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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline

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August 8, 2011

More On Cancer Drug Shortages

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Posted by Derek

I wrote here back in June about the growing problem of shortages of oncology drugs. The blog post I linked to then (at Marginal Revolution) blamed regulatory factors and price controls as two major contributors to the shortages, but pointed out that you can't point your finger at just one factor. A pile of them, taken together, can gum up the system enough to cause trouble.

Now Ezekiel Emanuel in the New York Times has weighed in with a good editorial on the situation, and it blames. . .price controls and regulatory factors. For those who thought I was engaging in dangerous FDA-bashing in my last post, here's another factor to consider:

Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug. . .You don’t have to be a cynical capitalist to see that the long-term solution is to make the production of generic cancer drugs more profitable.

What many people don't realize is that the US has some of the cheaper generic medicines in the world, on average. But a solution that involves allowing drug companies (even the generic ones) to make more money is going to be politically difficult to implement. . .

Comments (14) + TrackBacks (0) | Category: Cancer | Drug Prices


COMMENTS

1. Sarkis Dallakian on August 8, 2011 1:34 PM writes...

Director of the NCI also mentioned this (shortages of oncology drugs) in a recent NCI Town Hall Meeting: http://videocast.nih.gov/Summary.asp?File=16763

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2. NoDrugsNoJobs on August 8, 2011 2:23 PM writes...

In the Soviet Union bread was free but nobody carried bread. Now we have cheap drugs but nobody can get them either. The more government involvement in the market the more it is guaranteed to get absolutely screwed up.

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3. PharmaHeretic on August 8, 2011 3:49 PM writes...

@NoDrugsNoJobs

Communism was always about control through lies, poverty and misery. It had nothing to do with the governments role in the market. Many West European countries also have significant government involvement in the market and for some "miraculous" reason they do rather well.

But you are too busy fellating another failed ideology aka capitalism to realize that.

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4. Terry on August 8, 2011 6:13 PM writes...

generally there is nothing wrong of the government involvement of the price of drug and other necessary products. the situation in china proved that it is a efficient way to fulfill the request of the majority of ppl in a very short time.

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5. Ben Venue on August 8, 2011 6:49 PM writes...

Don't forget to consider just plain stupidity and incompetence from those companies making the drugs on the shortage list. Sometimes the cause of the problem is quite simple.

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6. Pharmachick on August 8, 2011 9:11 PM writes...

Regulatory factors may well be at play here, but I somewhat suspect it is not entirely due to "price controls" ...

Government involvement in medical services/medical care/drug delivery to patients in, and of itself, is neither a good nor bad thing. It depends on how the "government involvement" is structured.

You get countries like New Zealand and Canada that have socialized medicine and most people are 80-100% looked after. This means things like free contraception (I guess Dept. of HHS is feeling pretty clever right now, see New Zealand circa mid 1990's). Other examples include that if you turn up to the ER after a car accident in Canada or New Zealand you get looked after, stitched up, X-rayed, MRI-ed, kept in for a couple of days (with meals and a bed), given drugs and an out-patient Rx when you leave. And maybe, just MAYBE it will cost you $1000. Likely less.

Unfortunately those same governments that apply socialized medicine also like to apply a certain type of Pharmacoeconomics. For example; the NZ government refused to fund a full course of Herceptin (9-12 months in the 00's) and only funded 3 months based on their own formula related to disease rarity, individual's disease severity and clinical trials results [at the time] ... That is until the NZ people (almost literally) revolted and forced the government's drug buying agency (Pharmac) to back down.

Another example: in the UK people that need a liver transplant due to acetaminophen OD (called paracetamol over there) are NOT ELIGIBLE for the national transplant list.

So where I'm going with this [and sorry for the rather long post] is that as I read it, these price controls are very, very new. And they're not structured in the way that other, [somewhat] successfully socialized medicine countries do. Socialized medicine countries generally tender out a nationwide contract for one drug and let Pharma compete for it, they then allow therapeutically equivalent drugs but at more cost to the individual patient. Again, from my reading, the price controls on cancer drugs were more authoritarian (but if I am wrong, happy to admit it) and this has caused the "no pay, no play" attitude to manufacturing them.

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7. cliffintokyo on August 9, 2011 4:31 AM writes...

Could not be simpler.
Create shortages - increase prices.
Business, as usual!

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8. bbooooooya on August 9, 2011 8:25 AM writes...

