#17 - Drug regulation, both disappointing and digital

Trump’s big drug pricing speech underwhelms, and an evaluation of the prospects of digital therapeutics.

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The healthcare world sat still for a moment on Friday afternoon as President Trump finally delivered his thrice-rescheduled speech on drug prices. Behind a podium bearing the words “Lower Drug Prices for Americans,” Trump officially unveiled his administration’s blueprint for doing just that. 

The real question lingering was just how aggressive Trump would be in battling big pharma, an industry he railed against throughout the campaign, even going so far as to accuse them of "getting away with murder.” By the time the speech concluded, it was clear that big pharma, and PBMs, biotechs, and everyone else in the drug supply chain, had little to worry about. 

The above is Express Script’s stock price on Friday. The dip at 2pm was when Trump said “We’re very much eliminating the middlemen. The middlemen became very rich. They won’t be so rich anymore.” The stock ended the day up 2.6%, with CVS Health (another giant ‘middleman’) up 3.6% overall. Investors, and the PBMs themselves, don’t see much to fear in Trump’s blueprint. 

The blueprint itself is less a set of proposed policies, and more an indication of what the administration is willing to explore in the aim of lowering drug prices. While Trump railed against middlemen while standing behind his banner, one of the changes outlined in the blueprint would actually give PBMs more control over drug negotiations for Medicare Part D beneficiaries. Other proposals would make it harder for branded pharma to prevent competitive generics from coming to market, and one of the more quizzical additions would require pharma companies to lay out the list price of a drug in any advertisements. Rather than sweeping changes, we got a vague set of modest tweaks. 

Most analysts agree that the biggest cudgel government can wield in this battle is allowing Medicare to directly negotiate drug prices; specifically, allowing Medicare to alter their formulary to not cover drugs deemed too expensive. Even if Medicare is given more agency to negotiate, as long as they’re required to cover all drugs, they’ll never have enough arrows in their quiver when battling with big pharma. 

As soon as the industry saw that this game-changing proposition wasn’t in the blueprint, stock prices crept back up and things returned to normal. Jeffries tells it best: 

Meg Tirrell@megtirrell

From JEF health-care strategiest Jared Holz, on Trump drug speech:


May 11, 2018

For more on this subject, Kaiser Health News has a good write-up

While big pharma breathed a sigh of relief as they’d avoid further regulation, let’s turn our focus to another segment of the drug industry that actually asked to be regulated: digital therapeutics. 

These are software-based therapies for real diseases and conditions. The first pure digital therapeutic to gain FDA approval, Pear Therapeutics reSET, is a 12-week program that treats addiction to stimulants, cannabis, cocaine, and alcohol. It’s delivered via smartphone. 

Natasha Singer in the NY Times:

“Reset is not the first prescription mobile medical app. The F.D.A. previously cleared software like BlueStar Rx, a prescription diabetes management app.

But Reset is different because its primary focus is not disease management. It delivers an established behavior-modification treatment for addiction — which traditionally involves face-to-face outpatient therapy — entirely in digital form. In other words, the app itself is the medicine.’

Digital therapeutics, then, are mostly about definitions. We’ve had smartphone apps that purport to help us lose weight, or manage our habits, or even exercise our brain with math problems. reSET itself is based on a decades old computer-based therapy addiction program. So then what’s the difference?

Pear Therapeutics, and their digital therapeutic counterparts Akili, Omada Health, Big Health, and others, argue that by developing their applications to achieve provable clinical outcomes, they belong in a different class than health and wellness apps. That’s why Pear approached the FDA in 2015 and asked for more regulation in this space. 

While any capable software engineer can create an app-based version of existing clinical treatment plans, it requires capital to go through the legal process of clinically verifying efficacy and applying for FDA approval. Once that’s granted, an even more intensive effort is required to convince physicians to write prescriptions for the now-controlled therapeutic. Read: a sales force with feet on the street. 

In asking for regulation, Pear was creating a competitive moat. With their $70 million in venture backing, Pear had the resources necessary to pay the costs associated with achieving FDA clearance, and to start a marketing effort to sell their therapeutics to doctors. They effectively raised the table stakes for being a serious player in digital therapeutics, and shut the door on hobbyists and partially interested players who might have effective apps, but aren’t willing or are otherwise unable to achieve clearance. 

Pear, and the other digital therapeutics companies following their lead, want to liken themselves to physically ingestible drugs as much as possible. Having regulatory scrutiny is a big signal that there are verified clinical outcomes (it doesn’t signal that their home-brewed competition necessarily lack those outcomes, it must be noted). 

While these digital therapeutics firms want to act like the old guard pharma companies, big pharma doesn’t seem to mind. Novartis just inked a deal with Pear to co-develop two new digital therapies. My estimation is that pharma’s interest is two-fold: 

First, there will never be digital therapeutics for battling cancer, or other pathologies that are purely physiological. Digital therapies, however, could help cancer patients cope with the stresses of the disease, or even with medication adherence after the fact. In this regard, digital therapies are non-threatening and most likely complimentary to traditional pharma activities. 

Secondarily, and more importantly in the near term, digital therapeutics give pharma sales rep a whole new avenue of conversation with physicians. 

Pear’s Chief Commercial Officer Alex Waldron, on his companies sales efforts: 

“As our salespeople are walking into doctors’ offices, they’re not going to be going through the same thing a pharma rep would do on a regular basis, talking about features and benefits. They’ll be doing all of that, but they’ll also be talking about how the product has gotten better since the last time the physician saw it. Was there a software update, was there a firmware update, or have we been able to take all of the efficacy data that we’ve seen from all the patients that are currently using this product and literally improve the efficacy of the product as the product continues to go on?”

This sort of rich conversation, with new things to discuss, is exactly what pharma sales reps desire. The more excuses they have to garner face time with a physician the more likely they are to make the sale. With such synergies for digital therapeutics and their pill-based cousins, I think we’ll be seeing many alliances between big pharma and digital therapeutics companies. 

In general, these new digital therapeutics seem to have turned a corner from digital health 1.0, mostly by shifting away from a direct to consumer appeal and seeking legitimacy through regulation and a more traditional therapeutic sales channel. And while they want to be treated the same as traditional pharma companies, there are a number of key differences in the digital therapeutic business model that will be interesting to dissect. Stay tuned for that in future newsletters.