Drug prices defy gravity – until patent expiry
pharmafile | June 23, 2014 | Feature | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | John LaMattina, LaMattina, Pfizer, drug, pharma, pricing, research
How drugs are priced is a hot topic these days, and a new Bloomberg article will cause it to heat-up even more.
The piece opens with the story of a retired 84 year-old Professor Earl Harford, whose leukaemia medication now costs him $7,676 (£4,567) – three times what it was when he first started taking it in 2001.
To pay for his medications, he has taken $140,000 from his retirement savings to cover his share of the drug’s price. Harford asks a good question: “They haven’t improved the drug; they haven’t done anything but they keep manufacturing it. How do they justify it?”
The article goes on to highlight the cost of some very expensive drugs, medicines for cystic fibrosis and cancer, as well as a drug for people with extraordinarily high, potentially fatal, cholesterol levels. These drugs can cost hundreds of thousands of dollars per year.
Bloomberg explains the increases in the following way: “Desperation is one drive for the increase, with drugmakers raising prices on products that remain under patent to offset sales dropped from blockbusters that have lost patent protection.
“Opportunity is another, as companies with older drugs boost prices when rivals show up, either to match the price of the newer drug or to make up for lost prescriptions.”
The picture that Bloomberg draws is one that most ageing baby-boomers fear: insensitive biopharmaceutical companies preying on the sick and charging outrageous prices for their medicines; patients have no choice but to pay in order to stay alive, even if these payments threaten their financial security.
Stories like this certainly contribute to the industry’s poor reputation. First off, let me say that I am very sympathetic to Harford’s plight. It is incredibly frustrating for people to be in such a situation. However, I wish that the article had been more transparent on his case.
The tripling in cost of a drug needed to live seems unconscionable. Yet, this tripling occurred over a 13-year period. Assuming that the drug cost $2,555 in 2001, the current cost of $7,676 represents a 9% annual increase each year.
Certainly, this is higher than inflation, but not necessarily price gouging. Furthermore, the cost of discovering and developing new drugs has likely gone up similarly over the last 15 years. Harford is correct in saying that the manufacturer hasn’t done anything to improve this drug.
However, presumably the manufacturer has a robust R&D programme looking for new life-saving medications. The price increases might seem to be an act of ‘desperation’, but the increases are fuelling new drug discovery.
Harford also has a high co-pay for his leukaemia drug. This is surprising as most companies have programmes designed to ease the burden of prescription medicines. Pfizer, for example, has an established programme called ‘PfizerRxPathways’ which helps millions of uninsured and underinsured patients get access to medicines they need.
Does the company that makes Harford’s drug have such a programme? Is his income such that he didn’t qualify? Again, this is unclear from the article. Most importantly, price increases on drugs are finite, because a drug’s price decreases by as much as 90% once it goes off patent.
Pfizer’s Lipitor is a great example: at its peak, it had sales of almost $13 billion annually, but by 2013 worldwide sales were about $2 billion. Thus, gravity-defying price increases only last so long because, once the patent expires, the price drops dramatically due to the introduction of generic versions of the drug.
The exception is for biological drugs, treatments that are not pills but are very large molecules such an antibodies – which must be given by injection. Historically, these are very expensive and difficult to manufacture. However, new versions of biologicals, called ‘biosimilars’ will likely be introduced to the market in the near future.
The FDA right now has about two dozen such applications under evaluation. Once these start getting approved, drugs like AbbVie’s [arthritis drug] Humira will have competitors and this should drive down prices.
It would have been nice to see Bloomberg provide a more balanced dialogue on the issues of drug pricing. There are new medicines that are curing diseases like hepatitis C being introduced to the market.
Patients like Harford are living for more than a decade with a disease that would have been lethal twenty years go. Yes, these drugs are expensive. But they add tremendous value to the healthcare system. A full discourse on the issue of pricing versus the value of new medicines would have been welcomed.
John LaMattina is a former Pfizer head of R&D and maintains a blog at Forbes.com
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