"Communism was always about control through lies, poverty and misery"

"another failed ideology aka capitalism"

Ok, so you seem to not like communism and capitalism. Any particular system you like, or shall we just say everything sucks?

Yes Western Europe is quite nice and equitable. Too bad they can't afford to pay for their sub 40 hour week with 6 weeks holiday lifestyle. Even with personal taxes higher than in the US, their debt load is staggering (see https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html).

If people are worried about US debt, at 59% of GDP, they should be floored by the Dutch figure of 65%, or the UK figure of 77%, the French figure of 84%, or Italy's 118%.

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9. processchemist on August 9, 2011 9:28 AM writes...

Once upon a time cytotoxic API's manufacturing was quite a safe business, where the heavier investments needed on the plant side were not so risky, and the western manufacturing capacity was quite well dimensioned for the market. Now ask between paclitaxel western manufacturers if they're happy about how things are going.
I only hope that the answer to the shortage will not be less controls on the asian producers (a lower level of control equals no control at all). The consequence would be the exctintion of this business in the western world, and this would not be so irrelevant.

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10. bbooooooya on August 9, 2011 10:24 AM writes...

No need to worry about quality control from China. It's not like they would put melamine in baby formula to try and starve babies, or diethylene glycol in toothpaste (and even if they did, it will just make your liver stronger).

The problem is not QC, it's big government. As long as we follow after the Tea Bag party, we'll know that the free market will take care of any QC issues and we'll all be fine, just fine.

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11. Terry on August 9, 2011 12:38 PM writes...

To 10
Big government can solve big issues, such as atomic bomb, skytrain, metro, high speed train, plan to land on moon, and also it may provide efficient strategy to solve the problems for majority ppl.

For example, in china almost all of 60% of the ppl already being covered by medicare, though not a high quality one, and some of the cities have already grow into international cities more open than New York and LA.

Well, the situation in food and drugs would be existing for a while, however, the authority is trying to solve this problem, and hopefully it can be solved after 5 years.

Nowdays with the booming economy of china and Asia, the structure of the system in these countries has changed. What surprising me is that even in a small village in china can produce PC, TV and fancy electronic stuffs. These so called high tech is no longer tech at all in china. In the pharmaceutical industry, China and India not only provide API to most US pharmaceutical companies but also provide outsourcing chemicals to these small start up for their further bio evaluation. A big government in special time is very competitive and would do thing more than you can imagine.

Think about the riot in England in this week, should they change the system? More government and less democracy?

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12. Terry on August 9, 2011 12:56 PM writes...

I also believe in the future the OTC and generic drugs in US will be provided by India and China pharmaceutical companies due to their relative cheap processing and high quality.

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13. bbooooooya on August 9, 2011 1:00 PM writes...

Yes, China does have some very lovely cities, I've visited a few and quite liked them. I have no doubt that once they figure out how to get the sewage smell out the air in Shanghai and Guangzhou they might be fine places to live. I hear there are even a couple of days a year now when you can see the sky through the pollution in the Pearl river delta! Not sure how long it will take to clear up those slums which, by comparison, make the Bronx look grand.

No doubt the next five year plan will solve the trouble with quality control the PRC. I guess I would ask, why did the government, or even Chinese business people ever think it was OK to put melamine in baby formula? Not saying the same thing couldn't happen in the US but, so far, it hasn't (at least to my knowledge).

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14. Terry on August 9, 2011 1:21 PM writes...

Melamin in formula and some chemicals being added to the food for live stock, that is a big problem.

All Chinese, no matter civil servants or normal public believe that it is unacceptable and deserves the severest punishment. One of the criminals have been sentenced to death, several have been sentenced to life sentence in jail. However, it is not the way to solve the problem. In china you don’t have to be a DR or master to manufacture chemicals. A farmer can learn the skills by himself and setup a chemical factory after registration to produce something such as melamin.
For government, it is hard to set regulation and inspection in such everyday life, the source of these misconducts, in my point is that poverty and lack education.
Due to the poverty, the competition in daily life merchandise is pretty high, to low the expense and keep the product price are two key issues for enterprise to handle.

Also 300 million poor ppl cant afford the expensive imported baby formula, the only choice is the domestic formula, however, with the capitalism in china , ppl lost their morality and the result is a tragedy.

How to regulate and change the system is still a challenge for Chinese.

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