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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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January 3, 2014

Prices Rising - Every Year, Every Drug?

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Posted by Derek

Via AndyBiotech on Twitter, here's a disturbing chart of price trends of drugs in several therapeutics areas. Annualized, these are hikes of 10% or more per year.

Now, it seems clear that one big reason for this is that hey, insurance will pay for it. And no one needs to tell me (or most readers of this site) about the state of drug discovery and the corresponding need to make hay while the sun shines. I also think that companies should be able to charge what they think they can charge for their goods and services, and I would very much dislike handing over those decisions to some sort of review board that decides what the "right" prices should be.

But. . .(and it's a big "but", to use a phrase that sent my kids into floor-pounding hysterics when I used it inadvertently while trying to lecture them) there's another factor at work here. We've had a lot of discussions about drug pricing around here, and one theme I've brought up several times is that unless our business is seen as providing good value for the money, we are inviting the various hammers to come down on us.

Comments (37) + TrackBacks (0) | Category: Drug Prices


COMMENTS

1. CMCguy on January 3, 2014 4:00 PM writes...

The strangest thing in all this is that the drug companies seem to take a disproportion degree of blame as solely responsible for high prices when there are other contributors such as wholesalers, distributors and pharmacies that add on addition significant cost burden that does not go back to the originator. Of course I have seen pharma companies often refuse to lower prices on older because the valuation of Marketing the Brand name is misconstrued as what is important so they simply create there own generic version under another entity so frequently their own worst enemy.

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2. NMH on January 3, 2014 4:24 PM writes...

The drug companies SHOULD NOT be able to charge what they want if Medicare is held hostage by law to pay the full price, because it cannot negotiate prices like other groups can.

Thanks, big pharma, guys for all of the me too's and driving the US broke at the same time.

Just an opinion...

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3. Artem on January 3, 2014 4:32 PM writes...

I don't have the data, but to me it feels like pretty reasonable infation adjustment when you compare this with price trends for some other stuff in grocery stores around here in California

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4. Biotechtranslated on January 3, 2014 4:37 PM writes...

Derek,

A few things to keep in mind when looking at those prices:

(1) the stated price is AWP (average wholesale price) which nobody actually pays; in fact, there is no formal definition for AWP, but it tends to average around 20-40% higher than WAC (whole acquisition cost) which is the list price that wholesalers pay

(2) AWP also doesn't include any of the discounts offer through contracts with drug manufacturers. Some therapeutic areas shown (e.g. RA, asthma and oral diabetes are discounted heavily in order to get preferred formulary status); some of the biologic RA therapies offer VERY steep discounts for such access, some as high as 20-30%

(3) AWP also doesn't include the mandatory discounts CMS requires such as 340b pricing and Medicaid discounts (both 23.1%) and don't forget pharma's promise to "fill in the Part-D donut hole" which will amount to over a 50% discount for part of the cost. Also, it doesn't include the CPI penalty that CMS gets back when drug costs move up faster than inflation (measured by CPI). Some of the older drugs have very high prices, but CMS only pays $0.01 per unit because the CPI penalty is greater than the WAC cost of the drug

(4) Also, several of the drugs listed are either going generic shortly or already have (e.g. Singulair and maybe Copaxone and possible Remicade if biosimilars pan out). It's typical for drug companies to ramp up price increases right before patent expiration since they know the train ride is coming to an end shortly.

(5) In the case of MS, the oral therapies have been a key driver of the recent price increases. Some of those oral therapies (i.e. Tecfidera) offer real benefit to patients in terms of efficacy and improved safety/tolerance. Also, as new data comes out to support superiority to existing therapies or cost savings, drug companies often adjust pricing to reflect new data supporting a higher price.

Just some food for thought!

Mike

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5. Michael Norrish on January 3, 2014 5:52 PM writes...

The latest Economist has a very related piece at

http://www.economist.com/news/international/21592655-drug-firms-have-new-medicines-and-patients-are-desperate-them-arguments-over

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6. Rock on January 3, 2014 5:56 PM writes...

If you are old enough to have been working in the industry in the late 80's, early 90's then (in addition to being disproportionately unemployed now due to layoffs), you will remember that double-digit price increases were the norm back then. The back-lash was so severe at the time that most large companies voluntarily agreed to hold their price increases to no more than 2-3% above the CPI. I guess that phase has passed.

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7. Chrispy on January 3, 2014 6:45 PM writes...

I know a fellow who has ITP, a platelet-destroying autoimmunity for which he received steroids, infusions of rituxan, and has contemplated splenectomy.

GSK makes Promacta for treating this disorder but he never bothered to try it. Why? They charge $7000/month. The guy has insurance but his cost would still be several thousand dollars per month -- for a small molecule!

