms of the right conditions for a Zika outbreak.”
She worries about an exclusivity agreement for a vaccine that does not specify that American consumers be charged no more than people in other industrialized countries.
“The U.S. taxpayer is by far the largest shareholder in the research of this drug,” Gee said. “To me, it’s completely irresponsible that this would then be given to a pharmaceutical company ― not even a U.S. company ― with no price protections whatsoever for the American people, including the stipulation that they’d charge us no more for this than they’d charge other countries when they paid nothing.”
Louisiana is one of the poorest states in the country, ranking 44th with a median household income of less than $46,000 a year. Gee said the state has about 540,000 low-income people of reproductive age on Medicaid. If Zika hits the state hard, anyone of reproductive age having sex ― particularly couples looking to get pregnant ― would likely want to be inoculated.
How much would that cost the Louisiana Department of Health? If Sanofi charged as little as $2 a vaccine, which isn’t her best guess, Gee said that’s $1 million she has to find. “Even if it’s $1, that’s still more than half a million.”
Sanofi will consider “social value” and affordability when it eventually sets prices, company spokeswoman Ashleigh Koss told HuffPost. She pointed out that until an outbreak actually happens, the company won’t know how many doses it will need to produce and how much it will need to charge to break even on the expensive manufacturing process. Indeed, new cases of Zika virus in South and Central America have dropped dramatically this year, making it harder to carry out vaccine trials.
Koss called it “premature to consider or predict Zika vaccine pricing.” But she added that “it is in the public-health interest to price this and other vaccines in a way that will facilitate access to and usage of a preventative vaccine.”
Rather than rely on Sanofi’s goodwill, the government could build price protections into the exclusive licensing deal it plans to strike with the company. The most direct way would be to simply set a price in the contract. Alternatively, the Army could negotiate what economists call an “advanced market commitment,” where the government agrees to buy a fixed volume of the vaccine at a price high enough to guarantee that Sanofi’s
investment is worthwhile. If the Zika outbreak proves worse than expected and the pre-purchased supply is used up, Sanofi would then be required to sell additional vaccine at production cost.
Health advocates say it’s critical to bake price protections into any vaccine deal at the start, so that a drug company can’t raise prices if an outbreak drives up demand.
“If the U.S. government gives an exclusive license to Sanofi without conditions, basically it’s a blank check to Sanofi to charge anything that they want,” said Judit Rius Sanjuan, a legal policy adviser at Doctors Without Borders. “This is completely unacceptable ― it’s fully funded by the U.S. government.”
In January, KEI led a coalition of watchdog groups, including Doctors Without Borders, in filing comments urging the Army not to grant Sanofi an exclusive patent. They argue that the pending deal might violate the Bayh-Dole Act, a 1980 law that says the government can only award a company an exclusive license on an invention arising from federally funded research if the exclusivity is “a reasonable and necessary incentive to call forth
the investment capital needed to bring the invention to practical application; or otherwise promote the invention’s utilization by the public.”
In other words, in order to justify its proposed deal with Sanofi, the Army must demonstrate that the only way to manufacture and distribute the Zika vaccine in sufficient quantities is by offering Sanofi exclusive rights. Critics of the deal say the Army hasn’t proven that.
Before President Trump makes this deal, he must guarantee that Sanofi will not turn around and gouge American consumers.
Sen. Bernie Sanders (I-Vt.)
An ounce of prevention
Opposition to the deal has been growing in recent months. In February, Rep. Jan Schakowsky (D-Ill.) and 10 other House Democrats sent a letter to the Army’s acting secretary opposing the arrangement. Sanders, for his part, thrust the deal into the national spotlight in a March 10 New York Times op-ed calling on President Donald Trump to fulfill his promise to “make only the best deals on behalf of the American people” by securing price protections for the Zika vaccine.
“Before President Trump makes this deal, he must guarantee that Sanofi will not turn around and gouge American consumers, Medicare and Medicaid or our military when it sells the vaccine,” Sanders wrote. “Unfortunately, the likelihood is that Sanofi will engage in exactly this predatory behavior ― because it’s happened before.”
