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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June 19, 2015

The Drug Abacus

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Posted by Derek

How much should drugs cost? That question can be answered in a lot of different ways, and at many levels of economic literacy. But the Wall Street Journal is reporting on a new comparison tool from a group at Sloan-Kettering, the "Drug Abacus".

As you will have already guessed, under many plausible assumptions (such as a year of life being worth $120,000, with 15% taken off for side effects), the model reports that many cancer drugs are overpriced. The two worst are Blincyto (blinatomumab) and Provenge. On the other hand, the nitrogen mustard derivative Treanda (bendamustine) comes out as worth nearly three times as much as Teva is charging for it. Your own mileage will vary, of course: some people will regard a year of life as worth substantially more than $120K. Note that as you get closer to $200,000 for a year of life, the majority of the drugs in the calculator become relative bargains. Now, most people will find the whole process of arriving at any such figure to be distasteful and disturbing (an understandable emotional response that underlies a lot of wrangling about the drug industry, I think). As I mentioned in that post, the English language has an entirely different word for "customer of a physician" than it does for a customer of anyone else providing any other service.

The Drug Abacus is an attempt to bring the various factors of oncology drug prices into view: how much extra lifetime a given drug can provide, what the side effects (and thus quality of life) might be, and larger factors like how novel the medication is and what the overall population burden of that indication is. That mixture, actually, is one of the problems I have with this idea (which in principle I think is worth doing). An individual patient is not going to be deciding the price they're willing to pay for a new drug based on its overall effect on the population, or how it fits into the therapeutic landscape. They want to know if it will help them, personally, and by how much

Another one of the sliding factors in the model, development cost, I don't think should even be in there at all. Drugs should be evaluated by what they do, not how easy or hard they were to find and develop. That factor can end up being misused in many ways: people can complain that Drug X had a faster path through the clinic, so it should cost less, and companies might turn around and argue that Drug Y had to go back for another Phase III, so therefore it should cost more. Neither of these make sense. Each company has to look at its overall R&D spending and its success rate and adjust its pricing based on the whole picture.

As I did in that post I linked to a couple of paragraphs ago, I'm going to use the always-annoying car analogy. What would a "car abacus" site look like? The various sliders would represent things that people take into consideration when they buy a car: its utility, its stylishness, its repair and upkeep costs, its resale value and expected lifetime. I don't think that there would be a "development costs" slider, would there? Or one for the car's overall use to society? But no matter what, some cars would certainly come out looking overpriced, unless you attach a large value to something like "prestige" or "stylishness", and even then, I'm not sure that the numbers would come out right. Manufacturers, though, charge what people are willing to pay, and if some people are willing to pay what seems like an irrational cost for a car, then so much the better.

The same principle operates at a coffee shop. You'll be charged extra for some foamed milk in your coffee, or a shot of hazelnut syrup or some "pumpkin spice", if it's November. That extra price, it has to be noted, is way out of all proportion for the cost of ingredients or the extra labor involved. The coffee shop is differentiating its customers, looking for the ones who have no objection to paying more for something different, and making sure to offer them something profitable when they come along. (And a chi-chi coffee shop, to extend the analogy, starts differentiating its customers even before they walk in the door, by the way it's decorated and the signals it sends).

But purchasing better health is, in the end, not quite like purchasing a car or even a FrappaMochaLatteChino. Thinking of it in those terms, I believe, can illuminate some aspects that otherwise get obscured, but in the end it's a much more basic and personal decision. And as for personal decisions, Milton Friedman divided expenditures into four categories: when we spend our money on ourselves, when we spend our own money on other people, when we spend other people's money on ourselves, and when we spend other people's money on other people. Since he was famously libertarian, it will come as no surprise that he regarded the first category as the one where people were most likely to make better decisions (and it should also come as no surprise that government spending lands, as it would have to, in the bottom category). There are objections to this classification - you could say that the first category is also the one in which we might allow our emotions to override rational decision making, whereas the last one has the greatest scope for calm cost/benefit analyses.

Those objections are at the heart of the debate about drug costs, because there is nothing that we are more likely to become irrational over than our own health or that of someone close to us. An extremely uncomfortable thought experiment is to imagine a close family member becoming gravely ill, and then figuring out what you would be willing to pay to make them better. (You can extend your discomfort by imaging whether or not you'd be willing to pay that same cost, out of pocket, to extend a similar benefit to someone on the other side of the world whom you've never met and never will. That's the line of reasoning taken by Adam Smith in The Theory of Moral Sentiments, subject of a recent popular exposition.). OK, back to your close family member. Got a figure in mind for a cure? How about an extra year of life, then? After all, that's the unit of the Drug Abacus calculations. What about an extra year, but they can't get out of bed? An extra month? How about everything you have, house and all, flat broke for another ten minutes? Ten seconds? At some point, Homo economicus gets up off the floor, having been clubbed over the head at the beginning of this exercise, and says "Hmm. Maybe not."

But it takes a while for that to happen, understandably. And the whole thing, as mentioned, is wildly unpleasant even as a thought experiment, so going through it in real life is an experience you wouldn't wish on anyone. The debate on drug pricing, though, grabs us by the backs of our heads and forces our noses down into the subject.

Comments (48) + TrackBacks (0) | Category: Drug Prices

May 14, 2015

Piling On Andrew Witty

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Posted by Derek

To go along with the recent calls for Andrew Witty to step down at GSK, here's John LaMattina wondering if he's the right guy for the job as well:

. . .the bigger issue with Witty’s stance is the direction that he is taking GSK. His company has a long and proud history of delivering new drugs to patients. Unfortunately, he has seemed to have lost his appetite for the difficult challenges faced in drug discovery. Sure, vaccines and consumer health care product are necessary and important. But so are new drugs for cancer, rare diseases, Alzheimer’s disease, etc. For a major company like GSK to deemphasize this type of research, especially given all of its R&D experience and capabilities, will correspondingly decrease the amount of innovation devoted to curing these diseases. That’s a shame.

He's referring to Witty's statements recently on drug pricing, and his calls to move GSK out of areas that depend on pricing power. I have long-term worries about this myself, but at the same time, if you come up with a really groundbreaking drug, you do indeed get to price it at what you think it's worth. That's your reward for taking on those substantial risks. (If you come out with a drug that makes your flu symptoms five per cent better for the last two days of the flu, on the other hand, you're not going to get many takers at $50k per course of treatment).

So if Witty is saying that the industry needs to be careful with its pricing, because we can't use that tool forever, for everything, I think he's right. But if he's saying that a fifty-thousand-dollar drug that saves the healthcare system a hundred thousand dollars is not a good deal, then that's harder to support. (You do, of course, have to make sure that the hundred thousand in savings are real!)

Comments (27) + TrackBacks (0) | Category: Business and Markets | Drug Prices

April 27, 2015

Market Exclusivity Is Sometimes Too Much

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Posted by Derek

Readers might remember a small company called Catalyst Pharmaceuticals, who have had a business plan that goes something like this: take the known small molecule that's used for the rare disease Lambert-Eaton Myasthenic Syndrome LEMS, 3,4-diaminopyridine. Rebrand it as "Firdapse", and do the clinical work needed to get it officially recognized by the FDA (it's one of those therapies that's been grandfather in for many years). Oh, and charge a lot more than the current supplier, Jacobus Pharmaceuticals, who provide it for free. (It truly is a small market).

Well, that plan has been diverted somewhat. As mentioned in that 2013 post, Jacobus was planning a clinical trial of their own, and Catalyst was apparently taken by surprise when those results showed up last week in a poster presentation. Now no one's sure who will file with (or get approval from) the FDA first.

Jacobus Pharma decided to conduct a clinical trial of 3,4 Dap in LEMS and seek FDA approval as a way to stop Catalyst from profiting off LEMS patients with Firdapse, Laura Jacobus said in a 2013 interview. Laura runs the eponymously named drug company with her father David.

"Firdapse is not a new compound. It's the same drug we make. What Catalyst is doing is not the same as a company profiting from a new invention. What Catalyst is doing is making money off LEMS patients. They don't want to help LEMS patients, they just want to make money. If I worked for Catalyst, I wouldn't be able to sleep at night," said Laura Jacobus.

She has a point there about new inventions. As mentioned in those posts I linked to in the first paragraph, and in several others here over the years, many of these cases are unintended consequences that the FDA unleashed when it asked for older drugs to be put through the regulatory system. But that doesn't always have to be the case. Companies can buy up older approved drugs and just ram a new price home, because why not? That's what's been going on with Thiola, and this new piece at Pharmalot details a number of other recent cases.

Valeant, for example, seems to have a very predictable strategy: the day that they get the rights to an old drug, its price at least doubles, and can go up fivefold or more, depending on what they think the market will put up with. You sometimes hear companies like Catalyst talking about how now that the old drug under study has been taken under their regulatory and manufacturing wing, that it'll be so much better quality, and be so much better for the patient community. Valeant doesn't bother with any of that crap:

On Feb. 10, Valeant Pharmaceuticals International Inc. bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%.

Neither of the drugs, Nitropress or Isuprel, was improved as a result of costly investment in lab work and human testing, Valeant said. Nor was manufacture of the medicines shifted to an expensive new plant. The big change: the drugs’ ownership.

“Our duty is to our shareholders and to maximize the value” of the products that Valeant sells, said Laurie Little, a company spokeswoman. “Sometimes pricing comes into it, sometimes volume comes into it.”

Pricing power should come to those who have earned it, as far as I'm concerned. Do the work, conduct the research, take the risk, and you should be able to reap the rewards. Take over a smaller company that (from your standpoint) is just too dumb to realize that they could have put the squeeze on by cranking the price up by a factor of five? That doesn't deserve so much of a reward. What I'd like to see is an easier path for generic competition in such cases. Let someone come in and compete on price, because there's clearly room for it.

Whenever I write about these cases, there are always a couple of comments to the effect that hey, that's the free market, dude - that's what you like, isn't it? But drugs are not generally sold under a free market system. No market in which a single supplier can raise the price by 525% overnight for no reason other than "Because we can" can be all that free, or all that much of a market, if by "market" we mean "competition between various firms for a share of the customers". The market-exclusivity incentives provided by the FDA (through deliberate action or through regulatory barriers) are strong ones, but they should be handed out with care. As it stands, I think it's too much of a reward, in these cases, for too little work.

Comments (54) + TrackBacks (0) | Category: Business and Markets | Drug Prices

February 20, 2015

More Price Hikes on Obscure Medication

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Posted by Derek

Get ready for some twists and turns here. I wrote back in September about the business model of Retrophin, a company whose plans (at least for the foreseeable future) were to find small-market drugs, buy them from their obscure producers, and then raise their prices into geosynchronous orbit. That particular story blew up in unforeseen ways, capped by the company's CEO, Martin Shkreli, making a bizarre appearance on a public forum (Reddit), which was of a piece along with his often ill-advised activity on Twitter. Shkreli was ousted by Retrophin's board a few weeks later, amid accusations of stock-trading irregularities.

He went on to form Turing Pharmaceuticals, whose business plan, by contrast, was (at least at first) to find some small-market drugs, buy them from their obscure producers, and raise their prices into geosynchronous orbit. As reported here by Adam Feuerstein, his first target was praziquantel (Biltricide), the antihelmenthic made by Bayer:

Shkreli is negotiating with the German drug giant Bayer to purchase marketing rights to Biltricide, a drug used to treat infections caused by worm-like parasites called liver flukes. A course of treatment with Biltricide typically involves taking six to nine pills in a single day and costs around $100.

If Shkreli acquires Biltricide from Bayer, he plans to raise the price of the drug to $100,000 for a single-day course of treatment, according to people briefed on Turing's business plans. No other changes or improvements to the drug will be made by Turing. The extra revenue generated by Biltricide is expected to earn Turing a fast profit for its investors and help defray the cost of developing other, experimental drugs, sources said.

But that sale seems to have fallen through. Bayer is not an obscure producer, as opposed to the former manufacturers of Thiola (the drug I wrote about last September), and when Shkreli's interest alerted them to the drug's potential for a price raise, they decided to just do that on their own. Effective earlier this month, they raised the wholesale price by 3.5x, apparently because insurance providers won't care much about such a low-volume drug. That (as Feuerstein pointed out on his on Twitter feed) is at least far less than what Turing planned. (The Thiola price hike was 20x).

But even that price increase by itself is still not the sort of thing that I (or anyone else) would like to see. As mentioned in my second Thiola post, pricing power is a weapon, for sure, but it's one that if you keep using indiscriminately can be taken away. "Not many people will notice" is not much of a good reason to unsheath it, either.

Praziquantel itself is not in the same category as Thiola, as far as I can see, where there really does seem to have been just one supplier. Several foreign generic suppliers make the compound, and Merck Serono has a long-standing donation program in Africa. So this one is not putting on the screws as hard, not that that's an excuse.

Comments (30) + TrackBacks (0) | Category: Drug Prices | Infectious Diseases

October 2, 2014

Catalyst Pharmaceuticals and Their Disgusting Business Strategy

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Posted by Derek

OK, this seems to be a new business model, damn it all. I wrote here recently about the huge price increase of Thiola (tiopronin) by a small company called Retrophin.

Now, as I wrote about here last year, another small company called Catalyst Pharmaceuticals is preparing to jack up the price of Firdapse (3,4-diaminopyridine) for the rare disorder Lambert-Eaton Myasthenic Syndrome (LEMS).

This disease is so rare, and the drug is so easily available, that it is currently being given away for free. But Catalyst is going to make sure that it won't stay free for long. Not at all:

There was never any doubt about Firdapse's ability to treat LEMS symptoms effectively because it's the same active drug as 3,4-Dap. With that perspective, Catalyst's triumphant press release Monday is all the more galling. The company took no risks with Firdapse. The company did no development work, made no effort to improve the drug's efficacy, safety or convenience for patients. The only thing Catalyst did was write a check to Biomarin and take over supervision of a Firdapse clinical trial already well underway.

For the zero work done by Catalyst, LEMS patients and their insurance companies will be paying as much as $80,000 for the exact same drug they use now for a fraction of the cost, if not gratis.

To just add a rancid cherry on top, that piece by Adam Feuerstein also details the way the company is apparently intimidating LEMS patients by telling them that they'll need to be deposed in a shareholder lawsuit. Now this is what regulatory failure looks like. I can think of no possible reason, no public good that comes from taking a drug that was easily available and working exactly as it should and have someone suddenly be able to charge $80,000 a year for it. This is not a reward for innovation or risk-taking - this is exploitation of a regulatory loophole, a blatant shakedown, or so it seems to me.

Why does the FDA let this happen? It brings the agency into disrepute, and the whole drug industry as well, and for no benefit at all. Well, unless you're the sort of person who executes one of these business plans, in which case you should get out of my sight. Too many people already think that all drug companies do is grab someone else's inexpensive compound and then raise the price as high as they possibly can. Watching people like Catalyst and Retrophin actually live the stereotype is infuriating.

Update: The previous licensee for this drug, Biomarin (in Europe) was harshly criticized for just this sort of business plan. Here is an open letter from 2010 from a group of British physicians to Prime Minister David Cameron, and its opening paragraph succinctly describes the problem here:

". . .The original purpose of this (orphan drug) legislation, passed in 1999, was to encourage drug companies to conduct research into rare diseases and develop novel treatments. However, as the rules are currently enacted, many drug companies merely address their efforts to licensing drugs that are already available rather than developing new treatments. Once a company has obtained a licence, the legislation then gives the company sole rights to supply the drug. This in turn allows the company to set an exorbitant price for this supply and effectively to bar previous suppliers of the unlicensed preparation from further production and distribution.

Similar regulatory loopholes have been used to raise the price of colchicine and hydroxyprogesterone, among others, and we can expect this to be done over and over, with every single drug that it can be done to, because the supply of people who think that this is a good idea is apparently endless. And the public backlash and the regulatory (and legislative) scrutiny that this brings down will then be distributed not just to the rent-seeking generic companies involved, but to every drug company of any type, because whatever hits the fan is never evenly spread. Do we really want this?

Postscript: In an interesting sequel to the Retrophin story, the company's board this week replaced CEO Martin Shkreli, whose sudden appearance on Reddit in response to this issue probably didn't help his position).

Comments (48) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs | The Dark Side

September 12, 2014

Thiola, Retrophin, Martin Shkrell, Reddit, and More

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Posted by Derek

Well, it was not a dull evening around the In the Pipeline headquarters last night. I submitted a link to Reddit for my post yesterday about Retrophin and Thiola, and that blew up onto that site's front page. The Corante server melted under the impact, which isn't too surprising, since it's struggling at the best of times. (A site move really is coming, and no, I can't wait, either, at this point.)

But then, to my great surprise, Martin Shkreli (CEO of Retrophin) showed up in the Reddit thread, doing an impromptu AMA (Ask Me Anything), which I have to say takes quite a bit of aplomb (or perhaps foolhardiness - I don't think too many other CEOs of any publicly traded corporations would have done it). But not too long after that, the entire thread vanished off the front page, and off of r/News, the subreddit where I'd submitted it.

Then I got a message from one of the moderators of r/News, saying that I'd been banned from it, and going on to say that I would likely be banned from the site as a whole. After having been on Reddit for seven years, that took me by surprise. As best I can figure, the thread itself was reported to r/Spam by someone, and the automated system took over from there. Over the years, I've submitted links to my blog posts, and Reddit, or some parts of it, anyway, has been notoriously touchy about that. The last time I submitted such a link, though, was back in February (and before that, August of 2013), so I'm not exactly a human spam-bot. We'll see what happens. Update: I was banned for some hours, but I've been reinstated.

But back to Retrophin, Thiola, and Martin Shrkeli. The entire Reddit thread can still be read here, via a direct link, although it can't be found in r/News any more. If you look for a user named "martinshkreli", you can see where he gets into the fray (I'm "dblowe" on the site, or perhaps I was?). You'll note that he gives out his cell phone, office phone, and e-mail, which again is not your usual CEO move - you have to give him that, although it does seem a bit problematic from a regulatory/compliance angle. So what arguments does he make for the Thiola price increase?

From what I can see, they boil down to this: patients themselves aren't going to be paying this increased price - insurance companies are. And Retrophin is actually going to be working on new formulations for the drug, which no one has done previously. He seems to have implied that the previous company (Mission Pharmacal) was reluctant to raise the price and take the public outcry, and stated (correctly) that Mission was having trouble keeping the drug in supply. He claims that the current price is still "pretty low", and that he does not expect any pushback from the eventual payers. There was also quite a bit about the company's dedication to patients, their work on other rare diseases, and so on.

He and I didn't cross paths much in the thread. I tried asking a few direct questions, but they weren't picked up on, so my take on Shkreli's answers will show up here. He's correct that the drug's availability was erratic, and he may well be correct that its price was too low for a company to deal with it properly. But if so, that does make you wonder what Mission Pharmacal was up to, and how they were sourcing the material.

He's also correct that Retrophin is planning to work on new formulations of the drug. But when you look at the company's investor presentation about Thiola, all that comes under a slide marked "Distribution and Intellectual Property". The plan seems to be that they'll introduce 250mg and 500mg dosages, at which time they'll discontinue the current 100mg formulation. Later on, they'll try to introduce a time-release formulation, at which time they'll discontinue the 250mg and 500mg forms. You can argue that this is helping patients, but you can also argue that it's making it as difficult as possible for anyone else to show bioequivalence and enter the market as well, assuming that anyone wants to.

And as I mentioned yesterday, the company does seem to care about someone else entering the market. My questions to Shkreli about the "closed distribution" model mentioned on the company's slides went unanswered, but the only interpretation I can give them is that Retrophin plans to use the FDA's risk management system to deny any competitors access to their formulations, in order to try to keep themselves as the sole supplier of Thiola in perpetuity. Patents at least expire: regulatory rent-seeking is forever.

Also left out of Shkreli's comments on Reddit are the issues on the company's slide titled "Pharmacoeconomics", where it says (vis-a-vis the other drug for cystinuria, penicillamine):

Current pricing of Thiola® - $4,000 PPPY
– Penicillamine pricing- $80,000-$140,000
• Thiola could support a significant price increase

Personally, I think that's the main reason for Retrophin's interest. You'll note that the price hike takes Thiola's cost right up to the penicillamine region (the price of that one is another story all its own). But to a first approximation, that's business. I've defended some drug company pricing decisions on this site before (although not all of them), so what's different this time?

I've been thinking hard about that one, and here's what I have so far. I think that pricing power of this sort is a powerful weapon. That's the reason for the patent system - you get a monopoly on selling your invention, but it's for a fixed period only, and in return you disclose what your invention is so that others can learn from it. And I think that this sort of pricing power should be a reward for actually producing an invention. That's the incentive for going through all the work and expense, the (time-limited) pot of gold at the end of the rainbow. I have a much lower opinion of seeing someone ram through a big price increase just because, hey, they can. Thiola has nothing to do with the patent system - it's off patent. What this situation looks like to me is regulatory rent-seeking. Celgene seems to be doing that too, with thalidomide (as mentioned yesterday), which is why they're being taken to court. Retrophin is betting that Thiola just isn't a big enough deal for anyone to go to that trouble, once they tell them to buzz off by using Celgene's strategy.

Businesses can, though, charge what they think the market will bear, and Retrophin's contribution to cystinuria therapy so far is to have realized that the market will bear a lot more than people had realized. But in an actual market, it would be easier for someone else to come in and compete on price. What Retrophin is planning is to use regulatory loopholes to keep anyone else from doing so, with no time limit until someone at the FDA does something about it. Cloaking this in a lot of noble-sounding talk about being the company that really cares about cystinuria patients is a bit stomach-turning. In my opinion.

Comments (30) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Why Everyone Loves Us

September 11, 2014

The Most Unconscionable Drug Price Hike I Have Yet Seen

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Posted by Derek

There's a drug called Thiola (tiopronin) that most people have never heard of. It's on my list of "smaller than aspirin" drugs, and I'd never heard of it until I put that one together. But thanks to a little company called Retrophin, we all get to hear about it now.

It's used to treat cystinuria, a rare disease that causes painful kidney complications, namely unusual kidney stones of pure cystine. And until recently, tiopronin (as a small, nearly forgotten drug for an orphan indication) was rather cheap. It was sold by a small company in Texas, Mission Pharmacal, until Retrophin bought the marketing rights earlier this year (a move complicated by the company's CEO, investor Martin Shkreli, who may have let the news of the deal leak on his Twitter account).

That link mentions part of Shkreli's business plan as "acquiring the rights to obsolete remedies Shkreli says can be put to new and lucrative purposes", and by gosh, that's certainly accurate. Retrophin is increasing the price of Thiola from $1.50 per pill to over $30 per pill. Because they can - they stated when they bought the drug that their first move would be to raise the price. New dosages are formulations are also mentioned, but the first thing is to jack the price up as high as it can be jacked. Note that patients take several pills per day. Shkreli is probably chortling at those Mission Pharmacal hicks who didn't realize what a gold mine they were sitting on.

Now, there have been somewhat similar cases in recent years. Colchicine's price went straight up, and (infamously) so did the progesterone formulation marketed as Makena. But in both those cases, the small companies involved took the compound back through the FDA, under an agency-approved program to get marketing exclusivity. I've argued here (see those last two links) that this idea has backfired several times, and that the benefit from the clinical re-evaluation and re-approval of these drugs has not been worth their vastly increased cost. I think that drug companies should be able to set the price of their drugs, because they have a lot of failures to make up for, but this FDA loophole gives people a chance to do minimal development at minimal risk and be handed a license to print money in return.

But this isn't even one of those cases. It's worse. Retrophin hasn't done any new trials, and they haven't had to. They've just bought someone else's old drug that they believed could be sold for twenty times its price, and have put that plan right into action. No development costs, no risks whatsoever - just slap a new sticker on it and put your hands over your ears. This is exactly the sort of thing that makes people go into fist-clenching rages about the drug industry, and with damn good reason. This one enrages me, and I do drug research for a living.

So thank you, Martin Shkreli. You've accelerated the progress of the giant hammer that's coming down on on all of us over drug pricing, and helped drag the reputation of the pharmaceutical industry even further into the swamp. But what the hell do you care, right? You're going to be raking in the cash. The only thing I can say about Shkreli and Retrophin is that they make the rest of the industry look good in comparison. Some comparison.

Update: There are some interesting IP aspects to this situation. As pointed out in the comments section, this compound has no exclusivity left and is off patent. So what's to stop someone else from filing an ANDA, showing bioequivalence, and competing on price (since there seems to be an awful lot of room in there)?

Simon Lackner on Twitter sent me to this presentation from Retrophin on their purchase of the Thiola license. In it, you can see that their plan for this: "Similar to Chenodal, Retrophin will move Thiola into closed distribution". Chenodal was the company's previous brainstorm of this sort, when they bought Manchester Pharmaceuticals, details of which can be seen on this presentation. What they say on that one is "Closed distribution system does not allow for generics to access product for bioequivalence study. ANDA filings are impossible unless generic company illegally penetrates specialty distributor. Recent Celgene v. Lannett case establishes precedent." So let's go back and take a look at Celgene v. Lannett.

That was a long-running dispute between the two companies over Lannett's desire to market a generic equivalent of Celgene's thalidomide. Lannett brought suit, accusing Celgene of using the drug's Risk Evaluation and Mitigation Strategy (REMS) improperly to deny potential competitors access to their product (which is needed to do a head-to-head comparison for an ANDA filing). As you can imagine, the REMS for thalidomide is pretty extensive and detailed! But there was no court decision in the case. The companies reached an out-of-court settlement before it went to trial in 2012, although I have to say that that Retrophin slide makes it sound like there's some sort of legal precedent that was set. There wasn't. The limits of REMS restrictions to deny access to a given drug are still an open question.

In late 2012, Acetelion and Apotex went at it over the same issue, this time over access to Tracleer (bosentan). The Federal Trade Commission filed an amicus brief, warning that companies could be abusing the REMS process to keep out competition. That case was also dismissed, though, after the two companies reached an out-of-court settlement of their own, removing another chance for a legal opinion on the subject.

But the issue is very much alive. Earlier this year, Mylan went after Celgene, also over thalidomide (and its follow-up, lenalidomide). Their complaint:

Celgene, a branded drug manufacturer, has used REMS as a pretext to prevent Mylan from acquiring the necessary samples to conduct bioequivalence studies, even after the FDA determined that Mylan’s safety protocols were acceptable to conduct those studies. In furtherance of its scheme to monopolize and restrain trade, Celgene implemented certain distribution restrictions that significantly limit drug product availability.

And this is the plan that Retrophin has in mind - they say so quite clearly in those two presentations linked above. What their presentations don't go into is that this strategy has been under constant legal attack. It also doesn't go into another issue: the use of REMS at all. Thalidomide, of course, is under all kinds of restrictions and has plenty of hideous risks to manage. Bosentan's not exactly powdered drink mix, either - patients require monthly liver function tests (risk of hepatoxicity) and monitoring of their hematocrit (risk of anemia). But what about Thiola/tiopronin? It's not under any risk management restrictions that I can see. Its side effects seem to be mainly diarrhea and nausea, which does not put it into the "This drug is so dangerous that we can't let any generic company get ahold of our pills" category. So how is Retrophin going to make this maneuver work?

Update: more on this issue here.

Comments (42) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Why Everyone Loves Us

September 3, 2014

BioCentury on the Coming Drug Pricing Crisis

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Posted by Derek

I always enjoy BioCentury's "Back to School" issue this time of year, and this time they're being more outspoken than usual. (That link is free access). The topic is pricing:

Last year, (we) argued biopharma companies can no longer assume the market will support premium pricing, even for drugs that deliver meaningful and measurable improvements over the standard of care.

This year, BioCentury’s 22nd Back to School essay goes on to argue that the last bastion of free pricing is crumbling, and biotech and pharma had better start experimenting with new pricing models based on value for money while they still have the chance.

The wake-up call was the launch of Sovaldi sofosbuvir from Gilead Sciences Inc.
Payers, reimbursement authorities and health technology assessment agencies almost universally — with the exception of Germany — acknowledge the drug is a breakthrough for patients with HCV.

At $84,000, the drug is clearly cost effective for a subset of HCV patients who would otherwise progress to expensive sequelae such as liver transplant. But its broad indication includes a majority of patients whose disease won’t progress to the point of costly interventions. And doing the math makes it obvious that treating even a fraction of eligible patients would be a staggering sum for payers to absorb.

What Gilead has done - thanks, guys - is to accelerate a number of trends that were already looking like trouble.

With Sovaldi as the stimulus, government officials, payers, reimbursement authorities and patient groups are fighting back against high drug prices with renewed vigor. For these stakeholders, biopharma’s arguments that drug developers must be compensated for the cost and risk of creating medical breakthroughs don’t hold water.

The easiest response of payers and consumers to industry’s argument is: not my problem.

Far worse, biopharma’s historical arguments about the cost and risk of drug development are giving ammunition to academics, legislators, health technology assessment bodies and payers to argue that the costs of developing and manufacturing drugs plus a “reasonable” margin should be the basis for price.

Industry needs to wrest the discussion away from a cost-plus system that would essentially turn biopharmaceutical companies into utilities, cutting off the lifeblood of innovation.

We seem to be too busy testing the limits of what insurance will pay for to worry about that right now, unfortunately. As the essay goes on to show, companies (Gilead and Alexion, for starters) are getting requests from regulators and legislators to provide an exact breakdown of just what it cost to develop their latest drugs. Demonstrate to us, in other words, that your pricing is justified. The next step beyond that is for these authorities to disagree with the numbers and their interpretation, and to suggest - and then enforce - their own. And I'm pretty sure that the industry would rather avoid that.

Cost-plus pricing places no value on the benefits provided by medicines and eliminates the incentives for biopharma industry innovation and for risk-taking in poorly understood diseases where many failures are likely.

The right question is not how much does R&D cost, but how to measure the benefit to the patient, payer and society; how to value that benefit over time; and how to distribute the risk should the expected benefit not be realized.

The answers are not obvious, and many approaches will need to be tested. Undoubtedly, in many settings the current systems for data collection, coding and reimbursement are not adequate to the task.

But that is no excuse for inaction. The current system of drug pricing and reimbursement is unsustainable and will be fixed — with or without the industry’s participation.

Biocentury suggests several things that should be looked at. First of all would be pricing per course of treatment, rather than per unit dose. That brings the spotlight more on what the drug is supposed to be accomplishing - and if that also spotlights some of them that aren't accomplishing as much as they're supposed to be, well, so be it. The industry should also consider risk-sharing arrangements, to take on more of the downside if a drug doesn't work as well as anticipated, with the opportunity to pick up more gains if it exceeds. Another idea would be pricing models where the payments are spread out over the time that the drug benefits a patient, rather than all of it being up front. In general, we need to make the connection between new drugs and their benefits easier to see, which in turn makes their pricing easier to see.

And if some of those prices turn out to be too high, well, that's our problem. We have to be ready to accept it when we have drugs that don't work as well for some conditions as we want. Only if we can do that can we turn around and charge the higher prices for the ones that are truly effective. I've made the argument many times that companies, not just drug companies, should be able to charge what they want to for their goods. And in the abstract, that's true. But in the world we live in, politics will intrude, big-time, if the drug industry tries to always extract the maximum revenue for everything, every time.

The downside for biopharma companies would be lower prices for drugs that provide incremental or modest benefits. But that reality is coming one way or another. The upside is a better shot at continued premium prices for real breakthroughs — although probably not as high as historical premiums — plus the potential for preferred formulary placement and earlier market access for many drugs.

But it's a tragedy-of-the-commons situation, because even though some of these ideas for different pricing, and even the calls for restraint, may well be in the industry's best interests, individual companies look at each other and say "You first". But as the old political saying has it, if you're not at the table, then you're on the menu.

Comments (15) + TrackBacks (0) | Category: Drug Prices

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 (43) + 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.

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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.

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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, last I saw, living in some sort of radical libertarian free-for-all, it would be worth remembering that the ability to set such prices is not some sort of inalienable right. It can be restricted or even abrogated entirely by governments all around the world. And one way to get that to happen is for these governments and (in the democratic states, their constituents) to feel as if they're being taken advantage of by a bunch of cynical manipulators.

Comments (19) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs | The Central Nervous System

September 13, 2013

Value For the Money

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Posted by Derek

BioCentury always does a big issue for the fall, entitled "Back to School". They often use this as a state-of-biopharma platform, going into depth on what they see as the biggest issues that need to be addressed. This year, the September 2 issue, they're telling people (and not for the first time!) to get braced for higher standards for what health insurance is going to pay for:

Drug companies must start creating the case for value differentiation in discovery and then steadily build a body of evidence throughout the product development process.

Some drug developers have figured this out and have reshaped both their pipelines and development practices accordingly. But the number of me-too and purportedly me-better products still in the pipeline — coupled with the fact that drugs are still getting to Phase III and beyond without comparisons to relevant SOC (standard of care) or data on quality of life and other metrics that patients value — shows efforts in this department are still wanting.

For example, BioCentury’s BCIQ online database shows 54 compounds in active development that target VEGF or its receptors, not counting line extensions of approved VEGF and VEGF receptor inhibitors.

Even accounting for different variants of the receptor and its ligand and differences in delivery, formulation and dosing, it is highly unlikely that so many compounds could be differentiated sufficiently that physicians and patients would strongly prefer them to marketed alternatives — or that payers would be willing to reimburse them without restrictions.

. . .Back to School argues bio-industry must abandon efforts to block third-party assessments of value, and instead ramp up nascent efforts to be at the table where technology assessment takes place in the U.S., Europe and the rest of the world. Comparative effectiveness and cost effectiveness assessments will not be stopped. Industry can either contribute its expertise to improve the quality of the results, or stand by while others who may know less about both the drugs and the best ways to study them do the work based on their own priorities. Right now that priority is finding ways to avoid paying for new drugs.

Well put. But doing so is not going to be easy, or cheap. Differentiating new drug candidates in the clinic has often been left for later on in Phase III, and smaller companies often don't do much of it at all, figuring that'll be a job for their bigger partners when the time comes. The FDA "Breakthrough" designations can help here, because they explicitly encourage companies to show, as early as possible, why their compound stands out from the others. But as the Biocentury piece goes on to say, even then companies are going to have to be get ready to collect even more data on real-world outcomes, after the drug is approved, if they want to be able to persuade the various payers out there.

