 And I'm really pleased to introduce our keynote speaker, Dr. Peter Bach. You'll be hearing from a lot of different folks, but I have the opportunity to introduce Peter. And Peter, I hope you're going to talk about biosimilars a little bit. I hope it's not time to throw in the towel, because, well, we'll talk about it. Because we're on a ruminante, and our uptake rates are somewhere between 75 to 95%. But Peter is the director of the Center of Health Policy and Outcomes at Memorial Sloan Catering. He's also a physician, an epidemiologist, a researcher, and a health. He said a lot of things about me, so I get to say a little bit more. His work models for indicating specific pricing point-to-sale rebates and subscription-based payment for drugs. Other physicians from Sloan Catering drew attention to the high price, and that kind of got a lot of attention. He's published more articles in all of our fancy journals, like the New England Journal of Medicine, JAMA, National Academy of Medicine. Thank you, Peter. Look forward to your marks. Okay, I will talk about getting rid of biosimilars here in a second. But I want to talk about value. I was told that's what this conference was about. And I just want to lay the groundwork, if you will, regarding drug prices and how they interact with value and the other side of it, which is why value-based pricing is in the first place. So let's take a couple of things as given, or these are my jumping off points. First of all, there's a long time horizon. How long depends, of course. There's a low success rate. That varies also, but it's inarguable. It's low, if you will. Most drugs in development don't succeed to get approval. There's large capital outlays. And so all of this stuff under the current model where we depend on the for-profit sector to develop drugs, all of this stuff only will make sense and kind of come together and lead to continued innovation if the return for successes is large. And so in the U.S., we have created a very specific structure based on policy that provides this return. And what it is is temporary monopoly rights to drug innovators when they're successful. So here's a schematic that helps me at least think through how it is that money gets spent and how the reward is received for successful drug development. And this is a schematic. It's not just scale. It's not intended to kind of be added up. But those of you with a little calculus background, focus on the area under the curve. Along the y-axis is revenues to the company, and you'll note the zero mark. Along the x-axis are three cartoon periods for drug development. Innovation period, monopoly period, competitive period. And this is the, if you will, the life cycle from going from left to right of a successful drug from the perspective of revenues of the company. And remember I said the rewards need to be large for successful drug development because in the early period, this innovation period, revenues are negative. In other words, this company is spending money, not receiving it. They go through this innovation period, now moving left to right, and they reach a point where they're ready to get the drug approved, the FDA provides marketing approval to their product. At that point, revenues go positive because they're able to sell on the market. Now that monopoly period is guaranteed enshrined, if you will, in law. The FDA provides blocking of all competitors making the same product, something called exclusivity. And during that monopoly period, it's only that one company that can make and sell that drug, which gives them monopoly type pricing power. Now policy defines that that period ends at a certain time at the loss of exclusivity. Now there's patents as well. And competition enters, generic drugs, biosimilars, whatever. When that happens, from the perspective of the innovative company, revenue falls for two separate reasons. One is price pressure can cause their products price to decline as they fight for market share. It doesn't always happen. And the other is market share falls. So revenues are obviously price times quantity of sold. So both of those things cause the revenue to decline. I show this to you for a couple of reasons. One is it may be a cartoon, but I think it's probative. And it reminds us all that this isn't a free market. This isn't something naturally occurring. This is entirely a policy construct. And to make that point, I'm going to show you two policies that are also enshrined in law that directly act upon this. And we don't have to worry about all the details here. But if you look at something like the Orphan Drug Act, which is a pretty old law at this point, it acted on this. It said, hey, you need less data to get your drug approved, which means less time, which means earlier on the market. We'll give you a tax credit for your research expenses, which lowers the extent your revenues are negative during innovation. We'll give you longer exclusivities. Those things all change the shape of this. And again, little calculus actually increase the area under the curve relative to no change, right? More revenue per successful drug. We look at 21st century cures, reduce the FDA approval requirements for drugs, and loosened restrictions on off-label promotion, both things that increase the size of that reward in that monopoly period. So these are things policymakers are