April 2017




On March 2, 2017, JALBCA held its Twenty-First Annual Ellen P. Hermanson Memorial Symposium on the topic “Next Chapter in the Cancer War: Re-setting Value or Price-Gouging: Will Drug Treatment Be Accessible?” The Symposium took place at the New York City Bar Association and featured guest speaker and panelist Dr. Larry Norton, Deputy Physician-in-Chief for Breast Cancer Programs at Memorial Sloan-Kettering Cancer Center. He was joined by other distinguished experts: Roger Cohen, Senior Counsel at Proskauer Rose LLP; Malcolm J. Harkins III, Professor at Saint Louis University School of Law, Joseph Opper, Partner at Garwin Gerstein & Fisher LLP, and Bruce C. Vladeck, Ph.D., Senior Advisor to Nextera, Inc. and former Administrator of the Health Care Financing Administration of the US Department of Health and Human Services. There was a panel of judges, who posed questions to the expert, which consisted of Hon. Sheila Abdus-Salaam (NYS, Court of Appeals), Hon. Helen Freedman (former NYS, Appellate Div., 1st Dept.) and Hon. Karla Moskowitz (NYS, Appellate Div., 1st Dept.). Our former co-President and current member of JALBCA’s Executive Committee, Edward Kornreich (Partner, Proskauer Rose LLP) moderated the program. The program was organized by Co-Chairs Hon. Shirley Werner Kornreich, Martha Golar, Esq., and Barbara Ryan, Esq. Co-President Luisa Kaye introduced the program, which was sponsored by The Ellen P. Hermanson Foundation. Julie Ratner, sister of Ellen Hermanson, was in attendance.

Medical Introduction

Dr. Norton identified a few things that stood out this past year in breast cancer research. He first noted that researchers had capped out on analyzing the molecular biology of breast cancer and are now turning their attention from primary breast cancer to metastatic breast cancer. Breast cancer consists of two diseases, i.e., a disease in the breast and a metastatic disease. The disease which stays in the breast is not problematic; the cancer cells which travel from the breast are the worry. Researchers have acquired the analytic techniques, i.e., through a blood draw, to detect “cell free DNA” or “circulating tumor DNA”. This has raised a lot of issues, one of which is over-diagnosis. It has opened up the opportunity with early detection for prevention, although this research is in its early stages.

Dr. Norton explained that there is much more interest in immunotherapy. This past year, he has seen novel developments with vaccines. Since cancer cells are a person’s own cells, the creation of vaccines to attack cancer has been difficult since the body has defenses to protect its own cells. Researchers now have found a means of releasing the brakes in the immune system and, thereby, enabling it to attack cancer cells—referencing CTLA-4 and Anti-PD1.1 “Freezing the cancer” is another technique at Memorial Sloan-Kettering Cancer Center on which research is being conducted.

Next, Dr. Norton discussed mathematics and its use in analyzing and using the enormous amount of data we have on primary and metastatic breast cancer. Mathematicians, for the first time, are getting involved in biology, just as they have been involved in other basic sciences in the past. This will have a huge impact on drug therapy—it could help answer questions of how much dosage, for how long, and in what combination. Finally, Dr. Norton noted that a lot of drugs we knew had great potential do in fact have such potential. We, however, need more clinical trials and more money to develop and test drugs. He mentioned an upcoming ASCO meeting in May 2017 at which new study results may be shared.

