Rare Disease Companies and Election 2016

Rare Disease Companies and Election 2016 Impact

The presidential election of 2016 promises to stand out in history books for many unflattering reasons, most of which won’t be the central topic of this discussion.

Both major parties have claimed the industry of healthcare requires significant reform. This could have a huge impact on rare disease companies by regulating costs of the most expensive drugs and therapies in history, regulating drug costs overall, or passing regulations for insurance companies. Neither candidate has addressed rare disease directly, but instead raise “healthcare” as a concern for most Americans.

The Healthcare Industry

Pharmaceutical companies, including the world’s rare disease companies, and insurance companies, are two huge components of the healthcare industry.

Established pharmaceutical companies are keeping the spotlight on themselves and their markets with the recent and widely reported price increases for cancer treatments, Epipens, other drugs, and executive compensation that multiplies by orders of magnitude in relatively brief timespans.

Insurance companies are attracting scrutiny by paying ever decreasing shares of claims and announcing withdrawals from markets they entered through the Affordable Care Act.

Which is responsible for rising consumer costs?

Both factor in to higher consumer costs, but the “investor class” probably bears the most responsibility by driving their behavior.

Publicly traded companies strive for earnings. Fund managers only buy and maintain the demand for a company’s stock, keeping its price high, when earnings or earnings potential is forecast. When markets are saturated and earnings growth can’t be had by market growth, companies either have to increase revenue through higher prices, or decrease costs by whatever means, including reducing what gets paid in claims if it’s an insurance company.

When drug prices rise, and corresponding insurance reimbursements do not rise or decrease, consumers pay the difference or go without. If consumers don’t pay the difference directly, they eventually pay a greater share of total revenue to the IRS when companies get subsidies and tax write offs written into new legislation or relocate their Headquarters outside the US.

Candidate Positions on Healthcare Costs

Hillary Clinton had already jumped into the drug pricing discussion, leading investors in rare disease companies to panic in 2015. According to this Motley Fool article in 2015, biotech companies in the rare disease market lost $40 billion in market capitalization as a result of one Tweet Clinton made lambasting drug prices.

However, since that fateful tweet, Clinton has received and accepted millions in campaign donations from pharmaceutical interests. Politicians have never been known to bite the hand that feeds them, and Mrs. Clinton is the consummate politician.

Contrary to the position Sanders campaigned on for a national single-payer solution, Clinton’s health care platform calls for creating incentives for individual states to expand Medicaid. She was quoted at an event in the primary contest to say a single payer solution would “never, ever come to pass.” She had been a proponent of a single-payer, medicaid-for-all solution as First Lady during the administration of Bill Clinton. Now? Not so much.

Her platform calls for reducing drug costs by eliminating tax deductions for direct-to-consumer advertising costs…. Yes, apparently all the costs for airing all the “ask your doctor about” ads are deductible expenses. Her prescription price plan also talks about requiring companies that reap the benefits of large tax write offs to reinvest in research. It’s unclear how that would affect retail drug prices.

She claims she will protect and expand the Affordable Care Act. A provision of the Affordable Care Act required insurance companies to pay rebates to consumers if profits exceeded certain percentages of claims paid. This may be why Aetna announced their intent to cancel ACA policies. Imposing a profitability cap on pharmaceutical companies seems outrageous, but no one really complains about salary caps in professional sports leagues. While not identical, there are parallels, and the owners still make boatloads of money.

Donald Trump’s stated number 1 priority for healthcare, outlined here, is repeal of the Affordable Care Act, a.k.a. “Obamacare.” Trump promises to repeal the ACA in its entirety. This in spite of the glaring reality that the House of Representatives failed to repeal any or all parts of the ACA in 63 votes since the Republicans won the majority in the House in 2011. Seriously, that’s about all the House of Representatives has done for the past few years.

One of those attempts was defunding parts through the budget reconciliation process. Obama vetoed it, and Republicans could not get any support to override the veto. Of course, if Trump wins, that kind of legislative process could undo the Affordable Care Act. If enough Congressional seats are won by the Democrats, no votes on repealing the ACA should be expected for the next congress.

He also claims competition with imported drugs would lower prices. Perhaps, but when patent protection applies, as it does in the rare disease market, there can’t be competition. Also, the orphan disease population is small, creating a significant barrier to entry for competition. Current therapies hold virtual monopolies just because the known patient populations are so small. Competition in therapies for orphan diseases may not evolve like those for more prevalent maladies.

One of the most significant elements of the ACA was the elimination of “pre-existing conditions” as a reason to not cover an individual. Should it be repealed, it would allow insurance companies to eliminate coverage for any preexisting condition, including a rare or ultra rare disease.

Insurance companies lose money on rare-disease patients, while the drug companies profit. No one rare disease patient will ever pay enough into the insurance industry for policies that would provide years of coverage at $100,000, or $200,000, or $400,000+ per year. Lifetime caps are reached quickly as well.