constantly working on. And they work on the competitive period, the Creates Act, the Senate Finance Bill to increase the ASP add-on for biosimilars. Policymakers are acting on this. And I know it's cartoon and simplistic, but it's very helpful, I find, to boil it down to this simple structure, because this is what's going on. And anyone who says this is a free market, I don't know what's the polite term in Washington for when you're not saying the truth, whatever that word is, is not a fair characterization. So now while policy defines this monopoly duration, a combination of exclusivities and policy actions upon it, as well as IP laws. The price you can charge, and therefore the revenue under that period, is unmonitored and uncontained. And some people say, well, the market acts on it, the PBMs or the counterweight, things like that, kind of. It's kind of true. But there's no guarantee within that policy structure, and policymakers have stayed away from this like a scary thing in the dark corner of a room from dealing with price. And what's happened is this. So this chart I show all the time, I think it's now in my contract, it has to be in every talk. Because it's a price of cancer drugs since the beginning of the Medicare program. In this, as close as you can get to an apples to apples comparison. Same standard month of therapy, first dose of FDA approved drugs, standard size patient, adjusted for today's dollars. And you can see this gradual rise in the cancer drugs. And again, for the math geeks in the room, the Y axis is on a log scale. So cancer drugs adjusted for everything we can think of are up 130 fold since the beginning of Medicare program for a standard dose and a standard duration of therapy. So nothing is really containing these, except if you will, the ambient price in the market that's rising much faster than inflation. There's also not anything containing prices related to value. And so in this totally unfair graph, I compare a product from the company Novartis with a product from a company called Apple. And in it, and I'm glad the flat screen TVs came up, I show in the orange curve the standardized price of an iPhone over time. So this is monthly fees for an iPhone adjusted for the processing power within the iPhone. If you will, my attempt to normalize it just like I did, cancer drug prices. And then I show the adjusted price for Gleevec over that same period of time in the US, corrected for the changes in Gleevec of which there have been none. You can see one of them, the cycle of innovation produces more and more value to consumers. Those of us who've been Apple aficionados for a long time know how much more iPhones do today than they did before. This is ignoring the network benefits of it. And anyone who knows about drugs knows that Gleevec has unchanged formulation as the exact same product and provides the same value today in each dose that it did when it first came on the market. That small downturn is a reflection of a couple of things including some generic entry. We can see the same pattern we see for Gleevec in cancer drugs. I showed you cancer drug prices before. These are drug prices adjusted, if you will, for the benefits. This is standardized to the life year's gain delivered. This is work that David Howard led. Rina Conti, who's speaking today, I don't know if she's here yet, was also an author on this paper. And this shows that if you will, when you think about what you're buying with a cancer drug, the cost of a year of life purchased, I'm sorry to speak so dispassionately about it, is about $50,000 in today's dollars for a year of life. This graph goes through 2014. The price at that point is about $250,000, if you will, declining value. And today, we're probably at about $300,000. So how does value and this effort to do value-based pricing, and I don't want to, I know Sarah Amond is here from ICER to talk about this as well. But how does it connect with drug prices? And I want to emphasize this isn't easy. This isn't because we're trying to thread a really tricky needle. The first is, I think we all collectively agree that drug innovation matters. So in Santos for it, if we're going to use this for profit model for developing drugs, matter. They have to be present. How much is uncertain? Access to innovative drugs matters on the other side. Like it actually isn't that useful to have a drug that cures diseases if nobody can afford it. So a system, which is one we currently have, in which restricting access or giving skin in the game, which is, I guess the fancy policy word for driving patients into bankruptcy because they're sick, is the go-to check on prices. And because of that, it undermines its own purpose. The goal of innovation is to complete the cycle and new therapy that will actually help people getting to them without bankrupting them. And the other constraint, unfortunately, is that money is not infinite. There are other productive uses of money at all times. And so every dollar going for a drug is a dollar that could be used for some other productive purpose. And when you cross a threshold that that other purpose is more productive is something I'm about to talk about. But even simple things like letting people keep their money, if you will. Paying less in taxes or whatever. So determining fair prices or value-based prices, and I take Tony's point