About this Author
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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August 15, 2014

Incomprehensible Drug Prices? Think Again.

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Posted by Derek

There's a post by Peter Bach, of the Center for Health Policy and Outcomes, that's been getting a lot of attention the last few days. It's called "Unpronounceable Drugs, Incomprehensible Prices", and you know what it says.

No, really, you do, even if you haven't seen it. Too high, unconscionable, market can't support, what they can get away with, every year, too high. Before I get to the uncomfortable parts of my own take on this, let me stipulate a couple of things up front: (1) I do think that the industry is inviting trouble for itself by the way it it raising prices. It is in drug companies' short term interest to do so, but long term I worry that it's going to bring on some sort of price-control regimen. (2) Some drug prices probably are too high (but see below for what that means). Big breakthroughs can, at least in theory, command high prices, but not everything deserves to be priced at the level it is.

I was about to say "see below" again, but this paragraph is below, so here goes. Let me quote a bit from Bach's article:

Cancer drug prices keep rising. The industry says this reflects the rising costs of drug development and the business risks they must take when testing new drugs. I think they charge what they think they can get away with, which goes up every year. . .Regardless of the estimate, the pricing of new drugs for cancer and now other common diseases has come unglued from the rationale the industry has long espoused. Instead, pricing is explained by a phenomenon of increasing boldness by the industry against a backdrop of regulators and insurers who have no legal authority to dictate or even propose alternative pricing models.

Bach's first assertion is correct: drug companies are charging what they think they can get away with. In that, they are joined by pretty much every other business in the entire country. I did a post once where I imagined car sales transplanted into the world of drug sales- you couldn't just walk in and buy a car, for example. No, you had to go to a car consultant first, licensed by the state, who would examine your situation and determine the sort of car you needed. Once they'd given you a car prescription, you could then go to a dealer.

Well, we don't have that, but what car companies do charge is, well, what they can get away with. The same as steel companies, soft drink companies, cardboard box companies, grocery stores, and people who are selling their houses. You charge what you think the market will bear. Even people selling basic necessities of life like food and shelter charge what they think the market will bear. It's true that health care does feel different from any of those (a point that I went into in that post linked in the last paragraph), and there's the root of many a problem.

And, some will say, a big difference is that none of these other sellers have patents on their side, the legal right to put the screws on. But remember the flip side of the patent system: the legal certainty that you will lose that pricing power on a set date. The pricing of new drugs is completely driven by their expected patent lifetimes, because almost all the money that the developing company is ever going to make off the drug is going to have to be made during that period.

And sometimes that period isn't very long. The patent clock starts ticking a long time before a drug ever gets on the market; there are often only five to ten years left when it's finally approved for sale. There are other factors, too. Everyone is talking about the price of Sovaldi for hepatitis C, but no as many people have thought about the fact that the drug is, in fact, so effective that it has blown two other recently approved Hep C treatments right out of the market, well before their patent lifetimes had even expired. There really is competition in the drug business, and that sector shows it in action.

Now, what there isn't so much of is competition on price, true. And that's what you do see in the other businesses I named above. There are grocery stores that occupy the "Wonderful Prestigious High Quality" part of the market, and others that occupy the "Low Low Prices Every Day" part. (And interestingly, if you Venn-diagram out what's on the shelves of those two, there's still some overlap, allowing you to watch people paying wildly different prices for blueberries that came off the same truck, not to mention even less perishable stuff like aluminum foil). You don't see this in the drug industry, partly because for patented drugs we're never selling the same blueberries. the same gasoline, or the same khaki trousers. Even the biggest "me-too" drugs still differ from each other to some degree.

And that brings up another point. Bach uses (as his example of pricing in the cancer field) two Alk compounds, Xalkori (crizotinib) from Pfizer and Zykadia (ceritinib) from Novartis. Xalkori was first, and Bach makes a lot of the fact that Zykadia is priced higher, even though he says that Pfizer ran bigger clinical trials, had to work out the associated diagnostic test with the FDA, and launch the new mechanism into the oncology market. Novartis, he says, got to piggy-back on all that, and yet their drug is priced higher. There can be no other reason for that pricing decision, Bach says, other than that they can.