I really don't know who takes this drug or who thought it made sense to price it this way. When I heard this I was embarrassed for my industry.

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8. David Young on January 3, 2014 6:47 PM writes...

As a oncologist, I think that the extremely high costs of new drugs is a terrible thing. I can make a few observations.

1) Are there individuals who could benefit from new drugs but can't because their disease is not exactly the one that insurance will pay for? Yes, I have to deny many patients from helpful treatment. This wasn't so much the case 25 years ago.

2) These very expensive medications cost a lot less in other countries. Japan said to Genentech "we will not allow Avastin on the market unless you cut the cost in half" and so they did.

3) A lot of patients get the expensive treatments for free. Not 10 percent, not 20 percent, but probably 60 or 70 percent of our cancer patients get the newer oral anticancer drugs for free. Some of these patients a very wealthy, but are retired and have a low to moderate income. The payments for some anticancer drugs are borne by ony a few, and those few are not savy. I have wealthy patients who get these drug free by lying about their wealth. Happens all the time.

4) Back in the day, oncologists would find usefulness in novel combinations of anticancer drugs, by just trying them out. Today that is impossible.

Drugs such as Jevtana is approved only for Prostate cancer but may have use in dozens of other cancers. But that will never happen.

Havalen may have usefulness in a couple dozen cances but that will never happen.

Pixantrone, not approved in the US but approved now in Europe might have some very good uses in lymphomas. If approved, it will be extremely expensive and approved for a very limited use. But it could really be helpful in other situations where it cannot be used because of the high cost.

The extremely high cost of anticancer drugs has ruined innovation and has greatly limited what oncologist can do for their patients. The costs are too much.... way to much.

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9. barry on January 3, 2014 8:56 PM writes...

Roy Vagelos made the same point at a Gordon Conference in '05. He's no fan of government regulation. But it was clear to him already that if Pharma continued to charge ever more for drugs that weren't life-changing (and even for drugs that are) the federal govt. would step in to regulate them

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10. alig on January 3, 2014 10:04 PM writes...

@8

The extremely high prices that new oncology drugs receive is precisely the reason there are so many inovative new drugs for cancer. Pharma has shifted resources away from other diseases towards cancer research because of the high premiums paid for these medicines.

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11. Anonymous on January 3, 2014 10:47 PM writes...

10% annual price increase is more than the annual revenue growth of many pharma companies, so does that mean they are selling a decreasing volume of drugs but getting more for them?

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12. Anonymous on January 3, 2014 11:46 PM writes...

and these will all be cheaper generics in less than 20 years and the bar for new innovative treatments will be even more difficult to top, which is good for society. long term average, these drugs will be cheap

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13. MB on January 4, 2014 1:38 AM writes...

If the NIH and all sorts of tax payer dollars from other sources are paying for the basic research that goes into making many new drugs, why doesn't the government simply take over clinical trials and manufacture drugs? It would cost billions in investment, but the return is much more in terms of both the benefits to society and the jobs it could create. It's outrageous private companies get to pocket billions in profits that originally came from tax payer funded ideas.

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14. anonymous-2 on January 4, 2014 1:43 AM writes...

a return trip coach ticket to India costs $ 1200/-; a full supply of any modern day anti-cancer drug is generally readily available - at reasonable prices (quality on par with US-FDA approved medicines -- i can hear the critics hear. the latest biologics may be hard to get, but all the small molecules and small peptides would be available.

This is a worthy option to combat the ridiculous pricing of onco-therapies.

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15. Thomas on January 4, 2014 4:26 AM writes...

I like to view the cost of medicine in a holistic manner. For the individual it may make sense to extend life by 3 months for a million bucks, especially if it is paid by an insurer. But that million, if spent earlier in life of the patient, would have made a much greater improvement in life quality (for example by making a year-long trip around the world while young, strong and healthy).

So... shouldn't insurers set a limit on cost per month of gained life (equivalent)? Cynical: like and old car is deemed 'totalled' for a small dent.

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16. Petros on January 4, 2014 8:51 AM writes...

Re Thomas (15)' point

That is the rationale adopted by NICE in England and Wales, which has been a source of much angst to and arguments with big pharma.

Germany has recently adopted a similar approach

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17. David Young MD on January 4, 2014 9:23 AM writes...

#10 The extremely high costs prevents patients from getting these innovative drugs. Because of the very high prices, patients have to fit exact criteria to get their insurance to pay. These leaves many individuals whose condition does not fit the critera. Many patients who could have been helped cannot be helped.

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18. SteveM on January 4, 2014 10:21 AM writes...

Re: #8 David Young - Rhetorically, if there are other off-label indications for specific oncology drugs, why aren't the IP owners funding the clinical trials to get them approved for those indications?

