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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: Twitter: Dereklowe

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June 28, 2012

Effects of the Health Care Law on Pharma

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Posted by Derek

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 I think that some of this opposition is based on outdated thinking that says that even though the government already pays for a lion’s share of health care spending through Medicare and Medicaid, giving it even more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.

Comments (27) + TrackBacks (0) | Category: Business and Markets | Cancer | Regulatory Affairs


1. NoDrugsNoJobs on June 28, 2012 12:37 PM writes...

As I contemplate the increasing precariousness of my own employment situation, I can't help but think how nice it would be to get healthcare paid for by the state whilst I figure out my next career move. Overall I think it will further kick the budget of my state and the country deeper into the red (if that is possible) but alas, that can be somebody else's problem for a while. I would love to take a couple of years off and explore other career and educational options.

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2. Mike G on June 28, 2012 12:45 PM writes...

I lost big time on that one.

I'm still hoping that I'll make money on my bet they discover ET before 2015.

Still, I'll be voting for Romney after this. I'd rather have a right wing republican in office that's truthful than a lying virtual democrat.

My guess is that Healthcare costs will continue to climb because it's ludicrous that this ACA market based solution will work 'because there are more people in plans'.

We already have a market (which is supposed to spur competition), and it's dysfunctional. Now we'll have a dysfunctional market you are mandated to deal with or go to jail.

This can't be good for Pharma since you'll never know when and if congress will interfere in your business plan.

Both Pharma and Healthcare stocks are down on the news. So who the hell actually lobbied congress for this thing????

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3. Jon on June 28, 2012 12:57 PM writes...

Romney is "a right-wing Republican in office that's truthful"? This is snark, right? At times the man can't keep the same position in a single sentence. Or why can it work for MA but not nationally?

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4. Laurent Wada on June 28, 2012 2:05 PM writes...

No matter what system is in place, the healthcare industry is going to be doing business with the government. So why not just cut out the middleman and make it a single-payer system? Everyone needs healthcare, just like they need police, national security, and education. Why have insurance? Why not just pay for it?

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5. CR on June 28, 2012 2:40 PM writes...

Whether Romney would be better than Obama is one thing, but to say Romney is a "right-wing republican" is something different. I don't know a single republican that would call Romney "right-wing" - many don't even think he's a true republican and is only pretending to be to get he nomination.

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6. josh on June 28, 2012 3:04 PM writes...

@Laurent W
Everyone needs a roof over their head too... should we initiate a tax for that? What about food and water, those are pretty necessary for living, lets throw that one on there as well. How long before clothes are on that list? Cars? iPhones? We could keep going but at the risk of being accused of trolling...

Getting to the point at hand: Whats wrong with price controls? Giving pharmaceutical companies the title of "Big Pharma", insinuating their main job was to make a profit, is probably where this all became a problem. We need to be in the business of solving problems and treating disease, profit should be a by product. Schadenfreude is an excellent word, is there one for profiting off of other people's suffering? I was at a seminar given by Sam Danishefsky a couple months ago and he showed this excellent chart for the relationship of the introduction of the MBA to pharmaceutical research and number of new approved drugs, I will let you guess what the relationship was.

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7. Fred on June 28, 2012 3:16 PM writes...

1) Having healthcare tied to one's employer makes little sense in a world is more like "speed dating" than commitment. Infrequent speed dating, at that.

2) Insuring more healthy people is the surest way to slow the rate of HC cost increases.

3) Where's the Republican plan? Maybe in the back of the Ryan plan it's that fine print that says ship all old people up to Green Bay in winter and maroon them on an iceberg.

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8. Am I Lloyd on June 28, 2012 3:56 PM writes...

Romney truthful? I will have a pound of what you are smoking.

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9. Anonymous on June 28, 2012 5:28 PM writes...

" even blaming former Pfizer chief Jeffrey Kindler, a Democrat, for having pushed a deal through"

In late 2008, Kindler polled Pfizer employees repeatedly on their party affliation. There were also multiple mass pleas to employees to write congressmen about issues xyz...

Always was a little curious about what Kindler did with all that data on his employees' party affliation... Also wondered what is the split of Pfizer Republicans laid off versus Democrats in that era.

Employers should not place their employees in such an uncomfortable position.

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10. Doug on June 28, 2012 6:35 PM writes...