There's another issue here, too. Incremental innovation is just as much a part of the business (and the science) as are sudden leaps forward. There's room to wonder if the frequency of those sudden leaps (and the distance they cover) will go down if we don't get to take as many steps in the run-up to them. This is one of those issues that moves slowly enough to be effectively unprovable on any sort of reasonable financial or political time scale, but there are a lot of very real things out there that don't fit themselves to our calendars.

BioCentury recommends that (1) companies should work with regulatory agencies, insurance (both public and private), and patient groups to define just what constitutes real value for a given disease area, (2) they should immediately get to work with those payers who are already mandated to show improvements in their quality of care, (3) as mentioned above, whenever some government or international agency starts rating health care and medical technology advances, the industry had better be there, and (4) the drug industry had better change some of its traditional attitudes, and fast, because its pricing power is clearly diminishing.

As a drug-discovery guy, I don't spend as much time thinking about these issues as I do scientific ones. But if I'm discovering new things that no one wants, because no one needs them, that no one will then feel like paying for, all my work (and that of my colleagues) will be in vain. None of us can afford to keep our heads down these days.

Comments (20) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Regulatory Affairs

May 16, 2013

The Atlantic on Drug R&D

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Posted by Derek

"Can you respond to this tripe?" asked one of the emails that sent along this article in The Atlantic. I responded that I was planning to, but that things were made more complicated by my being extensively quoted in said tripe. Anyway, here goes.

The article, by Brian Till of the New America Foundation, seems somewhat confused, and is written in a confusing manner. The title is "How Drug Companies Keep Medicine Out of Reach", but the focus is on neglected tropical diseases, not all medicine. Well, the focus is actually on a contested WHO treaty. But the focus is also on the idea of using prizes to fund research, and on the patent system. And the focus is on the general idea of "delinking" R&D from sales in the drug business. Confocal prose not having been perfected yet, this makes the whole piece a difficult read, because no matter which of these ideas you're waiting to hear about, you end up having a long wait while you work your way through the other stuff. There are any number of sentences in this piece that reference "the idea" and its effects, but there is no sentence that begins with "Here's the idea"

I'll summarize: the WHO treaty in question is as yet formless. There is no defined treaty to be debated; one of the article's contentions is that the US has blocked things from even getting that far. But the general idea is that signatory states would commit to spending 0.01% of GDP on neglected diseases each year. Where this money goes is not clear. Grants to academia? Setting up new institutes? Incentives to commercial companies? And how the contributions from various countries are to be managed is not clear, either: should Angola (for example) pool its contributions with other countries (or send them somewhere else outright), or are they interested in setting up their own Angolan Institute of Tropical Disease Research?

The fuzziness continues. You will read and read through the article trying to figure out what happens next. The "delinking" idea comes in as a key part of the proposed treaty negotiations, with the reward for discovery of a tropical disease treatment coming from a prize for its development, rather than patent exclusivity. But where that money comes from (the GDP-linked contributions?) is unclear. Who sets the prize levels, at what point the money is awarded, who it goes to: hard to say.

And the "Who it goes to" question is a real one, because the article says that another part of the treaty would be a push for open-source discovery on these diseases (Matt Todd's malaria efforts at Sydney are cited). This, though, is to a great extent a whole different question than the source-of-funds one, or the how-the-prizes-work one. Collaboration on this scale is not easy to manage (although it might well be desirable) and it can end up replacing the inefficiencies of the marketplace with entirely new inefficiencies all its own. The research-prize idea seems to me to be a poor fit for the open-collaboration model, too: if you're putting up a prize, you're saying that competition between different groups will spur them on, which is why you're offering something of real value to whoever finishes first and/or best. But if it's a huge open-access collaboration, how do you split up the prize, exactly?

At some point, the article's discussion of delinking R&D and the problems with the current patent model spread fuzzily outside the bounds of tropical diseases (where there really is a market failure, I'd say) and start heading off into drug discovery in general. And that's where my quotes start showing up. The author did interview me by phone, and we had a good discussion. I'd like to think that I helped emphasize that when we in the drug business say that drug discovery is hard, that we're not just putting on a show for the crowd.

But there's an awful lot of "Gosh, it's so cheap to make these drugs, why are they so expensive?" in this piece. To be fair, Till does mention that drug discovery is an expensive and risky undertaking, but I'm not sure that someone reading the article will quite take on board how expensive and how risky it is, and what the implications are. There's also a lot of criticism of drug companies for pricing their products at "what the market will bear", rather than as some percentage of what it cost to discover or make them. This is a form of economics I've criticized many times here, and I won't go into all the arguments again - but I will ask:what other products are priced in such a manner? Other than what customers will pay for them? Implicit in these arguments is the idea that there's some sort of reasonable, gentlemanly profit that won't offend anyone's sensibilities, while grasping for more than that is just something that shouldn't be allowed. But just try to run an R&D-driven business on that concept. I mean, the article itself details the trouble that Eli Lilly, AstraZeneca, and others are facing with their patent expirations. What sort of trouble would they be in if they'd said "No, no, we shouldn't make such profits off our patented drugs. That would be indecent." Even with those massive profits, they're in trouble.

And that brings up another point: we also get the "Drug companies only spend X pennies per dollar on R&D". That's the usual response to pointing out situations like Lilly's; that they took the money and spent it on fleets of yachts or something. The figure given in the article is 16 cents per dollar of revenue, and it's prefaced by an "only". Only? Here, go look at different industries, around the world, and find one that spends more. By any industrial standard, we are plowing massive amounts back into the labs. I know that I complain about companies doing things like stock buybacks, but that's a complaint at the margin of what is already pretty impressive spending.

To finish up, here's one of the places I'm quoted in the article:

I asked Derek Lowe, the chemist and blogger, for his thoughts on the principle of delinking R&D from the actual manufacture of drugs, and why he thought the industry, facing such a daunting outlook, would reject an idea that could turn fallow fields of research on neglected diseases into profitable ones. "I really think it could be viable," he said. "I would like to see it given a real trial, and neglected diseases might be the place to do it. As it is, we really already kind of have a prize model in the developed countries, market exclusivity. But, at the same time, you could look at it and it will say, 'You will only make this amount of money and not one penny more by curing this tropical disease.' Their fear probably is that if that model works great, then we'll move on to all the other diseases."

What you're hearing is my attempt to bring in the real world. I think that prizes are, in fact, a very worthwhile thing to look into for market failures like tropical diseases. There are problems with the idea - for one thing, the prize payoff itself, compared with the time and opportunity cost, is hard to get right - but it's still definitely worth thinking about. But what I was trying to tell Brian Till was that drug companies would be worried (and rightly) about the extension of this model to all other disease areas. Wrapped up in the idea of a research-prize model is the assumption that someone (a wise committee somewhere) knows just what a particular research result is worth, and can set the payout (and afterwards, the price) accordingly. This is not true.

There's a follow-on effect. Such a wise committees might possibly feel a bit of political pressure to set those prices down to a level of nice and cheap, the better to make everyone happy. Drug discovery being what it is, it would take some years before all the gears ground to a halt, but I worry that something like this might be the real result. I find my libertarian impulses coming to the fore whenever I think about this situation, and that prompts me to break out an often-used quote from Robert Heinlein:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as "bad luck."

Comments (44) + TrackBacks (0) | Category: Drug Development | Drug Prices | Why Everyone Loves Us

April 29, 2013

Costing Just Too Much

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Posted by Derek

There's been a lot of rumbling recently about the price of new cancer drugs (see this article for a very typical reaction). It's a topic that's come up around here many times, as would be only natural - scrolling back in this category will turn up a whole list of posts.

I see that Bernard Munos has weighed in on the topic in Forbes. He's not being Doctor Feelgood about it, either:

All this adds up to a giant pushback against the astronomical drug prices that are becoming commonplace. It seems that price tags of $100,000 or above are becoming the norm. Of 12 cancer drugs approved in 2012, 11 cost more than that. As more drugs are offered at that level and their sponsors get away with it, it seems to set a floor that emboldens drug companies to push the envelope. They are badly misjudging the brewing anger.

The industry’s standard defense has been to run warm-hearted stories about the wonders of biomedical innovation, and to point out that drugs represent only 10% of healthcare costs. Both arguments miss the point. Everyone loves biomedical innovation, but the industry’s annual output of 25 to 35 new drugs is a lousy return for its $135 billion R&D spending. . .

That's a real problem. We in the industry concentrate on our end of it, where we wonder how we can spend this much for our discovery efforts and survive. But there are several sides to the issue. From one angle, as long as we can jack up the prices high enough on what does get through, we can (in theory) stay in business. That's not going to happen. There are limits to what we can charge, and we're starting to bang up against them, in the way that a Martingale player at a roulette table learns why casinos have betting limits at the tables. It's not a fun barrier to bump into.

And there's the problem Munos brings up, which is one that investors have been getting antsy about for some time: return on capital. The huge amounts of money going out the door are (at least in some cases) not sustainable. But we're not spending our money as if there were a problem:

Perhaps the mood would be different if the industry was a model of efficiency, but this is hardly the case. Examples of massive waste are on display everywhere: Pfizer wants to flatten a 750,000-square-foot facility in Groton, CT, and won’t entertain proposals for alternative uses. Lilly writes off over $100 million for a half-built insulin plant in Virginia, only to restart the project a few years later in Indiana. AstraZeneca shutters its R&D labs at Alderley Park and goes on to spend $500 million on a new facility in Cambridge.

Munos is right. We have enough trouble already without asking for more. Don't we?

Comments (37) + TrackBacks (0) | Category: Cancer | Drug Prices | Why Everyone Loves Us

April 2, 2013

Tecfidera's Price

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Posted by Derek

Let us take up the case of Tecfidera, the new Biogen/Idec drug for multiple sclerosis, known to us chemists as dimethyl fumarate. It joins the (not very long) list of industrial chemicals (the kind that can be purchased in railroad-car sizes) that are also approved pharmaceuticals for human use. The MS area has seen this before, interestingly.

A year's supply of Tecfidera will set you (or your insurance company) back $54,900. That's a bit higher than many analysts were anticipating, but that means "a bit higher over $50,000". The ceiling is about $60,000, which is what Novartis's Gilenya (fingolomod) goes for, and Biogen wanted to undercut them a bit. So, 55 long ones for a year's worth of dimethyl fumarate pills - what should one think about that?

Several thoughts come to mind, the first one being (probably) "Fifty thousand dollars for a bunch of dimethyl fumarate? Who's going to stand for that?" But we have an estimate for the second part of that question - Biogen thinks that quite a few people are going to stand for it, rather than stand for fingolomod. I'm sure they've devoted quite a bit of time and effort into thinking about that price, and that it's their best estimate of maximum profit. How, exactly, do they get away with that? Simple. They get away with it because they were willing to take the compound through clinical trials in MS patients, find out if it's tolerated and if it's efficacious, figure out the dosing regimen, and get it approved for this use by the FDA. If you or I had been willing to do that, and had been able to round up the money and resources, then we would also have the ability to charge fifty grand a year for it (or whatever we thought fit, actually).

What, exactly, gave them the idea that dimethyl fumarate might be good for multiple sclerosis? As it turns out, a German physician described its topical use for psoriasis back in 1959, and a formation of the compound as a cream (along with some monoesters) was eventually studied clinically by a small company in Switzerland called Fumapharm. This went on the market in Germany in the early 1990s, but the company did not have either the willingness or desire to extend their idea outside that region. But since dimethyl fumarate appears to work on psoriasis by modulating the immune system somehow, it did occur to someone that it might also be worth looking at in multiple sclerosis. Biogen began developing dimethyl fumarate for that purpose with Fumapharm, and eventually bought them outright in 2006 as things began to look more promising.

In other words, the connection of dimethyl fumarate as a possible therapy for MS had been out there, waiting to be made, since before many of us were born. Generations of drug developers had their chances to see it. Every company in the business had a chance to get interested in Fumapharm back in the late 80s and early 90s. But Biogen did, and in 2013 that move has paid off.

Now we come to two more questions, the first of which is "Should that move be paying off quite so lucratively?" But who gets to decide? Watching people pay fifty grand for a year's supply of dimethyl fumarate is not, on the face of it, a very appealing sight. At least, I don't find it so. But on the other hand, cost-of-goods is (for small molecules) generally not a very large part of the expense of a given pill - a rule of thumb is that such expenses should certainly be below 5% of a drug's selling price, and preferably less than 2%. It's just that it's even less in this case, and Biogen also has fewer worries about their supply chain, presumably. The fact this this drug is dimethyl fumarate is a curiosity (and perhaps an irritating one), but that lowers Biogen's costs by a couple of thousand a year per patient compared to some other small molecule. The rest of the cost of Tecfidera has nothing to do with what the ingredients are - it's all about what Biogen had to pay to get it on the market, and (most importantly) what the market will bear. If insurance companies believe that paying fifty thousand a year for the drug is a worthwhile expense, the Biogen will agree with them, too.

The second question is divorced from words like "should", and moves to the practical question of "can". The topical fumarate drug in Europe apparently had fairly wide "homebrew" use among psoriasis patients in other countries, and one has to wonder just a bit about that happening with Tacfidera. Biogen Idec certainly has method-of-use patents, but not composition-of-matter, so it's going to be up to them to try to police this. I found the Makena situation more irritating than this one (and the colchicine one, too), because in those cases, the exact drugs for the exact indications had already been on the market. (Dimethyl fumarate was not a drug for MS until Biogen proved it so, by contrast). But KV Pharmaceuticals had to go after people who were compounding the drug, anyway, and I have to wonder if a secondary market in dimethyl fumarate might develop. I don't know the details of its formulation (and I'm sure that Biogen will make much of it being something that can't be replicated in a basement), but there will surely be people who try it.

Comments (58) + TrackBacks (0) | Category: Drug Development | Drug Prices | The Central Nervous System

March 27, 2013

The NIH, Pfizer, and Senator Wyden

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Posted by Derek

Senator Ron Wyden (D-Oregon) seems to be the latest champion of the "NIH discovers drugs and Pharma rips them off" viewpoint. Here's a post from John LaMattina on Wyden's recent letter to Francis Collins. The proximate cause of all this seems to be the Pfizer JAK3 inhibitor:

Tofacitinib (Xeljanz), approved last November by the U.S. Food and Drug Administration, is nearing the market as the first oral medication for the treatment of rheumatoid arthritis. Given that the research base provided by the National Institutes of Health (NIH) culminated in the approval of Xeljanz, citizens have the right to be concerned about the determination of its price and what return on investment they can expect. While it is correct that the expenses of drug discovery and preclinical and clinical development were fully undertaken by Pfizer, taxpayer-funded research was foundational to the development of Xeljanz.

I think that this is likely another case where people don't quite realize the steepness of the climb between "X looks like a great disease target" and "We now have an FDA-approved drug targeting X". Here's more from Wyden's letter:

Developing drugs in America remains a challenging business, and NIH plays a critically important role by doing research that might not otherwise get done by the private sector. My bottom line: When taxpayer-funded research is commercialized, the public deserves a real return on its investment. With the price of Xeljanz estimated at about $25,000 a year and annual sales projected by some industry experts as high as $2.5 billion, it is important to consider whether the public investment has assured accessibility and affordability.

This is going to come across as nastier than I intend it to, but my first response is that the taxpayer's return on this was that they got a new drug where there wasn't one before. And via the NIH-funded discoveries, the taxpayers stimulated Pfizer (and many other companies) to spend huge amounts of money and effort to turn the original discoveries in the JAK field into real therapies. I value knowledge greatly, but no human suffering whatsoever was relieved by the knowledge alone that JAK3 appeared to play a role in inflammation. What was there was the potential to affect the lives of patients, and that potential was realized by Pfizer spending its own money.

And not just Pfizer. Let's not forget that the NIH entered into research agreements with many other companies, and that the list of JAK3-related drug discovery projects is a long one. And keep in mind that not all of them, by any means, have ever earned a nickel for the companies involved, and that many of them never will. As for Pfizer, Xeljanz has been on the market for less than six months, so it's too early to say how the drug will do. But it's not a license to print money, and is in a large, extremely competitive market. And should it run into trouble (which I certainly hope doesn't happen), I doubt if Senator Wyden will be writing letters seeking to share some of the expenses.

Comments (35) + TrackBacks (0) | Category: Academia (vs. Industry) | Drug Development | Drug Prices | Regulatory Affairs

March 18, 2013

GlaxoSmithKline's CEO on the Price of New Drugs

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Posted by Derek

Well, GlaxoSmithKline CEO Andrew Witty has made things interesting. Here he is at a recent conference in London when the topic of drug pricing came up:

. . . Witty said the $1 billion price tag was "one of the great myths of the industry", since it was an average figure that includes money spent on drugs that ultimately fail.

In the case of GSK, a major revamp in the way research is conducted means the rate of return on R&D investment has increased by about 30 percent in the past three or four years because fewer drugs have flopped in late-stage testing, he said.

"If you stop failing so often you massively reduce the cost of drug development ... it's why we are beginning to be able to price lower," Witty said.

"It's entirely achievable that we can improve the efficiency of the industry and pass that forward in terms of reduced prices."

I have a feeling that I'm going to be hearing "great myths of the industry" in my email for some time, thanks to this speech, so I'd like to thank Andrew Witty for that. But here's what he's trying to get across: if you start research on for a new drug, name a clinical candidate, take it to human trials and are lucky enough to have it work, then get it approved by the FDA, you will not have spent one billion dollars to get there. That, though, is the figure for a single run-through when everything works. If, on the other hand, you are actually running a drug company, with many compounds in development, and after a decade or so you total up all the money you've spent, versus the number of drugs you got onto the market, well, then you may well average a billion dollars per drug. That's because so many of them wipe out in the clinic; the money gets spent and you get no return at all.

That's the analysis that Matthew Herper did here (blogged about here), and that same Reuters article makes reference to a similar study done by Deloitte (and Thomson Reuters!) that found that the average cost of a new drug is indeed about $1.1 billion when you have to pay for the failures.

And believe me, we have to pay for them. A lottery ticket may only cost a dollar, but by the time you've won a million dollars playing the lottery, you will have bought a lot of losing tickets. In fact, you'll have bought far more than a million dollar's worth, or no state would run a lottery, but that's a negative-expectations game, while drug research (like any business) is supposed to be positive-expectations. Is it? Just barely, according to that same Deloitte study:

In effect, the industry is treading water in the fight to deliver better returns on the billions of dollars ploughed into the hunt for new drugs each year.

With an average internal rate of return (IRR) from R&D in 2012 of 7.2 percent - against 7.7 percent and 10.5 percent in the two preceding years - Big Pharma is barely covering its average cost of capital, estimated at around 7 percent.

Keep that in mind next time you hear about how wonderfully profitable the drug business is. And those are still better numbers than Morgan Stanley had a couple of years before, when they estimated that our internal returns probably weren't keeping up with our cost of capital at all. (Mind you, it seems that their analysis may have been a bit off, since they used their figures to recommend an "Overweight" on AstraZeneca shares, a decision that looked smart for a few months, but one that a person by now would have regretted deeply).

But back to Andrew Witty. What he's trying to say is that it doesn't have to cost a billion dollars per drug, if you don't fail so often, and he's claiming that GSK is starting to fail less often. True, or not? The people I know at the company aren't exactly breaking out the party hats, for what that's worth, and it looks like the company's might have to add the entire Sirtris investment to the "sunk cost" pile. Overall, I think it's too soon to call any corners as having been turned, even if GSK does turn out to have been doing better. Companies can have runs of good fortune and bad, and the history of the industry is absolutely littered with the press releases of companies who say that they've Turned A New Page of Success and will now be cranking out the wonder drugs like nobody's business. If they keep it up, GSK will have plenty of chances to tell us all about it.

Now, one last topic. What about Witty's statement that this new trend to success will allow drug prices themselves to come down? That's worth thinking about all by itself, on several levels - here are my thoughts, in no particular order:

(1) To a first approximation, that's true. If you're selling widgets, your costs go down, you can cut prices, and you can presumably sell more widgets. But as mentioned above, I'm not yet convinced that GSK's costs are truly coming down yet. And see point three below, because GSK and the rest of us in this business are not, in fact, selling widgets.

(2) Even if costs are coming down, counterbalancing that are several other long-term trends, such as the low-hanging fruit problem. As we move into harder and harder sorts of targets and disease areas, I would assume that the success rate of drugs in the clinic will be hard pressed to improve. This is partly a portfolio management problem, and can be ameliorated and hedged against to some degree, but it is, I think, a long-term concern, unless we start to make some intellectual headway on these topics, and speed the day. On the other side of this balance are the various efforts to rationalize clinical trials and so on.

(3) A larger factor is that the market for innovative drugs is not very sensitive to price. This is a vast topic, covered at vast length in many places, but it comes down to there being (relatively) few entrants in any new therapeutic space, and to people, and governments, and insurance companies, being willing to spend relatively high amounts of money for human health. (The addition of governments into that list means also that various price-fixing schemes distort the market in all kinds of interesting ways as well). At any rate, price mechanisms don't work like classical econ-textbook widgets in the drug business.

So I'm not sure, really, how this will play out. GSK has only modest incentives to lower the prices of its drugs. Such a move won't, in many markets, allow them to sell more drugs to make up the difference on volume. And actually, the company will probably be able to offset some of the loss via the political capital that comes from talking about any such price changes. We might be seeing just that effect with Witty's speech.

Comments (30) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Prices

December 7, 2012

Pharmaceutical Shortages in Greece

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Posted by Derek

If you'd like to see how thoroughly a drug market can be screwed up, have a look at Greece. They're leading the way here as well:

Ten years after entering the eurozone, Greece is faced with the herculean challenge of persuading pharmaceutical companies to strike a bargain and lower the cost of the medicines they sell in the country. At present, there are fears of drug shortages in certain hospitals as a result of unpaid bills. . .During the last two decades Greece became a paradise for branded-drug producers, with generic medicines constituting only 12% of the drugs consumed in the country. Between 1997 and 2007, the amount of health spending per Greek citizen grew annually by 6.6%, bringing the country to fourth place worldwide, after South Korea, Turkey and Ireland, in terms of this growth.

The crisis comes, in part, as a result of the Greek National Health System racking up debts by treating pensioners and poorer locals with expensive branded drugs instead of generics. The government paid the pharmaceuticals mostly with state bonds that lost substantial value in the fiscal crisis, and, in response, they started turning off the faucet. . .

But there's another factor at work, too:

For many months, pharmacies have been reporting shortages of medicines as some distributors have reexported comparatively cheap drugs from Greece over to Germany and other European markets, achieving monetary gains of as much as 600%.

Yep, Greece has simultaneously managed to pay too much for pharmaceuticals and provide a lucrative opportunity to export cheap ones. If economics worked like electrical engineering, there would be huge sparks jumping across these gaps and things would be shorting out all over the place. Actually, that's pretty much what's happening as it is.

Comments (7) + TrackBacks (0) | Category: Drug Prices

December 3, 2012

Marcia Angell's Interview: I Just Can't

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Posted by Derek

I have tried to listen to this podcast with Marcia Angell, on drug companies and their research, but I cannot seem to make it all the way through. I start shouting at the screen, at the speakers, at the air itself. In case you're wondering about whether I'm overreacting, at one point she makes the claim that drug companies don't do much innovation, because most of our R&D budget is spent on clinical trials, and "everyone knows how to do a clinical trial". See what I mean?

Angell has many very strongly held opinions on the drug business. But her take on R&D has always seemed profoundly misguided to me. From what I can see, she thinks that identifying a drug target is the key step, and that everything after that is fairly easy, fairly cheap, and very, very profitable. This is not correct. Really, really, not correct. She (and those who share this worldview, such as her co-author) believe that innovation has fallen off in the industry, but that this has happened mostly by choice. Considering the various disastrously expensive failures the industry has gone through while trying to expand into new diseases, new indications, and new targets, I find this line of argument hard to take.

So, I see, does Alex Tabarrok. I very much enjoyed that post; it does some of the objecting for me, and illustrates why I have such a hard time dealing point-by-point with Angell and her ilk. The misconceptions are large, various, and ever-shifting. Her ideas about drug marketing costs, which Tabarrok especially singles out, are a perfect example (and see some of those other links to my old posts, where I make some similar arguments to his).

So no, I don't think that Angell has changed her opinions much. I sure haven't changed mine.

Comments (59) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices | Why Everyone Loves Us

November 29, 2012

When Drug Launches Go Bad

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Posted by Derek

For those connoisseurs of things that have gone wrong, here's a list of the worst drug launches of recent years. And there are some rough ones in there, such as Benlysta, Provenge, and (of course) Makena. And from an aesthetic standpoint, it's hard not to think that if you name your drug Krystexxa that you deserve what you get. Read up and try to avoid being part of such a list yourself. . .

Comments (8) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices

October 31, 2012

The Coming Battle Over Alzheimer's Disease

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Posted by Derek

Solanezumab is a story that won't go away. Eli Lilly's antibody therapy for Alzheimer's is the subject of a lot of arguing among investors: some people (and I'm one of them) think that there is no strong evidence for its efficacy, not yet, and that the amount of time and effort devoted to finding that out means that there likely isn't any meaningful efficacy to be found. Others are more optimistic, which is why Lilly's stock has risen in recent months.

The latest point of contention is an independent analysis of biomarker data which came out this week at a conference in Monaco. This suggests that there was a meaningful change in the amount of circulating beta-amyloid after treatment, which could mean that the antibody was working as planned to increase clearance of soluble amyloid, thus altering the amyloid balance in the CNS. It should be noted that this line of attack depends on several factors - first among them, that amyloid is a causative factor in Alzheimer's, and secondly, that clearing it from the periphery can affect its concentration and distribution inside the brain. There's evidence for both of these, and there's evidence against both of them. Such questions can only be answered in the clinic, and I'm glad that Lilly, Roche/Genentech, and others are trying to answer them.

What I want to focus on today, though, is an issue that comes up in passing in the Fierce Biotech link above:

Biomarkers and pooled data may help support further studies of the drug, as well as other programs that rest on the beta amyloid hypothesis, but they don't prove that solanezumab works as hoped. Nevertheless, the first sign of success in this field has fueled tremendous enthusiasm that something in the pipeline could eventually work--perhaps even pushing regulators to approve new therapies with something less than clear efficacy data. And any newly approved drug would find a massive market of millions of desperate patients.

That's a big "perhaps", one that's worth tens of billions of dollars. What I worry about is pressure building for the FDA to approve an Alzheimer's therapy (solanezumab or something else) based on these hints of mechanistic efficacy. The problem is, solanezumab hasn't shown much promise of improving the lives of actual Alzheimer's patients. Lilly's own trials showed a possible improvement in a measure of cognitive decline, but this did not show up again in a second patient group, even when they specifically modified the endpoints of the trial to look for it. And neither group showed any functional effects at all, which I think are what most Alzheimer's patients (and their family members) would really want to see.

But there really is such a huge demand for something, anything, with any hint of hope. People would line up to buy anything that got FDA approval, no matter how tenuous the evidence was. And that puts the agency in a very tough position, similar to the one it was in with the Avastin breast cancer issue. Update: there was, to be sure, more of a safety question with Avastin at the same time. You can argue that one of the main purposes of the agency is to make sure that medicines that people can be prescribed in this country will actually do some good, rather than raise hopes for nothing. You could also argue that responsible adults - and their physicians, and their insurance companies - should be able to make such choices for themselves, and should be able to spend their time and money in the ways that they best see fit. You could argue that companies with marginally effective (or ineffective) therapies face a huge moral hazard, in that their incentives are to get such treatments onto the market whether they do anyone else any good or not. None of these are foolish positions, but they are also, in places, mutually incompatible. Alzheimer's disease might well turn into the next place in which we thrash them out.

Comments (17) + TrackBacks (0) | Category: Alzheimer's Disease | Clinical Trials | Drug Prices | Regulatory Affairs

August 17, 2012

Good Forum for a Response on Drug Innovation?

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Posted by Derek

I wanted to mention that a version of my first post on the Light/Lexchin article is now up over at the Discover magazine site. And if you've been following the comments to that one and to Light's response here, you'll note that readers here have found a number of problems with the original paper's analysis. I've found a few of my own, and I expect there are more.

The British Medical Journal has advised me that they consider a letter to the editor to be the appropriate forum for a response to one of their published articles. I don't think publishing this one did them much credit, but what's done is done. I'm still shopping for a venue for a detailed response on my part - I've had a couple of much-appreciated offers, but I'd like to continue to see what options are out there to get this out to the widest possible audience.

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August 15, 2012

A Quick Tour Through Drug Development Reality

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Posted by Derek

I wanted to let people know that I'm working on a long, detailed reply to Donald Light's take on drug research, but that I'm also looking at a few other publication venues for it. More on this as it develops.

But in trying to understand his worldview (and Marcia Angell's, et al.), I think I've hit on at least one fundamental misconception that these people have. All of them seem to think that the key step in drug discovery is target ID - once you've got a molecular target, you're pretty much home free, and all that was done by NIH money, etc., etc. It seems that these people have a very odd idea about high-throughput screening: they seem to think that we screen our vast collections of molecules and out pops a drug.

Of course, out is what a drug does not pop, if you follow my meaning. What pops out are hits, some of which are not what they say on the label any more. And some of the remaining ones just don't reproduce when you run the same experiment again. And even some of the ones that do reproduce are showing up as hits not because they're affecting your target, but because they're hosing up your assay by some other means. Once you've cleared all that underbrush out, you can start to talk about leads.

Those lead molecules are not created equal, either. Some of them are more potent than others, but the more potent ones might be much higher molecular weights (and thus not as ligand efficient). Or they might be compounds from another project and already known to hit a target that you don't want to hit. Once you pick out the ones that you actually want to do some chemistry on, you may find, as you start to test new molecules in the series, that some of them have more tractable structure-activity relationships than others. There are singletons out there, or near-singletons: compounds that have some activity as they stand, but for which every change in structure represents a step down. The only way to find that out is to test analogs. You might have some more in your files, or you might be able to buy some from the catalogs. But in many cases, you'll have to make them yourself, and a significant number of those compounds you make will be dead ends. You need to know which ones, though, so that's valuable information.

Now you're all the way up to lead series territory, a set of compounds that look like they can be progressed to be more potent and more selective. As medicinal chemists know, though, there's more to life. You need to see how these compounds act on real cells, and in real animals. Do they attain reasonable blood levels? Why or why not? What kinds of metabolites do they produce - are those going to cause trouble? What sort of toxicity do you see at higher doses, or more long-running ones? Is that related to your mechanism of action (sorry to hear it!), or something off-target to do with that particular structure? Can you work your way out of that problem with more new compound variations without losing all of what you've been building in so far? Prepare to go merrily chasing down some blind alleys while you work all this stuff out; the lights are turned off inside the whole maze, and the only illumination is what you can bring yourself.

Now let's assume that you've made it far enough to narrow down to one single compound, the clinical candidate. The fun begins! How about formulations - can this compound be whipped up into a solid form that resembles a real drug that people can put in their mouths, leave on their medicine cabinet shelves, and stock in their warehouses and pharmacies? Can you make enough of the compound to get to that stage, reliably? Most of the time the chemistry has to change at that point, and you'd better hope that some tiny new impurities from the new route aren't going to pop up and be important. You'd really better hope that some new solid form (polymorph) of your substance doesn't get discovered during that new route, because some of those are bricks and their advent is nearly impossible to predict.

Hey, now it's time to go to the clinic. Break out the checkbook, because the money spent here is going to make the preclinical expenses look like roundoff errors. Real human beings are going to take your compound, and guess what? Of all the compounds (the few, the proud) that actually get this far, all the way up to some volunteer's tongue. . .well, a bit over ninety per cent of those are going to fail in trials. Good luck!

While you're nervously checking the clinical results (blood levels and tolerability in Phase I), you have more questions to ask. Do you have good commercial suppliers for all the starting materials, and the right manufacturing processes in place to make the drug, formulate it, and package it? High time you thought about that stuff; your compound is about to go into the first sick humans it's ever seen, in Phase II. You finally get to find out if that target, that mechanism, actually works in people. And if it does (congratulations!), then comes the prize. You get to spend the real money in Phase III: lots and lots of patients, all sorts of patients, in what's supposed to be a real-world shakedown. Prepare to shell out more than you've spent in the whole process to date, because Phase III trials will empty your pockets for sure.

Is your compound one of the five or ten out of a hundred that makes it through Phase III? Enjoy the sensation, because most medicinal chemists experience that only once in their careers, if that. Now you're only a year or two away from getting your drug through the FDA and seeing if it will succeed or fail on the market. And good luck there, too. Contrary to what you might read, not all drugs earn back their costs, so the ones that do had better earn out big-time.

There. That wasn't so easy, was it? And I know that I've left things out, too. The point of all this is that most people have no idea of all these steps - what they're like, how long they can take, that they even exist. It wouldn't surprise me if many people imagine drug discovery, when they imagine it at all, to be the reach-in-the-pile-and-find-a-drug process that I mentioned in the second paragraph. Everything else is figuring out what color to make the package and how much to overcharge for it.

That's why I started this blog back in 2002 - because I was spending all my time on a fascinating, tricky, important job that no one seemed to know anything about. All these details consume the lives and careers of vast numbers of researchers - it's what I've been doing since 1989 - and I wanted, still want, to let people know that we exist.

In the meantime, for the Donald Lights of the world, the Marcia Angells, and the people who repeat their numbers despite apparently knowing nothing about how drugs actually get developed - well, here are some more details for you. The readers of this site with experience in the field will be able to tell you if I haven't described it pretty much as it is. It's not like I and others haven't tried to tell you before.

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August 13, 2012

Donald Light Responds on Drug Innovation and Costs

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Posted by Derek

Here's a response from Prof. Light to my post the other day attacking his positions on drug research. I've taken it out of that comments thread to highlight it - he no longer has to wonder if I'll let people here read what he has to say.

I'll have a response as well, but that'll most likely be up tomorrow - I actually have a very busy day ahead of me in the lab, working on a target that (as far as any of us in my group can tell) no one has ever attacked, for a disease that (as far as any of us in my group can tell) no one has ever found a therapy. And no, I am not making that up.

It's hard to respond to so many sarcastic and baiting trashings by Dr. Lowe and some of his fan club, but let me try. I wonder if Dr. Lowe allows his followers to read what I write here without cutting and editing.