Let's go into some details that Bach's article leaves out. Zykadia is indeed second to market. But the time gap between the two drugs means that Novartis was working on it before they knew that Xalkori worked in the clinic. Bach makes an error here made by many others who have not actually done drug discovery work: the time course of these things is longer than it looks. A screen had to be run against Alk, compounds had to be confirmed, a medicinal chemistry team had to optimize them and make lots of new structures, all of which except one fell by the side of the road. The compound had to go through animal tests for efficacy and safety, and it had to be scaled up and formulated. And so on, and so on. Novartis did not sit back, watch Xalkori succeed, and then decide "Hey, we should get us some of that action, too".

Now Zykadia is, as Bach says, a second-line therapy. But it's approved for patients who do not respond to, or have become intolerant to Xalkori. So this "me-too" drug is, in fact, different enough to work on patients for whom Xalkori has failed. In fact, most patients will start to show relapse inside of a year on Xalkori, so it would appear that most non-small-cell lung cancer patients with multiyear survival are probably going to end up taking both compounds. Cancers mutate quickly, and we need all the options we can get - and guess what, some of those options are going to be second to market, because they can't all be first.

Another point to note is that while Zykadia was indeed approved on the basis of a smaller clinical trial set, that's because it received "breakthrough" designation from the FDA for accelerated review and approval. Startlingly, it actually got approved after Phase I trials alone. (Not bad for what Bach characterizes as a simple copycat drug, by the way). Novartis has run the compound in more clinical trials than that, and they continue to do so. It's not like they slipped in with a mere 163 patients and then trotted off to the FDA while brushing the dust off their hands. To find this out, by the way, you'll want to use "LDK378", the internal Novartis designation for the drug, and I'm passing this information on to Bach for free. shows 13 trials in the US when you do that, and there are others outside the country as well.

Bach's article, as mentioned, plays down any differences between these two drugs, saying that "they have not been directly compared". But that's not accurate. Let me quote from that link in the paragraph just above:

As described by Shaw and colleagues in the New England Journal of Medicine, ceritinib has striking activity in ALK-rearranged NSCLC, both in treatment-naïve patients and in those who experienced tumor progression on crizotinib. . .The drug has clear pharmacological advantages over crizotinib. Its surprising level of activity in crizotinib-resistant tumors may be explained by its greater potency and its particular ability to inhibit ALK with gatekeeper mutations that confer resistance to crizotinib.

The two drugs have had a very important comparison: people who are going to die on Xalkori are going to survive longer if they switch to Zykadia. "Me-too" drug, my ass.

But rather than end on that note, tempting as that is, let me circle back to pricing once again. The price for these cancer drugs is not borne by individual patients emptying their piggy banks. It is borne by insurance, both private and government. And drug companies do indeed price their drugs at what the think the insurance plans will pay for them. This is not a secret, and should not be a surprise, and I continue to be baffled by people who react to this with horror and disbelief. Prices appear when you find out what the payers will pay. If Pfizer, Novartis, or Gilead priced their drugs at fifty million dollars a dose, no insurance company would reimburse. But the insurance companies are paying the current prices, and if they believe that they will be put out of business by doing so, they need to stop doing that. And they could.

They will, too, if we in the industry keep pushing them towards doing it. That's our big problem in drug development: our productivity has been too low, and we're making up for it by charging more money. But that can't go on forever. There are walls closing in on us from both sides, and we're going to have to scramble out from between them at some point. Pricing power can only take you so far.

