Drug pricing tends to drive people to extreme positions. Critics see the drug companies as evil, greedy bastards out to gouge grandma. Defenders say the industry improves patients’ lives, and merely charges what the free market will bear, and what it must to recoup its substantial R&D investments.
Those positions have held firm for at least 15 to 20 years. But in the past few months, we have seen drugmakers push sticker shock to an entirely new level. This time, it could come back to bite the industry in a big way.
Some of these tales read like a farce. Anaheim, CA-based Questcor Pharmaceuticals (NASDAQ: [[ticker:QCOR]]) jacked up the price of a 50-year-old anti-inflammatory gel from $50 to $28,400 a vial, and started pitching it for a wide variety of diseases without solid clinical proof, according to an excellent Dec. 29 report by Andrew Pollack of the New York Times. Days later, Bedminster, NJ-based NPS Pharmaceuticals (NASDAQ: [[ticker:NPSP]]) said it set the price at $295,000 a year for its short bowel syndrome treatment, more than triple what analysts had been expecting.
When the FDA approves the new souped-up version of Genentech’s trastuzumab (Herceptin) for breast cancer later this month, as many observers expect, how high will it go? The standard trastuzumab goes for about $4,500 a month, and the data for the new “empowered” version is clearly superior. Will Genentech charge a 20 percent premium? 50 percent? 100 percent?
It’s easy to have a knee-jerk reaction to these prices. It’s much harder to do a serious analysis of what each drug is really worth. Lots of factors need to be considered. How convincing is the company’s body of clinical trial evidence? How many patients might take the drug? How much do existing treatments cost? How effective are they? How much benefit can patients really get from the new medicine, above and beyond what they can get today? Will it save their lives, improve their quality of life, enable them to go back to work and be productive citizens? How much time and money went into the drug’s R&D? How long does the patent on the new medicine last, and how long will the company’s window of opportunity stay open before generic competitors charge in?
People in the industry understand that all these factors count, and more. That’s why it’s not fair to just look at a price and recoil in sticker shock, without knowing the broader context.
All that said, I’ve been hearing lately from several people inside the industry who worry that things have gotten out of hand. Some drugmakers are acting like kids fighting to stuff their mouths full of cookies before Mom takes away the cookie jar—essentially trying to fatten up before price controls kick in.
There has been grumbling among industry leaders, mostly behind closed doors, that the audacious pricing gambits could finally lead to a political backlash that truly would hurt the entire industry. The mad dash toward treatments for the rare “orphan” diseases, where companies seem to think they have unlimited pricing power, may also be skewing the industry’s priorities, causing companies to turn away from diseases that affect millions of people.
“What’s breaking the budget of the government isn’t the orphan diseases, it’s diabetes, depression, schizophrenia,” says Richard Pops, the CEO of Dublin, Ireland and Waltham, MA-based Alkermes (NASDAQ: [[ticker:ALKS]]). “We as an industry need to develop cost-effective medications for these diseases. These are the diseases of our epoch.”
Some people in biotech seem to think they can “take refuge,” as Pops put it, in orphan disease categories where payers don’t tend to push back much, because so few patients are affected. Instead of thinking about these as refuges where they have unlimited pricing power, companies need to make better progress in tailoring precise diagnostics and treatments based on how patients differ at the genetic and molecular level. I’m personally OK with