First, let me clarify some of the mis-representations about the new BMJ article that claims the innovation crisis is a myth. While the pharmaceutical industry and its global network of journalists have been writing that the industry has been in real trouble because innovation has been dropping, all those articles and figures are based on the decline of new molecules approved since a sharp spike. FDA figures make it clear that the so-called crisis has been simply a return to the long-term average. In fact, in recent years, companies have been getting above-average approvals for new molecules. Is there any reasonably argument with these FDA figures? I see none from Dr. Lowe or in the 15 pages of comments.

Second, the reported costs of R&D have been rising sharply, and we do not go into these; but here are a couple of points. We note that the big picture, total additional investments in R&D (which are self-reported from closely held figures) over the past 15 years were matched by six times greater increase in revenues. We can all guess various reasons why, but surely a 6-fold return is not a crisis or "unsustainable." In fact, it's evidence that companies know what they are doing.

Another point from international observers is that the costs of clinical trials in the U.S. are much higher than in equally affluent countries and much higher than they need to be, because everyone seems to make money the higher they are in the U.S. market. I have not looked into this but I think it would be interesting to see in what ways costly clinical trials are a boon for several of the stakeholders.

Third, regarding that infamously low cost of R&D that Dr. Lowe and readers like to slam, consider this: The low estimate is based on the same costs of R&D reported by companies (which are self-reported from closely held figures) to their leading policy research center as were used to estimate the average cost is $1.3 bn (and soon to be raised again). Doesn't that make you curious enough to want to find out how we show what inflators were used to ramp the reported costs up, which use to do the same in reverse? Would it be unfair to ask you to actually read how we took this inflationary estimate apart? Or is it easier just to say our estimate is "idiotic" and "absurd"? How about reading the whole argument at and then discuss its merits?

Our estimate is for net, median corporate cost of D(evelopment) for that same of drugs from the 1990s that the health economists supported by the industry used to ramp up the high estimate. Net, because taxpayer subsidies which the industry has fought hard to expand pay for about 44% of gross R&D costs. Median, because a few costly cases which are always featured raise the average artificially. Corporate, because a lot of R(eseach) and some D is paid for by others "“ governments, foundations, institutes. We don't include an estimate for R(eseach) because no one knows what it is and it varies so much from a chance discovery that costs almost nothing to years and decades of research, failures, dead ends, new angles, before finally an effective drug is discovered.

So it's an unknown and highly variable R plus more knowable estimate of net, median, corporate costs. Even then, companies never so show their books, and they never compare their costs of R&D to revenues and profits. They just keep telling us their unverifiable costs of R&D are astronomical.

We make clear that neither we nor anyone else knows either the average gross cost or the net, median costs of R&D because major companies have made sure we cannot. Further, the "average cost of R&D" estimate began in 1976 as a lobbying strategy to come up with an artificial number that could be used to wow Congressmen. It's worked wonderfully, mythic as it may be.

Current layoffs need to be considered (as do most things) from a 10-year perspective. A lot industry observers have commented on companies being "bloated" and adding too many hires. Besides trimming back to earlier numbers, the big companies increasingly realize (it has taken them years) that it's smarter to let thousands of biotechs and research teams try to find good new drugs, rather than doing it in-house. To regard those layoffs as an abandonment of research misconstrues the corporate strategies.

Fourth, we never use "me-too." We speak of minor variations, and we say it's clinically valuable to have 3-4 in a given therapeutic class, but marginal gains fall quite low after that.

Fifth, our main point about innovation is that current criteria for approval and incentives strongly reward companies doing exactly what they are doing, developing scores of minor variations to fill their sales lines and market for good profits. We don't see any conspiracy here, only rational economic behavior by smart businessmen.

But while all new drug products are better than placebo or not too worse than a comparator, often against surrogate end points, most of those prove to be little better than last year's "better" drugs, or the years before"¦ You can read detailed assessments by independent teams at several sites. Of course companies are delighted when new drugs are really better against clinical outcomes; but meantime we cite evidence that 80 percent of additional pharmaceutical costs go to buying newly patented minor variations. The rewards to do anything to get another cancer drug approved are so great that independent reviewers find few of them help patients much, and the area is corrupted by conflict-of-interest marketing.

So we conclude there is a "hidden business model" behind the much touted business model, to spend billions on R&D to discover breakthrough drugs that greatly improve health and works fine until the "patent cliff" sends the company crashing to the canyon floor. The heroic tale is true to some extent and sometimes; but the hidden business model is to develop minor variations and make solid profits from them. That sounds like rational economic behavior to me.
The trouble is, all these drugs are under-tested for risks of harm, and all drugs are toxic to one degree or another. My book, The Risks of Prescription Drugs, assembles evidence that there is an epidemic of harmful side effects, largely from hundreds of drugs with few or no advantages to offset their risks of harm.

Is that what we want? My neighbors want clinically better drugs. They think the FDA approves clinically better drugs and don't realize that's far from the case. Most folks think "innovation" means clinically superior, but it doesn't. Most new molecules do not prove to be clinically superior. The term "innovation" is used vaguely to signal better drugs for patients; but while many new drugs are technically innovative, they do not help patients much. The false rhetoric of "innovative" and "innovation" needs to be replaced by what we want and mean: "clinically superior drugs."

If we want clinically better drugs, why don't we ask for them and pay according to added value "“ no more if no better and a lot more if substantially better? Instead, standards for testing effectiveness and risk of harms is being lowered, and "“ guess what "“ that will reward still more minor variations by rational economic executives, not more truly superior "innovative" drugs.

I hope you find some of these points worthwhile and interesting. I'm trying to reply to 20 single-space pages of largely inaccurate criticism, often with no reasoned explanation for a given slur or dismissal. I hope we can do better than that. I thought the comments by Matt #27 and John Wayne #45 were particularly interesting.

Donald W. Light

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August 9, 2012

Getting Drug Research Really, Really Wrong

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Posted by Derek

The British Medical Journal says that the "widely touted innovation crisis in pharmaceuticals is a myth". The British Medical Journal is wrong.

There, that's about as direct as I can make it. But allow me to go into more detail, because that's not the the only thing they're wrong about. This is a new article entitled "Pharmaceutical research and development: what do we get for all that money?", and it's by Joel Lexchin (York University) and Donald Light of UMDNJ. And that last name should be enough to tell you where this is all coming from, because Prof. Light is the man who's publicly attached his name to an estimate that developing a new drug costs about $43 million dollars.

I'm generally careful, when I bring up that figure around people who actually develop drugs, not to do so when they're in the middle of drinking coffee or working with anything fragile, because it always provokes startled expressions and sudden laughter. These posts go into some detail about how ludicrous that number is, but for now, I'll just note that it's hard to see how anyone who seriously advances that estimate can be taken seriously. But here we are again.

Light and Lexchin's article makes much of Bernard Munos' work (which we talked about here), which shows a relatively constant rate of new drug discovery. They should go back and look at his graph, because they might notice that the slope of the line in recent years has not kept up with the historical rate. And they completely leave out one of the other key points that Munos makes: that even if the rate of discovery were to have remained linear, the costs associated with it sure as hell haven't. No, it's all a conspiracy:

"Meanwhile, telling "innovation crisis" stories to politicians and the press serves as a ploy, a strategy to attract a range of government protections from free market, generic competition."

Ah, that must be why the industry has laid off thousands and thousands of people over the last few years: it's all a ploy to gain sympathy. We tell everyone else how hard it is to discover drugs, but when we're sure that there are no reporters or politicians around, we high-five each other at how successful our deception has been. Because that's our secret, according to Light and Lexchin. It's apparently not any harder to find something new and worthwhile, but we'd rather just sit on our rears and crank out "me-too" medications for the big bucks:

"This is the real innovation crisis: pharmaceutical research and development turns out mostly minor variations on existing drugs, and most new drugs are not superior on clinical measures. Although a steady stream of significantly superior drugs enlarges the medicine chest from which millions benefit, medicines have also produced an epidemic of serious adverse reactions that have added to national healthcare costs".

So let me get this straight: according to these folks, we mostly just make "minor variations", but the few really new drugs that come out aren't so great either, because of their "epidemic" of serious side effects. Let me advance an alternate set of explanations, one that I call, for lack of a better word, "reality". For one thing, "me-too" drugs are not identical, and their benefits are often overlooked by people who do not understand medicine. There are overcrowded therapeutic areas, but they're not common. The reason that some new drugs make only small advances on existing therapies is not because we like it that way, and it's especially not because we planned it that way. This happens because we try to make big advances, and we fail. Then we take what we can get.

No therapeutic area illustrates this better than oncology. Every new target in that field has come in with high hopes that this time we'll have something that really does the job. Angiogenesis inhibitors. Kinase inhibitors. Cell cycle disruptors. Microtubules, proteosomes, apoptosis, DNA repair, metabolic disruption of the Warburg effect. It goes on and on and on, and you know what? None of them work as well as we want them to. We take them into the clinic, give them to terrified people who have little hope left, and we watch as we provide with them, what? A few months of extra life? Was that what we were shooting for all along, do we grin and shake each others' hands when the results come in? "Another incremental advance! Rock and roll!"

Of course not. We're disappointed, and we're pissed off. But we don't know enough about cancer (yet) to do better, and cancer turns out to be a very hard condition to treat. It should also be noted that the financial incentives are there to discover something that really does pull people back from the edge of the grave, so you'd think that we money-grubbing, public-deceiving, expense-padding mercenaries might be attracted by that prospect. Apparently not.

The same goes for Alzheimer's disease. Just how much money has the industry spent over the last quarter of a century on Alzheimer's? I worked on it twenty years ago, and God knows that never came to anything. Look at the steady march, march, march of failure in the clinic - and keep in mind that these failures tend to come late in the game, during Phase III, and if you suggest to anyone in the business that you can run an Alzheimer's Phase III program and bring the whole thing in for $43 million dollars, you'll be invited to stop wasting everyone's time. Bapineuzumab's trials have surely cost several times that, and Pfizer/J&J are still pressing on. And before that you had Elan working on active immunization, which is still going on, and you have Lilly's other antibody, which is still going on, and Genentech's (which is still going on). No one has high hopes for any of these, but we're still burning piles of money to try to find something. And what about the secretase inhibitors? How much time and effort has gone into beta- and gamma-secretase? What did the folks at Lilly think when they took their inhibitor way into Phase III only to find out that it made Alzheimer's slightly worse instead of helping anyone? Didn't they realize that Professors Light and Lexchin were on to them? That they'd seen through the veil and figured out the real strategy of making tiny improvements on the existing drugs that attack the causes of Alzheimer's? What existing drugs to target the causes of Alzheimer are they talking about?

Honestly, I have trouble writing about this sort of thing, because I get too furious to be coherent. I've been doing this sort of work since 1989, and I have spent the great majority of my time working on diseases for which no good therapies existed. The rest of the time has been spent on new mechanisms, new classes of drugs that should (or should have) worked differently than the existing therapies. I cannot recall a time when I have worked on a real "me-too" drug of the sort of that Light and Lexchin seem to think the industry spends all its time on.

That's because of yet another factor they have not considered: simultaneous development. Take a look at that paragraph above, where I mentioned all those Alzheimer's therapies. Let's be wildly, crazily optimistic and pretend that bapineuzumab manages to eke out some sort of efficacy against Alzheimer's (which, by the way, would put it right into that "no real medical advance" category that Light and Lexchin make so much of). And let's throw caution out the third-floor window and pretend that Lilly's solanezumab actually does something, too. Not much - there's a limit to how optimistic a person can be without pharmacological assistance - but something, some actual efficacy. Now here's what you have to remember: according to people like the authors of this article, whichever of these antibodies that makes it though second is a "me-too" drug that offers only an incremental advance, if anything. Even though all this Alzheimer's work was started on a risk basis, in several different companies, with different antibodies developed in different ways, with no clue as to who (if anyone) might come out on top.

All right, now we get to another topic that articles like this latest one are simply not complete without. That's right, say it together: "Drug companies spend a lot more on marketing than they do on research!" Let's ignore, for the sake of argument, the large number of smaller companies that spend all of their money on R&D and none on marketing, because they have nothing to market yet. Let's even ignore the fact that over the years, the percentage of money being spent on drug R&D has actually been going up. No, let's instead go over this in a way that even professors at UMDNJ and York can understand it:

Company X spends, let's say, $10 a year on research. (We're lopping off a lot of zeros to make this easier). It has no revenues from selling drugs yet, and is burning through its cash while it tries to get its first on onto the market. It succeeds, and the new drug will bring in $100 dollars a year for the first two or three years, before the competition catches up with some of the incremental me-toos that everyone will switch to for mysterious reasons that apparently have nothing to do with anything working better. But I digress; let's get back to the key point. That $100 a year figure assumes that the company spends $30 a year on marketing (advertising, promotion, patient awareness, brand-building, all that stuff). If the company does not spend all that time and effort, the new drug will only bring in $60 a year, but that's pure profit. (We're going to ignore all the other costs, assuming that they're the same between the two cases).

So the company can bring in $60 dollars a year by doing no promotion, or it can bring in $70 a year after accounting for the expenses of marketing. The company will, of course, choose the latter. "But," you're saying, "what if all that marketing expense doesn't raise sales from $60 up to $100 a year?" Ah, then you are doing it wrong. The whole point, the raison d'etre of the marketing department is to bring in more money than they are spending. Marketing deals with the profitable side of the business; their job is to maximize those profits. If they spend more than those extra profits, well, it's time to fire them, isn't it?

R&D, on the other hand, is not the profitable side of the business. Far from it. We are black holes of finance: huge sums of money spiral in beyond our event horizons, emitting piteous cries and futile streams of braking radiation, and are never seen again. The point is, these are totally different parts of the company, doing totally different things. Complaining that the marketing budget is bigger than the R&D budget is like complaining that a car's passenger compartment is bigger than its gas tank, or that a ship's sail is bigger than its rudder.

OK, I've spend about enough time on this for one morning; I feel like I need a shower. Let's get on to the part where Light and Lexchin recommend what we should all be doing instead:

What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. . .We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.

One problem I have with this is that the health insurance industry would probably object to having "several billion dollars a year" collected from it. And that "several" would not mean "two or three", for sure. But even if we extract that cash somehow - an extraction that would surely raise health insurance costs as it got passed along - we now find ourselves depending on a committee that will determine the worth of each new drug. Will these people determine that when the drug is approved, or will they need to wait a few years to see how it does in the real world? If the drug under- or overperforms, does the reward get adjusted accordingly? How, exactly, do we decide how much a diabetes drug is worth compared to one for multiple sclerosis, or TB? What about a drug that doesn't help many people, but helps them tremendously, versus a drug that's taken by a lot of people, but has only milder improvements for them? What if a drug is worth a lot more to people in one demographic versus another? And what happens as various advocacy groups lobby to get their diseases moved further up the list of important ones that deserve higher prizes and more incentives?

These will have to be some very, very wise and prudent people on this committee. You certainly wouldn't want anyone who's ever been involved with the drug industry on there, no indeed. And you wouldn't want any politicians - why, they might use that influential position to do who knows what. No, you'd want honest, intelligent, reliable people, who know a tremendous amount about medical care and pharmaceuticals, but have no financial or personal interests involved. I'm sure there are plenty of them out there, somewhere. And when we find them, why stop with drugs? Why not set up committees to determine the true worth of the other vital things that people in this country need each day - food, transportation, consumer goods? Surely this model can be extended; it all sounds so rational. I doubt if anything like it has ever been tried before, and it's certainly a lot better than the grubby business of deciding prices and values based on what people will pay for things (what do they know, anyway, compared to a panel of dispassionate experts?)

Enough. I should mention that when Prof. Light's earlier figure for drug expense came out that I had a brief correspondence with him, and I invited him to come to this site and try out his reasoning on people who develop drugs for a living. Communication seemed to dry up after that, I have to report. But that offer is still open. Reading his publications makes me think that he (and his co-authors) have never actually spoken with anyone who does this work or has any actual experience with it. Come on down, I say! We're real people, just like you. OK, we're more evil, fine. But otherwise. . .

Comments (74) + TrackBacks (0) | Category: "Me Too" Drugs | Business and Markets | Cancer | Drug Development | Drug Industry History | Drug Prices | The Central Nervous System | Why Everyone Loves Us

July 30, 2012

Cancer Drugs: Value for the Money?

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Posted by Derek

And while we're talking oncology, here's a piece from Luke Timmerman at Xconomy that brings up a lot of tough questions. We've talked about some of these before around here, but everyone who works in oncology drug discovery is going to hear them again: How much should a new cancer therapy cost? Who's going to pay for it? Are patients (and their insurance companies) getting value for their money?

I wouldn’t go so far as to say we need a draconian system to discourage drug developers from creating new products. Drug prices are rising fast, but there are a lot of other factors contributing to increased healthcare spending. Drug companies can, and should, be able to recoup the investments they make in the form of high drug prices. But if you’re going to charge a high price for a drug, I think a company needs to have a much stronger value proposition than “Hey, we shrank tumors in half for 20 percent of patients. Now hand over your $100,000.” It needs to be more like, “Hey, my drug has an 80 percent chance of helping people with this genetic profile, and those people can expect to live an extra year, with high quality of life.” Now you’re starting to really talk about $100,000 of value.

Sadly, drug companies tend to be more interested in satisfying the short-term profit desires of their investors than they are in truly delivering cost-effective care to patients. . .

Well, it's like this: we realize that people want inexpensive drugs that work great. But we have an awful time delivering anything like that. As I've said before here, we keep swinging for those fences and missing. That's why these drugs come out, the ones that only extend life span for a limited amount of time: every one of those are drugs that people had higher hopes for, but that's how they performed in the real world, so out they come onto the market to do as best they can. And if they're only going into a small patient population, then the pricing gets set accordingly.

So we have two trend lines that are trying to intersect: the amount of money one can hope to recoup from a new cancer medication, and the amount of money that it takes to find one. They haven't quite crossed, not yet, but they're on course to. If it were less costly to develop these things, or if they delivered more value in the end, we could push them back apart. Will either of those be realized in time to help?

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March 13, 2012

Nexavar Licensed by Force in India

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Posted by Derek

India has decided to invoke compulsory licensing, and is approving a local generic company's application to make and sell Bayer's Nexavar (sorafenib).

I'm assuming that there's a political dimension to this that I'm not quite following. There must be something else going on between Bayer and the Indian authorities. Nexavar is indeed expensive, but (meaning no offense to the people who discovered it, whom I know), it's not the most necessary part of the oncology drug world, either. Anyone have more details?

The most recent time this issue has come up here is 2007.

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March 8, 2012

Eroom's Law

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Posted by Derek

There's another "Troubles of Drug Discovery" piece in Nature Reviews Drug Discovery, but it's a good one. It introduces the concept of "Eroom's Law", and if you haven't had your coffee yet (don't drink it, myself, actually), that's "Moore's Law" spelled backwards. It refers, as you'd fear, to processes that are getting steadily slower and more difficult with time. You know, like getting drugs to market seems to be.

Eroom's Law indicates that powerful forces have outweighed scientific, technical and managerial improvements over the past 60 years, and/or that some of the improvements have been less 'improving' than commonly thought. The more positive anyone is about the past several decades of progress, the more negative they should be about the strength of countervailing forces. If someone is optimistic about the prospects for R&D today, they presumably believe the countervailing forces — whatever they are — are starting to abate, or that there has been a sudden and unprecedented acceleration in scientific, technological or managerial progress that will soon become visible in new drug approvals.

Here's the ugly trend (dollars are inflation-adjusted:

I particularly enjoyed, in a grim way, this part:

However, readers of much of what has been written about R&D productivity in the drug industry might be left with the impression that Eroom's Law can simply be reversed by strategies such as greater management attention to factors such as project costs and speed of implementation, by reorganizing R&D structures into smaller focused units in some cases or larger units with superior economies of scale in others, by outsourcing to lower-cost countries, by adjusting management metrics and introducing R&D 'performance scorecards', or by somehow making scientists more 'entrepreneurial'. In our view, these changes might help at the margins but it feels as though most are not addressing the core of the productivity problem.

In the original paper, each of those comma-separated phrases is referenced to the papers that have proposed them, which is being rather scrupulously cruel. But I don't blame the authors, and I don't really disagree with their analysis, either. As they go on to say, investors don't seem to disagree, either. The cost-cutting that we're seeing everywhere, particularly cutbacks in research (see all that Sanofi stuff the other day!) are the clearest indicator. People are acting as if the return on pharmaceutical R&D is insufficient compared to the cost of capital, and if you think differently, well, now's a heck of a time to clean up as a contrarian.

Now, the companies (and CEOS) involved in this generally talk about how they're going to turn things around, how cutting their own research will put things on a better footing, how doing external deals will more than make up for it, and so on. But it's getting increasingly hard to believe that. We are heading, at speed, for a world in which fewer and fewer useful medicines are discovered, while more and more people want them.

The authors have four factors that they highlight which have gotten us into this fix, and all four of them are worth discussing (although not all in one post!) The first is what they call the "Better Than the Beatles" effect. That's what we face as we continue to compete against our greatest hits of the past. Take generic Lipitor, as a recent example. It's cheap, and it certainly seems to do the job it's prescribed for (lowering LDL). Between it and the other generic statins, you're going to have a rocky uphill climb if you want to bring a new LDL-lowering therapy to market (which is why not many people are trying to do that).

I think that this is insufficiently appreciated outside of the drug business. Nothing goes away unless it's well and truly superseded. Aspirin is still with is. Ibuprofen still sells like crazy. Blood pressure medicines are, in many cases, cheap as dirt, and the later types are inexorably headed that way. Every single drug that we discover is headed that way; patents are wasting assets, even patents on biologics, although those have been wasting more slowly (with the pace set to pick up). As this paper points out, very few other industries have this problem, or to this degree. (Even the entertainment industry, whose past productions do form a back catalog, has the desire for novelty on its side). But we're in the position of someone trying to come up with a better comb.

More on their other reasons in the next posts - there are some particularly good topics in there, and I don't want to mix everything together. . .

Comments (45) + TrackBacks (0) | Category: Business and Markets | Drug Industry History | Drug Prices

February 10, 2012

The Terrifying Cost of a New Drug

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Posted by Derek

Matthew Herper at Forbes has a very interesting column, building on some data from Bernard Munos (whose work on drug development will be familiar to readers of this blog). What he and his colleague Scott DeCarlo have done is conceptually simple: they've gone back over the last 15 years of financial statements from a bunch of major drug companies, and they've looked at how many drugs each company has gotten approved.

Over that long a span, things should even out a bit. There will be some spending which won't show up in the count, that took place on drugs that got approved during the earlier part that span, but (on the back end) there's spending on drugs in there that haven't made it to market yet, too. What do the numbers look like? Hideous. Appalling. Unsustainable.

AstraZeneca, for example, got 5 drugs on the market during this time span, the worst performance on this list, and thus spent spent nearly $12 billion dollars per drug. No wonder they're in the shape they're in. GSK, Sanofi, Roche, and Pfizer all spent in the range of $8 billion per approved drug. Amgen did things the cheapest by this measure, 9 drugs approved at about 3.7 billion per drug.

Now, there are several things to keep in mind about these numbers. First - and I know that I'm going to hear about this from some people - you might assume that different companies are putting different things under the banner of R&D for accounting purposes. But there's a limit to how much of that you can do. Remember, there's a separate sales and marketing budget, too, of course, and people never get tired of pointing out that it's even larger than the R&D one. So how inflated can these figures be? Second, how can these numbers jibe with the 800-million-per-new-drug (recently revised to $1 billion), much less with the $43 million per new drug figure (from Light and Warburton) that was making the rounds a few months ago?

Well, I tried to dispose of that last figure at the time. It's nonsense, and if it were true, people would be lining up to start drug companies (and other people would be throwing money at them to help). Meanwhile, the drug companies that already exist wouldn't be frantically firing thousands of people and selling their lab equipment at auction. Which they are. But what about that other estimate, the Tufts/diMasi one? What's the difference?

As Herper rightly says, the biggest factor is failure. The Tufts estimate is for the costs racked up by one drug making it through. But looking at the whole R&D spend, you can see how money is being spent for all the stuff that doesn't get through. And as I and many of the other readers of this blog can testify, there's an awful lot of it. I'm now in my 23rd year of working in this industry, and nothing I've touched has ever made it to market yet. If someone wins $500 from a dollar slot machine, the proper way to figure the costs is to see how many dollars, total, they had to pump into the thing before they won - not just to figure that they spent $1 to win. (Unless, of course, they just sat down, and in this business we don't exactly have that option).

No, these figures really show you why the drug business is in the shape it's in. Look at those numbers, and look at how much a successful drug brings in, and you can see that these things don't always do a very good job of adding up. That's with the expenses doing nothing but rising, and the success rate for drug discovery going in the other direction, too. No one should be surprised that drug prices are rising under these conditions. The surprise is that there are still people out there trying to discover drugs.

Comments (62) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices

November 10, 2011

Makena's Market. Or Lack of One.

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Posted by Derek

I put up a note here yesterday about KV Pharmaceuticals and their complaint to the FDA about compounding pharmacies selling a version of their Makena progesterone ester drug. The conclusion was that the combination of Makena's high price and the FDA's we-won't-enforce attitude towards the compounders was hurting sales.

And that it is. The people at BioCentury have more. Basically, the estimate is that about 140,000 women per year fall into the potential treatment class of high-risk pregnancies. How much Makena has been sold since its launch last March? The company says that about 2,400 patients have started treatment or are enrolled to start. Now, we don't have figures on how many patients have filled prescriptions from compounding pharmacies, and I don't know how many people took this therapy before KV got involved.

But still. . .that's what, a 2 or 3% market penetration? I'll bet KV's sales projections weren't at that level.

Comments (4) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs

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

August 4, 2011

Does Anyone Want Axanum?

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Posted by Derek

While we're talking about the cost of drugs, is AstraZeneca really going to be able to sell anyone any Axanum? That's a combination pill of Nexium (esomeprazole) and low-dose aspirin. The FDA didn't go for it last year, but the InVivoBlog details the company's attempts to get it on the market across Europe. Seeing as how AZ's drug is staggering off patent protection in Europe, and seeing as how low-dose aspirin is cheaper than the better grades of dirt, I just don't see how they sell any of this stuff. But desperate times, desperate measure and all that, I guess. . .

Comments (21) + TrackBacks (0) | Category: Drug Prices

Dendreon: Watch the Cost Curve Being Bent

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Posted by Derek

Dendreon has made a lot of news over the last few years with its Provenge prostate cancer therapy. This is the immunological "cancer vaccine" treatment that had such a wild ride through the FDA (and gave DNDR and its investors such a wild ride in the stock market, including some weirdness that I'm not sure ever was explained).

Well, the company is back in the news, and not in a good way. They've been selling Provenge for a while now, but have had all kinds of manufacturing woes (as you might expect from something as complex as personalized immunology). But they've apparently been working through all that, so investors were very much anticipating the company's earnings report yesterday. Unfortunately, they got one.

The company missed all the earnings forecast by an ugly margin, which has really caught everyone by surprise. Worse for them, the reason for the miss is reimbursement. Health insurance companies, in other words, are balking at paying Dendreon's price. And you know, they have a right to. The tug-of-war between drug companies and insurance is the closest thing we have to a free market in the whole drug business, and we might as well get what benefits from it we can.

You can fill in the arguing points: "I'm a prostate cancer patient, and I want to be treated with Provenge" "Fine, but as your insurance carrier, I'm telling you that it's too expensive for what it does. We're not paying for it - if you want it, buy some yourself." "But I can't - you know that - and should my own health be held hostage to how much I can afford to pay?" "Should we be held hostage to how much you want us to spend on you?" "Fine, let's get the government involved - don't I have a right to health care?" "Not seeing that in so many words in the Constitution - but even so, would it give you the right to the most expensive health care there is? Who pays for that? If you want to get the government involved, make them whack the company until they lower their price." And so on.

No, this is what bending the infamous cost curve really looks like. If a company finally prices its products over what the market will bear (and remember, the market in this case is made up of insurance providers), its sales will fall, and it'll either have to persuade its customers that the price is worth it, or it'll have to find a way to offer its good more cheaply (most likely by accepting lower profits). No one wants to give in, no one's particularly happy. But it's probably the only way to arrive at something approaching a right answer.

Update: There's also a theory on Wall Street that the real problem is that demand for Provenge isn't strong enough, and that the company is spinning this as a reimbursement problem. Here's Adam Feuerstein with that take - it'll be interesting to see if that's right. Has the price point at which insurance will balk still not been hit?

Comments (16) + TrackBacks (0) | Category: Business and Markets | Cancer | Drug Prices

July 21, 2011

Drugs for Multiple Sclerosis: Worth the Price, Or Not?

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Posted by Derek

Now this is an uncomfortable study, if you're in the business of treating multiple sclerosis. An article in Neurology looks at the cost-effectiveness of several disease-modifying therapies: the two interferon-beta-1as (Avonex and Rebif), interferon-beta-1b (Betaseron) Copaxone, Betaseron and the immune modulator Copaxone (glatiramer acetate). The authors tracked ten-year quality of life, including lost time at work, overall time without relapses, and so on, and compared that with the cost of treatment.

The final figure is in dollars per quality-adjusted life year (QALY). That's not the most exact calculation in the world, but if you're going to try to rank cost-effectiveness, no measure is going to be without controversy. There's been a lot of debate about this in the UK, where the NICE explicitly uses these figures in its recommendations, and if you haven't heard much about the concept over here, well, you're definitely going to. What's considered a good figure? To give you an idea, the NICE starts raising an eyebrow at about $40K to $50K (based on 1.62 dollars to the pound). Here, we'll stand for 100K to 150K.

And how do the MS drugs compare? Closer to $1 million/QALY than any of those figures. All of them were above $800,000/QALY. In other words, the benefits of these drugs are real (although Copaxone's were less impressive compared to the interferons), but are they real enough to justify their prices? It'll be quite interesting to see where Gilenya (fingolimod) will land once it gets more of a track record in the real world. Note that the price of all these drugs has gone up since the study's calculations (while their effectiveness has presumably not budged) and that Gilenya, I believe, costs even more than the rest of them.

This naturally brings up all the usual questions about drug pricing. In no particular order, and with no priority given to those that I agree with, we have: Who says you can put a price on quality of life? Well, if you can't, then why can't drug companies just charge whatever the market will bear? What market - drug pricing is about the worst example of a free market you could ask for! Well, what if people want to pay out of their own pockets - shouldn't they be free to? Right, sure, who does that, and how much would sales fall if everyone had to? But still, shouldn't people be able to get what therapies are available - who's the person who gets to tell patients that they can't have what's out there? OK, but since a lot of this is Medicare and the like, are we supposed to pay for everything to be done to everyone forever? And why should these drugs cost so much, anyway? Well, because insurance companies apparently will pay for them - why don't you go complain to them? And so on. I honestly have no idea what the end to these arguments might be, but studies like this one are going to force us to have them again. Here's more from the New York Times and from Bloomberg, with a hat tip to FiercePharma.

Comments (25) + TrackBacks (0) | Category: Drug Prices | The Central Nervous System

July 1, 2011

Avastin and Medicare

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Posted by Derek

So, the FDA's advisors voted unanimously to remove Avastin's indication for metastatic breast cancer. Fine. But Medicare is saying that they'll continue to cover it? Really?

Now, as opposed to the other day, we're starting to talk about cost. Avastin is (famously) not cheap, and insurance companies often don't want to reimburse for off-label use of drugs. But if Medicare, well, doesn't care, then what? A number of insurance companies take their policies into account for their own coverage recommendations.

So this makes a person wonder what all the arguing over this issue has accomplished. Perhaps fewer oncologists will be willing to write off-label prescriptions after the FDA makes its call - there is that. But (on the one hand) this isn't looking quite like the consigning-people-to-death outcome that patient advocates were warning about. It also gives you an insight into health care costs, doesn't it? The FDA says "We don't recommend you use this. The clinical trial data don't support it." And Medicare says "Well, yeah, sure, but we'll pay for it, so what the hey". What, indeed, the hey?

Comments (13) + TrackBacks (0) | Category: Cancer | Drug Prices | Regulatory Affairs

May 13, 2011

Process Chemistry Makes the Headlines

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Posted by Derek

Not a common occurrence, that. But this Wall Street Journal article goes into details on some efforts to improve the synthetic route to Viread (tenofovir) (or, to be more specific, TDF, the prodrug form of it, which is how it's dosed). This is being funded by former president Bill Clinton's health care foundation:

The chasm between the need for the drugs and the available funding has spurred wide-ranging efforts to bring down the cost of antiretrovirals, from persuading drug makers to share patents of antiretrovirals to conducting trials using lower doses of existing drugs.

Beginning in 2005, the Clinton team saw a possible path in the laboratory to lowering the price of the drugs. Mr. Clinton's foundation had brokered discounts on first-line AIDS drugs, many of which were older and used relatively simple chemistry. Newer drugs, with advantages such as fewer side effects, were more complex and costly to make. . .A particularly difficult step in the manufacture of the antiretroviral drug tenofovir comes near the end. The mixture at that point is "like oatmeal, making it very difficult to stir," explained Prof. Fortunak. That slows the next reaction, a problem because the substance that will become the drug is highly unstable and decomposing, sharply lowering the yield.

Fortunak himself is a former Abbott researcher, now at Howard University. One of his students does seem to have improved that step, thinning out the reaction mixture (which was gunking up with triethylammonium salts) and improving the stability of the compound in it. (Here's the publication on this work, which highlights that step, formation of a phosphate ester, which is greatly enhanced with addition of tetrabutylammonium bromide). This review has more on production of TDF and other antiretrovirals.

This is a pure, 100% real-world process chemistry problem, as the readers here who do it for a living will confirm, and it's very nice to see this kind of work get the publicity that it deserves. People who've never synthesized or (especially) manufactured a drug generally don't realize what a tricky business it can be. The chemistry has to work on large scale (above all!), and do so reproducibly, hitting the mark every time using the least hazardous reagents possible, which have to be reliably sourced at reasonable prices. And physically, the route has to avoid extremes of temperature or pressure, with mixtures that can be stirred, pumped from reactor to reactor, filtered, and purified without recourse to the expensive techniques that those of us in the discovery labs use routinely. Oh, and the whole process has to produce the least objectionable waste stream that you can come up with, too, in case you've got all those other factors worked out already. Not an easy problem, in most cases, and I wish that some of those people who think that drug companies don't do any research of their own would come down and see how it's done.

To give you an example of these problems, the paper on this tenofovir work mentions that the phosphate alkylation seems to work best with magnesium t-butoxide, but that the yield varies from batch to batch, depending on the supplier. And in the workup to that reaction, you can lose product in the cake of magnesium salts that have to be filtered out, a problem that needs attention on scale.