that the term fair, I'm going to come back to it. Although my mom's expression was fairs only happened in the summer. So it's a similar expression. But summer's still happening till the 23rd, so we can talk about it. Is a means to balance these objectives. Here's this thing about other uses of money. Remember, we're trying to thread a tough needle. This is, again, a totally unfair slide. But we want to allocate enough to encourage innovation, but not so much we can't afford other priorities. So you can buy one dose of Kim Raya on the left, a CAR T therapy for two different indications in oncology, one in kids, one in adults. I'll come back to that, actually. Or you could buy any of these other things on the other side of the graph. A year of coverage in commercial insurance for 17 families or four. Pay six nurses for a year. Buy treated dozen pieces of current hep C, a dozen patients, a current prices for hep C treatments. Buy half a million doses of the pentavalent vaccine for those people who still believe in vaccines. But these are the trade-offs, and they're real. And we already spend twice as much as any other western country on healthcare. So this money comes from somewhere, you can't, every dollar we add to a Kim Raya payment is a dollar we're taking away. From these things, we want to focus on health. And if you want to back up further on infrastructure, transportation, education, or if you will, just leisure money. So undervalued, the question is how may value affect drug prices? So to add to the nuance, tech assessment produces a threshold price. Treatment at that price, whatever it is, might deliver one quality adjusted life year per $100,000, for instance, or 50,000 or per 150,000. That results in different prices. The reason this is appealing is because it talks about allocation. If you use 100,000 per quality, you mean you sort of made an explicit decision that health is worth that much for society on the margin. Now, it's important to know, I started by saying we want to incentivize innovation. This number doesn't actually tell us if we have the right number to incentivize innovation. That number is not known. But it's almost a certainly higher, not necessarily higher than 100,000 per quality, but higher on a relative scale to incentivize treatment for rare diseases on average than it is for treatments for common ones. Simply because revenue is the number of treatments sold times the price of the treatment. And so when people say fair prices, they mean or should mean, along with the state fair, that they're fair to society, not to drug companies. That the fairness comes with the appropriate allocation of societal resources in an efficient way to thread this very tricky needle. Incentivize innovation, make sure prices lead to affordable drugs. Give enough money that it's kind of worth it collectively for the health gains that tend to be concentrated relative to other uses of those funds. A very difficult place to find, but one very unlikely to be found naturally. And so this approach is called value-based pricing and it has two prongs. Determine a price based on a treatment's benefit. For example, manage the height of this box. If you go back to the schematic I showed earlier. Along with standards for commencement termination downward slope of that box. That's the reward or incentive for innovation. If price is managed externally or by a third party or is informed by health technology assessment, it relieves the payers from using the tool that damages access. High coinsurance, high deductibles, lots of other kinds of barriers to access that undermine the very purpose of incentivizing innovation, which is improve health. And so under value-based pricing, the thesis is that you can require payers, including Medicare or Medicaid, to cover with reduced co-payments or high quality access. Value-based pricing is not a couple of things, or actually three things, perfect. And so one of the classic, if you will, particularly in this town, standards against all innovation is perfection rather than the status quo. And so I want to always ask the question, can we do better than we're currently doing with an approach like this, not can we achieve perfection. Or at Sloan Kettering our motto is, internal motto is, we just want to suck less. Recognize, value-based pricing, recognize ensuring access. This is actually on web stream. I hope that's not being watched by our public affairs people. It also recognize ensuring access to new innovation is not something markets do well, right? In fact, we can see with something like a hep C model. And value-based pricing is not outcomes contracting, a point I'm about to come back to. So ICER is, I think, the de facto leader in doing value-based assessments, evaluating prices of new therapies with respect to available data, leading the way also on the assessment of new payment models. And there are analyses, those of us who are kind of technical geeks and these things can quibble with small points, but the macro points coming out of these reports really can't be questioned. They show just how out of alignment prices can be. And so now we've moved to a higher level sophistication than my iPhone graph, although I do think the iPhone graph makes a point. This is a table from an ICER report. The header is a piece I wrote for Bloomberg talking about New York State's