Or more generally, why isn't the market working to do that? I.e., if the IP owners don't want to fund the trials, why aren't they arranging risk/profit sharing relationships with outside capital that will?

Seems like not only patients are being short-shrifted, but money is actually being left on the table.

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19. david Young MD on January 4, 2014 3:36 PM writes...

#18 it must be very complicated. The FDA makes it very hard for honesty about a new drug. Take Jevtana (Carbazitaxel) for instance. The drug came on the market as a "new, improved" taxane for prostate cancer. Yes, it met endpoints in the pivotal clinical trial so, yes, it is available to treat advanced prostate cancer. The drug is suppose to have some advantage over other taxanes in that Carbazitaxel is not a substrate for the P170 pump, as are other taxanes. But does this make a difference I ask you? Might it just be that the drug works a little better than Docetaxel for no particular reason? Well, Is Carbazitaxel a good drug for other cancers where the P170 pump plays a role in resistance. Breast cancer? Lymphomas? Will we ever find out? Probably not. I think that Sanofi is happy to have it on the market and probably have little reason to believe that it could help other cancers. But maybe it can. My hunch is that we will never find out and because of the extremely high cost, we will never be able to find out by trying it out ourselves.

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20. AnonymousE on January 4, 2014 6:29 PM writes...

Insulin is a life sustaining medication. Around 1996 when Humalog came on the market, it was approximately $30 per vial. Now it's around $130 per bottle. Very difficult for consumers. How much is enough for pharma to earn?

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21. jbosch on January 4, 2014 7:16 PM writes...

@7,
in societies with a functional medical system, those costs are covered e.g. Germany, Switzerland, Norway etc.

Perhaps, but only if US citizens consider the longterm benefits, this country will reach that level of medical care in the next 30-40 years. Honestly, I doubt that that will happen. If you look at the yearly expenses based on topic, you end up with 57% of the budget going into military purposes, 6% health care, 3% science.

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22. M Welinder on January 4, 2014 7:32 PM writes...

The ability to set your own prices doesn't go well with a state-sponsored monopoly. If you want free-market pricing then get rid of patent protection.

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23. Anonymous on January 4, 2014 7:45 PM writes...

@22: OK, you spend billions to develop a new drug, and I'll copy it and sell it myself.

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24. Anonymous on January 4, 2014 10:58 PM writes...

#8 David Young's third observation represents the micro-differential pricing strategy currently practiced by pharmaceutical companies. However, the current practice is not transparent or objective, which may lead to those who could afford to pay more, paying less in some cases.

For another post about micro-differential pricing strategy for drugs, see Ravi Mohammed's post:
http://blogs.hbr.org/2013/05/solving-the-100000-cancer-drug/

Drug prescriptions differ from other luxury expenses (travel, entertainment) where micro-differential pricing exist because they are perceived as a need (water, food, shelter) than a want. Pharmaceutical companies know this difference and they would rather spend more of their research dollars on biologic drugs like monoclonal antibodies rather than riskier small molecule research of oral medications in new target indications.

Why would a big pharmaceutical company invest in an internal small molecule research program that has a high risk of failure anymore? And if the program succeeds and gains approval for its oral drug, then it faces a steep price reduction (70-80%) after its patent expiration.

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25. Pedantic Speaker on January 5, 2014 12:39 PM writes...

Re #18: In at least one case, Avastin for wet age-related macular degeneration, the company is actively refusing approval in order to make more ophthalmologists use Lucentis, which is "the same damn molecule with a few cosmetic changes" according to one ophthalmologist (who claims that Lucentis is absurdly overpriced).
Ironically, of course, Avastin is not very effective and very expensive for treating the various cancers for which it is approved, and for the one disease in which it is cheap and effective, the company "has refused encouragement from the FDA to seek official approval for using it".
http://www.washingtonpost.com/business/economy/an-effective-eye-drug-is-available-for-50-but-many-doctors-choose-a-2000-alternative/2013/12/07/1a96628e-55e7-11e3-8304-caf30787c0a9_story.html

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26. Matt on January 5, 2014 2:42 PM writes...

A lot of confusion in both the post and the comments -- I'm not sure everyone read and understood post #4.

While AWP can increase quite a bit year over year, in some cases discounts offered to managed care, gov't, and other stakeholders such as specialty pharmacies, GPOs, etc. have also increased. Pharma support for patient OOP is also increasing by quite a bit over the same time frame.

In other words "price" may increase by 5% just to keep pace with discounts and other costs on the back end.

Also please note that in the US, similar to something like college tuition -- everyone pays a different price. This ranges from close to the list price for a non contracted commercial payer, to much less (340b, medicaid) to free for patients without insurance.

I'm not saying that US commercial drug prices are appropriate, but these statistics are misleading.