According to the article, an Indian generic company is using the Howard route for tenofovir that's being sold in South Africa. (Tenofovir is not under patent protection in India). Interestingly, two of the big generic outfits (Mylan and Cipla) say that they'd already made their own improvements to the process, but the question of why that didn't bring down the price already is not explored. Did the Clinton foundation improve a published Gilead route that someone else had already fixed? Cipla apparently does the same phosphate alkylation (PDF), but the only patent filing of theirs that I can find that addresses tenofovir production is this one, on its crystalline form. Trade secret?

Comments (21) + TrackBacks (0) | Category: Chemical News | Drug Development | Drug Prices | Infectious Diseases

May 3, 2011

Lucentis and Avastin: Results

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Posted by Derek

So the results are in from that Lucentis-vs-Avastin comparison (known as CATT, Comparison of AMD Treatment Trials), and I'd say that they came out the way people were expecting: monthly injections of either antibody give the same end results, as measured by vision testing. There are some slight differences between the two when retinal thickness is measured, but that hasn't shown up in the end result (visual impairment). There's another year of follow-up ongoing, and perhaps that will show something (or perhaps not). For now, the outcome appears to be the same.

Another interesting feature of this study is that it compared regular monthly treatment with either drug to an "as-needed" dosing schedule. In this case Lucentis performed equally well by either schedule, with monthly Avastin equivalent, but (interestingly) as-needed Avastin dosing was, in fact, inferior. These protocols need fewer injections (and less Lucentis), but more imaging of the retina, along with more judgment calls on the part of physicians, so the cost savings there will remain to be seen. Savings on injections into the eyes, though, would surely be welcome - it's too bad that Avastin didn't perform as well that way.

As the editorial in the NEJM summed it up:

Health care providers and payers worldwide will now have to justify the cost of using ranibizumab. Regulators in certain countries will be forced to reconsider their policies that make it illegal to use drugs off-label, particularly when so many of their citizens cannot afford ranibizumab. The CATT data support the continued global use of intravitreal bevacizumab as an effective, low-cost alternative to ranibizumab.

The only thing that could flip this around is if the second year of CATT produces some new data, or if the ongoing European trials turn up some safety data that this study wasn't powered to pick up.

More here at the In Vivo Blog. BioCentury also did a good write-up on this one for their subscribers - they interviewed a number of opthamology practitioners, and the voting looks solidly in favor of using the much less expensive Avastin. One South Carolina practice reported that, because of the state's sales tax on physician-administered drugs, that they pay $140 in tax for every injection of Lucentis, while getting reimbursed $120 by Medicare for doing it, which doesn't sound like much of a way to make a living. Still, as the newsletter points out, off-label Avastin use (which would be legal) involves repackaging what was a single-dose container, and that part is technically in violation of the law. Buthe agency doesn't want to get in the way of freedom of medical practice, and seems to be letting that trump the repackaging/compounding concerns.

Comments (5) + TrackBacks (0) | Category: Clinical Trials | Drug Prices

April 4, 2011

Update on Avastin and Lucentis

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Posted by Derek

The Lucentis/Avastin story is going to get more complicated as the year goes on. Next month the results of a head-to-head study of the two drugs (one far less costly than the other) in cases of macular degeneration will be revealed, and it's widely thought that they'll come up as basically equivalent in efficacy.

But as this Wall Street Journal article makes clear, they may not be equal in safely. The same meeting that will see the trial results presented will also feature an analysis of Medicare claims for both drugs, which looks like it'll show that Lucentis has a better safety profile. This is exactly what Roche/Genentech would like to hear, naturally. We'll have to wait until May to see which message wins out. . .

Comments (13) + TrackBacks (0) | Category: Clinical Trials | Drug Prices

March 30, 2011

KV Pharmaceuticals and Makena: The FDA's Move

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Posted by Derek

Most interesting - here's the FDA's latest statement on Makena, in response to KV Pharmaceuticals sending letters to compounding pharmacies telling them to stop providing the drug, now that they have regulatory approval and market exclusivity:

. . .Because Makena is a sterile injectable, where there is a risk of contamination, greater assurance of safety is provided by an approved product. However, under certain conditions, a licensed pharmacist may compound a drug product using ingredients that are components of FDA approved drugs if the compounding is for an identified individual patient based on a valid prescription for a compounded product that is necessary for that patient. FDA prioritizes enforcement actions related to compounded drugs using a risk-based approach, giving the highest enforcement priority to pharmacies that compound products that are causing harm or that amount to health fraud.

FDA understands that the manufacturer of Makena, KV Pharmaceuticals, has sent letters to pharmacists indicating that FDA will no longer exercise enforcement discretion with regard to compounded versions of Makena. This is not correct.

In order to support access to this important drug, at this time and under this unique situation, FDA does not intend to take enforcement action against pharmacies that compound hydroxyprogesterone caproate based on a valid prescription for an individually identified patient unless the compounded products are unsafe, of substandard quality, or are not being compounded in accordance with appropriate standards for compounding sterile products. As always, FDA may at any time revisit a decision to exercise enforcement discretion.

The agency does not quite make clear that the "unique situation" might be, although they do mention the amount of work done by NIH-funded researchers that was part of the approval package. The FDA has, of course, no authority on pricing - but they do have other means at their disposal, and this is one of them. KV must be wondering at this point what, exactly, the phrase "market exclusivity" might mean. (The answer, for better or worse, is that it, and other statuatory language, means whatever the regulatory authorities want it to mean, at least until something goes to the courts. Then it means whatever the courts want it to mean).

Overall, I think that this is a good thing, since (as I've said before) I think that the law in this case is providing a bit too much incentive, considering the relatively small risks involved in bringing progesterone caproate into the modern regulatory world. It worries me, though, that the FDA is making it so explicit that they plan to pick and choose which laws to enforce and how strictly they're going to enforce them. But honestly, it's always been this way, and a no-exceptions letter-of-the-law approach leads to craziness of its own. In this case, I think that clarifying the hazards of pushing things as hard as they can possibly be pushed will help make future business plans in this area a bit more realistic.

Comments (28) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs

March 24, 2011

More on KV and Makena's Pricing

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Posted by Derek

I wanted to do some follow-up on the Makena story - the longtime progesterone ester drug that has now been newly FDA-approved and newly made two order of magnitude more expensive. (That earlier post has the details, for those who might not have been following).

Steve Usdin at BioCentury has, in the newsletter's March 21st issue, gone into some more detail about the whole process where KV Pharmaceuticals stepped in under the Orphan Drug Act to pick up exclusive marketing rights to the drug. The company, he says, "arguably has played a marginal role" in getting the drug back onto the market.

Here's the timeline, from that article and some digging around of my own: in 1956, Squibb got FDA approval for the exact compound (progesterone caproate) for the exact indication (preventing preterm labor), under the brand name Delalutin. But at that time, the FDA didn't require proof of efficacy, just safety. There were several small, inconclusive academic studies during the 1960s. In 1971, the FDA noted that the drug was effective for abnormal uterine bleeding and other indications, and was "probably effective" for preventing preterm delivery. In 1973, though, based on further data from the company, the agency went back on that statement, and said that there was now evidence of birth defects from the use of Delalutin in pregnant women, and removed any of these as approved uses. In the late 1970s, warning language was further added. In 1989, the agency said that its earlier concerns (heart and limb defects) were unfounded, but warned of others. By 1999, the FDA had concluded that progesterone drugs were too varied in their effects to be covered under a single set of warnings, and took the warning labels off.

In 1998, the National Institute of Child Health and Human Development launched a larger, controlled study, but this was an example of bad coordination all the way. By this time, Bristol-Myers Squibb had requested that Delalutin's NDAs be revoked, saying that they hadn't even sold the compound for several years. This seems to have also been a move, though, in response to FDA complaints about earlier violations of manufacturing guidelines and a request to recall the outstanding stocks of the drug. So the NICHD study was terminated after a year, with no results, and the drug's NDA was revoked as of September, 2000.

The NICHD had started another study by then, however, although I'm not sure how they solved their supply problems. This is the one that reported data in 2003, and showed a real statistical benefit for preterm labor. More physicians began to prescribe the drug, and in 2008, the American College of Obstetricians and Gynecologists recommended its use.

So much for the medical efficacy side of the story. Now we get back to the regulatory and marketing end of things. In March of 2006, a company called CUSTOpharm asked the FDA to determine if the drug had been withdrawn for reasons of safety or efficacy - basically, was it something that could be resubmitted as an ANDA? The agency determined that the compound was so eligible.

Meanwhile, another company called Adeza Biomedical was moving in the same direction (as far as I can tell, they and CUSTOpharm had nothing to do with each other, but I don't have all the details). Adeza submitted an NDA in July 2006, under the FDA's provision for using data that that applicant had not generated - in fact, they used the NICHD study results. They called the compound Gestiva, and asked for accelerated approval, since preterm delivery was accepted as a surrogate for infant mortality. An advisory committee recommended this in August of 2006, by a 12 to 9 vote. (Scroll down to the bottom of this page for the details).

The agency sent Adeza an "approvable" letter in October 2006 which asked for more animal studies. The next year, Adeza was bought by Cytec, who were bought by Hologic, who sold the Gestiva rights to KV Pharmaceuticals in January 2008. So that's how KV enters the story: they bought the drug program from someone who bought it from someone who just used a government agency's clinical data.

The NDA was approved by the FDA in February 2011, along with a name change to Makena. By this time, KV and Hologic had modified their agreement - KV had already paid up nearly $80 million, with another $12.5 million due with the approval, and has further payments to make to Hologic which would take the total purchase price up to nearly $200 million. That's been their main expense for the drug, by far. The FDA has asked them to continue two ongoing studies of Makena - one placebo-controlled trial to look at neonatal mortality and morbidity, and one observational study to see if there are any later developmental effects. Those studies will report in late 2016, and KV has said that their costs will be in the "tens of millions". So they paid more for the rights to Makena than it's costing them to get it studied in the clinic.

That only makes sense if they can charge a lot more than the generic price for the drug had been, of course, and that's what takes us up to today, with the uproar over the company's proposed price tag of $1500 per treatment. But the St. Louis Post-Dispatch (thanks to FiercePharma for the link) says that the company has now filed its latest 10-Q with the SEC, and is notifying investors that its pricing plans are in doubt:

The success of the Company’s commercialization of Makena™ is dependent upon a number of factors, including: (i) the Company’s ability to maintain certain net pricing levels for Makena™; (ii) successfully obtaining agreements for coverage and reimbursement rates on behalf of patients and medical practitioners prescribing Makena™ with third-party payors, including government authorities, private health insurers and other organizations, such as HMOs, insurance companies, and Medicaid programs and administrators, and (iii) the extent to which pharmaceutical compounders continue to produce non-FDA approved purported substitute product. The Company has been criticized regarding the list pricing of Makena™ in a number of news articles and internet postings. In addition, the Company has received, and expects to continue to receive, letters criticizing the Company’s list pricing of Makena™ from several medical practitioners and several advocacy groups, including the March of Dimes, American College of Obstetricians and Gynecologists, American Academy of Pediatrics and the Society for Maternal Fetal Medicine. Further, the Company has received one letter from a United States Senator and expect to receive another letter from a number of members of the United States Congress asking the Company to reduce its indicated pricing of Makena™, and the same Senator, together with a second Senator, has sent a letter to the Federal Trade Commission asking the agency to initiate an investigation of our pricing of Makena™.

The Company is responding to these criticisms and events in a number of respects. . .The success of the Company is largely dependent upon these efforts and appropriately responding to both the media and governmental concerns regarding the pricing of Makena™.

Personally, I'm torn a bit by the whole situation. I think that people and companies have the right to charge what the market will bear for their goods and services. But at the same time, I find myself also very irritated by KV in this case, because I truly think that they are taking advantage of the regulatory framework. As I said in the last post, it's not like they took on much risk here - they didn't discover this drug, didn't do the key clinical work on it, and don't even manufacture it themselves. Their business plan involves sitting back and collecting the rent, but that's what the law allows them to do.

In the end, if political pressure forces them to back down on their pricing, this will come down to a poor business decision. Companies should, in fact, charge what the market will bear - but KV may have neglected some other factors when they calculated what that price should be. Before setting a price, you should ask "Will the insurance companies pay?" and "Will Medicare pay?" and "Will people pay out of their own pocket?", but you should also ask "Will this price bring down so much controversy that we won't be able to make it stick?"

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March 11, 2011

Makena's Price: What to Do?

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Posted by Derek

The situation with KV Pharmaceuticals and the premature birth therapy Makena has been all over the news in the last couple of days. Briefly, Makena is an injectable progesterone formulation, given to women at risk of delivering prematurely. It went off the market in the early 1990s, because of side effect concerns and worries about overall efficacy, but since 2003 it's made an off-label comeback, thanks largely to a study at Wake Forest. This seemed to tip the risk/benefit ratio over to the favorable side.

Comes now the FDA and the provisions for orphan drugs. There is an official program offering market exclusivity to companies that are willing to take up such non-approved therapies and give them the full clinical and regulatory treatment. The idea, which is well-intentioned, as so many ideas are, was to bring these things in from the cold and give them more medical, scientific, and legal standing as things that had been through the whole review process. And that's what KV did. But this system says nothing about what the price of the drug will be during the years of exclusivity, in the same way that the approval process for new drugs says nothing about what their price will be when they come to market.

KV has decided that the price will now be about $1500 per patient, as opposed to about $15 before under the off-label regime. The reaction has been exactly what one would expect, and why not? Here, then are some thoughts:

Unfortunately, this should not have come as a surprise. It seems to have, though. The news stories are full of quotes from patients, doctors, and insurance companies saying that they never saw this coming. Look, though, at what happened recently with colchicine. Same situation. Same price jump. Same outrage, understandably. As long as these same incentives exist, any no-name generic company that comes along to adopt an old therapy and bring it into the modern regulatory regime can be assumed to be planning to run the price up to what they think the market will bear. That's why they're going to the trouble.

KV seems to have guessed correctly about the price. You wouldn't think so, with a hundred-fold increase. And the news stories, as I say, are full of (understandably) angry quotes from people at the insurance companies who will now be asked to pay. But (as that NPR link in the first paragraph says), Aetna, outraged or not, is going to pony up. It's going to cost them $20 to $30 million per year, most of which is going to go directly to KV's bottom line, but they're going to pay. And the other big health insurance providers seem to be doing the same. Meanwhile, the company has announced a program to provide low-cost treatment to people without insurance. From what I can see, it looks like basically everyone who had access to the drug before will have it now, the main difference being that the payers with deeper pockets will now be getting hammered on by KV. This is not a nice way to run a business, and it's not something I would sleep well on after having done myself. But there it is.

How much is regulatory approval worth, anyway? That seems to be what we're really arguing about. After all, patients are getting the same drug, in the same formulation, dosed the same way as before. But now it's **FDA Approved**. For new substances, I think regulatory approval is worth quite a bit. There are all kinds of things that can go wrong. But how about drugs that have been dosed in humans for years? And already run through the equivalent of Phase II trials by other people? The main thing that's being added is some confirmation that yes, the dose that everyone's been using is about right, and yes, the effects that are being seen are, in fact, real. And that's not worthless, not at all - but how much is it worth, really? The agency itself seems to place a pretty high value on it - seven years of market exclusivity, to be exact, and we can see by example just what that goes for on the market.

This does the drug industry no good, either. We have a bad enough reputation as it is, wouldn't you think? What's irritating, to someone like me who works at a "find a new drug" type of company, is that these no-name generic outfits (KV in this case, URL Pharma for colchicine) are doing pretty much what critics of the industry think that we all do, all the time. That is, walk up to situations where other people have done a lot of the work, a good amount of it with public/NIH money, and step right in and profit. Now it's true that these companies have to basically run Phase II/Phase III trials to take the data to the FDA, and that's a significant amount of money. But their risks in doing so have been watered down immensely by the history of these drugs in the medical community. When a research company closes its eyes, holds its breath, and jumps into the clinic with a new molecule, that's one thing. And that's where those 90% failure rates come from. But the failure rate of drugs that have been used for years in human patients already, and already studied under clinical conditions, is not anything like 90%. Is it zero per cent? Has anyone failed yet, taking one of these old medications back to the FDA? Even once?

The company picked its target carefully. I will say this, that KV's trials have presumably clarified the question of whether progesterone therapy actually does help. You'd think that the 2003 study would have answered that, and as it turned out, it had. A review of the field in 2006 concluded that it was a worthwhile therapy, from a cost/benefit standpoint, as did another review in 2007. (Mind you, that wasn't at any $1500 a throw, was it?) But a Cochrane review from last year concluded that there still wasn't enough evidence to recommend the whole idea. And progesterone therapy doesn't seem to help with twin or tripletpregnancies or with some other gestational problems. No, the 2003 study seemed fairly strong, and has the greatest relevance to public health, so that's what the company went for. From one viewing angle, the system worked.

My take, though, is that as long as the regulatory environment is set to value FDA's stamp of approval for old drugs this highly, that people will continue to take advantage of it. You subsidize something; you're going to get it. Personally, I don't think that the balance is right, but I'm open to suggestion about what to do about it. A shorter period of market exclusivity would just mean, I think, that the prices go up even higher once a drug gets re-approved. Just throwing up our hands and letting all that old stuff stand is a possibility, but there may well still be some of these things that aren't as effective as we think, or aren't being dosed right, and we have to decide what the cost is of letting those situations stand.

Update: see also Alex Tabarrok's thoughts on the effects of the Orphan Drug Act in general.

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March 10, 2011

The Cost to Develop a Drug: Your Own Numbers?

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Posted by Derek

Bruce Booth over at Atlas Venture (a VC fund here in Cambridge) has been following the Light and Warburton drug-cost estimate with interest. And now he's got a form up on his site for people to enter their own estimates of the costs. Take a look - it's bound to come up with a number that's more in tune with reality! For one thing, he's actually asking people who have, you know, developed drugs. . .

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March 8, 2011

That $43 Million R&D Figure

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Posted by Derek

One of the readers in the comments section to the last post noticed Rebecca Warburton trying to clarify that absurd $43-million-per-drug R&D figure. You'll find her response in the comments section to the Slate piece that brought this whole study so much attention. Says Warburton:

. . .Our estimate of $59 million is the median development (the “D” in R&D) cost per average drug, not just NMEs (new chemicals) and does not include basic research costs, for which there is no reasonable estimate available.

But that explanation won't wash, as some of the readers over at Slate noticed as well. If you read the Light and Warburton article itself, you find the authors talking about nothing but "R&D" all the way through. In the one section where they do start to make a distinction, they brush aside expenses for basic research, on the grounds that drug companies hardly do any:

Companies under pressure from quarterly reports have difficulty justifying long searches for breakthrough drugs to investors. . .Little company R&D is devoted to basic research. Although industry association reports, based on unverified numbers from its members, claim that companies invest on average 17–19 per cent of sales in R&D, the most authoritative data come from the long-standing survey by the US National Science Foundation (2003). Its data document that pharmaceutical firms invest 12.4 per cent of gross domestic sales on R&D. Of this, 18 per cent, or 2.4 per cent of sales, went to basic research. More detailed reports from the industry indicate the percentage of R&D going to basic research is even smaller, about 9.3 per cent (or 1.2 per cent of sales) (Light, 2006). Thus the net corporate investment in research to discover important new drugs is about 1.2 per cent of sales, not 17–19 per cent.

So no, claiming that the $43 million figure is only supposed to represent the "D" part of R&D is disingenuous. There's another line from this paper, quoting Marcia Angell, that I think gets to one of the roots of the problem with the way these authors have characterized drug research. Angell is quoted here with approval - everything she and Merril Goozner have to say is quoted with approval:

It is also unclear how far back one should go to count up the costs of discovery, given that often there are several strands of research that are pieced together. In Angell’s view, the critical step in ‘discovering’ a new drug is understanding how the disease works and finding one or two good targets of vulnerability in the defences of a disease for intervention. Basic research ‘is almost always carried out at universities or government research labs, either in this country or abroad’ (Angell, 2004, p. 23).

And there you have it. The critical step is understanding how the disease works, you see, and finding one or two good targets. By that definition, the vast amount of money that gets spent in the drug industry is then non-critical. This is a viewpoint that can only be held by someone who has never tried to discover a drug, or never held a serious conversation with anyone who has.

Let's poke a few holes in that worldview. First off, if we waited to "understand" diseases before trying to develop drugs for them, we'd hardly have a damned thing on the drugstore shelves. Look at Alzheimer's - the medical community is still having fist-waving arguments about its cause, while drug companies continue to sink piles of money into trying to treat it. (Almost all of which has gone down the tubes, I might add, and I helped flush some of it through myself, earlier in my career).

Then you have to find one or two good targets. Peachy! Where do you find those thingies, anyway? And how do you know that they're good targets? I wish that Marcia Angell, Donald Light, or Rebecca Warburton would let the rest of us in on those secrets. As it is, we have to take chances on some pretty tenuous stuff, and often the only way to find out if a target really has any connection to human health is to. . .well, to discover a drug candidate that hits it. And develop it, and get it through tox, and into humans, and through Phase I, and into Phase II, and more likely than not these days, into Phase III before you really find out if, you know, it was actually a good target. We pass on those results to the rest of the world at that point. But that doesn't count as research, apparently.

And how about the drugs that have been developed without good mechanisms or targets at all? Metformin, ezetimibe, rosiglitazone and pioglitazone: none of these had any detailed mechanisms worked out for them while the money was being spent to develop them. These are the sorts of things we do around here in between having meetings to decide what color the package should be, and right after we do that thing where we all jump around in rooms knee-deep in hundred-dollar bills. Exhausting stuff, that money-wading.

But what I'd really like to ask Light and Warburton about is this: if you do think that the Tufts/diMasi estimate is crap, why did you feel as if the antidote was more crap from the opposite direction? Honestly, I'd think that intelligent people of good will might be more interested in decreasing the total amount of crap out there instead. . .

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March 7, 2011

The Costs of Drug Research: Beginning a Rebuttal

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Posted by Derek

Note: a follow-up post to this one can be found here.

I've had a deluge of emails asking me about this article from Slate on the costs of drug research. It's based on this recent publication from Donald Light and Rebecca Warburton in the London School of Economics journal Biosocieties, and it's well worth discussing.

But let's get a few things out of the way first. The paper is a case for the prosecution, not a dispassionate analysis. The authors have a great deal of contempt for the pharmaceutical industry, and are unwilling (or unable) to keep it from seeping into their prose. I'm tempted to reply in kind, but I'm supposed to be the scientist in this discussion. We'll see how well I manage.

Another thing to mention immediately is that this paper is, in fact, not at all worthless. In between the editorializing, they make some serious points, and most of these are about the 2003 Tufts (diMasi) estimate of drug development costs. This is the widely-cited $802 million figure, and the fact that it's widely cited is what seems to infuriate the authors of this paper the most.

Here are their problems with it: the Tufts study surveyed 24 large drug companies, of which 10 agreed to participate. (In other words, this is neither a random nor a comprehensive sample). The drugs used for the study numbers were supposed to be "self-originated", but since we don't know which drugs they were, it's impossible to check this. And since the companies reported their own numbers, these would be difficult to check, even if they were made available drug-by-drug (which they aren't). Nor can anyone be sure that variations in how companies assign costs to R&D haven't skewed the data as well. We may well be looking at the most expensive drugs of the whole sample; it's impossible to say.

All of these are legitimate objections - the Tufts numbers are just not transparent. Companies are not willing to completely spread their books out for outside observers, in any industry, so any of these estimates are going to be fuzzy. Light and Warburton go on to some accounting issues, specifically the cost-of-capital estimate that took their estimated cost for a new drug from 400 million to 800 million. That topic has been debated around this blog before, and it's important to break that argument into two parts.

The first one is whether it's appropriate to consider opportunity costs at all. I still say that it is, and I don't have much patience for the "argument from unfamiliarity". If you commit to some multi-year use of your money, you really are forgoing what you could have earned with it otherwise. You're giving it up - it's a cost, whether you're used to thinking of it that way or not. But the second part of the argument is, just how much could you have earned? The problem here is that the Tufts study assumes 11% returns, which is just not anywhere near realistic. Mind you, it's on the same order of fantasy as the returns that have been assumed in the past inside many pension plans, but we're going to be dealing with that problem for years to come, too. No, the Tufts opportunity cost numbers are just too high.

Then there's the tax situation. I am, I'm very happy to say, no expert on R&D tax accounting. But it's enough to say that there's arguing room about the effects of the various special tax provisions for expenditures in this area. And it's complicated greatly by different treatment in different part of the US and the world. The Tufts study does not reduce the gross costs of R&D by tax savings, while Light and Warburton argue otherwise. Among other points, they argue that the industry is trying to have it both ways - that cost-of-capital arguments make R&D expenditures look like a long-term investment, while for tax purposes, many of these are deductible each year as more of an ordinary business expense.

Fine, then - I'm in agreement, on general principles, with Light and Warburton when they say that the Tufts study estimates are hard to check and likely too high. But here's where we part company. Not content to make this point, the authors turn around and attempt to replace one shaky number with another. The latter part of their paper, to me, is one one attempt after another to push their own estimate of drug R&D costs into a world of fantasy. Their claim is that the median R&D cost for a new drug is about $43 million. This figure is wrong.

For example, they have total clinical trial and regulatory review time dropping (taken from this reference - note that Light and diMasi, lead author of the Tufts study, are already fighting it out in the letter section). But if that's true why isn't the total time from discovery to approval going down? I've been unable to find any evidence that it is, and my own experience certainly doesn't make me think that the process is going any faster.

The authors also claim that corporate R&D risks are much lower than reported. Here they indulge in some rhetoric that makes me wonder if they understand the process at all:

Reports by industry routinely claim that companies must test 5000-10000 compounds to discover one drug that eventually comes to market. Marcia Angell (2004) points out that these figures are mythic: they could say 20,000 and it would not matter much, because the initial high-speed computer screenings consume a small per cent of R&D costs. . .

The truth is, even a screen of 20,000 compounds is tiny. And those are real, physical, compounds, not "computer screenings". It's true, though, that high-throughput screening is a small part of R&D costs. But the authors are mixing up screening and the synthesis of new compounds. We don't find our drug candidates in the screening deck - at least, not in any project I've worked on since 1989. We find leads there, and then people like me make all kinds of new structures - in flasks, dang it, not on computers - and we test those. Here, read this.

The authors go on to say:

Many products that 'fail' would be more accurately described as 'withdrawn', usually because trial results are mixed; or because a company estimates that the drug will not meet their high sales threshold for sufficient profitability. The difference between 'failure' and 'withdrawal' is important, because many observers suspect that companies withdraw or abandon therapeutically important drugs for commercial reasons. . .

Bring out some of those observers, then! And bring on the list of therapeutically important drugs that have been dropped out of the clinic just for commercial reasons. Please, give us some examples to work with here, and tell me how the disappointing data that the companies reported at the time (missed endpoints, tox problems) were fudged. Now, I have seen a compound fall out of actual production because of commercial reasons (Pfizer's Exubera), but that was partly because it didn't turn out to be as therapeutically important as the company convinced itself that it would be.

And here's another part I especially like:

Company financial risk is not only much lower than usually conveyed by the '1 in 5000' rhetoric, but companies spread their risks over a number of projects. The larger companies are, and the more they merge with or buy up other companies, the less risk they bear for any one R&D project. The corporate risk of R&D for companies like Pfizer or GlaxoSmithKinen are thus lower than for companies like Intel that have only a few innovations on which sales rely.

Well, then. That means that Pfizer, as the biggest and most-merged-up drug company in the world, must have minimized its risk more than anyone in the industry. Right? And they should be doing just fine by that? Not laying people off right and left? Not closing any huge research sites? Not wondering frantically how they're going to replace the lost revenue from Lipitor? Not telling people that they're actually ditching several therapeutic areas completely because they don't think than can compete in them, given the risks? Not announcing a stock buyback program, because they apparently (and rather shamefully) think that's a better use of their money than putting it back into more R&D? I mean, how can Intel be doing better than that? It's almost like chip design is a different sort of R&D business entirely.

Well, this post is already too long, and there's more to discuss in another one, at least. But I wanted to add one more argument from economic reality, an extension of those little questions about Pfizer. If the cost of R&D for a new drug really were $43 million, as Light and Warburton would have it, and the financial and tax advantages so great, why isn't everyone pouring money into the drug industry? Why aren't VC firms lining up to get in on this sweet deal? I mean, $43 million for a drug, you should be able to raise that pretty easily, even in this climate - and then you just stand back as the money gushes into the sky. Don't you?

Why are drug approval rates so flat (or worse?) Why all the layoffs? Why all the doom and gloom? We're apparently doing great, and we never even knew.

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March 1, 2011

Use Avastin! Don't Use Avastin!

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Posted by Derek

The Genentech/Roche drug Avastin has been in the news a lot lately, mostly about cost/benefit analysis for its uses in oncology. It's nobody's idea of a cheap drug even for those indications where it shows results. But there's one therapeutic area where it's actually the bargain alternative.

That's AMD, wet age-related macular degeneration. Stopping the growth of those leaking blood vessels in the eye is the standard therapy for the condition, so a VEGF-targeted therapy is just the thing. Lucentis is the anti-VEGF antibody that's approved for that use; it showed very impressive results in the clinic, and seems to perform just as well in the real world.

But Lucentis is expensive. And while it's different from Avastin, it's really not that different. It is, in fact, an opthalmic-delivery-optimized version of the same general antibody, and was developed by the same folks at Genentech. Avastin itself isn't packaged in units small enough for AMD therapy, but if you have a practice with a number of patients, well. . .by the time you split it out, an Avastin injection is about $50, versus nearly $2000 for Lucentis. In fact, a great many physicians in the US (possibly a majority) use Avastin off-label in just that fashion. A UK study last fall shored up that practice with some data, and a number of other studies are underway.

One of these, conducted by the NIH, should be reporting soon. And that's putting Roche/Genentech in an odd position. They have not supplied drugs for the trial, for one thing. Last fall the New York Times reported that rebates are now being offered to opthamologists if they'll use Lucentis, which many have interpreted as a preemptive maneuver to deal with the likely NIH results.

This is a mess, no doubt about it. While Genentech did indeed spend the time, money, and effort to develop Lucentis as a separate therapy, there seems to have been an active effort to avoid finding out if Avastin wouldn't have been just as good. The market does provide perverse incentives like this sometimes - this is an instance where I think that the NIH is doing exactly what it should be doing by running the head-to-head trial.

But I don't think that Roche is going to like the results. And they could find themselves arguing, simultaneously, that Avastin should not be used for AMD, even though it's cheaper than the alternatives and may well be just as effective, while Avastin should be used for metastatic breast cancer, even though it's more expensive than the alternatives and may well not be effective at all. And while the company will surely argue that the numbers are not what they appear, and that there are other numbers that say differently, and that it's all quite complex, they're going to be unable to escape the downward slice of Occam's razor: that in every case, they're arguing for the exact position that maximizes their revenue.

This is what companies do, of course. We shouldn't expect any less. But that doesn't mean that the revenue-maximizing path is always the right one, either.

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August 30, 2010

Avastin For Metastatic Breast Cancer: The Whole Story

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Posted by Derek

Here's an excellent roundup of the Avastin story, referenced in an earlier post here.

I have to say, I've been disappointed in some of the commentary on this issue (which that article goes into as well). Too many people have jumped right to the conclusion that yep, here's what the new health care plan is going to do to us, yank life-saving medicines out of our hands because they cost too much. Well, I think that the health care bill was a disastrous idea, myself, and at the same time I still think that Avastin doesn't deserve approval for metastatic breast cancer.

The best evidence we have is that Avastin doesn't help these patients and may well even hurt them. That would be true even if it were free. And remember, off-label use is still perfectly legal. Anyone who wishes to spend their own money on something that does not appear to work - and that Wall Street Journal editorial aside, Avastin really doesn't, here - is free to do so. Getting everyone else to pay for it is quite another thing, and you'd think that conservatives and libertarians would find that argument more appealing than they seem to.

The FDA meets to discuss this issue on September 17. I wish everyone who's gearing up to write editorials about the decision would get up to speed on the facts before then.

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August 20, 2010

Going Hollywood

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Posted by Derek

A reader at one of the big pharma companies sends along this note:

. . .Over my 10 years or so of experience, I have seen a severe decline in risk tolerance at my company, and other large companies as well. When we put a project forward, we are told that either: (a) There are too many unknowns, the target is not well established, and therefore the risk in putting forward the large sums of money required for development are too high; or (b) There are too many other players in the market already and we would never be able to capture enough market share to justify the investment required to go forward. The band considered acceptable in the risk/benefit spectrum has become so narrow that it is like threading a needle with your feet.

I believe that this risk aversion is due to the escalating cost of developing new drugs. Big Pharma has invested such a tremendous amount of money into the infrastructure they deemed necessary to increase project turnaround time that any drug that hoes forward has to be seen as a guaranteed blockbuster or it is considered a failure.

Film buff that I am, I use a Big Studio Production vs. Independent Film analogy when I discuss this with people outside the profession. For example, the film Avatar cost about 300 million to make. That means that if it brings in a mere 50 million in ticket sales, it is a catastrophic failure for the studio. Paranormal Activity on the other hand cost a few tens of thousands of dollars to make. Bringing in 50 million dollars in ticket sales would exceed the filmmakers wildest dreams of avarice.

The end result is that the Big Studio has to KNOW that Avatar will bring in greater than 300 million dollars in ticket sales or it cannot take the risk. Therefore only tried and true box office magic directors like James Cameron are given the opportunity to work at that level. On the other end of the spectrum, an independent film distribution company is willing to take on a high risk project like Paranormal Activity because even a failure will not destroy the comany, and the rewards of success (even if moderate by Big Studio standards) is very high.

So, has Big Pharma doomed itself by massively inflating its drug discovery infrastructure in a misguided attempt to stregnthed its pipeline (which was clearly a failure)? Or is it the regulatory agencies that require such vast and expensive trials that are the cause of this risk aversion? Is there a solution?

Well, the Hollywood analogy has been made before, but that's because it's a pretty good one. There are a few places where it breaks down, though. Some of these are unfavorable to the drug business:

1. Copyright. It lasts a lot longer than patent rights. I think that copyright has been extended to ridiculous levels in the US, but it's always been significantly longer than patent terms. So a studio has a much longer time to makes its money back.