Sanders pointed to the prostate cancer drug Xtandi as an example. The drug was developed at the University of California, Los Angeles, with government grants and support from the Army and the National Institutes of Health ― but then the government transferred the patent to Astellas Pharma, which now charges U.S. patients $129,000 a year for the drug. In Canada, Sanders noted, “the same drug costs just $30,000 because, unlike the United States, Canada regulates drug prices.”
“It is unacceptable that Sanofi has rejected the Army’s request for fair pricing,” Sanders told HuffPost. “American taxpayers have already spent more than $1 billion on Zika research and prevention efforts, including millions to develop this vaccine. Americans should not be forced to pay the highest prices in the world for a critical vaccine we paid to help develop.”
Sanofi’s president of research and development fired back in a letter to the editor on March 21. Elias Zerhouni, a former NIH director under President George W. Bush, defended the deal. He said Sanofi “would make significant milestone and royalty payments” to the Army lab responsible for the vaccine, “allowing the United States government to recoup its investment.”
The pressure for an affordably priced vaccine grew when the CDC alerted state health officials in April that federal funding for Zika prevention could run out by summertime. The following month, the House passed the American Health Care Act, which the Congressional Budget Office estimates would eliminate insurance coverage for roughly 23 million people. If anything like that bill manages to pass the Senate, there will be a whole lot more people who would need publicly funded vaccines.
With the federal government preparing to step back, the cost of obtaining the vaccine for low-income people would likely fall on state and local health departments. Louisiana Gov. John Bel Edwards (D) wrote the Defense Department last month to warn that granting a single company an effective monopoly on the Zika vaccine without any price constraints “could cripple state budgets and threaten public health.”
“No one should have to worry about their child being born with microcephaly or other birth defects, and certainly no one should have to face that frightening prospect simply because the vaccine is unaffordable,” Edwards wrote.
Pharmaceutical industry representatives argue that concern over public image ― presumably including public backlash over tragic stories of brain-damaged babies ― is already forcing companies to discipline their own pricing. “This isn’t something the government can solve, because it isn’t a bright line — it’s a facts-and-circumstance test,” Allergan CEO Brent Saunders told CNBC’s “Closing Bell” last September. “And so I’d rather industry self-police, which is what Allergan is doing.”
But such self-policing has a checkered record in other areas of business, and it’s hardly a widespread practice in the pharmaceutical industry. In 2015, Martin Shkreli, then CEO of Turing Pharmaceuticals, jacked up the price of a drug used to treat AIDS patients from $13.50 a tablet to $750. Last year, Mylan Inc. hiked the price of a two-pack of EpiPens from $100 to $500. Despite public outcry, inflating the price of lifesaving drugs
“The incentives for any one company to raise its prices or engage in questionable conduct are quite high, while the incentives for the industry as a whole to corral and police its members are really quite difficult to see,” said Rachel Sachs, an associate law professor at Washington University in St. Louis. “The best thing the industry can do to help itself is to tie its own hands in some of these very public deals.”
To be sure, Sanofi has expressed sensitivity to concerns about price
gouging. The company said it would cap price increases for its product at
5.4 percent this year, with a few exceptions. It also said it benchmarks
prices to the national health expenditures growth projection, a figure
calculated by the U.S. Department of Health and Human Services. The
Institute for Clinical and Economic Review, a drug price watchdog, praised
Sanofi’s multiple sclerosis drug alemtuzumab, sold under the brand name
Lemtrada, as a “good value.”
What makes the Zika vaccine different is the extent to which U.S. taxpayers have already funded it, said John Gruber, an economics professor at the Massachusetts Institute of Technology. “Saying to Sanofi, ‘We’ve taken all the risk and development, and we’re going to let you make a lot of money off this,’” Gruber said, “that’s just crazy.”
Until the federal government takes action, however, health officials like Gee are left to wait and worry.
“The American people, with their money, developed this vaccine,” she said. “It’s not like the company went out, did the research, innovated and did this out of the goodness of its heart. To me, it’s inconceivable that the American people would pay for this and we’d have no protection whatsoever that we’d receive the benefit.”