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27. DatamonitorMark on January 6, 2014 4:50 AM writes...

Re #8 and #19 David Young: Citeline's TrialTrove database records 24 Phase II trials of Jevtana for cancers other than prostate. Indication expansion efforts are a little more structured than being entirely reliant on the ability of patients to bear the financial cost of testing the off-label hunches of their oncologist on an individual basis.

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28. DTX on January 6, 2014 11:10 AM writes...

For an interesting contrast to the above, on Dec 13 the WSJ had an article "New Medicines emerge, but few blockbusters." The study compared 2000-2005 to 2006-now. Of the 271 drugs launched since 2006, only 13 have notched US sales >$1 bil vs. 33 of 257 drugs introduced during the previous 5 yrs.

Average price is also lower. New drugs launched 2006-2010 averaged $143 mil/yr in the US vs. $208 mil/yr in the previous 5 yrs. A conclusion is when multiple treatments are available, insurers are aggressively tryin to steer prescriptions to less expensive options. It says new drugs face a "skeptical and cost-conscious marketplace."

Quite a contrast...the analysis in the WSJ looked at all new drugs, not just a few, so it likely better represents the real world of drug pricing.

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29. Stevedoc22 on January 6, 2014 11:53 AM writes...

The annual price increases (that occur like clockwork) are, in some ways the most irksome. There is no other industry I can think of where you can charge 5% -10% more per year, every year, for the EXACT SAME product.

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30. Anon on January 6, 2014 1:26 PM writes...

@29 Stevedoc22

I don't know 'bout 'merica, but here in Canada real inflation (not bogus government statistics) is at least 5% annually. I see it in electricity, internet, groceries, insurance, housing, etc.

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31. Goodhumor on January 6, 2014 2:39 PM writes...

Has anyone read the recent MIT Tech review article in Oct? It talks about the factors in drug pricing and one of the factors is "What the Market can Bear", ie. what the insurance can pay. As ACA is being rolled out, cost controls must play a part in lowering medical (drug) costs. Another factor in drug costs is availability. Recently, there have been drugs shortages in cancer and other drugs. I lost a aunt with pancreatic cancer. Who knows if she died due to lack of access to needed drugs.

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32. alig on January 6, 2014 4:30 PM writes...

Total spending on drugs in 2013 rose less than the rate inflation, a scant 0.4%. Pharmaceutical spending is not driving the increase in healthcare costs. See: money.cnn.com/2014/01/06/news/economy/health-care-spending

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33. anon01 on January 6, 2014 5:10 PM writes...

I don't know if anyone else has mentioned this ... but don't forget inflation. As currencies collapse in value you need more of the currency just to stand still. Perhaps we're not looking at the high price of drugs but the collapsing value of currencies.

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34. DTX on January 6, 2014 8:50 PM writes...

Another aspect that can drive the price of an old drug is when it is spun off by a large company.

Large companies sometimes continue to make old drugs for a very small patient population. E.g., I remember an old diuretic (1960s?) used by only 1000 patients in Canada who couldn't use the the more modern ones. It was huge money loser because it still required full regulatory support and it often faced difficult regulatory questions because it lacked the modern data on acceptable degradate levels, etc.

I'm not sure how common this is, but I've seen it happen at least 5 times with compounds divested by the big pharma I work for. One compound like this can have a big impact on the "average" price increase across drugs.

When it was spun off to a small company, they immediately jacked up the price hundreds of % so they could make the drug profitably.

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35. Diana on January 9, 2014 3:09 PM writes...

What would you say to the assertion that health care should not be a for-profit industry? I'm aware that requires a huge reworking of how things are currently done, but could drugs be developed and distributed efficiently and well under a different, publicly-funded system?

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36. naturalhealing on January 11, 2014 6:55 AM writes...

There are safer and more effective alternatives to drugs to treat Type 2 Diabetes. One, that can also be used with drugs such as Metformin, is Resveratrol. In two recently published human clinical trials done by respected medical schools it was shown that transmax resveratrol in the first study, and bioforte resveratrol in the second one, had the effect of reducing blood glucose, improving insulin sensitivity, lowering blood pressure and LDL cholesterol, and even lowering body weight. The scientist who did the transmax study stated, "Resveratrol can be an effective adjunct therapy for type 2 Diabetics currently using one of the Metformin like drugs, or who are controlling their Diabetes without drugs."

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37. chemdiary on March 12, 2014 7:33 PM writes...

I was just reading my Organic Chemistry textbook by Clayden. I happen to see the title "the best selling drug of all time- GlaxoWellcome's Zantac." So, I wanted to ask if this is true or is it still the best selling of all time? Does " the best selling" also mean the most "profitable" ? Thanks.

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