2. Regulatory affairs. There's no FDA approval process for a new film. You think it up, you get it shot and produced, you release it, and good luck to you. The drug industry hasn't worked that way since the 1930s.

3. Cycle time. It takes a lot longer to get a drug project through than it takes to get a movie done. And since time is most definitely money, this hurts.

4. Toxicity and liability. While it's true that a bad film might make you feel sick, it's not going to lead to anything actionable in court. Bad news on a new drug's side effects or performance most definitely will, though. And how.

5. Costs and benefits. A movie, from the consumer's standpoint, is a momentary purchase, made with a small amount of discretionary income. If it delivers, great - if not, no harm done, other than some wasted time and a bit of cash. Drugs, of course, are a much more high-stakes business, both in their pricing and in their utility. And they affect a person's health, which is about as fundamental a thing as you can mess with, and moves any transaction up into a whole new spotlight.

On the other hand, there are some problems that the studios face that we don't:

1. Limits of copyright. While copyright goes on next to forever, it's still easy to move a new film or book right up next to an existing work. Movies get ripped off much more quickly than drugs can be, and often more blatantly. That shorter cycle time cuts both ways.

2. Easier copying. You can find pirated versions of first-run movies pretty quickly - they're not always great, but there's a market. Lots of free stuff gets tossed around in digital formats, too. Drugs are much harder to truly copy, and an inferior version is much, much less attractive.

3. Fashion. An antihypertensive drug from thirty years ago doesn't wear funny-looking retro clothes or pick up a mobile phone the size of a loaf of bread. It lowers your blood pressure, same as always. There may be better ones around now, but it'll still work exactly as it did when it came on the market.

All that said, I think that the key point here is that there's no equivalent in the drug industry to indie filmmaking, which is too bad. Our fixed costs are much, much, higher due to the field we operate in - human health and the regulations around it. My question is - is there any way to bring these down? Of course, that's what everyone in the business has been asking for some time now.

Because if we can't, we're going to see even more of the behavior that my correspondent noted. Risk aversion, I might add, can be fatal to research-driven companies. Our whole business is founded on taking risks, and if the costs are pushing us to deny that, we have a huge conflict right at the center of the whole enterprise. . .

And yeah, I realize that this doesn't help too much with the "less depressing" promise I made for this week!

Comments (36) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices | Regulatory Affairs

July 7, 2010

Drug Prices in the US: Not So High After All?

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Posted by Derek

So, who has the highest prescription drug prices in the industrialized world? Why, the US, of course - everyone knows that. (Our generic prices are among the lowest, but not everyone knows that). And how much more do we pay than those fortunate folks over in Europe? Why, double or more, right?

Wrong, apparently. There's a new study coming out from the London School of Economics, comparing prices of 68 drugs between the two regions. And what they find is that US prices are about 25% higher than Europe - but no more than that:

But the study confirms data released recently by several pharmaceutical groups, including AstraZeneca and GlaxoSmithKline. This data – confirmed informally by senior industry executives – suggests profits in the US are only marginally greater than in Europe.

Past studies of drug price differences – including by the US General Accounting Office and by congressional officials – have suggested that US prices are at least one and a half times those of European prices.

Mr Kanavos says such comparisons are flawed, often comparing European list prices with US factory gate ones, which do not take into account the discounts negotiated between manufacturers and health insurers in the US. He says some previous studies have also taken unrepresentative samples.

Can this be correct? We'll have to check out the LSE study when it appears, but what if it is indeed on target? The Financial Times article mentions that this is embarrassing for the drug companies, who have maintained that the high US prices are needed to make up for lower prices elsewhere. But if the industry could have argued all along that prices aren't so high, why wouldn't it have done so to try to defuse the issue? Perhaps because no one wanted to go into great detail about all the various negotiated discounts along the supply chain? Speculation is welcome in the comments.

But it also seems embarrassing for people who've loudly been arguing the other side of the issue as well. What if the drug companies aren't as greedy as they look? And what if the European pricing regime, whose virtues have been pitched to me many times, wouldn't save much more money?

We'll take this up again when the study emerges. Until then, let the arguing commence! And thanks to FiercePharma for the tip to the story.

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June 8, 2010

Ipilimumab (And Progress Against Cancer)

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Posted by Derek

This time last year, Medarex made all sorts of headlines with their antibody ipilimumab. A press release from the Mayo Clinic made it sound like a miracle cure for prostate cancer; the company's stock soared, and they were acquired not long afterwards by Bristol-Myers Squibb. I wrote about ipilimumab once, and I still get email from people asking me if I know how they can possibly get some for their relatives with cancer.

As Jim Edwards points out at Bnet, though, this week's ASCO meeting has results for the drug that are more in keeping with what we've come to expect. The antibody had real effects in metastatic melanoma patients, and that's a good thing, because that's a particularly hard situation to show anything useful. (And all too many melanoma patients present after the disease has already gone metastatic, for that matter). From the data that BMS presented, there appears to be no doubt that ipilimumab extended survival.

But it did so by three or four months, on average, with some serious adverse events in the treatment group. As I said yesterday, this is the sort of progress that we generally make in oncology, not the oh-my-God-the-cancer-disappeared sort that last year's press release had people thinking about. And again, you can look at this news in two different ways. On the one hand, showing real statistical efficacy against metastatic melanoma is impressive: pretty much everything else we've got does nothing at all. But on the other hand, well. . .three and a half months.

For some people, that's definitely going to be worth it, while for others, they (and their heirs) would be better off not spending the money. That's a very hard decision, one of the hardest, but it is a decision. And either people will make it for themselves, or someone will make it for them. Given the continued emphasis on bringing down the costs of modern medical care - which doesn't look to be going away any time soon - you have to expect that there will be times that governments and/or insurance carriers will say "No, not for that price." Expect? It already happens. But it'll happen more.

This does present a problem for drug discovery. As many commenters noted yesterday, these are the sorts of incremental improvements that can add up in oncology. We're unlikely to hit many miracle-cure home runs, so we have to add a few months here and a few months there, learning as we go, and coming back around with better ideas next time. This takes money - big stacks of it - and we in the industry are expecting people (and their insurance companies, and their governments) to pay up. What if they don't, or not so much?

One thing we could see is companies finding themselves caught out, developing drugs in anticipation of a pricing structure that won't materialize. And it's true that strong pricing pressure will likely slow down progress in the whole field - after all, we don't have any other cheaper ways to develop drugs yet. But that doesn't mean that it couldn't happen. If we want to forestall it, I think we should make clear how incremental and expensive most oncology work is likely to be, and to point out that if there are miracle cures out there, that we're probably not going to find any of them without going through a lot of not-so-miraculous ones first.

Comments (21) + TrackBacks (0) | Category: Cancer | Drug Prices

June 7, 2010

Again, What's It Worth to You?

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Posted by Derek

Let's open up a painful subject here. This is prompted, partly, by the news the other day about Erbulin. The main reason I posted about that compound was because of its chemical complexity and total-synthesis heritage, both of which are unusual. But it's an oncology drug. As such, it looks like an awful lot of other drugs in that space.

And that's not good. Because we should face up to the fact that most of the newer anticancer compounds aren't so good, not in any absolute sense. (Most of the old ones, too, but those are rather cheaper, aren't they?) Too often, what we're looking at is an extension of a few weeks or months of life - life as a terminal cancer patient, mind you, but life nonetheless. The price you put on that will vary according to your circumstances, but in many cases we're asking a lot. Is it worth it?

Increasingly, that's not a question that's going to be answered by the patient alone, but by some combination of the patient and his or her insurance company. In other cases, it will have been answered well before by a country's national health service, when it did a cost/benefit analysis of the drug and decided whether it would even be included in a national formulary. That's the whole point of the UK NICE, and although their execution has not been trouble-free, the idea behind it is not going to go away.

Nor should it. Now, I think people should be able to spend their own money on what they want to spend it on. True, cancer patients are known for spending some of it, out of sheer desperation, on bizarre and worthless stuff. Taking advantage of these people by selling them Wonder Water or Miracle Mixture is a crime, as far as I'm concerned, and should be prosecuted. But I'm not advocating force to keep people from exercising their choice to buy the stuff, if it's out there, although I'd certainly like to talk them out of doing that. I'll reserve the force for the ones selling it, so that the crap is not out there for purchase in the first place.

But when it's other people's money being spent - an insurance company's, or tax money - those others should get a say. And here's where things get messy. Because while there's a difference between Wonder Water and the latest angiogenesis inhibitor or cell-cycle interrupter, it's not a meaningful a difference as anyone would like. True, one is likely to do nothing, and the other is likely to do something. But when "something" is "keeping you from dying in November, in order that you should die in March", well. . .you'd want something more, wouldn't you?

Let me say here that it's not for lack of trying. We in the business keep throwing our best punches in oncology. Here, here's a target that makes perfect sense - this thing should kill a cancer cell. Shouldn't it? I mean, cutting off the blood supply to a solid tumor is a good idea. Messing up mitosis, re-establishing programmed cell death: good ideas. But they just don't work as well as we'd hope that they would. We're not there yet.

And so we get these add-a-few-months-of-life drugs, because in most cases, that's all we're capable of delivering at the moment. But we're asking a lot of money for these things, and increasingly, the people who are really paying for them are asking whether anyone's getting a good deal.

I wrote about this situation a few years ago on this site, and I have to say, not much has changed - other than the pricing pressure, of course. I'll have some more to say about this issue this week, but I wanted to start people thinking - about where we are, and whether there are any ways out.

Comments (51) + TrackBacks (0) | Category: Cancer | Drug Prices

April 28, 2010

Pfizer's Future: Biotech Followups

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Posted by Derek

The Wall Street Journal has an article detailing some of Pfizer's plans in the biologics area: stepping in with second-generation versions of current winners from other companies. New versions of Rituxan and Enbrel are in the works, with the improvements mostly coming in how often the drugs need to be given.

They're not alone in this - Merck has announced that they're going to go after the same sorts of markets. And I can see the business rationale, since the original products have been such huge successes. But these new versions are going to be different enough that they're certainly not "biosimilars" or "biogenerics" - they're new substances, which will require their own complete safety/efficacy clinical workup. And by the time they get to market, some of these may be up against (or close to being up against) lower-cost versions of the original therapies, so the insurance companies are going to have to see some real benefit before they switch away.

So while some of these may well work out, not all of them will. It looks like a worthwhile thing to try, but it's not a sure road to riches. That's the thing about this industry these days - all those roads appear to be blocked off and plastered with "Detour" signs. . .

Comments (25) + TrackBacks (0) | Category: "Me Too" Drugs | Drug Development | Drug Prices

April 14, 2010

Colchicine's Price Goes Through the Roof

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Posted by Derek

We all hear about the new drugs that have just been approved, and we all keep track of the drugs that are coming off patent. But what about the really old ones, the drugs that made it to the market long before today's regulatory framework? There have long been medicines that are generally recognized as reasonably safe and effective, but have never been through much of the modern process.

The FDA has, for the last few years, been trying to catch up on these things, and has offered exclusivity to any manufacturers who are willing to run clinical trials on older medicines. But this hasn't always worked out the way that it was intended - witness the case of colchicine, a well-known natural product drug that's used for some inflammatory diseases (and used to be a chemotherapy agent, too). The Wall Street Journal has a good story on this.

URL Pharma, a generic manufacturer, took the time and trouble to get fresh data on colchicine for gout attacks, and was granted a three-year marketing exclusivity period. So far, so good - but they then turned around and ran the price up by a factor of fifteen. They also filed suit against other small companies that were selling colchicine in the generic market, with the result that other domestic sources of the drug might dry up (four of the other companies are fighting back in court).

So is this the advent of evidence-based medicine, coming to an area that had little of it before, and therefore a good thing? Is it an abuse of the system by a company that saw an opportunity to suddenly acquire pricing power? Is it just what the FDA should have expected, given that three years of marketing rights have to make up for the cost of the clinical work, with the profits likely to disappear immediately afterwards? I think it's going to be hard to have it both ways. If you expect companies to go back and fill in the clinical profile of older drugs, you do need give them some incentive to do it. But then what's to keep them from pounding that incentive in good and hard, as seems to be happening here?

I'm not sure how to split that difference, especially not with any general rule, because each case will probably be different. The new clinical trials might, in fact, uncover something really useful that was previously unknown - or they might just confirm that the way the drug was being dosed was, in fact, just the way it should be dosed. One of those seems more deserving of compensation than the other, but there's no way of knowing which result you're going to get a priori. I have an aversion to telling a company how much it can charge for a drug, but it's not like URL Pharma discovered colchicine, or had to do any of the risky early-stage work on it. I can justify some pricing moves (although not all of them) by companies that are doing discovery research, because so much of that doesn't lead to anything marketable. (Take, for example, virtually everything I've worked on my whole career). But a generic company that's coming in to dot the Is and cross the Ts on the FDA paperwork is something else again.

Perhaps if the FDA really feels that backfilling the regulatory work on drugs that no one owns in particular is important enough, they should fund the work themselves. But that opens up issues of its own, too.

Comments (51) + TrackBacks (0) | Category: Business and Markets | Drug Industry History | Drug Prices | Why Everyone Loves Us

November 2, 2009

In Which You Get to Hear the Phrase "Hatch-Waxman" Again

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Posted by Derek

There's a constant running battle in the drug industry between the two kinds of pharmaceutical companies: the ones who discover the drugs first, and the ones who sell the drugs cheaply after the patents have expired. It surprises me still how many people I run into (outside my work) who don't make that distinction, or who don't even realize that there is one.

But the generic industry is a very different place. Their research budgets are far smaller than the ones at the discovery companies, since they're only dealing with drugs that everyone knows to already work. Their own research is directed toward satisfying the regulatory requirements that they're making the equivalent substance, and to finding ways to make it as cheaply as possible. And some of them are very good at it - some ingenious syntheses of marketed drugs have come out of the better generic shops. Of course, some real head-shaking hack work has, too, but that you can find everywhere.

The tension between the two types of company is particularly acute when a big-selling drug is nearing its patent expiration. It's very much in the interest of the generic companies to hurry that process along, so often they challenge the existing patents on whatever grounds they can come up with, figuring that the chances of success jutify the legal expenses. Since the 1984 Hatch-Waxman act, there's been an even greater incentive, the so-called "Paragraph IV" challenge. A recent piece in Science now makes the case that this process has gotten out of control.

After four years of a drug's patent life, a generic company can file an Abbreviated New Drug Application (ANDA) and challenge existing patents on the grounds that they're either invalid or that the ANDA doesn't infringe them. (This, for example, is what happened when Teva broke into Merck's Fosamax patent, taking the drug generic about four years early). If the challenge is successful, which can take two or three years to be resolved, the generic company gets an extra bonus of 180 days of exclusivity. The authors of the Science piece say that this process is tipped too far toward the generic side, and it's cutting too deeply into the research-based companies. (As noted here, that's rather ironic, considering the current debate about such provisions for biologic drugs, where some parties have been citing the Hatch-Waxman regime as a wonderful success story in small molecules).

This all took a while to get rolling, but the big successes (such as the Fosamax example) have bred plenty of new activity. There are now five times as many Paragraph IV challenges as there were at the beginning of the decade. Teva, for example, which is one of the big hitters in the generic world, had 160 pending ANDAs in 2007, of which 92 were running under Paragraph IV. Here's a look at some recent litigation in the area, which has certainly enriched various attorneys, no matter what else it's done.

Under Hatch-Waxman, a new drug starts off with five years of "data exclusivity" during which a generic version can't be marketed. The Science authors argue that the losses from Paragraph IV now well outweigh the gains from this provision, and that the term should be extended (which would put it closer to those found in Europe, Canada, and Japan. They also bring up the possibility of selectively extending data exclusivity case-by-case or for certain therapeutic areas, but I have to say, this makes me nervous. There are too many opportunities for gamesmanship in that sort of system, and I think that one goal of a regulatory regime should be to make it resistant to that sort of thing.

But I do support the article's main point, which is that the whole generic industry depends on someone doing to the work to discover new drugs in the first place, and we want to make sure that this engine continues to run. Politically, though, anything like this will be a very hard sell, since it'll be easy to paint it as a Cynical Giveaway to the Rapacious and Hugely Profitable Drug Companies. But speaking as someone working for the RHPDCs, I can tell you that we are indeed having a tougher time coming up with the new products with which to exploit the helpless masses. . .

Comments (23) + TrackBacks (0) | Category: Business and Markets | Drug Industry History | Drug Prices | Patents and IP | Regulatory Affairs

October 15, 2009

Fall From Grace

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Posted by Derek

A couple of articles have come together and gotten me to thinking. Back during the summer, long-time medicinal chemist Mark Murcko published a short editorial in Drug Discovery Today comemmerating the Apollo 11 moon landing's 40th anniversary:

"People like me, who are old enough to actually remember the events of July 1969, are instantly assailed with powerful and reflexive emotions when we think back to the effect Apollo had on us: the excitement, awe and wonder. My family, like so many others, was obsessed with space exploration. The walls of our den were covered with NASA photos, diagrams and technical bulletins – anything we could get them to send us. Models of rockets hung from the ceiling by fishing line. . .We soaked it all in, and the events of that day remain a seminal memory of my childhood. It was glorious; nothing could possibly be more exhilarating.

And yet...there are some interesting parallels to what all of us, engaged in the roiling tumult of biomedical research, do here and now. Our mission – to invent new therapies that transform human health and alleviate suffering – captures the imagination as profoundly as did Apollo. Our efforts once were regarded with the same admiration as the NASA breakthroughs (and while public perceptions may be different today, our mission has not wavered). We are attempting, one could argue, even more complex technical achievements. . . ."

And just the other day I came across this piece in The New Atlantis entitled "The Lost Prestige of Nuclear Physics". (Via Arts and Letters Daily). Its thesis, which I think is accurate:

"The story of nuclear physics is one of the most remarkable marketing disasters in intellectual history. In the space of a few decades, the public perception of the atom’s promise to serve humanity, and the international admiration that surrounded the many brilliant people who unraveled the mysteries of matter, had collapsed. So pronounced was the erosion of attitudes toward nuclear physics that, by the late 1990s, several European physicists felt it necessary to establish an organization called Public Awareness of Nuclear Science for the explicit purpose of improving the public image of their discipline."

Of course, in that case, there was that little matter of the atomic bomb and the subsequent arms race) to contrast against the excitement of the scientific discoveries and their peaceful uses. One might argue that for the general public, it was all very admirable to be able to figure out the forces that kept atoms together, but when these forces turned out to have such alarming and immediate real-world consequences, the backlash was profound. And while I sympathize with the nuclear physicists, I have to only wish them luck in their attempts to regain a good public image. That's because those consequences are still very much with us, as a glance at the news will show.

But the fall from grace of drug research has been almost as profound, and we've never developed an equivalent of nuclear weapons, have we? In our case, I think the problem has been that we're a business. We bill people for our discoveries when they work. And as I've argued here, people will always have a much more emotional response to any issue that affects their physical health, and can quickly come to resent anyone that charges them money to maintain it. (Doctors, though, benefit from the one-on-one patient relationship. People hate hospitals, hate health insurance companies, and hate drug companies, but still respect their own physicians). This, as manifested by complaints about drug prices, uneasiness about hard-sell advertising, and suspicion about our motivations and our methods, seems to be what's sent public opinion of us into the dumper.

But in the end, Murcko has a point. We really are doing something good for humanity by working on understanding diseases and trying to find treatments for them. Not everything about the process is optimal, for sure, but can anyone argue that the broad effort of pharmaceutical research has been a bad thing? The problem is, it's easy to look around, and slide from there into self-pity. But moaning about how no one appreciates us is a waste of time. The best cure is, as far as I can see, to give people reasons to realize what we're worth.

People who've been pulled back from the brink of death from infectious disease or cancer already have those reasons. But there are so many terrible unmet medical needs still out there, which means that there's plenty of room for us both to do good and to show that we can do good. Yes, it will cost a lot of money to do that, which means that what cures will come will also cost money. But with the partial exception of air to breath, most of the necessities of life tend to involve money changing hands. That's not a disqualification.

So to the readers out there in the industry - go do some good work today. Don't spend too much time in your more useless meetings. Stand up in front of your fume hood or sit down in front of your keyboard and do something worthwhile. It's a worthwhile job, even if some people don't realize that yet.

Comments (45) + TrackBacks (0) | Category: Drug Industry History | Drug Prices | Why Everyone Loves Us

September 2, 2009

Lexapro, Forest Labs, and the Hard Sell

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Posted by Derek

Forest Labs has done very, very well with Lexapro (escitalopram) over the years. They're a comparatively small company, and their collaboration with Lundbeck (also a comparatively small company) in the antidepressant field has been the biggest event in their history.

Lexapro is the pure enantiomer of the earlier Lundbeck drug Celexa (citalopram), and it's been a very successful follow-on. (For a nasty spat over generic production of citalopram, see here). I'm generally not too keen on the follow-up-with-the-single-enantiomer strategy, I have to say. In general, I think it's slowly disappearing from the world as regulatory agencies look down on racemic mixtures. (I've never worked on a program myself where we seriously considered taking a racemate to the clinic - we always assumed that we'd end up developing a single enantiomer).

The New York Times has an article out detailing some of Forest's marketing plans, as revealed in documents before a Senate committee. Some of what the article has to say I agree with, and some of it I have to raise an eyebrow at, and we'll get to both of those. First off, in an area as large and competitive as antidepressants, I don't think that anyone should be surprised at what was in Forest's plan: lots and lots of lunches for physicians' offices, plenty of continuing medical education lectures (with plenty of food), and so on. One line shows that the company budgeted $34.7 million dollars to pay 2,000 physicians to deliver about 15,000 talks on the drug to their colleagues.

The Senate seems to be shocked at all this - well, pretending to be shocked, because no national politician can ever really be surprised at any way that money is used to influence anyone's decisions. But I'm not shocked, either. Leaving aside (just for a moment) the question of whether drugs should be promoted this way, the fact is that they are promoted this way, and have been for a very long time. And breaking down that lecture figure, that means a bit over $2,000 per lecture, and we don't know if that figure is supposed to cover just the honoraria for the speakers, or the whole cost of the lectures. Even if we assume the former, that comes to nearly eight lectures per physician per year, giving each of them about $17,000, pre-tax. Compared to the cost of advertising in the medical journals, general-interest magazines, or especially on television, that probably represents an excellent return for the money.

And Forest has been spending plenty of it. The article mentions that Vermont, for example, found that Forest (despite their size) was outspent in that state only by Lilly, Pfizer, Novartis, and Merck. Considering that those companies have many more drugs to sell than Forest does, that's an impressive figure. Of course, the only reason you spend money on marketing is to make even more of it back in sales, and they've certainly been doing that, too.

There are several questions here, and perhaps it's best to take them one by one. First off, is Lexapro worth what people (and insurance companies) are paying for it? The snappy economic answer is that of course it is, since that's the price that's willingly being paid, but let's talk utility instead. It does seem to be a good drug, arguably better than many of the others. It's been run head-to-head with Cymbalta (duloxetine), which is no poor performer itself, and shown to be superior And earlier this year, a Lancet article analyzed 117 controlled trials and found that there were clear clinical differences between the various antidepressants, and that Lexapro and Zoloft (sertraline) stood out as better than the rest.

The article recommended starting with the latter in new patients, I should note, and sertraline's now generic. I think that Forest's battle in the market is both against their similarly expensive competitors (where I think that they can claim to have an edge) and against cheap sertraline, where they may well not. (Update: and against their own (now generic) racemate - I'm digging into that comparison, and it'll be the subject of a follow-up post.) That said, depression is a famously heterogeneous field, and patients often have to try several drugs before somethings works, for reasons that are unclear. So yes, overall, I think that Lexapro is a useful drug, and that patients are getting benefit for their money.

The New York Times article is rather disingenuous on this point, by the way - you'd never know from it that there were differences between antidepressants, since they treat Lexapro and Prozac as interchangable, and you'd never know that there was evidence that Forest's drug might well be near the top of the list.

Next question: is Lexapro worth what Forest is spending to promote it? That question also splits into two, economically, depending on what we mean by "worth". As in the price question, from a strictly accounting perspective, we have to presume that Forest is seeing a financial benefit from their marketing activities; marketing does not run at a loss, not for long, it doesn't. And from a utility/societal benefit perspective, if Lexapro really is superior to most of their competitors, then I think the company is justified in making that case as loudly as they can.

Now we get to the tough one: are Forest's marketing activities appropriate or ethical? The arguing can now commence, because this is where we try to figure out what "as loudly as they can" actually means. I think the industry would be better off if there were less of an arms race in the marketing area. (Update: just to pick one benefit, it would make us look, in general, less sleazy, which is not to be underestimated). Even though marketing doesn't run at a loss, the return from it could be still higher if it were less expensive to do. Huge sales forces are expensive, and one of the reasons the sales forces are so big is that the competition's sales forces are so big, and so on. It's hard for any one company to climb down from its position, just from a game-theory point of view, so the most likely way for this to happen is through across-the-board restrictions on marketing, as enforced by the FDA, the FTC, or by physicians themselves. (I should mention, though, that there has been a voluntary retreat in the area of brand-covered swag). We're already seeing this pendulum swing back in the last few years, and it's fine with me if the process continues for a while longer. Doctors are perfectly free to close their doors in the faces of drug reps, and if I were in their position, I'd be tempted to do just that in many cases.

So if we come back around to that Times headine, it reads "Document Details Plan to Promote Costly Drug". And to that, I can say yes, it's a costly drug, set as high as the company thinks that people will pay for it, and to a level that they think they can make the most money with before its patent expires. And yes, Forest has a plan to maximize those profits, and if I were a shareholder (I'm not), I'd be righteously steamed if they didn't. And they did indeed write that plan down, so there are plenty of documents. I'd rather, myself, that the plan looked different than it does, and that's the way the world seems to be heading. But no matter what regulations come into force, there will always be plans to promote things that cost money.

Comments (37) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Press Coverage | The Central Nervous System | Why Everyone Loves Us

August 19, 2009

The PhRMA Deal

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Posted by Derek

I'm not always a fan of John Boehner, but I think he's on the right track with his letter to Billy Tauzin (PDF here from NPR's health care site). I understand that line about how in Washington, if you're not at the table you're on the menu. And I understand how the industry wants to get into the middle of the whole process to try to protect its interests. I just don't think that cutting this kind of deal is, in the end, doing that. And apparently Boehner agrees:

The Obama Administration tacitly acknowledged last week that the President will not be bound by the $80 billion limit PhRMA and its board of directors were led to believe had been secured in exchange for your organization's support of the Administration's health care takeover, and key Democrats in Congress, including Speaker Nancy Pelosi (D-CA) and Energy & Commerce Committee Chairman Henry Waxman (D-CA) have said explicitly they will not honor the agreement. In other words, now that the deal is publicly known and would be messy for your to reverse, Big Government is now changing the terms. . .because it can.

Boehner goes on to say that Tauzin will surely "object to this letter and quarrel with its premise", which I think is a pretty sure bet. But stripped of the boilerplate that's found in the rest of it, I find that I agree with its key point very much, as stated above. I don't think that it's possible to do a PhRMA-style deal with an entity like the federal government. Because, you know, they can always change their minds, and what possible recourse do you have then?

Update: Yes, of course Boehner is a political opponent of President Obama, and has interests beyond purely philosophical ones in scuppering some of his grander plans. Both Boehner and Obama make me grit my teeth when I hear them talk about this issue, to tell you the truth, and boy howdy, there are plenty of other people in that category with them. And I realize that when I start talking politics, that many readers start to grit their own teeth in response.

Fear not, this is not going to turn into a political blog. But it's always been concerned with the drug industry, how it does what it does, and what its future might be. The current efforts at health care reform could well have an impact on these things, to put it delicately, so the topic has to come up. My free-market biases are pretty well known, though, so some readers may be able to save time by just skipping over what I write about it on the grounds that they probably have a good idea of what I'll have to say. I wouldn't blame anyone for doing that; vita brevis est. And I promise to not have the issue take over the site - I don't want to be a political blogger, either, really. . .

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August 17, 2009

PhRMA's Negotiating Game

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Posted by Derek

Now for a bit on the pharma industry and the current fight over health care legislation. Does the industry want a new system to come into force, or not?

Depends on what that new system is, of course. But the industry is naturally trying to make sure that it has a hand in whatever passes. And here we come to a meeting of political interests. The administration would also prefer not to have the drug industry actively working against it, since drug companies have a lot of money to use for such purposes. Therefore, as anyone who knows politics could have predicted, a deal has been struck.

Or has it? As everyone has heard by now, Billy Tauzin, head of the industry's largest association (PhRMA), said that an understanding had been reached with Max Baucus of the Senate Finance Committee, with the approval of the White House. The industry would agree to come up with 80 billion dollars of savings, and the administration would then consider them to have done their part. More specifically, there would be no more talk of price negotiations for Medicare-approved drugs, of drug reimportation, or rebates for drugs prescribed to joint Medicare/Medicaid patients. The industry would also agree to support the new health plan by running ads (and, no doubt, by lobbying behind the scenes). Come, let us reason together.

It doesn't surprise me at all that such a quid pro quo would be worked out in advance - that's exactly how politics gets done. But what amazed me was that Tauzin would go around telling people. Predictably, many of the other players are now complaining, and PhRMA is reduced to saying that it's "counterproductive" to keep on talking about it.

Tauzin and PhRMA are also taking flak from their right - the Wall Street Journal blasted the whole idea of a deal the other day, calling it short-sighted. Congress could, after all, change the terms any time they can round up the votes, which would be any time it's convenient to blame the drug companies for something. I find myself more in this camp. I understand that PhRMA can't afford to stay out of this process (in which case the carving knives would come out sooner rather than later), but I think it's a sad business all the same, trading the threat of price controls now for the threat of price controls a little later on. Here's more complaining from National Review.

But that brings us back to Tauzin. I will work under the assumption that he's not an idiot, although I'm willing to listen to evidence for either side on that one. But if he isn't, why did he go around boasting of this wonderful backroom deal? All it seems to have done is endanger whatever agreement was reached. If my not-an-idiot stipulation is justified, though, the only reason I can see for doing this is as a tactic to get something even better. Did PhRMA look at the polls and decide the time was right to help torpedo everything? (And yes, I know the Rasmussen polls lean right, but I think they're picking up something real). Is that the game here?

Well, I get e-mails from people at PhRMA once in a while, and I'll probably get another one after I put this post up. Something tells me that I'm not going to get to hear what's really going on, but that doesn't stop a person from wondering.

Comments (50) + TrackBacks (0) | Category: Current Events | Drug Prices | Regulatory Affairs

August 5, 2009

Just Give It to NIH

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Posted by Derek

I know that many people are getting tired of this topic. But many people who work in the industry have never met someone who's convinced that drug companies are just standing in the way of innovation, and that all the good stuff comes from the NIH, anyway. So allow me a couple of quick quotes from Dr. Jerry Avorn, chief of pharmacoepidemiology at Boston's Brigham and Women's Hospital, and (thus) a person who should know better:

". . .Virtually every progressive recommendation about health policy for the last 20 or 30 years that the drug industry felt might harm its bottom line has been met by the threat that if they don't make as much money before, innovation will cease and there will be no cures for new diseases. It came up around Medicare drug pricing and generic drugs. It's not a surprise to see it come up around health-care reform.

There are a couple reasons that this is a specious argument. One is that according to their filings with the SEC, the drug companies only spend about 15 cents of every dollar on research and development. That's compared to more than 30 cents in administration and marketing and more than 20 cents on shareholder equity. As an investment in R&D, I think any venture capitalist would say a company spending 15 percent on research is not a robust innovation engine.

The second issue is that if one looks at the new pipeline of drugs that Pharma has been generating in recent years, it's been puny. Wall Street has noticed this as well. There have been 20 or fewer drugs approved by FDA in recent years, which is lower than in past periods. It's sort of an open secret that innovation isn't working that efficiently.

The third leg of the stool is that if you really trace back where the seminal discoveries come from on which new drugs are based, it is federally supported research, usually funded by the National Institute of Health, and frequently conducted at universities or academic medical centers. The drug companies will then identify these discoveries and do hard, costly, and important work commercializing them. And they deserve compensation for that work. But it's disingenuous for them to imply that all the discoveries occur in their walls.. . ."

Read the rest of the interview if you want to hear how we'd all be better off if everything turned into biotech start-ups. But you say that you thought those were companies, too, and weren't funded by NIH money, but rather by investors who are often hoping for a deal with a big drug company? Adjust your thinking! This last quote should help you:

". . .if we want innovation and scientific discovery we should fund innovation and scientific discovery, not go after it bass-ackwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research. If I'm right that a lot of the important and useful innovation comes from NIH studies, then the way to get more innovation is to fund innovation. It frankly would be a far more interesting use of any given dollar one wanted to spend. . ."

Megan McArdle has done the work of attacking this at greater length than I can right now, and her post is a good palate-cleaning read after the Avorn interview. One tiny point she brings up that Dr. Avorn might want to internalize is that 15% is actually quite a large percentage of R&D spending. Apple spends 3%, and Google, 10%. Intel manages to get all the way up to 15%. At any rate, the whole post is worth reading, and was clearly written in a mood of complete exasperation. Which I share.

Comments (30) + TrackBacks (0) | Category: Academia (vs. Industry) | Drug Prices

July 30, 2009

Health Care Reform - Really?

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Posted by Derek

I haven't written about the various health care reform packages that are being hammered out and hammered through the various parts of Congress. That's partly because I began to think fairly early on in the process that we weren't actually going to see something happen as quickly as the administration wanted, which meant that there were still plenty of twists and turns left. I still think that's true - in fact, I have no idea when a final bill will ever get Frankensteined together for a vote, and no one else seems to have a good idea, either.

And since the main focus of this blog is pharmaceutical research, the first question I have to deal with is what effect such a bill will have on what I (and many of the readers here) do for a living. Absent a good idea of what the legislation will really look like, that's impossible to do in detail. But I can paint some broad strokes at this point, and they're probably not going to come as much of a surprise: I don't like what I see.

On the macro level, I don't like the administration's rhetoric on this issue. I do not believe that health care costs are crippling our economy, and the implication that they're tied to our current economic downturn seems specious. (And yes, that argument has been made, and more than once). Such an any-weapon-to-hand approach seems a bit different from what many people may have thought that they were voting for in the last election.