@Josh. Have you not heard of welfare, public housing, ADC, etc? Pretty much everything you listed is already provided as a government service.

We're all on the hook for health care one way or the other. Today, if someone without money or insurance is critically injured or sick and they show up in the ER, they get service and you and I pay. Wouldn't it be better to just get everyone into the tent?

For the record, I'd prefer single payer; just say everyone gets Medicare. The infrastructure is in place, a tax structure exists, done...

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11. RB Woodweird on June 29, 2012 6:39 AM writes...

Roof? The mortgage interest deduction shorts the federal budget about $100 billion a year.
Food? Farm subsidies cost us $20 billion a year.
Water? I can't even begin to sum up the prodigious amounts of money which have been spent by government to build reservoirs, dams, etc. to ensure our water supply.
Bootstraps? You probably qualify for the bootstrap subsidy Congress snuck through as a rider on the defense bill last year. Check it out.

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12. Wile E. Coyote, Genius on June 29, 2012 7:49 AM writes...

A good bit of the problem with the health care "insurance", current or Obamacare to be implemented, is that it covers "everything". Insurance used to be "major medical". Now it covers checkups. Yes, checkups are important, but should they be covered by insurance? We don't have oil changes covered by auto insurance, but a vehicle certainly won't make it to 100,000 miles without oil changes. Changing furnace airfilters, new coat of paint, etc aren't covered by homeowner's insurance either.

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13. CR on June 29, 2012 9:03 AM writes...


The main problem with your argument: If you don't get an oil change and your car craps out at 30K miles, I don't have to pay for you to get a new one.

Arguing against paying for checkups is ridiculous...preventative medicine helps reduce overall costs.

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14. Laurent Wada on June 29, 2012 12:49 PM writes...

The prices are going to be inflated as long as there are deep pockets willing to pay the caregivers whatever they ask for. Get the insurance companies out of the equation, and the prices will crash.

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15. Slurpy on June 29, 2012 1:04 PM writes...

CR - Often, you DO have to pay for a new car. Wile E.'s car breaks down because he didn't change his oil, he's late for work, he loses his job and goes on welfare.

There's no such thing as one cow.

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16. Karl Hallowell on June 30, 2012 7:00 AM writes...

Arguing against paying for checkups is ridiculous...preventative medicine helps reduce overall costs.

There are two things to remember here. First, it is likely that no matter if one receives preventative medicine or not, the patient dies of something, and that is likely to be an expensive process either way. Second, preventative medicine finds expensive problems. While without out such exploration, there's a good chance that the patient dies of something else first.

Obviously, I'm glossing over important nuances such as dying of an expensive, preventative illness at 3 years of age, as opposed to an expensive impossible to avoid illness at 80. But arguing that preventative medicine helps reduce costs, without considering which cases do and don't, just will tend to increase costs overall. My view is that prenatal care and early childhood checkups get a lot of bang for the buck. But preventative medicine on a dying 80 year old is probably just going to increase the cost of their death.

I think we need to consider here the possibility that preventative medicine has contributed to higher medical costs throughout the developed world, not just the US, because it enables higher consumption of medical care.

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17. CR on June 30, 2012 9:24 AM writes...

Nice try Slurpy.

Karl...preventative medicine HELPS to reduce costs. Yes, it may find expensive problems, but many times if finds those problems well before they become expensive and can be treated accordingly. When most people think about preventative care they don't consider 80 year olds. But if everyone got check-ups we'd all be better off in the cost of health care. You can make the extreme argument (an 80 year old) and they are there, but you cannot argue that preventative care is one way to help keep costs down.

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18. MV on June 30, 2012 3:16 PM writes...

Actually CR, you might want to look up the data on preventive medicine. Most of the data indicates that much of it increases costs. There are exceptions.

The goal of preventive care is to prevent or mitigate disease, not to save money.

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19. Kaleberg on June 30, 2012 5:08 PM writes...

Usually, whenever the GAO predicts that some legislation will save Medicare or Medicaid money they underestimate the savings. The costs tend to go down more than they expected. Now, the GAO is predicting that the ACA is going to save money. It's quite possible, and it's quite possible that it will save more than even they expect.