fight with company Vertex over a treatment called Orkambi's price for cystic fibrosis. And just to give you a sense, the circle number is $334,000 in change. And this is ICER's estimate of the cost of Orkambi to prevent one pulmonary exacerbation, in other words, a shortness of breath coughing episode in a cystic fibrosis patient. Now, please don't misunderstand for a second, I'm not making light of that very serious complication of this very serious disease, I'm actually a pulmonologist, so I have some familiarity with this. But it puts into reference at the price Orkambi currently sells at just how much of society's money is going to prevent this non-fatal complication of the disease. And I wish nothing but for any of these patients to do great and have none of these complications. But this is how out of whack the pricing is. And it is, of course, possible in what New York State would have liked to have done is have this drug cost about $80,000 rather than about $300,000 to get the amounts of society's dollars going to it to match up with the benefits that the individual's cystic fibrosis are getting. And ICER's analysis here shows very clearly these things are out of alignment by any perspective. But ICER also shows that prices are probably not far off in some situations. So there's a lot on here, but what I want you to notice, I wish I would have circled it, I apologize, I don't know if I will laser, I don't. I'll draw your attention to the middle of the lower chart. I've put Kimraya back up here, that thing in the bag that I was talking about the trade off with nurses and the $475,000 price point. To emphasize it, ICER's analysis of Kimraya in kids with a type of leukemia called ALL actually comes in as Kimraya costing about the right amount of money. Now there's a number of assumptions and things like that that are obviously challenges when there's a very short term follow up and you're expecting a long term benefit. But these analysis does not uniformly say everything costs too much. But this word value, it's sort of getting around. I really hope this works. You can use in the word. I don't think it means what you think it means. He just said, while Sean had just said inconceivable, if you've seen the princess bride, and I don't think the word value means what people think it means either. I've tried to define it here. One start analyst started talking about value-based pricing for pharmaceuticals is a few years ago, partially spearheaded by Steve Pearson who runs ICER. Everyone started calling every pricing agreement, in fact, everything in healthcare value-based. Mortgage financing is apparently a value-based pricing approach. Outcomes arrangements are value-based pricing. The Netflix model that Mark Trisham and I developed in Louisiana and Washington are pursuing forms of is called value-based pricing. Out-of-pocket caps are called value-based pricing. So to be clear, none of those things have to do with value necessarily, although they may accidentally intersect with value. Value pricing is when the benefits of a treatment that are well characterized are mathematically aligned with the treatment's price. Buffett said something like price is what you pay, value is what you get, that if you will, it adds just this other variable. What do you get for that treatment? Now, since it's going to be simple to get to value-based pricing, I did want to talk about some of the other problems we have in the system that we would need to address along the road to making our pharmaceutical value chain work better. The first is that we have to fix prescriber incentives. This is a table, I think it's from our website, but there's some published peer-reviewed literature doing the same thing. What I'm talking about here is one of many examples in the distribution system where somebody who touches the drug makes money by doing it, and the amount of money they make is indexed or moves with the price of the drug itself. So any time you create a system where if I as a physician prescribe a $1,000 drug, I make $100, but if I prescribe a $10 drug, I make only $1. You've created a $99 incentive for me to, if you will, enjoy the benefits of the more expensive drug or prefer the drug. Now, doctors have routinely said, and I'm a doctor, so I know this to be true, we're entirely immune to incentives. But other people might be less immune, and it turns out every single study analyzing doctor prescribing of Part B drugs, drugs with ASP plus 6 add-on, so if you will, the add-on, the profit, the take-home goes up with the drug prices, every single study shows that doctors preferentially migrate to drugs and provide greater profits. And some of these are quite elegant. Actually, I think Rena's article is up here, I don't have my glasses, so I apologize. There was this wonderful or odd example of a drug going generic and then going back on brand. And so the profit margins moved with them completely, if you will, external effects. And when that happened and the profit margin went up for the drug, doctors migrated to it and when it went down for the drug, they walked away and then it went back up and they went back to it. So, I mean, sort of surgical in its accuracy, we have been unable to uncouple even the simple thing in Medicare and Obama administration took a run and now the Trump administration is doing the same. And in