Comments (42) + TrackBacks (0) | Category: Cancer | Clinical Trials | Drug Prices | Regulatory Affairs | Why Everyone Loves Us

May 29, 2014

The Price of Sovaldi

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Posted by Derek

John LaMattina has a good post about Gilead, their HCV drug Sovaldi, and the price that the company is charging. Most readers here will be familiar with the situation: Sovaldi has a very high cure rate for hepatitis C, but in the US it costs $84,000 per patient. Insurance companies, in some cases, are pushing back at that price, but LaMattina says to run the numbers, in a question to the head of the insurance trade association:

Sovaldi is a drug that cures hepatitis C. It actually SAVES the healthcare system money in that it will prevent patients from dying from liver cancer, cirrhosis and liver failure. Liver transplants alone can cost $300,000 and then patients must take anti-rejection drugs that cost $40,000 per year for the rest of their lives. The price of Sovaldi, while high now, will drop, first when competitive drugs in late stage development reach the market and then when the drug is generic. Given all of this, what price for Sovaldi would have been acceptable to you – $60,000, $40,000, $10,000? What price are you willing to pay for innovation?

He didn't get an answer to that one, as you can well imagine. But it's a worthwhile question. There are, I'm sure, hepatitis C patients who die of other things before they ever start costing the kinds of money that LaMattina correctly cites for liver transplants. I don't have those figures, but if anyone does, it's the insurance companies, and they may believe that Sovaldi is still not cost-effective. Or (and these are not mutually exclusive explanations) they may be pushing back because that's what they feel they have to do - that otherwise all sorts of companies will push up prices ever more than they do already.

This is just another illustration of the walls that are closing in on the whole drug-discovery business - fewer drugs, higher costs to develop them, higher drug prices, more pushback from the payers. It's been clear for a long time that this can't go on forever, but what might replace it isn't clear (and probably won't be until the situation gets much tighter). I say that because although drug prices are surely going up, the insurance companies are still paying out. They complain, but they pay. We'll know that the real crisis is at hand when a new drug gets flatly rejected for reimbursement by everyone involved. But will that ever happen in quite that way? Keep in mind that drug companies carefully set their own prices according to what they think the market will bear. Gilead surely knew that their price for Sovaldi would be unpopular. But they probably also figured that it would hold.

Pretty much every other industry does this sort of thing, but Health Care Is Different, as always. I had a crack at explaining why I think that is here: in short, we think about health expenses differently than we think about almost any other expense, and I don't think that's ever going to change. But drug prices will continue to test the limits of the insurance companies to write the checks, as long as those checks keep getting written.

Comments (41) + TrackBacks (0) | Category: Drug Prices | Infectious Diseases

May 1, 2014

Another Whack at the Cost of Drugs Issue

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Posted by Derek

I wanted to highlight this post by Wavefunction on drug pricing. He's addressing the peole who want to know how come a drug with $X of ingredients in it can sell for some multiple of that price, and I'm glad he's making the effort. That's a tough crowd to convince (I've taken several swings at the same topic myself). He emphasizes the difference between the cost of manufacturing something versus the cost of discovering it, which is exactly right, but the people arguing about this issue will usually dispute any realistic estimate of those discovery costs as well. But it's a point that has to be made. It's not that there's no way that a drug could ever be priced too high. It's just that they can also be priced too low.

Comments (17) + TrackBacks (0) | Category: Drug Prices

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

December 6, 2013

Outcomes, Expensive Outcomes

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Posted by Derek

Well, to go along with that recent paper on confounding cell assays, here's a column by John LaMattina on the problem of confounding clinical results. For some years now, the regulatory and development trend has been away from surrogate markers and towards outcome studies. You'd think that lowering LDL would be helpful - is it? You'd think that combining two different mechanisms to lower blood pressure would be a good thing - is it? The only way to answer the questions is by looking at a large number of patients in as close to a real-world setting as possible.

And in many cases, we're finding out that some very reasonable-sounding ideas don't, in fact, work out in practice. These aren't just findings with new or experimental drugs, either - as LaMattina shows, we're finding out things about drugs that have been on the market for years. This illustrates several important points: (1) There's a limit to what you can find out in clinical trials. (2) There is a limit to what reasonable medical hypotheses are worth. (3) We do not understand as much as we need to about human biology, in either the healthy or diseased state. (4) A drug, even when it's been approved, even when it's been on the market for years, is always an experimental medication.