But I didn't vote for Obama, although I certainly wasn't crazy about the McCain-Palin ticket, either. My fears (expressed here) that he might turn out to be a zealous world-changing reformer have been amply confirmed. What do I have against zealous world-changing reformers, you ask? Why, I fear that the world is trickier than they are, for one thing. And too many of these people seem to come across as "If you people would just have enough sense to see that I'm doing this for your own good" types. At the rate we're going, that'll be the key phrase in a presidential speech right after Labor Day. (Mickey Kaus has been pointing out for some time now that this eat-your-peas-for-the-common-good approach is not doing the administration any favors).

The only big changes I'm in the mood for, generally speaking, are ones that give people more control over their own destiny, and if that's what we're seeing here, I've missed it. (I'm not alone). I guess that I just don't believe that systems this large and this complex are subject to wholesale intervention by the Wise and the Good. I worry that the Wise and Good will, in fact, decide that if they're truly going to control costs that they're going to ration health care in ways that people aren't necessarily expecting. Part of that rationing may well have to be either de facto (or flat-out de jure) price controls on pharmaceuticals and other parts of the system - and if applied thoroughly enough, these will be an excellent way of creating shortages of just the things that are being controlled, in the same way that price controls have always functioned. Some of those shortages will be silent ones: the things we don't discover.

Alternatively, we could end up with a Great Big Plan that doesn't really attempt to cut costs, or defers those cost savings into the glorious future. It's worth considering that, as far as I can see, every single attempt to run a large state-sponsored heath plan has ended up costing far, far more than even the most pessimistic initial estimates. And this time will be different. . . how, exactly?

And that leads us to the sort of bill that I think we're most likely to get: one that doesn't satisfy the biggest advocates of sweeping health care reform, since it's had to abandon the big proposals for the sake of political reality, but one that at the same time spends lots and lots more money, with no clear plan of how to raise these funds, all of that again for the sake of political reality. One, in short, that gives all the politicians involved a chance to pin "I Passed Health Care Reform!" buttons on their jackets while pissing off everyone who bothers to look at the thing closely, and one that commits us to spending oceans of money to accomplish not very much.

Perhaps I'm just in a bad mood. But that looks like what we're heading for.

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May 12, 2009

Book Review Department

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Posted by Derek

For those who are interested, I have a review up at Nature Biotechnology of Reasonable Rx: Solving the Drug Price Crisis, a book that proposes an. . .interesting solution for reworking the drug industry.

And as Fate would have it, I also have a review in the latest issue of Nature Chemistry of Drug Truths: Dispelling the Myths About Pharma R & D, from Pfizer's John LaMattina. The only reason these are showing up at the same time is that I took an unconscionably long time to come to grips with Reasonable Rx - it wasn't something that I could just dismiss, but it has (I think) a lot of things wrong with it.

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Posted by Derek

Time, regrettably, for some politics. In case anyone’s wondering, my take on yesterday’s health care announcement by the Obama administration is perfectly stated here. I could not agree more.

In other words, I see the “historic announcement” as nothing more than political theater. Everyone got together, held hands, and pledged to voluntarily do some not-all-that-painful things to reduce costs, some of which (cost savings through better record keeping?) have already been underway for years. Even so, the chances of all of these being followed through are still low. And even if they were, the amount of money being saved is only a small fraction of what would be needed to pay for the administration’s stated health care goals.

None of this would bother me all that much, under normal circumstances. A lot of what goes on in Washington, at least in front of the cameras, is an elaborately choreographed dance. It’s related to real political dealing in the same way that a synchronized swimming exhibition compares to the 1956 Olympic water polo match between the Hungarians and the Soviet Union. But (like Megan McArdle in the Atlantic link above), I worry that the administration will now pretend that these savings are real. When they turn out to be (gasp!) insufficient, a crisis will be declared (you should never waste one, you know), and more persuasive measures will be used. You know, just as in the recent Chrysler “bailout”, a term I can only put in quotes. (Mickey Kaus perfectly sums up my feelings about that one, in that link and here).

Why should I care? After all, my industry should be more or less in the clear, since prescription drug spending is only about ten per cent of the nation’s health care costs, right? Well, my worry is that we’re a very visible (and often disliked) ten per cent, a nail that sticks up and that may well get hammered down pour encourager les autres. I hope I'm wrong. But I think that the Chrysler deal was just a curtain-raiser for an even bigger one in the same style for General Motors, and I hope I'm wrong about that one, too.

Comments (15) + TrackBacks (0) | Category: Business and Markets | Current Events | Drug Prices

September 3, 2008

Direct To Consumer Ads: Wasted Money?

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Posted by Derek

It’s a truism that half of all advertising dollars are wasted, but that no one buying the ads can be sure which half it is. Advertising from the drug companies is ubiquitous: how much of that is doing them no good?

A recent study suggests that the widely reviled direct-to-consumer (DTC) campaigns may be in that category. A paper in the British Medical Journal looks at the cross-border effect of US-based advertising on English-speaking and French-speaking Canadians, on the reasonable assumption that the former group is more likely to pay attention. They picked products that had been on the market for at least a year before the ad campaigns started, and looked at the number of prescriptions among both groups once the ads started running. What they found was no effect on the prescriptions for Schering-Plough’s Nasonex (mometasone) and Wyeth and Amgen’s Enbrel (etanercept), both of which were heavily advertised. Novartis’s Zelnorm (tegaserod, now off the market) did show a 40% rise, which gradually went back down again.

A reasonable theory to explain these results starts by looking at the respective markets. In the case of the first two drugs, a number of different therapies were already available. But Zelnorm was pretty much the only thing available in Canada for irritable bowel syndrome. It could be that DTC ads are useful in letting patients know that there’s finally something for a disease that previously had few options, but less effective in pushing into a crowded area. There’s also the multiple-step barrier problem – seeing a general practitioner and then a specialist, and so on – which can mitigate the effect of advertising, depending on the drug.

But the people who would know these effects best aren’t talking: the marketing departments of the drug companies themselves. As I’ve pointed out here before, the whole purpose of advertising is to make money: if you don’t increase sales enough to more than cover the cost of the ads, you’re clearly wasting your time. And that’s why I don’t have a lot of patience with outraged comparisons of pharma R&D budgets to marketing budgets, because the latter are there to bring in even more money for the former.

If, though, some of these marketing campaigns really are wasted money, then clearly that spending needs to be redirected. And that’s what makes me wonder. No one keeps a closer eye on prescription trends than the companies that sell the drugs, and they’re in the best position to see if a given ad campaign is doing anything or not. Even allowing for the usual human quota of inertia and incompetence, it would seem that DTC campaigns must be doing something for the companies involved, at least in many cases, or they wouldn’t exist at all. It’s also worth keeping in mind that what they may be doing is not so much boosting the number of prescriptions written as keeping them from falling. In the case of the drugs in the BMJ study, you have to wonder if the normal trend would have been for the number of scripts to have declined, while the ad campaigns held them steady.

That can be hard to prove, of course, and no doubt there are some marketing strategies that have far outlived their usefulness on just that kind of reasoning. But overall, I have trouble believing that DTC campaigns are useless across the board. Some of the marketing folks are weasels, but they’re not dumb ones. (It's also important to remember that DTC ads are only 5 to 10% of the total amount spent on drug promotion, according to the figures I've seen). In the end, I can agree with this statement from the paper:

Until we better understand how direct to consumer advertising modifies prescribing for particular drugs, debates about its positive and negative consequences will continue to be based on conjecture rather than strong evidence.

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March 18, 2008

A Solution, Courtesy of the MIT Faculty

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Posted by Derek

Do drug discovery and drug marketing belong in the same company or not? That question’s been asked in several forms, but two MIT professors are taking it about as far as it can go. Stan Finkelstein and Peter Temin have a book coming out (“Reasonable Rx: Solving the Drug Price Crisis”) which proposes decoupling the two by force.

By analogy to the way the electrical power industry was divided into generation and distribution sectors, they propose splitting up the pharmaceutical business into drug discovery firms and drug marketing firms. But wait, there’s more: they also would like to have an “independent, public, non-profit Drug Development Corporation” formed to act as an intermediary between the two:

“It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most. This would insulate development decisions from the political winds," (Finkelstein) said.

The MIT press release also talks up the other putative benefits of this plan, such as how it would “insulate drug development from the blockbuster mentality, which drives companies to invest in discovering a billion-dollar drug to offset their costs”. There’s a lot to talk about in this idea, but here are some of my first impressions:

1. The electric power analogy is probably specious. Generating electricity is, for the most part, a sure thing. If you build a big coal-fired generating plant, which we most certainly know how to do, it will generate electricity for you. And its output will be proportional to how fast the turbines spin. Research is most profoundly different, as many executives from other industries have found to their sorrow. You can turn the crank like crazy and have hardly anything come out the other end at all – ask Pfizer – and that’s because we do not have a very clear idea of how to discover drugs.

Another problem is that electricity is fungible. The electric power coming from one plant is exactly the same as that coming from another, and can be pooled and distributed in exactly the same way. Every drug, however, is different. The electric power industry would be rather changed in appearance if some kilowatts were ten times as profitable as the others, but only for a few years after the generating plant came on line, or if particular kilowatts were only of benefit to certain homes or businesses and had to be routed there specifically.

2. Where are these experts, exactly? I have an instinctive distrust of plans that call for a board of dispassionate technocrats to step in and do things that the market is supposedly doing by itself. It’s not that such things absolutely can’t work, but my default belief is that they won’t work as well as their planners hope. Finkelstein and Termin’s “DDC” proposal is just the sort of thing I worry about. I can see establishing something to make sure that less immediately profitable diseases get R&D directed to them, but running the whole industry like an NIH grant review board sound like a recipe for disaster.

3. To some extent, the industry is already divided in the manner proposed. But it's not done through review boards, it's done through business dealings. Many small firms don't have the resources to develop their own drug candidates, so they shop them to larger firms who can handle the clinical, regulatory, and marketing aspects of the process. This goes on all the time. It's been proposed (many times) that one or more large companies might shut their own research down completely and serve as a clearinghouse for the smaller ones in just this way, but no one has been willing to take the plunge. My guess is that there aren't enough good ideas out there for sale to keep a company going without having some of its own research in the game; I feel sure that the numbers have been run on this idea more than once.

Of course, these deals are made on the basis of who will make money, rather than how much society will benefit. But you'd be surprised at how often those two can overlap.

Where do the costs go? I suppose I'll have to read the book to get the details, but I'm not sure how money is supposed to be saved here. The cost of developing drugs doesn't look like it'll be changed much, since Temin and Finkelstein aren't coming in with any insights into human biochemistry or any new ways for us to predict efficacy or side effects. Profits, however, would surely be reduced: the the DDC that they propose would seem to exist to recommend that less profitable drugs be developed, for the good of society, rather than the ones that companies believe that they can make the most money from.

I note that the press release makes much of climate change and globalization, probably because in many circles these days you can't be taken seriously unless you mention those somewhere. This is done in the context of tropical diseases possibly making inroads into the US and other industrialized countries. But if that were to happen, research on these diseases would become much more profitable - which I realize is a crude way of looking at it, but the market doesn't have to be pretty to work. And I think the process would be slow enough to fit the timelines for drug discovery as it's practiced today - an example would be the burst of work on avian influenza in the last few years. A sudden epidemic would be bad news indeed, and might well catch the industry flat-footed, but that's going to be hard to avoid under any drug development regime.

Comments (28) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Prices | Why Everyone Loves Us

January 31, 2008

Drugs and Money

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Posted by Derek

Over at Megan McArdle's site at The Atlantic Monthly, there's been a run of posts on the pharmaceutical industry - touched off, I think, by this one from over here. Her readers are a diverse bunch, some of whom seem to stop by because they can't stand the posts there but can't seem to help commenting on them. So there are some interesting wrangles going on in the comments to this post on the return on investment for R&D, and the follow-up on why we can't necessarily just fund all of it with that marketing money. The next in the series was on the problem, which may have no solution, of getting other countries to pick up more of that investment than they do, and that was followed by one about why nationalizing the whole drug industry might not work out well, either. And today's entry is about what that return on investment might actually be, with an appropriate warning about survivor bias. (I'll add my two cents to that debate by pointing out the notorious Wall Street Journal article which suggested that the entire biotech industry, net, has lost money so far).

There have been some thought-provoking comments to these, some infuriatingly dense ones, and some from people who clearly have done drug discovery for a living. But perhaps my favorite comment of the bunch, in an otherwordly way, has been this one, from one "Mintun":

"Really, what drugs are there left to develop? I think the state of medicine we have now is pretty good now. If we can guarantee most people a reasonably good shot at 80 or 90 years before they die, what else needs to be done? It seems like we are shoveling resources down a pit to get ever diminishing returns? I'd be happy to live under the status quo of the medical technology for the rest of my life. In fact if it means I pay less for insurance etc. over my lifetime it seems like a good trade."

Other people have already let him have it for that one, which saves the rest of us some work. . .

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January 28, 2008


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Posted by Derek

Reader B.C. noted this on Ezra Klein’s blog over at The American Prospect, talking about Mark Warner’s Senate candidacy in Virginia. He quotes Warner as saying:

” We need to rationalize drug costs. I won't stand up here and bash pharma. But it's not fair that Americans pay for research and development of the whole world, as other countries all have some pricing constraints."

And Klein then adds:

As readers of this site know, our decision to forgo national bargaining (or even Medicare bargaining) while every other country does use their size to drive down costs has led to a situation in which we pay far more so that Canadians and the French can pay far less. That's what Canadian Drug Reimportation is all about: Buying the same drugs we buy here, but at the prices negotiated by the Canadian government. It's galling, and I'm glad to hear Warner giving voice to it.

It is galling, I have to admit, and Warner’s correct that the US market must be paying for the majority of the R&D expenses of the pharmaceutical industry (since this is where the majority of the money is made, in most cases). My reply was, though, that I was worried that Klein (and Warner?) might think that the solution was to run US prices down to those of the other countries, presenting my industry quite a shortfall on its hands. Here's B.C.’s reply to that (this is him, not Ezra Klein or Mark Warner):

”I disagree with your conclusion. If you have three people bargaining to buy goods and one is willing to pay much more than the others without regard to what the other two will pay, you will sell to him at the higher price and sell excess supply to the others at the lower price, if you are so inclined.

But if all three bidders have the same market clout, then something will have to give. The market will probably reset pricing for all bidders. It might mean reductions in monies available for R&D, it might not. If the bidders are on a more or less even playing field, the market will determine that. I think that is what Klein is saying.

As things stand now, one of the buyers has given the drug companies have a massive put. That's not fair to the (involuntary) stakeholders of that buyer. If that put is removed, there is a much higher likelihood of a more equitable distribution of the burden of R&D. OTOH, as long as that put exists, there is zero likelihood that the current inequitable distribution will be corrected.”

My take on this is that health care spending is in a different category than many other things, for reasons both psychological and political. You’d expect some ordinary economic good to be divided up among three bidders in this way, but I wouldn’t expect medicine to be. It would be politically popular to see prescription drug prices go down here in the US, but it would be (almost certainly) politically impossible to see them go up by the the corresponding amount in Canada, France, Germany, etc.

Of course, I’ve made an assumption there, that the current revenues of the drug companies would remain roughly constant, and just be divided up in a different way. That's probably not how it would work. If you somehow put that idea to a vote across all the countries involved, I’m sure it wouldn’t pass. The majority of consumers, and probably the majority of politicians, would be glad to set the price of drugs by fiat, and that setting would be dialed down to “nice and cheap”. The time lag involved in drug discovery would let you do this and not notice many problems, at least on the pharmacy shelves, for several years.

And that’s the problem with setting prices that way: the temptation is for whoever is on the thick end of the whip – that is, whoever can determine prices by force of law – to set them and be damned. It’s not just drugs: I’m sure that people would, if they thought they could, vote themselves cheaper cars, not to mention the gasoline that runs them. But oil’s a commodity that trades freely, and there’s a constantly changing market price for it. A new medication, on the other hand, has just one supplier. There's just one neck presenting itself.

That turns negotiations between drug companies and governments into a rough business. Very quickly, things can come down to their ultimate positions: “We won’t let you sell in this country” versus “We won’t let you have this drug”. Note that both of these end up with the citizens involved being denied a chance at medical care. It’s as if rug-merchant transactions tended to escalate into threats to set the bazaar on fire.

Governments have another weapon when things get to that point: compulsory licensing. This has already come up with Brazil and Thailand, and will no doubt be threatened again in other places. And that brings me to my depressing point: this playing field will never be level.

Ideally, I would like to see drugs, and drug companies, compete strictly on price and on effectiveness. And I’d like to see that happen around the world, and let supply and demand sort things out. I think that prescription prices would go down a bit here, and up in many other countries. At the same time, generic drug prices would probably drop outside the US. But it won’t happen. The more I think about it, the more I fear that drugs and other health care will never trade on a free market. The temptations to do otherwise are just too great.

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January 17, 2008

The EU Suspects No One, And Suspects Everyone

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Posted by Derek

Thanks to a longtime reader in Germany, I have the scoop from the EU and the respected Frankfurter Allgemeine Zeitung newspaper. In an article about drug prices and drug approvals, titled “The European Pharmaceutical Industry Under Suspicion”, we find (my translation following):

”Die Kommission betonte, bislang lägen keine konkreten Indizien für wettbewerbswidrige Absprachen zwischen einzelnen Herstellern vor. Es sei aber auffällig, dass die Zahl neu angemeldeter Arzneimittel-Patente von durchschnittlich 40 in den Jahren 1995 bis 1999 auf durchschnittlich 28 im Zeitraum von 2000 bis 2004 zurückgegangen sei.

„Wenn innovative Arzneimittel nicht hergestellt werden und kostengünstige Generika zum Teil erst mit Verzögerung auf den Markt gelangen, dann müssen wir nach den Gründen suchen“, erklärte EU-Wettbewerbskommissarin Neelie Kroes.

The Commission stressed that so far there was no concrete evidence of anti-competitive agreements between individual manfacturers. It was striking, however, that the number of new registered patented medicines declined from an average of 40 in the years 1995 to 1999 to an average of 28 from 2000 to 2004.

"When innovative medicines are not being made and cost-effective generics come first on the market only with delays, then we must search for the reasons," said EU Competition Commissioner Neelie Kroes.“

(Update: Here’s more, in English, on the same story.)

Well, I’m glad they’re on the case. Hey, I’m not proud – I’ll take help from anywhere. If a commission of bureaucrats can figure out how to increase our success rates, I’m willing to listen. Mind you, I’m probably going to find something else to do with my time while I’m waiting for Neelie and the gang to get back to us, but still. I note, though, that their other concern is the “delay” in getting generics to market, and I’d like to address those accusations of shady dealing in there.

Here’s a minor problem with that theory: generics come out, on average, rather quickly over here in the US. I mean, right when those patents expire – and the generic companies are often in court, pitching various theories about how the various patents should be expiring even earlier. “Ah,” but you may be saying, “but that’s because prices in the US are so high – they’re looking to scoop up those profits as soon as they can”.

I’m not one to say bad things about the profit motive, of course, and the size of the US market is a big incentive all its own. But here’s something that a lot of people don’t realize, including perhaps members of EU commissions: generic drugs are cheaper in the US than in Europe. We have more expensive drugs on patent, but once they go generic, competition really slices them down, and the generic companies make it up on volume. The profit margin on generics is, last I heard, higher in Europe.

So that would be mighty crafty of the various drug companies, to hold back on entering a profitable market that way. What, then, could be the reason? Regulatory delays, anyone? Courtesy of the same EU superstructure that’s looking into said delays? Think of how many meetings, committees, and conferences it could take to work that one out. I’ll try to speed things up for them: Here in the US, generic companies are free to work on production and regulatory issues even before the relevant patents expire, thanks to the “research exemption”. This has not generally been the case in Europe. There’s also the problem that in many EU member states, generics account for only a tiny bit of the market, apparently due to decisions by the health insurance carriers themselves – which are either arms of the state, or heavily regulated by it.

There, maybe that will help. Of course, if the process of investigating all these suspicions were to move more quickly, the impact would be felt by various restaurants in Brussels and conference hotels all over the place, so we have to consider the economic factors. Good luck, folks!

Comments (16) + TrackBacks (0) | Category: Drug Development | Drug Prices | Press Coverage

January 10, 2008

Drugs and Money and How It Feels

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Posted by Derek

Imagine that if you wanted to buy a car, you had to first visit a car consultant. This would be an expert who would place your order with a car dealer, after first looking over your transportation needs, financial status, and other factors. No one would be able to order a car on their own. Advertisements for cars would look similar to the ones we have today, except there would be a phrase at the end to “Ask your car consultant”. Much more advertising and promotion, though, would be directed at the consultants themselves, as you’d figure. A steady stream of representatives from the various automakers would come by, extolling the virtues of the latest models and leaving stacks of glossy literature, DVDs, etc., along with offers of free trips to come by for some test-drives.

Let’s move the analogy over to something a bit more realistic: mortgages. Given the current subprime meltdown, it wouldn’t surprise me much if someone, somewhere, has called for the creation of a class of mortgage advisors. Anyone looking to borrow money for a real-estate transaction would be required to go through at least a cursory visit with one. The advisor would look over your finances, explain the different mortgage options out there, and make sure that you understood what you were getting into if you had a particular offer in mind. In fact, the advisor would do more than that – if you didn’t meet certain criteria, they would not put you in touch with a lender. Some advisors would be more lenient than others, but you’d have to see one, and have them sign off on your mortgage, before you could legally borrow money.

Ads for low interest rates and creative refinances would still be around, but they’d always end with an urgent request to call your mortgage advisor immediately, before the great deal evaporated. And the bulk of the promotion money would, again, surely find it way to trying to influence the mortgage advisors themselves. Lenders would come in with figures showing how few people had defaulted with them, what percentage of the loans in a given market they underwrote, and so on. As gatekeepers in an important industry, they’d be much in demand.

Of course, in the world we live in, we trust adult consumers to be able to make decisions about which car to buy. The car companies lose no opportunity to try to make people think about the advantages of a new car, both emotional and tangible, and to suggest that it would be easy to purchase one. The car dealers themselves stress the same points, and add more details about how easy they are to deal with. People do get into bad leases or buy more car than they can really afford, but that’s considered largely the customer’s problem.

And (for now, anyway) we trust adult consumers to be able to decide for themselves if they’re ready to buy a house, which houses they might be interested in purchasing, and how they might wish to do so. This is a harder decision, since it involves a much greater commitment of time and money than purchasing a car, and there are many more options available. The existence of real estate agents and attorneys show that more people feel the need for and are (more or less) willing to pay for outside assistance in buying or selling the property itself, but there are as yet no licensed mortgage agents of the kind I describe above. That’s typically left up to the customer.

So we finally come to prescription drugs. Medical care is even more complicated than real estate – you can obtain licenses to sell properties or mortgages far more easily and with far less schooling than you need to obtain one to practice medicine, and that’s a good thing. You also cannot obtain new medicines, or any drugs for major diseases, without seeing a doctor first, both to make sure of the disease and to advise on its treatment. Consumers – and by this time, we use the word “patients” – are free to follow or not follow this advice, or to shop around until they find a doctor whose opinions they like better (if any), but they are not free to purchase and dose themselves (or others) with prescription drugs.

The difference is, as anyone will tell you, that health is an intensely personal category unto itself. A person’s health affects every aspect of their life, immediately and continuously, in a way that not even the roof over their heads can. Medical issues are unavoidably saturated with thoughts (and fears) of death or grave disability, and always have been. This has receded in places as medical science has reduced the incidence of some causes of death, but overall, this emotional entanglement is very much with us, and will be for a very long time. Look closely, and you’ll see it: as mentioned above, we have a whole special word for “customer of a physician”, because we don’t usually think of the relationship in business terms. “Patient” connotes someone who is in the care of someone else, whose fate rests partly or wholly in another’s hands.

The unusual quality of a medical transaction is understandable for another reason as well, since traditionally the course of a physical ailment has been uncertain, and the ability of medicine to do anything about it has been likewise in doubt. For most of human history, seeing a doctor has been very much like seeing a priest. It has not been looked at as a business interaction, and in most cases it had no hope of ever being one in the usual sense. (See Lewis Thomas’s The Youngest Science for more on that – he points out that almost everything his physician father prescribed in his day was a placebo of one kind or another).

The personal and emotional importance of disease (and of treatment) leads to behavior that is seen less often in other activities. People will spend terrifying amounts of their own money in the hopes of helping themselves or close family members, even in cases where the probability of success is tiny. Huge sums are spent in this country on people who are clearly near death. A person who would never dream of taking their savings to the racetrack and betting it all on a 50-to-1 longshot horse will take the same amount and put it down, with hardly a second thought, on a 500-to-1 chance of a successful medical treatment. This changed attitude extends further: medical personnel are often paid well for their efforts, but they can also give a great deal of themselves in the process, since lives are at stake. There’s an urgency, a justifiable sense of importance, which is hard for people in other professions to feel as often or as intensely.

So medicine, will probably always be special – at least, I don’t see that changing in the lifetime of anyone reading this. That complicates things, though, because (like it or not) money is involved. How could it not be? In fact, I’d say that this is one of the most obvious grinding points of friction between the worlds of private emotion and of commerce. Many people find the whole idea of medicine for profit unappealing and somehow unseemly. Since this is an area where altruism is more common (and more easily recognized) than usual, the contrast between selfless sacrifice and self-interested capitalism is especially disconcerting.

But the value people place on effective medical care, and the difficulties of discovering and providing it, ensures that large amounts of money will always be involved. Medical care works better than it used to, and it has reached that state through vast efforts, which deserve to be compensated. It’s true that when money changes hands, it can be an evil sign, as with charlatans cynically exploiting desperate people with snake-oil cancer treatments and the like. But it doesn’t have to be. We all work for a living; money does not have to stain everything it touches. Physicians deserve to be compensated for their work, proportional to its value and difficulty, and to their skills in performing it. And drug companies should be compensated for their efforts in discovering new drugs, also according to their value.

Not even the harshest critic of the industry would balk at that last statement, but that because we haven’t come down to numbers yet. If you believe that virtually all the work of drug discovery is done through federal funding, with the drug industry stepping in at the end to decide on the price and the packaging, then you will feel that this compensation should be rather minimal. (If you think that, you’re mistaken, but that’s another topic).

How, then, to decide how much a given drug therapy is worth? Any economist will tell you that the price of some good is, finally, what people are willing to pay for it. This principle works silently, for the most part, until someone offers to resell tickets for the big game for five times what they paid for them, or when the price of lumber and gasoline goes up after a hurricane comes through. At such points it stops seeming so reasonable to many observers (although nothing has changed, in terms of supply and demand). It also stops looking so reasonable to many people in the case of pharmaceuticals, but under completely normal conditions – no hurricane is necessary.

My industry realizes this (any fool realizes this). But it’s never known quite what to do about it. Pointing out that drug discovery is expensive has been a traditional argument, and it’s one that I’ve made myself. But that doesn’t address the underlying reasons for the uneasiness. Paying money for health care does not descend to the same mental category as paying money for car repairs just because someone has tried to make a case for the accounting involved. People don’t believe the numbers, anyway, but even the most believable numbers in the world would not do the trick.

Pointing out that these are, in some cases, life-saving therapies (important things, worth the price) is another tactic. That has a better chance of working, because it gets closer to the psychological core of the problem, but in the end it’s not effective, either. The more important, the more involved with matters of life and death something appears to be, the more uneasy people feel about paying market prices. The industry, if it stresses the power and efficacy of its drugs, risks looking like someone charging rent for the use of a fire hydrant.

And another tactic is to put a personal face on things – to show testimonials from people whose lives have been saved, or from researchers working hard to come up with new treatments. This also has a better chance of addressing the psychology of the problem, but also risks heightening the conflict between matters of emotion and matters of commerce. These appeals are a bid for sympathy, on at least one level, which means that they really can’t talk about money. That connection has to be made later, and the mixture is as incompatible as ever.

This is where I should come right out and say that I don’t have a solution to this problem. But I think that it’s worthwhile to consider why it exists, and where (to my mind) it’s coming from.

Comments (28) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Why Everyone Loves Us

January 6, 2008

Dollar, Drugs, and Advertising

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Posted by Derek

Well, it's the first full working week of the year, so let's dive right into some controversy. There's an article on PloS Medicine on the amount that the drug industry spends on marketing. They at least try to avoid the problem of mixed administrative and marketing expenses, but the authors come up higher than the other estimates that have been arrived at. That's because they take the varying figures from the two major sources and decide to take the larger figure every time the two disagree.

The final tally? About $57.5 billion spent in 2004. Most of that is in detailing to physicians and the cost of free samples. Direct-to-consumer ads, although they get a lot of attention and collect a lot of flak, account for only 7% of the total. The authors lose no opportunity to point out that this figure is not only larger than the industry's own statements, but is just shy of twice the estimated industrial R&D expenditures for that year. And, of course:

". . .These numbers clearly show how promotion predominates over R&D in the pharmaceutical industry, contrary to the industry's claim. . .it confirms the public image of a marketing-driven industry and provides an important argument to petition in favor of transforming the workings of the industry in the direction of more research and less promotion."

Well, we do spend a lot on marketing, that's for sure. US pharmaceutical sales in 2004 were about $235 billion. If these latest figures are correct, then promotion was about 24% of sales. I don't know how that compares to other industries, but it wouldn't surprise me if it ran high. Several things lead to that - the drug industry is quite fragmented, for one thing, with even the largest companies having a fairly small market share. And patent terms mean that the bulk of the profits on new drugs have to be earned back relatively quickly before they go generic. The distribution channels in the prescription drug business lead to a concentration on the gatekeepers (physicians) as well.

But the authors of this paper have missed an important concept. As I've pointed out here before, the idea of spending money on marketing is that it brings in more money in return. If it didn't, why bother? Marketing campaigns are supposed to pay for themselves, and more besides. That doesn't always work, of course - Prizer sure didn't make back the money spent promoting Exubera - but the failures are made up for by the successes, or at least they'd better be.

So it's not like we have this huge pile of money (X) and choose to divide it up so that we spend 0.65X buying ads and 0.35X on research. Those ads are responsible for the size of the pile in the first place. If they didn't exist, X would be smaller. If the advertising is working, that whole 0.65X is being paid for by increased sales: why on earth would you spend more on advertising than you make in return for it, year after year? And some of that 0.35X comes from those increased sales, too: why on earth would you spend that huge amount on advertising and get only that same amount back in revenues, year after year?

No, as far as I can see, most of the "why don't you spend some of that money on research" question is founded on a misconception. It breaks down when you look at where "that money" comes from. I freely admit that it's not an aesthetically pleasing state of affairs. And maybe that's the root of the problem.

My industry would apparently prefer not to put it in such crude terms, but drug research involves money, and plenty of it. Advertising brings in more money, which is why it exists. The nature of our industry probably allows a higher profitable level of advertising, which is why we do so much of it. My industry may, in the long run, be doing itself no favors by avoiding this topic and encouraging the saintly-white-coated-researcher picture instead. We do help sick people, and we are glad of that (and I do have a white lab coat hanging in my lab across the hall). But helping sick people by discovering new drugs takes big piles of cash. That's how the world is.

Comments (24) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Why Everyone Loves Us

September 9, 2007

Guess That Market

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Posted by Derek

When a drug company starts off a new project, a lot of things go into the decision. Most of them are scientific decisions, but a big one that isn't is the projected market size. It's a business, and if you keep developing things that don't earn out their costs (and plenty more), you won't be part of the business for long.

These market numbers aren't the most reliable in the world - Pfizer, for example, appears to have been surprised by how well Viagra did, and Bayer and Lilly were likewise surprised that their follow-ups didn't repeat. For a more recent example, try Pfizer's Exubera. Its potential as a big winner was already much eroded by the time it finally made it to market, but surely it's selling even below their worst projections.

But underserved markets give you something you can depend on. A safe, effective anti-obesity drug would clearly reap billions - not that I'm expecting to see one. An effective HDL-raising therapy would do the same in the cardiovascular market (but hold on tight if you're trying to develop one of those, too). And CNS is full of opportunities, like Alzheimer's. Mind you, those opportunities are there because people keep trying and failing to do much for the diseases, but there's definitely a fortune waiting for the first thing that does.

As you can see, the risk-reward curve is pretty similar to what you see in finance. If you want the big returns, you have to take the big risks. "Big risk" is a relative term around here, though, since even the plainest of vanilla rip-off me-toos can implode on you, taking all its costs with it. But in general, it's the same no-free-lunch graph as everywhere else in the world.

There are some exceptions, but the problem (as always) is that it's usually impossible to see them coming. Lipitor is the first example that comes to mind - Warner-Lambert just about killed it because it was going to be the umpteenth statin, and they didn't think its market share would justify the development costs. (I should have mentioned that one back in the first paragraph, when I was talking about shaky market projections!) It was only after the drug got well into the clinic that its potential began to show itself, just as Exubera was far along before its deficiencies became clear.

On a macro level, one of the big problems is the disconnect between underserved markets and underserved populations. Tropical diseases like malaria are an instant example. An effective antimalarial would be taken by huge numbers of people, but many of them still couldn't begin to afford the cheapest pharmaceuticals in the world, which is a real dilemma. (Of course, there's also the possibility that the sudden introduction of such a drug might help precipitate a Malthusian crisis in countries with traditionally high death rates, but better to deal with that than have the current situation, I'd say).

There are several methods that have been tried to bring things in line. The Orphan Drug Act is an example from inside the US (making diseases with smaller numbers of patients more financially attractive), and there's perennial talk of something similar for tropical diseases through prizes and other incentives. A different world would do things still differently, but we don't, to the best of my ability to see, live in one.

Comments (8) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices

July 24, 2007

Godzilla vs. Mothra? Relman vs. Epstein!

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Posted by Derek

Arnold Relman is back. The co-author, with Marcia Angell, of The Truth About The Drug Companies, has a long review in The New Republic of Richard Epstein's new book on the industry, Overdose.

Not everything in Epstein's book is right, and not everything in Relman's review of it is wrong. But when Relman misses, he misses big. Take, for example, this:

"Indeed, the industry's greatest enemy is itself. Innovation by the major pharmaceutical firms has certainly fallen off sharply in recent years, but there is good evidence that the cause lies with the industry's own policies rather than with government regulation. The drug companies are being driven more by financial ambition and marketing considerations than by scientific or public health objectives, and that is the root of their current problems."