Report of the Senate Special Committee on Aging

As background for the CLE portion of the Symposium, the moderator referenced the bi-partisan report released in December 2016 of the Senate Special Committee on Aging, which reported the results of that Committee’s year-long, drug pricing investigation. The Report—titled “Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System”— includes findings from three hearings; review of more than one million pages of documents; and interviews with scores of patients, doctors, hospital administrators, consumer advocates, health experts, and pharmaceutical industry executives. U.S. Senators Susan Collins (R-Maine) and Claire McCaskill (D-Missouri), the Chairman and Ranking Member of the Senate Aging Committee, released the report. The Committee investigated the abrupt and dramatic price increases for prescription drugs whose patents expired long ago. The Committee examined the monopoly business model used by four pharmaceutical companies to exploit market failures, and the report describes how companies acquired decades-old, off-patent, and previously affordable drugs and then raised the prices suddenly and astronomically at the expense of patient access. The four companies studied were Turing Pharmaceuticals, Retrophin, Inc., Valeant Pharmaceuticals International, Inc., and Rodelis Therapeutics. The Report addressed the influence of investors; assessed the impact of price hikes on patients, payers, providers, hospitals, and the government; and discussed potential policy responses. Evidence gathered by the Committee also suggests that other companies have utilized the same monopoly business model, which they concluded puts the health and lives of Americans at risk. Sen. McCaskill referred to the drug pricing practice as a “hedge fund model” that is “predatory”, and “immoral for the patients and taxpayers who ultimately foot the bill—especially for generic drugs that can be made for pennies per dose.”

The Report identified potential policy responses, as follows:

  • Enact the Increasing Competition in Pharmaceuticals Act to incentivize competition to address regulatory uncertainty, small market size, and other factors that serve as limitations to generic entry;
  • Encourage generic competition by ensuring the right to obtain samples and simplifying Risk Evaluation and Mitigation Strategies;
  • Consider allowing highly targeted, temporary prescription drug importation to provide prompt price relief for major price increases in off-patent drugs;
  • Take steps to prevent the misuse of patient assistance programs and copay coupons;
  • Reinvigorate the Federal Trade Commission to take greater enforcement action on drug company mergers, operations, and drug market dynamics; and
    Improve transparency in the health care system.

Pricing Overview

Panelist Bruce Vladeck presented an overview of the drug pricing paradigm in the United States. He noted that drug prices in the US are much too high and, on a weighted average basis, are a minimum of approximately 30% more than in other countries and rising three to four times the rate of inflation. He mentioned the two separate markets for prescription drugs—generic drugs and on-patent or sole source drugs. Most of the drugs in the oncology field fall into the latter category but 80% of all prescriptions are filled (certainly in retail pharmacies) with the former. The on-patent market creates legal monopolies, though Mr. Vladeck noted that the regular rules for monopolies are not applied and provide no protection for consumers. Both markets, he explained, are highly dysfunctional and non-transparent, which non-transparency is blessed by public policy and sometimes by Federal law. The laws are complex and difficult to administer, plus the regulatory bodies are limited in their resources. The system of distribution and the ownership of pharmacy benefit managers is such that drugs can pass through three to four sets of institutional hands before they get to consumers. This is different from other markets in the economy and, in part, is explained by deliberate efforts to keep drug pricing concealed, a strategy which makes public policy difficult to construct. Given the invisibility of the drug pricing regime, Mr. Vladeck commented that the amount of documented fraud and abuse over the last decade is extraordinary.

There are two bigger underlying problems which have been the cause of a lot of atypical behavior, in particular with regard to prescription drugs: first, demand is largely controlled by those writing the scripts; and second, with generics, there are chronic shortages, especially for drugs administered in hospitals, which evidences market failure, i.e., we keep running out of IV solutions. Allegedly, this is explained by the diversion of resources to more profitable items rather than by manufacturing incapacity.

The growth in drug costs has been paralleled by an increase in insurance coverage for two-thirds of the population. However, despite the political rhetoric about how prescription drug prices are tied to the cost of drug development, while there may be some relationship between research/development costs and price, this does not explain the high prices of drugs in the US and the far lower prices in the rest of the world.


Judge Abdus-Salaam started the panel discussion by asking what can be done? Mr. Vladeck’s answer was to empower Medicare to negotiate drug prices or pay what others pay—30% less. Justice Moskowitz then asked whether states can institute any mechanism to regulate price. Mr. Opper, an antitrust attorney, noted that there is no price regulation for drugs, and drug manufacturers can charge what the market will bear. As for states, he answered that there was very little available in the way of legal remedies absent any type of conspiracy or anti-trust violation. If there is a conspiracy (for example, he mentioned the alleged conspiracy in the pricing of digoxin and doxycycline2), there are remedies for violation of the Sherman Act. Mr. Kornreich added that the interstate commerce clause prevents states from limiting drug prices as they do, for example, with rent control, even with Medicaid which, unlike Medicare, is controlled by the states. Mr. Vladeck also remarked that Medicaid was probably already paying the lowest prices available on the market.