If nothing else, the ACA is already forcing insurers to be more efficient and spend at least 80% of their take on actual health care rather than overhead. A number of companies have had to pay back premiums. We know that single payer can deliver about 97% of the take, so there alone there is room for savings. (I'd much rather see my health care dollars go to some drug discovery chemists cooking up weird ass compounds and then making fun of them on their blogs than on some clerk giving a doctor's office the run around on reimbursement.)

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20. Wile E. Coyote, Genius on July 1, 2012 5:30 PM writes...

My question about paying for checkups is an important one about how we govern ourselves (definition of politics). With everything in health care being "free", then more people will consume more health care services. This will mean increased expenses all the way around. If you have no concerns about cost as an end user, then that's the insurance companys' problem, right? There's no longer a concern by the average citizen to use health care wisely or be cost conscious. My worry is that we are going to rack up debt in this nation at an even greater rate with such requirements to make it free and subsidized by the government (taxpayer). Is it ethical to borrow from our children and grandchildren by forcing them to pay in the future for our extravagant spending now? Why not pay out of pocket for annual checkups so that the average user is more cost aware?

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21. AuntyRand on July 1, 2012 6:15 PM writes...

In a strict economic sense, there may indeed beincreased financial costs associated with preventative medicine, but isn't a reduction in human suffering worth something, too?

Your use of the term "extravagant" in the context of preventative medicine suggest to me that you're either someone who has never been in a position where the acquisition of basic of healthcare is a serious financial burden, or you're just another a concern trolling libertarian looking for a way out of your societal responsibilities. Given that the two phenotypes typicall co-segregate, I'm going to go with option three, that both desciptions apply.

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22. Wile E. Coyote, Genius on July 1, 2012 10:21 PM writes...


I think preventative care is laudable and should be encouraged. I didn't say we shouldn't have it. My use of "extravagant" is in reference to the huge government bureaucracy and subsequent expenses that this law will produce, not just preventive medicine (annual checkups), which is a small piece of the pie and only an example.

I view my social responsibilities to include the future generations (my national debt concern) as well as the current poor, who are also users of health care. I am not looking for ways to escape my responsibilities (I give >10% of my income per year to charity, plus pay may taxes, and I volunteer for charities, so you can't say I'm shirking, how much do you give?). I just do not believe that this law is the best way to solve the health care issue. My opinion. You're free to disagree.

Also, sorry to see that you're so willing to so quickly stereotype based on a few comments in a blog. There really are reasonable people on both sides of the issue for honest reasons. I would hope that you'd be one of them.

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23. Anonymous on July 2, 2012 9:05 AM writes...

@22 Interesting that you bring up stereotypes.

"There's no longer a concern by the average citizen to use health care wisely or be cost conscious."

In my experience, the number and timing of similar expressions of concern about the National Debt correlate well with fresh attempts to roll back popular aspects of New Deal legislation, and more tightly when expansions in social programs are proposed.

If it walks like a duck...

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24. AuntyRand on July 2, 2012 9:07 AM writes...

@22 Interesting that you bring up stereotypes.

"There's no longer a concern by the average citizen to use health care wisely or be cost conscious."

In my experience, the number and timing of similar expressions of concern about the National Debt correlate well with fresh attempts to roll back popular aspects of New Deal legislation, and more tightly when expansions in social programs are proposed.

Fairy Godmothers rarely hand out poison apples.

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25. LeeH on July 2, 2012 10:46 AM writes...

@22 and others

Your fear of a large government bureaucracy should be balanced by the fear of the same administrative infrastructure being replicated, over and over in each state by multiple insurance companies, as we have under the current system. Check the numbers. We pay double (about 20%) the proporation of total costs what Canadians pay for administrative costs (quadruple, if you consider that total costs are double per capita). Unless you believe that Americans (yes, the government is made of people) are too stupid or too incapable of replicating what many other countries do routinely, then we could enjoy immediate savings by going to, at least, a single accounting system for health care.

Regarding the total cost of health care under ACA, of course it will go up (at least initially). We're insuring more people. It's always cheaper to withhold health care and let people die early, but it's not the right thing to do, especially if it's based on socioeconomic class.

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26. alpha pharma on February 2, 2015 10:55 AM writes...

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27. alpha pharma on February 2, 2015 10:56 AM writes...

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I've read this post and if I could I desire to suggest you some interesting things or suggestions.
Maybe you can write next articles referring to
this article. I desire to read even more things
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Permalink to Comment


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