fact, across the supply chain, this is from a health affairs blog we published, the donut here, if you will, no, I guess the donut has a hole, the wheel here shows what the capture is in each part of this chain. With the biggest slices, of course, the manufacturers capture of drugs moving through the system and each one of these, the manufacturers, the wholesalers, the pharmacies, the PBMs, the providers, meaning doctors and hospitals, and the insurers generally, the amount they keep goes up when the total amount through the system goes up. Now, who gets what is obviously a big fight, there's some time effects here. Hep C was a huge disruption because nobody saw it coming, but had they seen it coming, everyone would have probably benefited more. But this is deeply problematic that every entity that could affect which drugs that get used or has an interest in the prices being lower because it affects all of us who kind of pay into this system is actually facing this alternative incentive. And we have to do more. Prices and pricing is not the only needed fix and now I'm going to talk about throwing in the towel on biosimilars but I'm actually just going to point to this idea. Remember that box I showed and at the end of the monopoly period, prices are supposed to go down, actually revenue is supposed to go down for innovative companies and that period is defined by law, the FDA exclusivity period, how we deal with patents, those are laws. And the experience to date around biologic drugs where we've created this thing called the biosimilar path and biosimilar entry back in the Affordable Care Act, the experience to date has been modestly successful at best. There's about 70 biologic drugs on the market, about three or four of them face any real prospect of competition. There's one example of a drug that's prices declined but nowhere close to marginal productivity or marginal cost of production, nupogen. And Mark Trusha, my colleague and I argued in health affairs in these pieces posted here and then in the Wall Street Journal a couple of weeks ago that this is a structural problem and this is based on a first principles argument, it has nothing to do with nupogen or anything like that. Competitive markets see massive price declines down to marginal cost if you will the level of profit, the ambient level of profitability in competitive markets. When there is surety of entry and switching and no cost to market entry, meaning if a biologic drug costs a lot more than it costs a company to make it and distribute it, somebody else is like, ah, profits are available, I'm going to make a copy and dive in there. And this happens with widgets if you will, happens with flat screen TVs to some extent. But we laid out the costs and the time involved to entering the market along with the regulatory uncertainty and argued that essentially these biologic drugs are natural monopolies. They will not be subjected to the kind of competition we fantasize about that exists only in textbooks but exists to some degree in every market. Instead, the right response to a natural monopoly is to simply price-regulate it. And so what we proposed was regulate the prices of biologics when their exclusivity period is over. Here's how it works. The biologic drug manufacturer, as part of their entry agreement into let's say the Medicare program when they initially get approved, is a guarantee of a long-tail production at marginal cost based on cost reporting after the exclusivity period is over. So they get their market, the big part of the box, they get their big incentive, they get their big reward, but the trade is because they have the expertise, they have the distribution, they have all the know-how, they have the most data on their product, and the flip side is they owe us, they owe society, they owe the collective that the rewards of innovation continue to accrue. And Steve Hubel will be here later today, he is commonly says, this is actually how the pharma model works. They produce these great innovations and then after a while prices fall very, very low and everyone gets the benefit. And so this is simply what we're asking for. Now price regulation of drugs is a new idea, but it's done throughout other sectors of healthcare and it's really not that scary. It's just that all of the parties who want to oppose this and say, oh no, we'll get through with biosimilars have a piece in this business. So pharma came out in the Wall Street Journal against this idea. The head of Amerisource Bergen, a wholesaler came out against this idea. And the pharma funded patient group came out against this idea. I think it's great. If everyone who has a piece of the biosimilars business is willing to go write letters saying this is a bad idea, we must be on to something. So our estimate is, and this is a table from the blog, the amount of savings, I'll sum it up here, depends on some threshold estimates of how much we could get out of the system. We'll probably save about $50 billion a year starting this year if we simply price-regulated biologics that are already past their exclusivity. So give or take half a trillion dollars in the next decade. The advocacy groups for the biosimilars, who of course go up on Hill and say we should keep going with biosimilars, estimate we'll save $50 billion over a decade. In other words, one-tenth of what we'd save. So that's