Selling insurance across state lines isn’t an answer. Initiating the development of new therapies for a few to several thousand potential patients from scratch isn’t a viable answer either.

The ACA expanded health insurance coverage to rare disease patients, but insurers were able to put these specialized therapies in specialty tiers, passing more costs on to the patients. Some coverage is better than no coverage if you’re a patient.

What impact would all this have on Rare Disease Companies?

Rare disease companies rise and fall on perceptions of Wall Street. What is the future of a single product company whose revenue depends on its customers having insurance policies that can pay for the therapies, when the insurance industry is subject to change radically?

If Clinton wins, nothing much will probably change from the rare disease perspective. There may be some adjustment of the specialty tier rates, but nothing significant. Ubiquitous Medicaid for anyone could actually benefit the rare disease drug manufacturer market. More patients would be covered, albeit probably at lower rates. It is more insurance coverage, and therefore drug company income, than no coverage.

According to this report on Celgene’s web site, 200 rare disease patients shared stories with Congress about being denied access to treatments. Insurance, the lack of it, and inability to pay for the expensive therapies are the real Death Panels that original ACA opponents decried.

If Trump wins, and enough congressional seats turn Republican, the ACA is history. His proposed block grants for Medicaid could bring similar, subdued stability between reimbursement rates and more extensive coverage.

Focusing on this, things will probably be similar if either candidate wins.

Insurance sold across state lines will likely carry the same lifetime caps that patients exhaust in the first years of treatment. Nothing much would probably change except perhaps an insurance company’s ability to offset the expense of paying for rare disease treatment with larger customer bases. Shareholders would win… again.

There is no incentive for insurance companies to increase or remove lifetime caps in either candidate’s position.

Rare disease companies seem quite dependent on regulatory changes requiring insurance companies (or Medicaid) to pay. Or, they are dependent on their breakthrough therapies being effective on much more common diseases with massively larger patient bases.

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Information Technology in a Pharmaceutical Company

Supporting Rare Disease Research

The process of developing new therapies for rare diseases requires laboratories. That’s obvious, isn’t it? Another critical lab function that may not be so obvious involves quality assurance. All batches of medicines undergo rigorous testing to ensure the manufacturing process produced pure products.

Automation drives and controls medical research labs far more than your chemistry or biology lab courses did in school. Today’s automated lab instruments produce data constantly, recording moment-by-moment conditions in experiments and tests. IT Patch Panel in Rare Disease CompanyRare Disease Company IT Patch Panel

While the format of the data may result in small files, the nature of the data has led to many regulations and requirements for how the data is handled.

Data in Pharmaceutical Companies

Some kinds of data fall under strict guidelines and regulations. Anything that has to do with the manufacture of medicines and the subsequent quality control testing processes remains subject to FDA and international public health agency regulations. Violations of those regulations could actually lead to those public agencies shutting down companies in a matter of minutes. At a very high level, anything, networks and servers included, that could alter the data that would affect manufacturing or lab analysis must be validated, qualified, and controlled rigorously.

What does that mean? When a computer system becomes part of the manufacturing or laboratory environment, extensive tests certify that the application that may control a lab instrument will never invent its own data. This requirement makes sense if you think about it. Variations in data lead researchers to conclude they either have a blockbuster for treatment of a rare disease, or they don’t. If a computer system monitoring temperature of an experiment failed to record or report data for five minutes, how would anyone know if the temperature spiked and recovered, or did nothing abnormal at all?

The same concern applies to control of a manufacturing process. Manufacturing equipment may heat or cool ingredients, and most certainly measure quantities. Moment-by-moment data points assure Pharmaceutical companies and their customers the final product is the same as it has been from the first batch, and remains as safe and as effective as ever.

We all know computers require regular software updates and security-related patches. Microsoft updates usually require system reboots to take effect. Anti-virus software updates can cause a workstation to suddenly block required traffic. Normal IT procedures could have a large negative effect if updates change or disrupt the flow of data in labs or manufacturing.

“Good Manufacturing Practices” in IT in Pharmaceutical Companies

The regulations that control the manufacture of food and drug products create a set of requirements known as “good manufacturing practices” or GMP. A GMP process adheres to the stringent requirements laid out by regulatory agencies worldwide. The industry standard vernacular is “current good manufacturing processes” or CGMP.

GMP regulations or practices affect network design and the configuration management of systems involved in the manufacture or testing of medicines and foods. When a network and systems attached to it connect manufacturing or quality control lab equipment, their configurations have to be validated. Additionally, processes related to changes and maintenance have to be documented.

This complicates the “basic” tasks of network design and architecture. Many network components supporting the business side of a pharma company must change constantly to accommodate new business requirements and protect from new security threats. The two goals of enabling and protecting business operations and supporting manufacturing and disease research seem at odds with each other. However, networking professionals can take measures to satisfy requirements of both interests.

