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June 28, 2012
Effects of the Health Care Law on Pharma
Over at Forbes, Matthew Herper has some thoughts now that the major parts of the Affordable Care Act have been upheld. Among them is this on its effect on the pharma business:
Will the law actually benefit some drug companies? Many in the drug business have expressed regret about the decision to back the Affordable Care Act, even blaming former Pfizer chief Jeffrey Kindler, a Democrat, for having pushed a deal through. I think that some of this opposition is based on outdated thinking that says that even though the government already pays for a lion’s share of health care spending through Medicare and Medicaid, giving it even more control will eventually create price controls like in Europe.
This made sense when the industry made all of its money selling mass market pills such as Lipitor and Plavix, both now off-patent. But the model for many new cancer drugs (the biggest category in drug company pipelines) and for drugs for rare diseases is that the companies charge a price no individual can pay, and then try to get insurers and governments to pay for them. This is the basic strategy taken by companies like Alexion, Biomarin, and the Genzyme division of Sanofi, all of which charge hundreds of thousands of dollars per patient per year for there medicines. Getting more people insured is good for these companies. Right now Alexion and Biomarin are down, which makes little sense. Fundamentally, the success of the drug industry depends on inventing new medicines; at most, the law is neutral. . .
We'll see. I think that the high-price/low-patient-population strategy that Herper refers to will be up for revision at some point, and perhaps sooner than we expect. One of the selling points of the ACA/Obamacare was that it would (somehow) contain costs, and I still have a lot of trouble believing that it will do anything of the kind. If (when?) we find that we're still spending piles of money on health care, one of the more politically popular ways to cut costs (or at least look as if you're cutting costs) will be to go after therapies that cost six figures a year.
And this could get tricky, because any cancer drugs that are actually effective are likely to be so only for small populations (the people who have tumors that are driven by one treatable mutation, as opposed to a swarm of genomically unstable cells that can mutate their way out of attempts to shut them down). The more we learn about which drugs to give to which patients, the smaller the treatable population gets for any individual drug, and the higher the price. These lines have been heading for an intersection for some time now, and I don't see how the health care law will keep things from getting messy.
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