LaMattina also points out just how crazily expensive the outcomes trials are that can generate the data that we really need. He's hoping that companies that spend that sort of money will emerge with a compelling enough case to be able to recoup it. I certainly hope that, too - but I'm absolutely 50/50 on whether I think it's true.

Comments (16) + TrackBacks (0) | Category: Clinical Trials | Drug Prices

October 21, 2013

Catalyst Pharmaceuticals And Their Business Plan

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Posted by Derek

The orphan-drug model is a popular one in the biopharma business these days. But like every other style of business, it has something-for-nothing artists waiting around it. Take a look at this article by Adam Feuerstein on Catalyst Pharmaceuticals, and see what category you think they belong in.

They're developing a compound called Firdapse for Lambert-Eaton Myasthenic Syndrome (LEMS), a rare neuromuscular disorder. It's caused by an autoimmune response to one set of voltage-gated calcium channels in the peripheral nervous system. Right now, the treatments for the condition that seem to provide much benefit are intravenous immunoglobin and 3,4-diaminopyridine (DAP). That latter compound is a potassium channel blocker that allows calcium to accumulate intracellularly in neurons and thus counteracts some of the loss of function in the system.

DAP is not an FDA-approved treatment, but it's officially under study at a number of medical centers, and the FDA is allowing it to be given to patients under a compassionate-use protocol. It's supplied, free of charge, by a small company in New Jersey, Jacobus Pharmaceuticals, who got into the area through a request from the Muscular Dystrophy Association. So how well does Firdapse work compared to this existing drug? Pretty much the same, because it's the same damn compound.

Yep, this is another one of those unexpected-regulatory-effects stories, such as happened with colchicine and with hydroxyprogesterone. The FDA has wanted to get as many therapies as possible through the actual regulatory process, and has provided a marked-exclusivity incentive for companies willing to do the trials needed. But if you're going to offer incentives, you need to think carefully about what you're giving people an incentive to do. In this case, the door is open for a company to step in, pick up an existing drug that is being given away to patients for free, a compound that it has spent no money discovering and no money developing, run the fastest trial possible with it, and then jack the price up to whatever the insurance companies might be able to pay. Now, pricing drugs at what the market will pay for them is fine by me. But that's supposed to be a reward for taking on the risk of discovering them and getting them through the approval process. This Catalyst case is another short-circuit in the system, a perverse incentive that some people seem to have no shame about taking advantage of. A similar situation has taken place in the EU with DAP and Biomarin Pharmaceuticals.

The LEMS patient community is not a large one, and they seem to be getting the word out for people to not sign up for Catalyst's clinical trials. Jacobus themselves have realized what's going on, and are running a trial of their own, hoping to file before Catalyst does and pick up the market exclusivity for themselves, so they can continue to supply the compound at the current price: nothing.

It's worth taking a minute to contrast this situation with Biogen's Tecfidera. That's another very small molecule (dimethyl fumarate) being given to patients with a neurological disease. It's also expensive. But in this case, MS patients had not been taking dimethyl fumarate for years (to the best of my knowledge). It was not already in the medical literature as an effective treatment (the way DAP is already there for LEMS). Biogen bought the company with the rights (Fumapharm) and took on the expense of the clinical trials, taking the risk that things might not work out at all. A lot of stuff doesn't. And they're pricing their drug according to what the market will pay, because they also have to fund the many other projects they're working on, most of which can be expected to wipe out at some point.

So how does a situation like Catalyst and DAP affect the drug companies who actually do research? Not too much, you might think, and they apparently think so, too, because I don't recall any statements about any of these cases so far from that end of the industry. They may not want to take any stands that call into question the ability of a company to set the price of its drugs according to what it thinks the market will bear. But since we are not, la