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Ultra-Rare Disease Challenges

Ultra-Rare Disease Research

Patients suffering from rare life-threatening diseases often have little hope of help from science and medicine after the failure of several initial treatments to effect any results.

The very definition of rare or ultra-rare varies from one in every thousand to one in every 200,000 people afflicted across medical literature and various regulatory agencies worldwide according to Wikipedia

The uncommon nature of a rare disease explains why many doctors may not be able to identify one before a patient succumbs to it. Estimates of more than 7,000 rare diseases worldwide present their own symptoms or combinations of them. Amidst the usual stream of patients with common ailments, it’s easy to understand how doctors may not recognize combinations of symptoms as indicators of one of the many serious and rapidly debilitating diseases.
Rare Disease Research Lab under constructionRare Disease Research Lab Under Construction

For all the diseases that are or have been identified, the FDA has approved fewer than 400 treatments. And, if a treatment or therapy is not FDA-approved to treat a specific disease, a doctor simply can not prescribe it. In other words, even if one drug is eventually approved to treat multiple diseases, a doctor can not prescribe it for anything but the already-approved use before testing and approvals are completed on the additional diseases.

High Cost of Bringing Drugs to Market

The Tufts Center for the Study of Drug Development published a study of the costs to bring a new drug to market in November 2014. They estimate the cost to exceed $2.5 billion.

That figure puts fear into the hearts of investors. The process spans multiple years, and several may pass before research and testing prove great efficacy or a lack of it. The costs of failures do not factor in to the Tufts study. Investors backing start up companies tackling rare diseases have to roll the proverbial dice and patiently wait for the process to unfold. Major pharmaceutical companies have to weigh stock market reaction to write-offs and charges associated with abandoned ineffective therapies. Can you imagine the internal competition for R&D funds for a drug that may have a patient base of millions per year and one that may have a patient population of one thousand?

How Many Patients Have Each Known Rare Disease?

For all the research into rare diseases, estimating the actual market for the drugs remains difficult. Rapidly progressing diseases kill patients before doctors can make accurate diagnoses. The actual prevalence in the world population for any one disease may be underestimated. On one hand, if incidence of one disease is underestimated, investors reap the benefits of additional product sales. If overestimated, a small company may not generate enough revenue to survive.

Rare Disease Drugs Reaching Patients In Time

Some of the known diseases kill the patient within days of diagnosis. Companies can not stock every retail drug store location with medicine for rare disease. A challenge exists on a global scale to shorten the time between diagnosis and drug delivery.

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What is a Rare Disease Company?

Rare Disease

Let’s answer the question of what a rare disease company is by first defining the term “rare disease.”

The Wikipedia definition of a rare disease is one that affects a small percentage of the population.  The Rare Disease Act of 2002 defines a rare disease to be one that affects fewer than 200,000 people in the United States, or approximately 1 in 1,500 people.  Similar definitions were made in Japan and the European Union.

Governments were driven to define rare diseases in order to craft policies and programs that would promote research and development of treatments.

Rare diseases are typically genetic by origin, so they are present throughout a person’s life. Symptoms can appear immediately after birth and usually become evident before adulthood, although some experience the onset of symptoms in early adulthood.  Another trait of rare diseases is that many are life-threatening. A chilling statistic is that approximately 30% of children with rare diseases die before their fifth birthday.

Rare Disease Company

Many pharmaceutical companies research and develop drugs and treatments for diseases that affect more people.  A larger potential consumer base implies greater sales.  Every company is in business to accomplish its primary mission and make money in the process to fund product manufacture, research and development, salaries, rent, etc.  Simple math shows that more sales revenue equals longevity, so several pharmaceutical companies compete with each other for effective treatments for diseases that affect millions of people annually.

A rare disease company focuses on treatments and therapies for rare diseases and therefore will not have the same volume of patients as larger pharma companies.  They must still fund research and development, testing, FDA and other global FDA-equivalent agency approvals, stringent manufacturing processes, etc, all of which are incredibly expensive. Since prices of treatments fund the company’s operations, it stands to reason that the per-unit cost of rare disease therapies is much higher, since far fewer patients are treated.

Another challenge facing a rare disease company is in marketing. The medical community-doctors, nurses, etc may not have heard of either the definition of a particular disease, or a treatment, if one exists. Many doctors learn of new treatments and therapies from sales reps that constantly travel from practice to practice, or at conferences.

There’ a lot of personal gratification and satisfaction to be had when working for a company that produces a medicine or treatment actually saving the lives of children or young adults, helping them live their lives as most “normal” people. This is true especially when the severity of the disease causes a great deal of pain and suffering before certain death.

The World’s Rare Disease Company dedicates itself to serving the smaller population of rare disease sufferers.

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