Boston drug-pricing watchdog group is ‘mouse that roared’

Steven Pearson, president of the Institute for Clinical and Economic Review (ICER) talked with chief medical officer David Rind during a meeting at their offices in Boston on June 6. Craig F. Walker/Globe Staff/Globe Staff

His adversaries call him a shill for health insurers, a bloodless bean counter who would rather let some sick people die than see them get expensive life-saving medicines.

But Steven Pearson, founder of an obscure nonprofit watchdog group in Boston, is wielding growing influence on what some of the world’s biggest drug makers charge for their products.

Just last month, the head of Swiss drug giant Novartis said he could justify a price tag of up to $5 million for a soon-to-be approved gene therapy for a deadly rare disease. But CEO Vas Narasimhan said the company wouldn’t do that — and cited talks with the watchdog group partly for its decision.

Two days later the drug, Zolgensma, won approval. Novartis priced it at a jaw-dropping $2.1 million, still the most ever for a medicine. Pearson’s group didn’t object, agreeing that the one-time, life-saving treatment for spinal muscular atrophy — the leading genetic killer of infants — might be worth that much.

It marked just the latest effort by the Institute for Clinical and Economic Review — a name only a policy wonk could love — to get drug firms to charge only what it says a medicine is worth. ICER researchers spend about eight months studying how well a medicine works and whether it might reduce other health care costs, then publicize their findings in the hopes of getting drug makers to set a fair price.

In the past two years or so, the nonprofit persuaded a partnership of two drug firms to charge far less for an injectable eczema treatment than analysts had expected; pressured the same partnership and a third firm to cut the costs of two competing cholesterol-lowering drugs; and saw the Department of Veterans Affairs adopt the institute’s pricing guide for medicines prescribed to military veterans.

Pearson, a doctor with a master’s degree in health policy and management from Harvard University, acknowledges that pharmaceutical firms continue to wield enormous power and that ICER can only offer opinions — it has no regulatory authority. Still, the group is gaining clout as more Americans blanch at dizzying drug prices.

“We’re the mouse that roared,” Pearson, 59, said in his spartan ninth-floor office in Liberty Square. ICER, he said, stands up to “huge companies, huge resources, huge everything,” in an attempt to rein in spiraling health costs.

The group is also making enemies. Drug makers, pharmaceutical lobbyists, and some self-described patient advocacy groups say the institute threatens to stifle innovation and could make some medicines unavailable, if insurers agree they are overpriced and limit who can get them.

Cambridge-based Sarepta Pharmaceuticals refuses to help the institute’s researchers evaluate its medicines, and Boston-based Vertex Pharmaceuticals says it did help but won’t again. Drug firms typically assist ICER by providing research material, such as unpublished data on the benefits of a drug.

Sarepta and Vertex executives say the institute’s pricing model is biased against drugs for deadly rare diseases, the focus of their businesses. Those medicines can cost six figures or more because they are expensive to make and treat relatively few patients, the companies say.

“We refused to participate because we knew exactly where ICER would end up with this and similar rare-disease drugs,” Douglas Ingram, CEO of Sarepta, said of a recent review of his firm’s medicine to treat Duchenne muscular dystrophy, a deadly rare muscle-wasting disease that mostly affects boys.

The medicine, Exondys 51, won a controversial approval from the Food and Drug Administration in 2016 and carries a list price of $892,000 a year, even though an FDA advisory panel questioned whether it works. Last month, ICER said in a draft report that the drug was of such marginal value that the institute couldn’t even put a price tag on it. Ingram dismissed the institute’s finding as “preordained.”

Terri Ellsworth, whose 18-year-old son, Billy, began participating in a clinical trial of Exondys when he was 10 and has taken the drug ever since, said he would need a wheelchair if not for the weekly infusions. He graduated from his suburban Pittsburgh high school this month and was able to walk on stage to get his diploma.

“Ask the patients if the benefits are marginal,” his mother said. “When I first saw this [ICER] report, I thought, ‘Who are these people and who are they working for?’ To me, it’s clearly the insurance companies.”

Pearson denies that, and several doctors, insurance executives, and health policy experts agree.

They say the health care system, including state Medicaid agencies such as MassHealth, can’t afford a stream of drugs whose prices rival the cost of a house. At the least, they say, the system needs an umpire to say whether the medicines are worth it.