the idea. Thank you very much. I will leave you with this tweet from the former CEO of Pfizer who identifies that drug pricing is actually not a problem, it's drug affordability. Thank you very much. So thank you so much, Peter. And we have time for a couple of questions if folks want to ask. John, do you mind coming up to the mic because we're on the live stream? Thank you. Peter, thank you. Your analysis and most people's analysis of value depend on a single compound that affects over a lifetime. But most patients are taking multiple drugs because they suffer from multiple chronic conditions. So if you allocate all the value to that first drug, then what about the ones that a patient must take that follow? How do you account for value in a polypharmacy environment? It's a great question and you're pointing to the complexity of doing value assessments. I don't have a deeply technical answer, but to say that is one of the important wrinkles in any of these models when you're projecting forward is sort of like how long somebody will be on one therapy, how other therapies take up the slack if you will later. That's all has to be part of it. I was only sort of kidding that we just have to suck less than the current system. You know, at least having some data-driven estimate of what prices should be because we have drugs like Orcambia or Exondus 51 that by any metric are orders of magnitude mispriced. Do you want to come up to the mic please? Thank you. Hi. Jennifer Bright with the Innovation and Value Initiative. So you said value is the balance between price and benefit and that it's a mathematical computation and kind of building on the last comment. One of the things that's absent in the math that we have out there in the real world and even your Kaiser shared with everybody calls on better use of or better understanding of how we incorporate real world evidence into the calculation of value. So I'd love to hear your thoughts about where we are now and where we should be in regards to that. Are you talking about dimensions other than clinical benefit or are you talking about kind of real world performance of drugs relative to clinical trials? Well, I think both. Obviously there's a lot of concern, particularly from the patient community, which I would observe is not well represented here today. I'm not speaking as a patient in the past and there's not a lot of patient representation and I encourage that to be a major priority in this conversation. But sorry, that was my soapbox comment. How do we represent patient perspectives on value in the construct of talking about value and assessing it? As you said, it's complicated. There's no mathematical way right now to represent factors that drive, that allows them to hold a job or burden on caregiver. There's increasing discussion of that in the literature about how that's kind of... But I wanted you to reflect on where are we now and where should we be going because I would observe that in a lot of these conversations, we're so focused on the how not to suck from the technical standpoint of dollars that we're forgetting that we also have to account for the human factor. And I am not so important and I would love your thoughts on that. No, I appreciate it. So you asked two different questions. With regards to the role of real-world evidence for measuring clinical benefits, I think it's an important wrinkle that we have to get to. The general observation is that pharmaceuticals perform substantially less well in the real world. But it's also important particularly for drugs like the CAR-T where you have very brief periods of follow-up but models that require years of estimation. Over time we should get more knowledge. On this patient issue, first of all, I have a couple of axes. Oh, that's actually a pun. I have a couple of axes along which to grind this. The first is we're all caregivers or patients and all represent the interests of society. And along those lines, so I don't really, it's true there's no pharma-funded patient groups I guess here today or maybe there are. But we all speak for what we collectively care about. The next is absolutely endpoints that matter on the health spectrum should continue to be evaluated. But we have to be very cautious. Interested parties will always prefer societal resources to flow to them in excess of other uses of the funds. The same way I would like the train I take to work every day to run better, much more than I care about trains I don't take. But that doesn't mean it's socially efficient. And the other thing is these are definitively shared societal resources collected through numerous means intended to provide reward to the innovator. And so even though individual patients, the benefits are concentrated, it is a collective effort to improve their health. And so some of the fine-tuning is critical, some of it is just meant to be obstructionist. So I think we have to be cautious. I would totally agree with you. I mean, we deeply care about our patients and we want them to have access to therapies that actually work. Things that don't work and they cost a whole heck of a lot. And people have tremendous hope when they have nothing else left and that's all we have to offer. So totally agree with you, but we deeply, deeply care about our patients and want to do the right thing for them. So thank you again, Peter.