That must be why we plowed all that money into genomics, among other technologies: marketing made us do it. I knew we'd track down the culprits eventually! OK, Relman's targets here are the "me-too" drugs, which I've written about many times on this site. I get the strong impression that he underestimates the cost and difficulty of developing these - he seems to think that it's pretty much a breeze once the first drug in a class has hit the market. Actually, to my mind, one of the main advantages companies are seeking in a me-too is that the first drug has proven that a market exists, and that its mechanism actually works. The development costs for the later drugs, though, aren't hugely cheaper than for the first one. And, I might add, they still don't always work.

Inside the industry, people spend a lot of time talking about why productivity has gone down (we're in agreement on that point). But you don't hear many people advancing Relman's pet thesis, that we're spending too much time chasing each other. That's because I think he's confusing cause and effect a bit: we're not unproductive because of the me-too drugs - we're making me-too drugs because a lot of our other stuff doesn't work.

Believe me, companies would love to come up with new therapies for underserved markets - Alzheimer's, say - or to come up with anticancer compounds that would do for the many what the likes of Gleevec do for the few. And we'd certainly make money at these, too - if we could find a way to do them. Saying that it's for lack of trying just doesn't ring true.

That mention of making money brings up another favorite part of Relman's review:

"Regardless of the disease it targets, and whatever the benefit, no one has ever adequately explained exactly how the "value" of any new drug can be translated into dollars. It seems more likely that the price of newly approved patented drugs is simply set at whatever the manufacturer believes the market will bear. "

Good Lord! Where will it end, if companies price things according to what they think that people will pay for them? I look forward to the establishment of the Relman Board, which will determine, by means doubtless beyond my abilities to understand, the True Price (trademark applied for) of all drugs. Problem is, Relman himself probably looks forward to that, too. . .

Comments (23) + TrackBacks (0) | Category: "Me Too" Drugs | Drug Industry History | Drug Prices

July 16, 2007

European Drugs, American Drugs

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Posted by Derek

I don't know how many people here in the US have noticed, but the European Community is getting worried about how well its member countries are doing in drug research. Their Pharmaceutical Forum group has met twice so far, trying to recommend changes in drug pricing, rewards for innovation, information transfer to patients, and other areas.

I'll let one of the co-chairmen, Guenter Verheugen, explain the problem:

". . .The time has passed that Europe was the pharmacy of the world. True, our industry still has an inherent strength. But we are losing competitive ground to the United States and, increasingly, to China, India, Singapore and others. There are many worrying signals. Let me mention just two:

First, the widening gap in pharmaceutical research: Over the last 15 years investment in pharmaceutical R&D has been growing in the US significantly and consistently faster than in Europe.

Second, the development of key medicines: In the past, Europe was leading in developing the most successful breakthrough pharmaceuticals. This trend has reversed. In 2004, two thirds of the 30 top selling medicines in the world were developed in the USA."

All of the things the group is looking at seem worthwhile. But I wonder how many of them will do anything to actually change that trend? Phrases like "fair reward for innovation" and "alternative pricing and reimbursement mechanisms" point to one that might. These seem to be carefully worded calls to let the drug companies make a bit more money, in the hopes that they might find it worthwhile to make some more drugs.

That's bound to help. It's true that the United States market is where the money is made in this business, and it can't be a coincidence that this is where a lot of the innovation is coming from. But you can always develop a drug in Europe and sell it in the US, right? No, I think that there are other factors at work, cultural ones that no high-level multinational task force is going to pin down.

Perhaps I think this way because I used to work for a European company, and now work in Cambridge (home of a zillion startups). But I've long thought that there's a different attitude to research and development in this country, a greater willingness to try odd ideas and to put money behind them. I'm not saying that you don't find innovation in Europe, because you certainly can. But I think that innovators have, on the average, an easier time getting funded and being taken seriously over here. It's not a huge difference, but it's a steady one, and it's been compounding over time.

Comments (21) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Who Discovers and Why

May 7, 2007

Brazil Raises The Pirate Flag

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Posted by Derek

Back in 2005, the government of Brazil threatened to break the patent on Abbott's HIV medication Kaletra if the price didn't come down (see here and here). But after a lot of arm-wrestling, a deal was reached. Now it's Merck's turn, with their efavirenz, and this time things went all the way: on Friday, Brazil's president issued a compulsory license to produce the drug outside Merck's patent.

My problem with this, other than the obvious problem I have with expropriation of someone else's property, is that Brazil is trying to have things both ways. The government spends much of its time talking about how the country is an emerging power, with the 12th-largest economy in the world, huge natural resources, its own successful aircraft industry and space program, and so on. But when it comes time to pay for HIV medications, which are important both medically and politically, suddenly they're a poor third-world country being exploited by the evil multinational drugmakers. A look back at the second blog link above, with its quotes from Brazil's Minister of Health on how nationalizing drug patents would help the country's industry, shows that this issue probably has more to do with the first worldview than the second one.

During the Kaletra dispute, I asked a question:

I've known some pretty good Brazilian scientists, but the country isn't up to being able to discover and develop its own new ones. (Very few countries are; you can count them on your fingers.) So I've saved my usual justification for last: if Brazil decides to grab an HIV medication that other people discovered, tested, and won approval for, who's going to make the next one for them?

And now Merck is basically asking Brazil the same thing:

"Research and development-based pharmaceutical companies like Merck simply cannot sustain a situation in which the developed countries alone are expected to bear the cost for essential drugs in both least-developed countries and emerging markets. As such, we believe it is essential to price our medicines according to a country's level of development and HIV burden, thereby ensuring equitable access as well as our ability to invest in future innovative medicines. As the world's 12th largest economy, Brazil has a greater capacity to pay for HIV medicines than countries that are poorer or harder hit by the disease.

This decision by the Government of Brazil will have a negative impact on Brazil's reputation as an industrialized country seeking to attract inward investment, and thus its ability to build world-class research and development."

It should have, anyway. Look, intellectual property law is not pretty, and doesn't give anyone a warm feeling. It's not meant to. But the alternative Jolly-Roger world is even worse, and anything that takes us toward that is a bad move.

Comments (44) + TrackBacks (0) | Category: Drug Prices | Infectious Diseases | Patents and IP

July 19, 2006

Fuzeon's Fallout

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Posted by Derek

I wrote some time ago (Ay! Four years ago - have I been doing this for that long?) about the Roche/Trimeris HIV drug Fuzeon (T-20, enfuvirtide), and its costly manufacturing process. Roche built a factory in Colorado just to make the drug, which is a 26-amino acid peptide. And instead of doing it recombinantly, they're producing it the good old chemical way, by peptide coupling. (Here's a not incredibly competent collection of whiz-bang photos of the place, which at least have no purple spotlights in them)

Back in 2002, I had some thought that Roche had perhaps lost its corporate mind. But as this article from Chemical and Engineering News points out (subscriber-only, I think), they've actually done everyone a favor, whether by losing their minds or not. Their decision to go fully synthetic, and the massive investment that followed, has lowered the cost of all sorts of peptide synthesis reagents, starting materials, and equipment, to the point that it's now become enough of an industry to attract a lot more production interest. (And one of the big players in the contract business is. . .Roche's Colorado facility!)

As the article points out, recombinant technology (producing the peptide in engineered cells) is a wonderful thing, but only when it's working perfectly. And getting it to that point can be a long, expensive task. There are a lot of potential cell lines to choose from, each with its own advantages and disadvantages, and uncountable ways to engineer them and culture them. Even then, the purification of the target protein can be a whole new nightmare - as one chemist interviewed by C&EN says, at least synthesis doesn't give you back ten times as many different things as you put into it.

Peptides still aren't anyone's first choice for development when there's a small-molecule alternative. But for the targets that no small molecule is going to hit, they're worth looking at. Recent years have seen improvements in metabolic stability and duration of action, as people come up with all sorts of nifty delivery systems and conjugate polymers. You could do a lot worse.

But perhaps Roche could have done better. There were all sorts of glowing forecasts about Fuzeon when it was first approved, and all sorts of grumbling from people who took the optimistic numbers and calculated that Roche would be making its money back in two or three years at the prices they'd set. Well, that hasn't happened yet, since the drug isn't selling nearly as well as had been hoped.

Another two or three years should do it, if nothing better comes along to cut into Fuzeon sales. And stipulating that (which is no sure bet) Roche might be selling it for a long time to come, since the barrier to generic manufacture is going to be rather high. So, even after that wild factory in Colorado, they're still probably going to go into the black on Fuzeon, but it does make you wonder how the return compares to some of the other drugs in Roche's portfolio.

But that's their problem. In the meantime, it looks like they've helped everyone else in the business by making industrial peptide synthesis more affordable. Adam Smith's invisible hand strikes again. . .

Comments (11) + TrackBacks (0) | Category: Drug Development | Drug Prices | Infectious Diseases

March 16, 2006

Price Gouging or Not?

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Posted by Derek

Update: More on this issue from Jim Hu here.

The New York Times ran a pretty heavy-duty article the other day on drug pricing. But for once, it wasn't the big companies that were getting pummelled. No, this time it was Ovation Pharmaceuticals getting the treatment, and I'd have to guess that most readers will have the same reaction I did: who they?

Well, they're sort of a specialty generic company. Their business model seems to be taking on ancient medications, which other companies are giving up on, but which still have a small patient population to serve. Their business model is also apparently to raise the price of said drugs, and that's what got them into the papers:

"Last August, Merck, which makes Mustargen, sold the rights to manufacture and market it and Cosmegen, another cancer drug, to Ovation Pharmaceuticals, a six-year-old company in Deerfield, Ill., that buys slow-selling medicines from big pharmaceutical companies.

The two drugs are used by fewer than 5,000 patients a year and had combined sales of about $1 million in 2004.

Now Ovation has raised the wholesale price of Mustargen roughly tenfold and that of Cosmegen even more, according to several pharmacists and patients."

Mustargen is better known to chemists as nitrogen mustard, which was basically the first chemotherapy agent ever used. Cosmegen, for its part, is the brand name for actinomycin D, which goes back almost that far itself. (To give you the idea, the first person to try it out for cancer was Sidney Farber, whose last name still turns up in cancer therapy circles.

These are drugs from the caveman days, that's for sure, and many references (that Wikipedia link to nitrogen mustards, for example, unless it's been fixed by now) will tell you that they aren't used at all any more because of their toxicity. But they're each still useful for the small group of patients the Times article mentions, generally those with very particular forms of cancer that respond well to these agents above all others. To give you the idea, five thousand patients is one fortieth the market size for what the FDA considers an orphan drug, and it's not clear if that's the patient population for both drugs put together. These are orphaned orphans.

This article is of a piece with the recent one on the price of Avastin, which I spoke about here:

The increase has stunned doctors, who say it starkly illustrates two trends in the pharmaceutical industry: the soaring price of cancer medicines and the tendency for those prices to have little relation to the cost of developing or making the drugs. . .people who analyze drug pricing say they see the Mustargen situation as emblematic of an industry trend of basing drug prices on something other than the underlying costs. After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices."

Now we're down to the real question: is this price justified, or not? Ovation is in business to make money, like any drug company, and charging a high price is about the only way to do that when you're talking about a few thousand patients. A company like Merck could carry these things on its books without much harm being done to its bottom line, because the costs of its other medicines would make up for them (not that the Times is too crazy about those other prices, either). But when a small company like Ovation takes them over, they're going to try to make them into profit centers. Over at Blogs for Industry, Jim Hu asks: "I wonder what (the Times) would be writing if Merck just dropped Mustargen and these patients weren't able to get it at all." He's got a point.

For the most part, Ovation seems to be getting the prices that they're asking. One problem is that they're selling injectable Mustagen, which is the approved form, but there's one set of patients that uses the stuff as a topical lotion (which is formulated for them by local pharmacies). It's harder to get insurance to pay for that, since it's not an approved use. (And it's hard to imagine who would be able to go to the expense of getting it approved, either, considering the subset-of-a-fraction-of-an-orphan size of the market). These people are really feeling the price increase, and the Times article accordingly spends most of its space on them. Ovation is apparently lobbying for increased insurance coverage - which is, after all, in their financial interest - but for now, things don't seem to have changed.

The downside, for Ovation and for the industry, is that this kind of thing makes it very easy to write the heartless-price-jackers article. And this is why I think the ban on Medicare using prices as a consideration is a mistake. I know that my industry lobbied hard for it, and it's no mystery why. But I'd rather have Medicare responding to (and giving out) pricing signals, and I think that (for their part) private insurance companies should do so at every opportunity. Says the Times article:

And once a company sets a price, government agencies, private insurers and patients have little choice but to pay it. The Food & Drug Administration does not regulate prices, and Medicare is banned from considering price in deciding whether to cover treatments.

While private insurers can negotiate prices, they have limited leeway to exclude drugs from coverage based on price, said C. Lee Blansett, a partner at DaVinci Healthcare Partners, which works with drug makers on pricing and marketing.

"Price is simply not included in whether or not to cover a drug," Mr. Blansett said.

But why not? It's included as a factor in decisions to pay for all sorts of other things. If that quote were talking about anything other than pharmaceuticals, it would sound weirdly obvious. The same goes for that earlier excerpt: all sorts of things are priced considering factors other than their intrinsic costs. (What the market will pay, for example). Competing on price sounds heartless at first, but consider: if Ovation's raising their prices too high, that should open the door for someone else to step in and undercut them. Pricing signals go both ways. . .

Comments (9) + TrackBacks (1) | Category: Cancer | Drug Prices

February 16, 2006

What's It Worth to You?

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Posted by Derek

So now we come (again) to the topic of cancer drug pricing. The New York Times ran an article on this the other day which has gotten a lot of attention. In it, Alex Berenson points out that prescriptions for the antibody therapies like Avastin and Erbitux cost a huge amount of money.

This isn't news, unfortunately. See this 2004 article by Matthew Herper in Forbes, for example, or see my posts from around that time here and here. What the NYT article makes much of, though, is what it says is a new rationale for the costs:

"Until now, drug makers have typically defended high prices by noting the cost of developing new medicines. But executives at Genentech and its majority owner, Roche, are now using a separate argument — citing the inherent value of life-sustaining therapies.

If society wants the benefits, they say, it must be ready to spend more for treatments like Avastin and another of the company's cancer drugs, Herceptin, which sells for $40,000 a year. . ."

You won't catch me disagreeing about the value of pharmaceuticals. But this argument can only be taken so far, because (as those links from two years ago make clear) drugs like Avastin really only add a few months of life. That's nothing to make light of, but I fear that it's also not much of a basis for Genentech and Roche to talk about how society should be willing to pay for such outcomes. Can you fix a price for two extra months of life? We're going to have to.

The NYT article has an excellent example of someone who's done the calculation for himself:

"Ellis Minrath, who has pancreatic cancer, said he had chosen not to take Tarceva, a drug from Genentech that is approved for lung cancer and has shown promise in pancreatic cancer. He did so after learning that it would cost him about $1,000 a month in co-payments, even though he is covered by Medicare.

"If anybody came out and said, 'By God, this is the stuff. You want to get well, find a way to buy it,' that would be one thing," said Mr. Minrath, who is 87. "But that isn't the case. The forecast of how much it's going to do is not that wonderful. . .

I agree with Mr. Minrath's decision, and I strongly endorse his right to make it. As an 87-year-old with pancreatic cancer, he seems to have studied his situation objectively and realized the odds he faces. He is very, very likely to die within the next few months, and (although we've never met) I'll be sorry to see him go, because he sounds extremely sensible. Personally - and I hope I never have to work this decision out for real - I would lean toward a similar "leave more for my heirs" position. Other patients in different situations may well come to different conclusions, and that's up to them (and in the real world, up to their insurance companies) as well.

What we need, of course, is some cancer drugs that don't make us put prices on months. I'd rather be working out the value of whole years or decades. Therapies which can do that will be the place to make the "society should suck it up" argument, but making it for Avastin and the like seems rather premature. What will we do when we find something that's good?

Comments (29) + TrackBacks (1) | Category: Cancer | Drug Prices

February 15, 2006

Pfizer Takes a Deep Breath

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Posted by Derek

I haven't mentioned Pfizer's inhaled insulin project in a while, but a few weeks ago they got the stuff approved, at (very) long last. The development of Exubera, which is certainly a cheerful brand name, has been anything but uplifting, though Here's a piece I did three years ago, when the story already seemed to have been going on for a long time.

Insulin, of course, is the very definition of a well-established drug, but that's only if you inject it. Slowing things down have been problems which are unique to inhaled powders: the effect on lung function over time, the changes in dosage under suboptimal conditions (allergy, flu, etc.), and the reproducibility of the dose. These are particularly worrisome for insulin, which is a tough situation: it's vital to its users, and it has a lower margin for error (both under- and over-dosing) than most other drugs. As I put it in that 2003 post, if you take twice as much aspirin as you should, it'll be rough on your stomach. If you take twice as much insulin, you're going to end up on the floor (and there had better be someone around with a candy bar).

You can see this troubled history in the drug's labeling, which Frederick Cohen at Crownstone has been going over. To pick one interesting detail, patients will be required to have a baseline pulmonary function test before starting the drug, with monitoring thereafter. And this brings up the current worry: how much will Exubera (and its baggage) cost, and who's going to pay for it? The product won't be launched until mid-year, and no one knows quite what its price will be. Pfizer's just saying that it will be "competitive", an answer which is synonymous with "Go away", but you can find estimates of up to four times the cost of injectable insulin (my guess is 2.5x). Call it a convenience premium. Will it fly?

Well, here's a piece in Business Week that's enough to make you wonder. It's written by a pair of consultants from the Bruckner Group, an outfit that's very big on outcome-based medicine, and from that perspective they think Exubera's in trouble even before it launches:

". . . Based on our analyses and interviews with major managed-care decision-makers, we expect that payers will either dramatically limit Exubera's availability to patients, impose very high co-payments, or reject coverage of it outright. . .For Exubera to achieve widespread preferential formulary status, payers will need to see a credible and compelling value proposition rather than an argument centered on patient convenience. The crux of the issue is whether an inhaled therapy will improve compliance and lead to significant improvements in patient health."

As they point out, the data on other inhaled therapies isn't too reassuring. Studies have indicated that asthma inhalers, for example, are often misused, both quantitatively and qualitatively. The Flumist inhaled flu vaccine has also been a disappointment compared to its injectable competition.

Pfizer may be counting on its (justly) famous marketing powers to put Exubera over. If the landscape, though, really is changing to more rigorous cost/benefit calculations, that might not do the trick. I realize that the BW authors have an interest in promoting this viewpoint, but I hope that they're on to something. I'd rather see more of the competition between drug companies taking place over medical evidence and financial benefit, rather than the size of the sales forces. Salesmanship alone can't put over a lousy drug. But it can take away from the issues that really should be decisive.

Tomorrow we'll take a look at how this applies to oncology, where things are getting really interesting. . .

Comments (18) + TrackBacks (0) | Category: Diabetes and Obesity | Drug Prices

January 5, 2006

Ugly, But Effective

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Posted by Derek

There are plenty of links around the blog world to the "Dangerous Ideas" symposium, and much of it makes for good reading. But there are some clinkers. I was going to take some time to disassemble this one from biologist Paul Ewald, but that effort has already been made for me.

Put briefly, Ewald is a believer in the more extravagant reaches of the "New Germ Theory", the idea that many more diseases than we now think are actually caused by infectious agents. But he also seems to believe that even if vaccines were possible for things like cardiovacular disease that no drug company would develop them. Y'know, so we could keep selling our regular drugs instead of curing diseases. But it never seems to occur to people who advance ideas like this that such a vaccine would make an overwhelming amount of money, and that we'd be very interested in it indeed. Think about how much people are willing to pay for, say, medication to lower their cholesterol or keep their blood pressure down. Think how much people pay yearly for insulin or for asthma medication - whole companies are founded on these kinds of franchises, even with fierce competition between drugs.

Now imagine how much people would pay to never have to do that again. Quite a bit, I'd guess, since you no longer have the disease and no longer have to take any drugs for it. And here's the real kicker: the company that comes up with this wonder cure would scoop up the revenue from the entire therapeutic area, because there would be nothing that could compete. No, I think that we'd be quite intrigued.

Now, I have to say that such treatments probably aren't going to turn out to be possible in most cases. I like a lot of the New Germ Theory stuff, but I'm not sure if it can be pushed this far - although I'd love to be proven wrong about that. But the best way to make sure that they don't happen is to remove that gigantic incentive. Any company that makes a serious try at something like this will be taking a very large, very expensive risk, and if they know that there's a patent seizure waiting at the end of it they may decide that the money is better spent elsewhere. It would get done, eventually, but the fastest way - if there is a way at all - is to let profit-minded companies scramble for it.

Comments (17) + TrackBacks (1) | Category: Drug Prices

October 12, 2005

The Undefeated Brazilian Team

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Posted by Derek

I wrote earlier this year about the showdown between Abbott and the Brazilian government over the price of the antiretroviral Kaletra. After several weeks of rumors, the deal has been struck. And as far as I can see, Abbott did most of the caving in.

Kaletra will now be down to 63 cents a dose in Brazil, down from the previous $1.17. It's interesting to note that back in the summer, press reports had the Brazilian government asking for a price of 68 cents. I don't know if the latest figure reflects a further price break or inaccurate earlier reporting. The new price is less than the American one by a factor of four or five, and this deal sure isn't going to send the price here any lower. In the end, money will be transferred from Abbott's existing customers to the government of Brazil.

This looks like another victory for the "Lower your price or we'll break your patent" strategy that Brazil has used before. They've never gone through with the threat, but it's clearly a real one. Abbott has apparently decided that it's better to make 63 cents a pill in Brazil than to make nothing, and (worse yet) to have Brazilian generic drug makers cranking Kaletra out for the rest of the world. And they've got a point there, of course, even after assuming that this deal could set off more price negotiations in other countries.

But this is worth thinking about next time you hear about the evils of pharmaceutical patents - you know, licenses to print money and all that. There is a trump card, and it's just been played again. Back into the deck it goes until it's needed

(Much, much more on drug pricing can be found in the blog archive here. This very point about national health plans and price-setting came up, for example, in this post from February of 2004.)

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July 6, 2005

Brazil Pulls Out the Pin

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Posted by Derek

Just how much should an anti-HIV drug cost? What if you're selling it in a place where most of the patients can't afford it? These questions have been fought out in Africa and other parts of the developing world over the last few years (and the stagnating world, too, unfortunately.) Now Brazil may be making good on a threat of outright patent confiscation.

The Brazilian government is unhappy with the price of Abbott's combination therapy, Kaletra (PDF), which they already pay just over $100 million per year for. Mind you, that's the lowest price in the world outside Africa. Online pharmacies claim that the average US retail for Kaletra tablets is about $4.06 each, and they offer it at about $3.60. Brazil's paying $1.17, and they're saying that they'll issue a compulsory license if the price doesn't come down to 68 cents.

They've threatened to do this before, but have never come this close to following through. The worry for Abbott is that once the Brazilian generic companies start making the stuff, it'll end up all over the rest of the world at a base of $0.68/tablet. And where do you think demand for it will be strongest? In the countries where it's already the most expensive, which Abbott is counting on for their profits.

Opinions vary a bit, as you'd figure. You can find no shortage of activists cheering the Brazilians on. To wit, from the AP article linked above:

"We are the hostages of these companies, and compulsory licensing is a defense against the abuse of monopolies," said Jorge Beloqui, the leader of a Sao Paulo-based AIDS support group.
Beloqui, a university math professor, has taken 30,000 anti-AIDS pills provided free by the government since 1991. If Brazil breaks the patent, he says, activists will pressure Brazilian politicians to go a step further and let its generic drug makers produce much more of Abbott's drug so it can be shipped around the world to needy patients.
"These medicines are essential to the world, and I think Brazil should sell them," he said.

Actually, Prof. Beloqui is the hostage of a retrovirus, but his comments seem pretty representative of the "stick it to The Man!" point of view. Well, speaking for The Man (to crib a line from Tom Wolfe), I have to say that Brazil seems to be playing to the galleries here. There are accusations that the country is spending less on anti-HIV medications than it did five years ago, and they turned down $40 million in US money not so long ago. There's another problem, too. Brazil is acting according to WTO language about breaking patents in case of a public health crisis. But you have to wonder

Allowing Brazil to use the "public health crisis" justification creates a dangerous and perverse incentive for governments of the developing world: if you as a government are responsible and work hard to uphold a fiscally manageable public health program, then you will be punished by having to pay for expensive drugs, but if you fail or simply ignore the problem and cry "crisis," then you will be rewarded with permission to trample on intellectual property rights.

I've known some pretty good Brazilian scientists, but the country isn't up to being able to discover and develop its own new ones. (Very few countries are; you can count them on your fingers.) So I've saved my usual justification for last: if Brazil decides to grab an HIV medication that other people discovered, tested, and won approval for, who's going to make the next one for them?

Comments (43) + TrackBacks (0) | Category: Drug Prices | Infectious Diseases | Patents and IP

December 7, 2004

Check, Please

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Posted by Derek

Here's a post from back in the spring which goes into why I think that the cancer drug market is in the process of changing. As we figure out which patients will respond to which drug - which will happen, albeit slowly - the standard industry assumptions about market size will have to be rethought.

For now, we in the business can continue to assume that everyone will be given most everything for most everything. That's why Gleevec sells at the level it does - it's really an orphan drug which has benefited from the let's-give-it-a-shot mentalily more than anyone thought possible. The thing is, most of the people who've received the drug (and the other new agents) for totally different kinds of cancer than they're known to treat have wasted their time and hopes, and their insurance companies have wasted their money. It's true that this kind of clinical practice can lead to new treatments (there are always some surprises), but it leads to a lot of lost effort, too.

But as we move into the world where we know more about what we're doing, that's going to change (see that post linked above for details.) Cancer is going to slowly turn into a constellation of hundreds (thousands?) of orphan diseases, each of which will have its own particular preferred therapy. We won't need new drugs for all of them - many of these will be particular combinations of known agents - but we'll need a lot more than we have now. And the market size for each of them might be at least an order of magnitude smaller than we'd like.

That, naturally enough, will mean that the prices of these drugs will go up, because they're probably not going to be any cheaper to develop. So we'll have a lot of drugs, each of which can do great things for a small set of patients, and each of which will cost a heap. Doctors will have no problems with this, and patients will adapt to this world without many complaints. We'll adapt to it in the drug industry. But think about how this is going to look to an insurance company or HMO. . .

All of their cancer-patient customers will be taking highly expensive medications - different ones, true, but the bottom line will be the same. And they'll all have to stay on them for a long time, since we still don't know how to make cancer reliably go away very well - we can just keep it in check. How's that sound over on the insurance side of the street, guys? Guys?

(For those who are interested, I wrote a few other posts on the issue of cancer therapies (and their prices) back in the summer - try here and here if you haven't seen them.)

Comments (6) + TrackBacks (0) | Category: Cancer | Drug Prices

November 10, 2004

Cui Bono?

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Posted by Derek

Holman Jenkins has an interesting "Business World" column in today's Wall Street Journal. Writing about Merck and Vioxx, he wonders:

"Did CEO Ray Gilmartin blunder in withdrawing Vioxx from the market? Merck executives yanked the prescription pain reliever, amid much backpatting, when a study revealed that long-term users were at somewhat elevated risk for heart attacks and strokes.

Merck was evidently bidding for public admiration in sacking its biggest revenue spinner. If so, the tactic seems to have failed catastrophically. And contrary to the tone of much recent coverage, doctors had long understood that patients taking Vioxx would suffer more heart attacks than patients taking conventional pain relievers."

I didn't think that Merck was looking for good-conduct points, actually - what changed was that there was finally a large-scale study that showed irrefutable evidence that there was a cardiovascular problem. Jenkins goes into this a bit, but I think that it's clear that if Merck wasn't going to act, then the FDA would have forced them. Perhaps that's the only good PR that they might have been hoping to salvage. He goes on to make a very useful point:

"Merck chose to withdraw the drug, although honesty would have been equally well-served by a big informational campaign saying: "Don't prescribe this for patients not at risk for stomach bleeding. Don't let patients become chronic users."

Given that market surveys show that two-thirds of Cox-2 users don't need them, Merck's revenue hit would have been devastating in either case. But it would have made the point that Vioxx is not a defective product -- all drugs have risks that have to be weighed against their benefits -- but a seriously overprescribed one.

The Vioxx debacle is symptomatic of a system that shields consumers from price signals and sometimes actually discourages them from making the right health-care choices. . .Big Pharma is well along in being corrupted by third-party payership, just like the rest of the health-care industry. Drug makers increasingly aim their development efforts at the aches, pains, insecurities, heartburn and erectile dysfunction of price-insensitive, over-insured baby boomers because that's where the money is.

The problem is compounded by a regulatory system that drives the cost of developing a new drug to a billion or more, then forces companies to recoup all their costs in a few short years before the patent expires. This basically forecloses a great deal of investment in drugs that don't fit the above description, such as vaccines or antibiotics."

Unfortunately, there's an awful lot of truth in that. Since we're a business, we are always going to look for where the most money can be made. Other things being equal, underserved markets would be some of those places. But with the increasing difficulty of finding drugs and getting them to market, the pressure to get your few, rare shots to land right has increased. Thus the situation that Jenkins describes - and this is where I part company with the Marcia Angells and Merrill Goozners of the world.

They see the current situation and say "See! The big drug companies are just going for the big profitable diseases! That's why pharmaceuticals are in the shape they're in!" And from our end, it looks more like "Things are in such bad shape that we'd better stick to the big, profitable diseases. If we spend all our time targeting the others, we'll go under!" It's a cause-and-effect argument.

And the larger point stands as well: I think that companies should, in fact, shoulder blame for promoting Cox-2 inhibitors as if they were the right choice for everyone, and for pushing things like Nexium over Prilosec (and Prilosec over the older drugs in the category, for that matter.) But there's plenty of blame to go around.

Physicians have to write prescriptions for these things for us to sell them. Have the doctors been stampeded by our marketing departments, bribed by our piles of loot, or are they worried that if they don't write for these drugs then the next doctor will? And what about the insurance companies who are paying for all this stuff? To me, those are the people whose actions make the least sense.

Comments (5) + TrackBacks (0) | Category: Drug Prices

October 17, 2004

Preach It, Brother

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Posted by Derek

Saturday's New York Times had an astonishingly sensible article about the drug reimportation issue. (You can go ahead and insert the phrase ". . .especially for the New York Times") Some highlights:

"It may make political sense to point to Canada as a solution to high prescription drug prices in the United States. But many economists and health care experts say that importing drugs from countries that control their prices would do little to solve the problem of expensive drugs in the United States, where companies are free to set their own prices. Even the nonpartisan Congressional Budget Office estimated that allowing Canadian drug imports would have a "negligible" impact on drug spending. To begin with, there are not enough Canadians, or drugs in Canada, to make much of a dent in the United States. There are 16 million American patients on Lipitor, for instance - more than half the entire Canadian population."

Quite so, and as the article goes on to point out, we in the drug industry have no incentive to ship Canadian pharmacies ten times as much stock as they need for their own country. It's not going to be pretty, but cutting things off at the supply end is what's going to happen - unless, of course, Congress manages to make that particular business decision illegal, as they're threatened to do. Here's some more:

". . .the measures proposed so far would do little to change the fundamental economics of the drug industry as it exists today. Prescription drugs cost a lot to invent, but once invented cost little to manufacture. That is why patents are granted to drug companies - to prevent other companies from copying their inventions long enough for the inventors to set prices high enough to recover their investment and make a profit. But price controls short-circuit this system."

That's absolutely correct in every detail, and such is the state of journalism today that I could not believe my eyes when I read it. I starting waving the paper around, clutching my chest and calling out to my wife: "It's the big one! I can feel it!" She's used to me. And one last quote:

"But the United States market is hard to compare with any other. It represented more than half of the global drug industry's sales of $410 billion last year and was the country in which drug companies make the bulk of their profits. Whatever one thinks of the pricing disparity, efforts to force down American prices to Canadian or European levels could radically change the economics of the pharmaceutical industry - which effectively depends on United States profits for all of its activities, including a substantial portion of its spending on research and development.

American consumers are "subsidizing everyone's R&D,'' said Mr. Love, the consumer advocate. "We're paying way more than everyone else. Others should pay more.''

This article is bylined Eduardo Porter, and I wish to publicly salute the man. I'll think of this every time I'm about to get the vapors about reimportation and remind myself that good sense can break out.

Comments (8) + TrackBacks (0) | Category: Drug Prices | Press Coverage

October 11, 2004

Prices and Innovation

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Posted by Derek

Alex Tabarrok over at Marginal Revolution has called attention to a very interesting study on the financial aspects of drug discovery. Price reductions could have a disproportionate effect on R&D, the authors say, which fits in with my personal industry experience. If you cut everything by, say, 20%, you're not going to have just 20% fewer drugs to show for it. It isn't linear (not much is, as far as I'm concerned. . .) (Note his correction, though, which makes the effect less drastic, but also see Tyler Cowen's post just above the original post.)

That inspired this post over at Asymmetrical Information. Jane Galt finds the prospect "frankly terrifying". There are 80 comments so far - it's quite a discussion, and I encourage anyone interested in the issue to have a look.

Comments (6) + TrackBacks (0) | Category: Drug Prices

September 29, 2004

Peter Rost, Oddity

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Posted by Derek

After mentioning my cheerful outlook on drug reimportation, I should bring up the interesting case of a Pfizer executive, Peter Rost, who also thinks that the drug safety argument is a loser and is willing to say so. (But he's saying it because he thinks that Canadian reimportation would be a really great idea. This is, to put it gently, a most unusual position for a pharmaceutical executive to take.) Rost has been all over the news and in front of Congress, telling everyone with a microphone what he thinks.

He lays it right out about the ridiculous drug safety tactics, saying that he's "never, not once, heard the drug industry, regulatory agencies, the government or anyone express any concern related to safety" and that ". . .companies are testifying that imported drugs are unsafe. Nothing could be further from the truth." Hey, open up! It's good for the soul!

How is Pfizer taking this? Not too well. One of their other executives, one Chuck Hardwick, sent a letter to members of Congress saying "Dr. Rost has no qualifications to speak on importation, no responsibilities in this area at Pfizer, no knowledge of the information and analysis Pfizer has provided to the government on this issue and no substantive grasp of how importation may impact the safety of this nation's drug supply." Safety first, Chuck, never forget. We're going to go down with this one eventually, but at least we'll go down as a team, eh? Another Pfizerite, Paul Fitzhenry, says that Rost's comments "impugn the integrity" of people inside the drug industry who've made the safety argument. Well, I'd hate to impugn anyone's integrity. How about their intelligence?