A question was then asked about reverse settlement payment agreements. This is where a manufacturer of a patented drug agrees to pay an alleged infringer (a generic company) to prevent/delay the generic drug from coming to market, in competition with the brand name drug. Under the Hatch-Waxman Act, there are incentives to bring generics to market.3 Within a year of a generic coming to market, 90% of the market of a brand name drug is lost and the price drops approximately 85%. These agreements would be entered into where the alleged infringer receives a payment that exceeds the amount it could earn from bringing the drug to market. Judge Freedman inquired whether some of these agreements extend beyond the life of the patent itself. Mr. Opper confirmed this is the case and referred to “pediatric exclusivity”, which allows an extra six months to the branded company on its patent (which is not a patent extension).

Judge Abdus-Salaam questioned what constitutes a well-functioning market and whether any existed elsewhere in the world. Mr. Cohen reiterated that payers have less than perfect information about prices and that the price paid by the government for drugs is dictated by politics and market forces. Prof. Harkins commented that, since people do things for a reason, it is important to identify the incentives and motivations—cultural, legal, societal. In the US, the imperative is a cultural value to maximize shareholder value. In addition, while the Medicare program pretends to be built on a free market system, it neither has the necessary data nor the negotiating authority to permit this to occur. For oncology drugs specifically, Mr. Vladeck noted another distinction—the demand for health services, unlike in the classic free market model, is not price sensitive. Patients are desperate to live and be healthy.

Judge Freedman questioned why the problem cannot be alleviated by allowing people to obtain drugs from other countries, but Dr. Norton indicated that, at least with cancer drugs, drugs have been tracked from Asia to Canada and quality issues were a concern (e.g., storage issues) and that a small decrease in efficacy of such drugs can make a big difference. He added that without randomized trials, we cannot conclude whether people in another country are doing worse, the same, or better than in the US. He confirmed that drug development is expensive and includes, not just the cost of research, but, for example, the cost of data management to satisfy Federal scrutiny. Where drugs are imported by the US, their manufacture needs to be regulated, and moderator Kornreich mentioned that many people went to jail in past years where drugs manufactured outside the US did not meet FDA approval. He also noted that virtually all European countries have national healthcare and all negotiate prices, as does the Veterans’ Administration in the US. Most drugs are imported, and the FDA regulates their manufacture.

The issue of inadequate money being spent on research was raised. Dr. Norton lauded the American cooperative system which had brought about the development of Neupogen which improves cure rates. But there has since been a dramatic decrease in Federal support of these trials, and researchers can no longer conduct cooperative effective research and rely on cooperative-sponsored trials. It is paradoxical that government is not paying for the research which in turn could provide answers to cure, which in turn could allow the government to spend less money. Dr. Norton’s sense was that the removal of the Federal government from cancer research leads to higher drug prices because companies cannot afford the cost of failures and industry needs to know there is an existing market for a drug.

Judge Moskowitz mentioned a proposal of the new US administration to save money for drugs by cutting out Phase 2 and 3 clinical trials, and she solicited comments from the panelists. Dr. Norton replied that, of course, it costs less if you do less research, but that “big data” is not information. A good example is what occurred with hormone replacement therapy, which is now known to lead to an increase in breast cancer, dementia and blood clotting. This would not have been known if we relied only on big data. A vibrant NCI and NIH are needed again. With almost all trials coming out of industry, Dr. Norton predicted that the public can expect fewer good drugs (less innovation) and higher drug prices.

