GELFAND’S WORLD-The cries of outrage have been heard from coast to coast. A biotech company from Boston has come up with a new drug that treats the underlying cause of cystic fibrosis, and they want to get paid for it. Specifically, they intend to charge $259,000 per year for what the average patient will require. Elsewhere, a new drug that promises to cure Hepatitis C will cost $84,000 for a course of treatment. Some of the new cancer drugs, and some promising high-tech treatments for rare diseases, are priced at a comparable level.
The debate over drug pricing will continue at a number of levels, including the question of fairness and the question of whether our current health insurance system can sustain itself in the face of such costs. But I would suggest that there is another issue that isn't being considered, which is the strange set of incentives that our patent system creates.
Let's consider. Drug development is costly for several reasons. The basic research itself is expensive, although much of the really fundamental work is done under government grant funding. But the development of specific chemicals that target the causes of disease is usually carried out by private sector companies. The process of screening lots of chemicals to find the one that works is another expensive process. Then there is a multi-tiered process of testing each potential drug for safety and effectiveness. Under our legal system, drug licensing depends on showing both.
This process may take a decade or more, and may cost hundreds of millions of dollars. The payoff may be in the billions, or it may be nothing. Most promising compounds fail at either the safety level or the effectiveness level. The majority of failures are screened out comparatively early, but some of the promising compounds that work in the laboratory dish and survive initial screening go on to fail in clinical tests. Some drugs even make it to the market, only to be pulled due to the appearance of side effects. Pfizer put $800 million into a new anti-cholesterol drug, only to find that it was not saleable.
You can think of the process as the drug company buying a very expensive lottery ticket for a very well paying lottery.
Now for the problem.
Suppose a drug company wins that lottery. Take Lipitor, for example. Lipitor went on sale in 1997. The patent on Lipitor expired Nov 30, 2011. Pfizer had $125 billion (that's billion with a b) in sales over that 14 year period. When the patent expired, there were other companies waiting in the wings to get their generic versions on the market. Lipitor income dropped by the billions.
The lottery analogy isn't far off the mark. The major drug companies don't even want to look at a prospective compound unless it can project sales of a billion dollars. The risks are too high.
The result is that each new drug that has market demand -- sick people who won't get better in any other way -- is flogged for everything it can bring in, because it won't have its monopoly position for very many years.
Another complication is that drugs often get patented well before they go on the market, due to the demands of clinical trials and the permitting process. That lessens the number of years that the drug will be on the market under patent protection. This contributes to the desire on the part of the drug company to set as high a price as possible.
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In addition, the health insurance market, whether by private insurers or by a national health plan, tends to distance the patient from the pricing system. We may have copays, but we are not in a position to bargain as individual consumers.
The result of this system is that drug companies are on a crazy roller coaster ride of increasing sales when they get a winner, followed by what the financial press calls the patent cliff. That's where Pfizer watches its Lipitor sales drop by ten billion dollars.
There is no obvious and easy solution to the drug pricing system, other than for the biggest buyers (entire countries, generally) to negotiate tenaciously. The pharmaceutical industry is too big and its political influence is too strongly entrenched for big time changes any time soon.
But we might consider the disincentives of the patent system in considering drug pricing. Perhaps there can be some tradeoff between the lengths of patents and pricing. It is certainly something worth considering. The process might involve a company agreeing to reduce its price substantially on a successful drug in exchange for patent concessions.
Another suggestion I have made on these pages before is that the taxpayers, who finance government-funded research, should have some fractional ownership of patents that derive from grant funded research. That would probably be most of the new wonder drugs, since they depend on the new biology and genetics.
Adoption of a more European system of drug price negotiation may be in the wind. Forbes magazine, not exactly known as a bastion of left wing socialism, published a column suggesting that the kind of pricing we are seeing in the new cystic fibrosis drug could drive the US in that direction. You may recall that countries with more organized national health programs negotiate directly with drug companies over what can be charged, and their taxpayers get a big break as a result.
John LaMattina, the author of the Forbes piece, has explored the topic of drug pricing in a series of columns, pointing out that at least in some cases, the high cost of a new drug results in a net saving, because the costs of medical care are reduced even more.
There is one more issue that is yet to be explored adequately. The high cost of the new Hepatitis C treatment may be defensible because it is (at least theoretically) a one-time treatment that will make the patient virus free. As such, it replaces a lot of expensive care over a number of years. Toss in the fact that it also reduces pain and suffering, and we have a winner. In contrast, the treatment for cystic fibrosis is not a cure. It is just a molecular level treatment for a genetic condition. That means that the cystic fibrosis pill is probably a lifetime requirement.
Expensive treatments that are of short duration and result in a cure are obviously preferable to expensive treatments that go on year after year. This distinction ought to be factored into price negotiations too. That might be where extended patent protection could come into play.
(Bob Gelfand writes on culture and politics for CityWatch. He can be reached at [email protected])
-cw
CityWatch
Vol 13 Issue 60
Pub: Jul 24, 2015