“ICER is filling that gap,” said Michael Sherman, a physician and chief medical officer for Harvard Pilgrim Health Care, the second-largest private insurer in Massachusetts. “As we come to the realization that we don’t have an unlimited global budget, it becomes more important to have some objective metric that we can point to.”

Sherman sits on an 18-member board that advises the institute. It includes physicians, economists, and executives from pharmaceutical firms and insurers.

Prescription drug prices have sparked a populist furor in recent years. The US government, unlike those of most other developed countries, sets no ceiling on what pharmaceutical companies can charge. The only limit is what the market will bear.

Pearson founded the institute in 2006. A San Diego native, he earned his medical degree at the University of California San Francisco and completed his residency in internal medicine at Brigham and Women’s Hospital in Boston.

He spent a year at the National Institute for Health and Care Excellence, a government agency in the United Kingdom that approves drugs and decides what they should cost. He also served as an adviser to the Centers for Medicare and Medicaid Services under President George W. Bush.

ICER initially focused on the clinical value and cost effectiveness of medical technology, such as robotic surgery for prostate cancer. It turned to drugs in 2014 soon after the FDA approved Sovaldi, Gilead Sciences’ blockbuster cure for hepatitis C. Although remarkably effective, Sovaldi ignited a firestorm because of its list price of $1,000 per pill — a total of $84,000 for a course of treatment.

That’s cheap compared with Zolgensma and other new drugs, but it prompted ICER to scrutinize dozens of other medicines to gauge a reasonable cost.

“We don’t have any power to make that stick,” said Pearson, but ICER can say, “Here’s what the evidence says about the effectiveness of your treatment and what a fair price aligned with that would look like.”

The institute has about 30 employees and a budget of about $7 million. Some 77 percent of its funding comes from donations by nonprofits, according to ICER’s website. And most of that comes from the billionaire Houston philanthropic couple John and Laura Arnold, critics of soaring health care costs. The remaining 23 percent comes from drug makers, health insurers, and the Medicaid departments of several states.

Pearson’s total compensation in 2017 was $481,846, according to ICER’s most recent filing with the Internal Revenue Service.

To measure the value of a medical treatment over time, ICER uses a unit employed by health economists: “quality-adjusted life year,” or QALY. One QALY (pronounced “kwaly”) equals a year of perfect health as a result of a medicine. Zero QALYs equals death.

A medicine that adds a year of perfect health to a life is worth $100,000 to $150,000, the institute says, citing data from the World Health Organization and other sources.

Using this calculation, the institute has studied more than 75 brand-name drugs. It determined that roughly two-thirds are overpriced, even though some are considered medical breakthroughs.

They include three drugs that Boston-based Vertex has introduced since 2012 to treat cystic fibrosis, a rare genetic illness that attacks the lungs and other organs. The list prices of those drugs — Kalydeco, Orkambi, and Symdeko — range from $273,000 to $312,000 annually. ICER said last year that Vertex would have to lower its prices by 71 to 77 percent to align costs with benefits.

In a letter to Pearson, Samantha Ventimiglia, Vertex vice president for government affairs and public policy, called the analysis a “sham.” She said it relied on a “flawed scientific methodology” and could limit patients’ access to “transformative and life-saving medicines,” if insurers agreed with the institute.

Among ICER’s most outspoken critics is Robert K. Coughlin, who leads the Massachusetts Biotechnology Council trade group.

His son, Bobby, was born with cystic fibrosis and will be a senior at Dedham High School in the fall. Bobby hopes Vertex will soon win approval of a drug that targets his particular mutation. The elder Coughlin seems offended by the idea of calculating a “fair price” for a treatment that could save his son’s life.

“This isn’t just like a business transaction,” he said. “How do you put a price tag on someone’s life?”

Such arguments may resonate on an emotional level, but they overlook that the nation cannot continue to afford rising drug costs, said Dr. Peter Bach, head of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York.

The average American spent $134 a year on prescription drugs in 1980 compared with $1,025 by 2017, when adjusted for inflation, Bach said, citing a study by the Kaiser Family Foundation. He said drug companies should be rewarded for developing life-saving treatments, but “that shouldn’t mean they can charge an infinite amount.”

Pearson said ICER isn’t out to get drug makers any more than it’s seeking to boost health insurers. It just wants fair drug prices.

“We’re not here to tell the pharmaceutical industry that they’re evil,” he said. “We’re not here to tell the payers that they’re evil. We’re here to find the win-win by providing an independent look at the evidence.”