Judge Freedman then inquired as to who actually pays for fines imposed on companies, and Prof. Harkins replied that companies treat fines as a cost of doing business. A list of the largest civil fraud cases brought by the government includes many “frequent flyers”. They enter into a corporate integrity agreement (CIA) with the Office of Inspector General of the US Department of Health and Human Services4, but if they get caught again, they just re-up the CIA. Accountability is missing for those who engage in this fraud—executive compensation is unaffected if a bonus is tied to profits which excludes, in its calculation, the company’s settlement costs for fraud. Further, if an executive is paid in stock options and drug pricing is set to enhance shareholder profit, the executive and shareholder interests are aligned. Prof. Harkins did mention that we are now seeing some cases against individuals, e.g., a derivative action against a company where the CIA required a compliance officer to report misconduct directly to the Board, but the cultural imperative remains to enhance shareholder value. He also mentioned that some cases are being brought under state consumer fraud and unfair competition statutes and RICO (three Federal Circuits have permitted RICO5 cases to proceed), e.g., cases claiming fraudulent marketing for off-label uses of Neurontin (an anticonvulsant drug manufactured by Pfizer, Inc.). Previously, he explained, courts did not favor these RICO cases since there was a sense the statute was being misused against legitimate businesses rather than against organized crime. Mr. Cohen also mentioned a Department of Justice memo during the Obama administration which directed US attorneys to focus on individual liability. Cases brought under the False Claims Act6 could lead to both criminal and/or civil liability. Mr. Cohen also mentioned newer varieties of fraud, especially involving specialty pharmacies, which receive compensation for “switching” programs, i.e., to switch patients from one drug to another.

In summing up, the panel looked at how to approach the pricing structure and access issues. Everyone agreed that litigation is a societal band-aid—used when society is not capable of addressing an issue directly—and the ban on negotiating drug prices under Medicare is important but the political wherewithal to deal with the issue does not exist. As for state remedies, Mr. Vladeck mused what might result if a few states aggregated their buying power and agreed to purchase drugs directly in the market as a buyer. The reality remains that a third to 40% of the citizens of the developed world are footing the drug bill for drug development worldwide, with a substantial portion of the price going to fund pharmaceutical companies’ expenses such as sales, marketing and executive compensation.

1. A central concept in cancer immunotherapy is that tumor cells, which would normally be recognized by T cells, have developed ways to evade the host immune system by taking advantage of peripheral tolerance (which is a process whereby, in order to prevent autoimmunity, certain immune checkpoint pathways regulate activation of T cells at various points during an immune response). Central to this process are the cytotoxic T-lymphocyte–associated antigen 4 (CTLA-4) and programmed death 1 (PD-1) immune checkpoint pathways. Certain new drugs inhibit these two immune checkpoint pathways—ipilimumab (anti-CTLA-4), pembrolizumab (anti-PD-1), and nivolumab (anti-PD-1). E. Buchbinder and A. Desai, AM. J. CLINICAL ONCOLOGY, available at http://journals.lww.com/amjclinicaloncology/Fulltext/2016/02000/CTLA_4_and_PD_1_Pathways Similarities,.17.aspx

2. See In re: Generic Drug Pricing Antitrust Litigation, 2016 WL 4153602 (8/05/2016). Plaintiffs alleged that, between 2012 and 2014, the average market price for digoxin (which is used to treat irregular heartbeats and mild to moderate heart failure) and doxycycline (an antibiotic used to treat both humans and animals for a variety of illnesses) increased by 884% and 8,281%, respectively.

3. A manufacturer of a generic drug can obtain approval to market a generic modeled on a patented drug under the Hatch-Waxman Act if it files an “Abbreviated New Drug Application” with the FDA. It could then “piggy-back” on the patent holder’s FDA approval.

4. See, for example, a 2009 CIA with Pfizer Inc. available at https://oig.hhs.gov/fraud/cia/agreements/pfizer_inc.pdf, a 2010 CIA with Ortho-McNeil-Janssen Pharmaceuticals, Inc. available at , a 2012 CIA with GlaxoSmithKline LLC available at https://oig.hhs.gov/fraud/cia/agreements/GlaxoSmithKline_LLC_06282012. pdf and a 2013 CIA with Johnson & Johnson available at https://www.justice.gov/sites/default/files/opa/legacy/2013/11/04/corp-integ-agreement.pdf.

5. Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. See e.g., (In Re Neurontin Marketing and Sales Practices, 712 F.3d 21 (1st Cir. 2013)).

6. 31 U.S.C. §§ 3729–3733. This Federal law imposes liability on persons and companies who defraud governmental programs. The law includes a qui tam provision that allows people who are not affiliated with the government, called “relators” under the law, to file actions on behalf of the government. Such relators are informally referred to as whistleblowers.