Now, I don't think that the drug-safety firewall is going to crumble tomorrow (not with things like this going on. But these findings are a direct consequence of one of the only weapons my industry has in the reimportation battle: limiting the supply of drugs to Canada. The Canadian pharmacies are turning to other countries, not all of them reliable.

This will work, for a while - but is it a weapon we want to be seen using? There's a real possibility that this will create shortages of some medicines in other countries as the supply problem cascades along. Do we want everyone to watch as we turn the spigot?

Economics. Drug reimportation is an economic issue, not a safety issue. We've allowed ourselves to get price-controlled into a corner, and we need to find a graceful way out of it. But instead, we're helping to saw through the floor. . .

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September 28, 2004

Kicking the Dinosaur's Tail - Again

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Posted by Derek

Economist Mark Kleiman, in a clearheaded post on drug reimportation, says:

"No doubt, the politicians who are campaigning to permit pharmaceutical arbitrage are demagoging the issue by failing to mention the impact on innovation. But at least the argument they make – that allowing arbitrage would reduce prices to consumers – is more or less correct, and actually expresses their goal. The politicians who oppose arbitrage, by contrast -- including the Bush Administration -- largely try to hide behind the “safety” fig-leaf. That’s an insult to the intelligence of the voters."

Oh, yes indeed. My readers know that I've been banging on that particular washtub for a long time now, much good has it done. Here we go again, once more with feeling, from someone who works right here in the drug industry:

Canadian pharmaceuticals are safe. They're just as safe as ours. The reasons that reimporting them is a bad idea are economic ones. We need the money, and we've turned the US into the only place we can make it.

A more, um, detailed presentation of that point of view (from a passel of economists) can be found here. But the politics of the problem aren't in need of expert explication. Opponents of drug reimporation are trying to beat something (cheap drugs!) with nothing (no cheap drugs!) That's always a tough sell, so they - I can't bring myself to use the pronoun "we" - are trying to use irrelevant scare tactics instead. People are catching on

I think you can win a few short-term battles that way, at the cost of most surely losing the war. As I keep saying, the safety argument is one that can be addressed. As it will be, and where will my industry be then? Left wiping sweat from its forehead, stammering "But. . .but. . .there's actually another reason why this won't work. . ."

It'll be too late. The industry whose efforts I have devoted my adult working life to, the one that feeds my kids and keeps a roof over my head, is happily strapping itself to a barrel. It's making double-sure that the knots are firm and the cords are tight. The waterfall makes an awful, awful noise. . .

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August 31, 2004

Me Too, Part Two

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Posted by Derek

As came up in the comments to the previous post, there's not as much price competition inside a given drug category as you'd think. That's not because we're Evil Price Gougers, at least not necessarily. As I was pointed out yesterday, "me-too" type drugs aren't as equivalent as some people think. The main reason we go ahead with a drug in a category where there's already competition is because we think we have some advantage that we can use to gain market share.

This is a constant worry in every drug development effort where there's already a compound out there. I've personally, many times, been in drug project meetings where we've looked at the best competing compound (one that's either already marketed or well into clinical trials) and said "We haven't beaten them yet. We're not going to make it without some kind of unique selling point." The best of those, naturally, would be superior efficacy or a superior safety profile. Then you have easier dosing, fewer interactions with other drugs, and so on. I need to emphasize this: I have seen drug projects killed because no case for an advantage could be made.

Now, there's room to argue about how much better efficacy a drug needs to be a real advance in the field, or at least a bigger seller. You can argue about any of those possible advantages I listed, and it's true that drug companies push some compounds that aren't exactly huge leaps over the previous state of the art. (You see more of that when there's a case of shriveled pipeline in progress.) But there has to be something, and the bigger the difference, the better it is for us. We're motivated, by market forces, to come up with the biggest advances we can. The sales force would much, much rather be out there with data to show that the new drug beats the competition in a clean fight, as opposed to saying that it beats the old one on points, in a subset of patients, if you massage the data enough and squint hard, and besides it tastes better, too. . .

And as I've pointed out before, we often find out things about compounds long after they've reached the market. Lipitor, as discussed yesterday, is a case in point. I have not been a Lipitor fan in the past. The statin field seemed already pretty well served to me (as it did to a number of people inside Warner-Lambert during the drug's development, frankly.) The drug made its way forward based on efficacy in the clinic: it seemed to do a better job lowering cholesterol and improving the LDL/HDL ratio. How much advantage that is in the long term is another question, but those are the best markers we have.

The whole antiinflammatory c-reactive-protein story about the drug only came up after it was already on the market. The marked differences between it and the other statins, which I have to assume at this point are real, are a pleasant surprise to everyone involved. Warner-Lambert (and then Pfizer) thought it was a better compound, but not to this degree or for these reasons, I'l bet. I'd say that this is another argument for having multiple drugs in the same category. We don't, and can't, know everything that they'll do.

Comments (2) + TrackBacks (0) | Category: "Me Too" Drugs | Cardiovascular Disease | Clinical Trials | Drug Development | Drug Prices

August 24, 2004

I'll Have the Price They're Having

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Posted by Derek

Thanks to Arnold Kling, I found this piece on the economics of the drug industry. It comes from the remarks at a recent industry conference, and it's worth reading (even if it does make an approving reference to Marcia Angell near the end) - an excerpt:

If the prosperous flow of innovations was to be sustained (he said), either the industry would have to find a way to dramatically alter its cost structure, or else "we are going to have to figure out collectively some way across political parties and countries to construct and maintain a structure of global price differentials."
With the promise that changes in the cost structure would be addressed in another meeting later in the fall, attention turned to various schemes for differential pricing.

Berndt skimmed quickly over the traditional argument for differential pricing. Many industries had high fixed costs and relatively low marginal costs, he said -- electricity, telecommunications, software, database services, movies, and so forth.

But none was the same class as pharmaceuticals, where the difference in incremental cost between the first tablet of a new medicine and the second is on the order of $800 million for an average medicine --$800 million to "get the science right" and make certain that the treatment works in some degree, 25 cents to make the second copy, and the third and as many more tablets as can be sold.

Not being an economist, I'd never thought of it in quite that way. It's a familiar illustration of the problem of software piracy, though, or file-sharing of copyrighted work. We don't have as much of a piracy problem in pharmaceuticals (although it's certainly there), since it's harder for a third party to run off further copies of our pills.

The focus on differential pricing is justified. That's what the whole drug reimportation debate comes down to, and it's the corner my industry has painted itself into. This meeting seems to have mostly tried to find ways to maintain the existing system, which is at least better than suddenly yanking it down. That is, it's better for all of us who would be suddenly pitched onto the street, and it's better for our customers, who in a few years might wonder why there haven't been any new drugs to treat their diseases for a while.

But I'll really be interested in the next conference mentioned above. I think that eventually we're going to have to move to a new pricing structure, and I don't know what it's going to look like. The article itself has a suggestion, which I'll address separately - Arnold Kling has a follow-up on it here. Whatever it is, we're going to need some time to get ready for it.

Comments (5) + TrackBacks (0) | Category: Drug Prices

July 30, 2004

John Kerry on Drug Prices

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Posted by Derek

I didn't watch John Kerry's speech tonight. I'll watch a political speech made to a potentially hostile or sceptical audience (like the State of the Union) but not one made to an adoring throng, either throng. Life is too short.

But I've had some e-mail pointing out that Kerry whipped out a line about drug prices, which I presume was an applause-getter:

"Under our plan, Medicare will negotiate lower drug prices for seniors. And all Americans will be able to buy less expensive prescription drugs from countries like Canada."

Of course, the law as it stands forbids any drug company from offering anyone a lower price than they offer Medicare. Ask Schering-Plough how that one works. But what Kerry is talking about is modifying the latest Medicare drug benefit, to allow the federal government to directly negotiate drug prices. My industry put up a serious battle to keep that from happening, and it's no secret why. This is a direct route to Federally mandated drug price controls. If you think that those are a good thing, then you like that idea - if not, you don't.

And as for importing drugs from Canada, well, I'll resist the temptation to start turning purple again. But I took Kerry's suggestion to go to his campaign website for more details:

"The Kerry-Edwards plan will reduce prescription drug prices by allowing the re-importation of safe prescription drugs from Canada, overhauling the Medicare drug plan, ensuring low-cost drugs, and ending artificial barriers to generic drug competition."

Now that word "safe" is an interesting one to drop in there. As many readers know, Congress has already passed a law making it legal to reimport drugs from Canada - but only if the FDA certifies their safety. And that the agency has refused to do, saying they don't have the resources to make such a guarantee. Is Kerry planning to give the FDA whatever it might need to go ahead and make the call? Or is this an escape clause to allow the status quo to prevail?

Well, if that Medicare idea comes true, it could be a moot point. There won't be much need to import drugs from Canada if we become Canada, will there?

Comments (10) + TrackBacks (0) | Category: Drug Prices

July 25, 2004

Costs and Benefits, Risks and Rewards

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Posted by Derek

Continuing on the latest issue of the New England Journal of Medicine and its articles on cancer therapies, there's the Perspective article, from Deborah Schrag at Sloan-Kettering, which points out that:

"In the wake of the optimism generated by recent trial results, patients experience sticker shock when they encounter the prices of chemotherapy drugs. Physicians find themselves in the undesirable position of having to help patients make decisions about whether the potential clinical benefits warrant the financial strain that even the copayments for these medications may create."

I don't doubt it. She has a chart for a typical patient's eight-week therapy on various regimes. Drug costs for the classic fluorouracil-based therapies will run from $60 to $300 for that period. Throw in irinotecan, the standard since the mid-1990s, and you're looking at about $10,000 for the same eight weeks. An Avastin-based treatment will double that, and an Erbitux-based one will triple it. And those are just wholesale drug costs; they neglect support, labor, wastage, and so on. Avastin and Erbitux are harder to store and administer, so their costs will be still higher. And even if you take the statistics in the latest paper at face value, median survival is increased by less than two months with Erbitux. That brings us to a terrible question: how much are those two extra months worth, and who should pay for them? Everyone's trying to offload that decision onto someone else, and I don't blame them a bit.

We're back to where I was discussing this issue a few weeks ago. As I said then, I think that the solution is that many people won't (and shouldn't) take these therapies, because they're just not worth it. But that's a hard thing to convince someone of, and I'm glad that I don't have to try. My attempt to pass the buck is to point out that none of us in the industry is trying to develop a hugely expensive drug that only prolongs survival by a couple of months - that's just how the damn things come out after we've already spent the time and money. We're trying to hit home runs over here, but the pitching is too strong for us.

The article gets its shots in at the drug industry, though:

"Early scientific work that led to the discovery of bevacizumab (Avastin) and cetuximab (Erbitux) was financed with federal dollars. The pharmaceutical industry translated these fundamental insights into the development of commercial products. The rising stock prices of the publicly traded companies that manufacture these drugs reveal that, development costs notwithstanding, the risk-adjusted return on pharmaceutical products is very high indeed. The drug costs that support these stock prices threaten to overwhelm our ability to pay for health care."

Well. . .let's dispose of those in order, then. The first part is the old drug-companies-rip-off-NIH canard. Allow me to point out that no academic labs were attempting to turn antibodies against the growth factors receptors into new drugs, so why is industry to blame for trying? "Translating fundamental insights into the development of commercial products" is exactly what the drug industry does. It's very hard to do, it's very risky, and it costs a hell of a lot of money. You have a problem with that? If Dr. Schrag believes that she can do it more cheaply and efficiently, I invite her to raise the money and come on down and try it. Many people have done just that, and it's an education, all right.

And as for drug costs overwhelming "our ability to pay for health care", has Dr. Schrag considered that the total contibution of drug costs to health care is below 20%? Isn't there any overwhelming being down by the rest of the business, or are they just standing around in awe of our mighty powers?

And let's see. . .the rising price of the stocks, yes. Please note that I think that Imclone's stock is already too high. As high as Erbitux's cost is, I still don't think it can support Imclone's current price. I think that Bristol-Meyers Squibb overpaid for their share of the drug, and I'm not sure they're going to end up with much of a return. Note also this post about the amount of money that the biotechs have lost over the years - on average, biotech investors have lost money and they continue to lose it. For some years now, anyone investing in the stocks of companies I've worked for has been taking a bracing bath indeed. Believe me, although there are some good investment opportunities, the drug industry only looks like a money machine to the unwary.

Comments (1) + TrackBacks (0) | Category: Cancer | Drug Prices

July 1, 2004

So What's Wrong With A Little Money Changing Hands?

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Posted by Derek

The marketing practices mentioned in the last posting sound a lot like radio-station payola - paying to get a song on the air. There was an interesting defense of this practice mounted recently over at Marginal Revolution (see the first three postings here.

Is there a difference in this case? (I mean, short of the "we're-talking-about-people's-lives-here" argument, which can be valid but ends things before you have a chance to do any potentially useful thinking.) I think there is, and it has to do with market efficiency.

Whether a song becomes a hit or not is based on a relatively quick aesthetic call by a large audience: "I like that." The pro-payola argument (or at least the non-anti-payola one!) is that you can't force a song to be a hit by paying for airplay - all you can do is pay enough to give it a chance to become one. There are historical examples of songs and artists that likely wouldn't have had a chance without someone opening their wallets.

But paying doctors to prescribe certain drugs is a different sort of market perturbation. For one thing, there's not such a good feedback mechanism as there is with listener choice. It takes a while before you can tell if most medications are working or not, days or weeks. And even then, it may not be apparent to the patient. Blood pressure therapies don't make you feel much different at all, even when they're lowering life-threatening hypertension. And most chemotherapy (to pick an extreme case) makes you feel absolutely worse, immediately and continuously, even if it's managing to put your cancer into remission.

And songs are more clearly differentiable, making their market more efficient. Listeners can pick out a new song by an established artist quickly, and if it's someone they've never heard before, they'll notice that, too. But the differences between, say, the different statins are more subtle. You won't feel your HDL increasing a bit more with one of them versus the other - heck, unless they look at a large statistical sample, physicians won't notice that, either. And there's the large question, in this case and others, of whether that real difference is enough to have a real clinical effect. No one's in doubt for very long about whether a song has accomplished what it's trying to do.

In radio payola, you're trying to seed a large market and hope that something will then take off through the free choice of the consumers. But who are the consumers in the prescription drug market? There are areas where direct-to-patient marketing works, in which case it's clear that the patients are regarded as the real consumer. The hope is that they'll storm their doctors offices clamoring for the latest therapy (much to the irritation of the doctors involved, I think!)

But in many other fields, it's the physician that's clearly the consumer and the target of advertising. Schering-Plough appears to have been paying for their interferon to be prescribed for hepatitis patients, among other things, and there's never been much (any?) direct-to-patient advertising there. One physician can write for a large number of patients, so the temptation for well-targeted payola is strong. And wrong.

Comments (14) + TrackBacks (0) | Category: Drug Prices | The Dark Side | Why Everyone Loves Us

June 23, 2004

It'll Cost You

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Posted by Derek

Over at Slate, NBC's Robert Bazell takes on the drug pricing issue, focusing on the newer oncology therapies. There's no denying that some of them are really costly, and that this is a situation that probably can't continue under the current system (which, to exaggerate only slightly, works like this: every cancer patient gets to try everything, and insurance/Medicare pays for it no matter what.) But the problem with Bazell's article is that it bungles enough other points that his main ones are obscured. One of them goes like this:

"Why are these drugs so expensive? It's hard to know exactly, since drug pricing is a sacred prerogative protected by acts of Congress and the details remain shrouded in trade secrets. But the simplest answer is that drug companies can charge whatever price they want. "

Ahem. That's as opposed to the perfectly transparent pricing mechanisms for, say, cars, toothpaste, and fish sandwiches, I guess. And those aren't even "sacred prerogatives"! Imagine what those things would cost if the businesses that provided them could charge whatever prices they wanted to! Good thing we don't let them. (And yes, I know that cancer drugs aren't exactly discretionary purchases - we'll come back to that one.) Bazell goes on:

"Erbitux and Avastin are both laboratory-produced antibodies (Erbitux blocks a chemical signal that tells cells to grow; Avastin cuts off blood supply to tumors). True, these antibodies are more expensive to produce than most pills, but only slightly-the technology can be replicated in any college biology lab. Production costs amount to few dollars a dose at most."

I hate to put myself in the position of defending Imclone and Erbitux, but this argument is exaggerated to the point of nonsense. I know what he's trying to say - that making monoclonal antibodies is an established technology - and up to a point, it is. But Bazell makes it sound like a bunch of undergraduates could whip up a batch of Erbitux for fifty bucks or so, and that is, to use a term of the pharmaceutical art, complete bullshit. Antibodies are actually a lot more expensive to produce than small molecules. Getting reproducible purity and performance from them is a completely different problem than with small synthetic molecules, and once made, they're significantly harder to formulate, store, and handle. (That's one reason why Iressa, for example, is cheaper by a factor of ten than Erbitux.)

Here's a challenge for Robert Bazell: Let's pick a random college biology lab or two by riffling through a directory, and see if they could produce a steady supply of GMP-grade doses of Erbitux (or any other antibody therapy). Let's just call them up and ask them! Anyone want to put some money down on the results? Bazell goes on:

". . .Like all pharmaceutical companies, BMS and Genentech cite research costs and the huge risks involved in drug development (many drugs fail; clinical trials are expensive ... but haven't we heard it all?) as explanations for the high prices of their drugs. But the real reason is that market forces do not apply to drugs."

I'm sorry that we're boring him. Unfortunately, those explanations get trotted out over and over again because they're true.

"Few individuals purchase these drugs as they would a head of lettuce, say, or a refrigerator. In the case of cancer drugs, health-insurance companies are the consumers. For those lucky enough to have insurance, their plan might pay; and indeed, oncologists say that, surprisingly, so far few have balked."

Now we're down to that nondiscretionary spending issue. It's a real one, and it applies not just to pharmaceuticals, but to every sort of health care. People value their health very highly, as they should. And it's not that market forces don't apply to drugs, it's that no one seems to want them to. If they did so more directly, insurance companies would indeed start to balk, and drug companies would have to decide if they could lower the prices of their new therapies coming through the research pipeline. And if they couldn't, they would have to decide not to take them through clinical trials at all. We would end up with fewer therapeutic options than we have now.

But a therapy that no one can afford is arguably about the same as no therapy at all, so that's not as much of a tragedy as it sounds. And it's certainly true, as the article goes on to point out, that many of these new cancer treatments aren't as effective as everyone would like. Unfortunately, the only way to find that out was to go ahead and spend the money and time to develop them, and take them all the way through clinical trials and regulatory approval. That's when you find out that your wonder drug isn't as wonderful as you'd hoped. But I'll stop right there; I can hear Robert Bazell starting to yawn. Here he comes again:

"But even the current meager benefit will encourage all cancer patients to seek (these drugs), and those who cannot get them, because they lack health insurance or their plan won't pay, to feel cheated. And a marketplace with absolutely no price control will only propel the drug companies to charge even more for future drugs, some of which may offer even less benefit."

Why, exactly, would we enter the market with something that's demonstrably worse than what's already out there? I know that the industry gets hammered for me-too drugs, but those work at least as well as the existing therapies, and they need some selling point that lets you argue that they're even better. I can testify, from personal experience, that projects get killed all the time in the drug industry because we can't beat the competition, either what's already on the market or in clinical trials. I've helped kill them. This hasn't been as big an issue in oncology, but it does happen, and it's going to be happening more often.

And the answer to all this, presumably, is price controls. Hard to say, since that's where Bazell's article ends, but that seems to be the prescription. I can just imagine what kind of price a group of elected officials will decide what is fair. We'll be tied up, top to bottom. It's not clear to me - it never has been - how forcing companies to earn less money from their drugs will cause them to produce better ones. (Think how much Imclone could charge if Erbitux actually worked better than it does.)

If you want a more detailed take on the cancer drug pricing issue, go back a couple of weeks to Matthew Herper's article in Forbes. It covers the same ground, but in a clearer fashion. Ultimately, I think what's going to happen is that there will be patients who will not get some of these drugs, largely because they won't do very much good - or none at all. If we get past the treat-everyone-with-everything style in oncology, it'll force us in the drug industry to modify our projections of market size, and we'll have to come up with a way to deal with it. Pushback from the insurance companies and physicans is a better check on the drug industry, to my mind, than a Central Office of Pharmaceutical Pricing could ever be.

Comments (28) + TrackBacks (0) | Category: Cancer | Drug Prices

June 17, 2004

You'd Think It Was An Election Year or Something

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Posted by Derek

There are several Canadian drug reimportation bills floating around in the House and Senate, and it's anyone's guess whether one of them will come up for a vote this session. The AARP has just weighed in in favor of S. 2328, sponsored by Bill Dorgan and Olympia Snowe - and if you're an elected official, the AARP is not to be taken lightly. Of course, neither is the drug industry, so we're set up for a fine Godzilla-versus-Rodan spectacle if the bill ever gets to the floor.

You can see the maneuvering going on. In addition to the AARP's statement, the General Accounting Office has released a study where they tried out dozens of online pharmacies. This one can be spun both ways, depending on where you stand: "US, Canadian Web Pharmacies Generally Safe" or "Many Online Drugs Fake, Study Says." Both headlines are accurate, as far as I can see. The GAO was ordering from as far afield as Turkey, which requires (no offense to the Turkish pharmacy distributors in the audience) a bit of a leap of faith.

I continue to think that the drug-safety argument is a long-term loser for the industry, because it's a problem that can be addressed. The Dorgan-Snowe bill has plenty of provisions to do just that, along with some to prevent drug companies from cutting down supplies to non-US pharmacies. The bill can be summarized as: We have ways of making you sell at the prices we like.

But do they have ways of making us discover and market drugs more cheaply? Or is that going to be our department? I realize that we in the drug business need faster, cheaper methods of finding new therapies - but you know, it's not like we lack incentives - green folding ones - to do that already. And we've been throwing substantial sums at those problems, without all that much to show for it. Would price controls have helped us, do you think?

No, the real arguments against reimportation are economic, and if you don't believe me on that one, believe an economist, Alex Tabarrok over at Marginal Revolution:

Price controls or other such plans such as reimportation may bring cheaper pharmaceuticals for a short period but we will then have a much smaller supply of new drugs forever. Only the shortsighted would buy that prescription.

Comments (9) + TrackBacks (0) | Category: Drug Prices

May 5, 2004

Price Hydraulics

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Posted by Derek

Just enough time to point out a rarity: a clear-headed article in the popular press about drug prices. Business Week has it, and it's worth a look. (Thanks to reader and colleague Joe C.) I'm glad to see the author acknowledge that efforts to control prices in one area often make them squirt upwards somewhere else.

Of course, the biggest example of that in drug prices is The Rest of the World versus the US. Holman Jenkins ran an article in the Wall Street Journal last week titled "Why Not Import Drugs From Fantasyland?", in which he, with gritted teeth, proposed the reimportation reducio ad absurdum: just take all US pharmaceuticals, toss them over the border into Canada, and reimport the lot. Ta-daa! Lower prices for everyone!

Mind you, many people would read that and say "Yeah! That's it! Under our noses, all along, the answer at last!" I just hope that there aren't a majority of this type in the Senate. . .

Comments (2) + TrackBacks (0) | Category: Drug Prices

March 23, 2004

Getting the Word Out, For Once

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Posted by Derek

Here comes a fine snapshot of the shape that my industry is in with the public. The Sunday-supplement magazine Parade did a cover story last weekend on medical research, and they commissioned a survey to go along with it. Here's the PDF of the results, obtained in a collaboration with ResearchAmerica, an academic/industrial advocacy group.

One question that particularly caught my eye was "Who do you think pays for most of the medical research done in this country?" 59% answered that the government does (and thus the taxpayers), and 9% said that the pharmaceutical companies do. The Parade article correctly pointed out, though, that industry actually does over half of the research by itself. Looking at that response, I can't help but see the footprint of the idea that I was dealing with here a couple of weeks ago, that NIH does all the drug discovery and we drug companies just swoop down, flap away with the swag in our talons, and feast on the profits.

Another answer that I found grimly enjoyable was to the question "How long do you think it takes, on average, to bring a new drug to market?" 29% of the sample answered 1 to 4 years, and 40% answered 5 to 9. Would that it were so! The record in my experience is just short of 11 years from discovery to regulatory approval. I know it's occasionally done faster, in special cases, but it sure runs slower a lot of the time, too. Makes me wish that they'd asked people to ballpark how much it costs, too. . .

I should note that the responses, overall, were very favorable toward medical research. People want more money spent on it, they support tax and regulatory reforms which would make it easier to perform, and so on. They just have no idea of who does it, or how long it takes.

So, what would it take to get the word out? I can just about sketch out a commercial in my head, just sitting here at home. No smiling senior citizens, no dogs, no athletes or running children. Just something like this:

CLOSEUP of some solution stirring in a round-bottom flask: "John Doe had an idea in his lab for a new medicine. . ."
MONTAGE of white-coated researchers pouring, pipetting, wheeling carts, etc.: ". . .and for once, this one seemed to work. His company got interested, and they made more of it. . .
PAN past a pilot-plant reactor sluicing out product: ". . .a lot more. His compound was tested over and over. Tested for how well it could treat its disease, tested for safety a dozen different ways to see if it could really be a drug. . ."
DISSOLVE to a physician dispensing a service formulation to a volunteer: ". . .and for the first time in John's career, something he invented made it all the way into patients."
TIME-LAPSE DISSOLVES of roomfuls of people fading in and out: "Then the real work started. Small groups of people, then hundreds, then thousands tried his compound in different ways, at different doses. It took years, and it took hundreds of millions of dollars. . ."
CLOSEUP of a pill rattling out of a container in slow-motion: ". . .to find out - that this wasn't going to be the one. Not quite."
DISSOLVE to head shot of researcher slowly flashing wry, determined smile: ". . .but John was still in his lab. Still working. And one day he had an idea. . ."
SUPERIMPOSE a closeup of another solution stirring in a flask, and fade to lettering: America's Pharmaceutical Companies: Where the Drugs Come From. "America's Pharmaceutical Companies. We'll never stop. We promise."

OK, I'm a professional chemist, not a professional PR man. But tell me, would an ad like that really do a worse job of informing people than the stuff we're already doing?

Comments (0) | Category: Drug Prices | Why Everyone Loves Us

March 4, 2004

Welding the Steering Wheel

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Posted by Derek

Steve Postrel of SMU sent along an interesting comment (which he mentions he hasn't fully worked through), one which takes us right back to drug pricing. Yep, to the cheers of some readers and the winces of others. He believes that my reply in the Feb. 22 "Reimportation's Just the Beginning" post doesn't quite add up:

Your correspondent argued that if the US Congress 1) forbade pharmas from price discriminating and 2) defended pharma IP against Canadian infringement then the Canadian government(s) would find themselves paying a higher price and American prices would be slightly lower. You disagreed, on the grounds that:

"The situation in Canada is: would you rather make a little off your drug up there, or make nothing at all? Companies choose the former - there's no way out. Duane's right that in a more rational situation, the balance between the need for profit and the need for the drug would allow things to reach some sort of equilibrium, but I'm not sure that the warm, windless political conditions needed for that state are ever going to exist."

This argument is incorrect given the reader's premise. If price discrimination were illegal, then the pharma's incentives would be transformed--it would have to set ONE price for both countries. Since Canada is so much smaller than the US, the marginal revenue from lowering the price to grab additional Canadian customers would quickly be more than cancelled by the lost revenue due to Americans paying lower prices. Result: The single drug price for both countries is a little bit lower than the old US price if the Canadians are willing to bargain, and the same as the old US price if the Canadians are not willing to bargain (they simply don't get access to these drugs).

The pharmas gain incremental revenue in the first case and lose incremental revenue in the second case. By prohibiting price discrimination, the US would be improving the pharma's bargaining position vs. Canada by credibly committing them not to cut a special deal. It's like visibly welding your steering wheel in a game of Chicken. The only variable here is whether the Canadian authorities would feel politically safe in just refusing their citizens access to new US drugs.

He's right that I didn't fully take in the premise from Duane's original letter, that price discrimination would be made illegal. I've had a couple of other readers suggest something like this, too. I guess my brain refused to process that one, since (from my prespective) right now we're living in a world where price discrimination has been made mandatory (by the countries getting the cheaper end.) It's quite a stretch. But once past that, I think that this argument follows. In an open market, I think that Canadian (and European) prices would come up, and US prices would come down. Steve goes on to say:

There is the potential for a loss of social welfare here, since some transactions benefitting both parties may not happen under the no-price-discrimination policy (if the Canadians are intransigent). This problem is even more severe in poorer countries where prices now are low not because of government bargaining tactics but because of low incomes. Forcing one price for Boston and Benin is going to eliminate transactions in Benin that mutually benefit the pharma and the Beninese patient.

Yeah, that's the flip side of price discrimination, all right. One of my correspondents in the industry once wrote me that we were heading for a world with two kinds of customers, those who won't pay and those who can't. Obviously you'd have to treat those two groups differently. Postrel's suggestion:

Ideally, then, I'd support a policy that made it illegal to price discriminate between Canada and the US, but legal between the US and Mexico or the US and Benin, and that cracked down on reimportation from the latter nations only. The Canadians aren't that poor; they're just using their collective-purchase mechanism to screw the US consumer (and taxpayer) by not paying as much of the research cost of drugs. The same goes for the rest of the OECD. It's time to weld the steering wheel.

I like this idea, as you'd figure. Practical difficulties exist - for example, there's already a problem with the discounted HIV medications going to sub-Saharan Africa. They're being diverted to the grey market in some cases. The incentive to do that will always exist, naturally, as long as there are multiple pricing tiers. But here's a bigger question: would such outlawing of price discrimination be enforcable under US law? And would it be acceptable under the WTO?

Comments (0) | Category: Drug Prices

February 29, 2004

More From the Me-Too Front

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Posted by Derek

Some interesting mail has come in after last week's post on comparative clinical trials. Reader C.B. that I spoke about here some time ago, but should have raised again:

"It seems to me that something else is being left out: not all patients respond the same way to any particular drug. . . Suppose that drugs X and Y are equally efficacious when given to the appropriate patient, but the population more responsive to X is smaller than that benefiting from Y. A simple comparative trial would suggest that Y was more effective because it assumes a single type of patient. On the basis of the results, people who should get X would only be allowed Y. . ."

It's true, there are a number of cases like this, and this is one of the traditional arguments for multiple drugs in a given class. I've made it myself. Given the state of the art, it's nearly impossible to untangle these things. In almost all cases, we have no idea why some people respond better to a particular therapy; it's trial and error. Clinically, these things are bottomless pits, so I think that comparative trials are going to be most useful in areas where a large number of patients respond to both drugs under study.

But we're in the process of inventing ourselves out of this situation. That's why all that money is being poured into pharmacogenomics - and quite rightly, although the end result is that many drugs are going to have their potential market size whacked into a rather more compact shape. The great thing about pharmacogenomics is that we're finally going to know who should take our latest drug, and we'll be able to find them and sell it to them. The terrifying thing, from the marketing standpoint, is that we're simultaneously going to find another group of patients, a potentially larger group with the same disease, who will never take that drug at all. It's going to be a better world, but one in which some business models (cancer therapy!) are going to have to change.

And in a similar vein, reader R. D. writes:

"I have yet to see someone make a rational case for why me-toos are bad. At most, the argument seems to be that if pharma would just stop spending all its time coming up with me-toos, we could get around to curing cancer and parkinsons and stuff. I think that's bunk. You and I both know that any pharma that could come up with cures for things like cancer or parkinsons could start their own mint. The reason they haven't is because it's HARD, not because they prefer to make less money by painting their old pills purple and trying to convince everyone that they're new and improved."

Purple? What on earth can you be talking about? No, the argument he's talking about is one that (in this form) I don't have too much time for, either. The me-too drugs are there to keep the coffers full to pay for the research that doesn't work out, and to tide companies over the dry spells. I can see the objections to the areas where there are six and eight therapies all piled up on top of each other (for example, does the world really need Crestor?) But if Crestor makes money, some of that's going to pay for something new.

And the reason for that touches on another favorite whipping boy: marketing and promotion costs. Keep in mind the inverse relationships between advertising costs, novelty, and the chances of success. A new drug that does something no one's ever seen for a major disease previously thought untreatable - isn't that what makes everyone happy? How much, comparatively, would have to be spent to market such a therapy? There's no competition - it would sell itself! But what are the chances that any of us are going to find and develop such a wonder?

(OK, some of you are saying "Viagra! First on the market, first in the category, promotion out the wazoo!" But keep in mind: no one was sure that men would actually go to their doctor and admit their symptoms - thus the advertising blitz. And Prizer knew, with all the other companies working on PDE subtypes, that competition would be coming soon. They needed all the brand recognition that they could buy.)

Meanwhile, contrast a first-ever wonder drug with, say, the umpteenth statin. It's a crowded field, and you have to spend like crazy to make headway. The thing was a bit lower-risk to develop, since you knew that the rationale was there. But your cost-of-sales figures are going to be uglier, and nothing's ever going to help them.

My point is that a company needs both of these kinds of drugs. You can't hope to live only on the first kind, because they happen so seldom and so unpredictably. And no one's trying to live only on the second kind, either, because you've traded higher costs their for relative security. Everybody developing one of the first class wishes they had some of the second to tide them over. And everyone with drugs in the second class is looking for one from the first.

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February 26, 2004

Putting A Price on Proving It

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Posted by Derek

I've already had some reader mail (see here) about this article in today's New York Times. It starts out looking like a real pharma-bashing exercise. Up to a point, it is - and up to a point, it's deserved, too. But in the end it's a more subtle piece, not that you'd guess that from the opening paragraphs. (I have my own solution to the problem the article raises, and it will bring joy to no one. Read on.)

The issue is comparability of drugs, especially drugs with the same broad mechanism of action. Look at all the statins or antiinflammatories on the market: is there one that's better than the others? Of course, if you listen to the companies that make them and promote them, the answer is clear. Their product is best! But, as in any other industry, that's not the most reliable guide.

The article uses the example of two marketed forms of the protein erythropoetin, one from Amgen, and one from Johnson and Johnson. J&J's product is about one-third the cost of Amgen's. Is there any reason to pay for the more expensive option? Medicare has asked the National Cancer Institute to run a study to answer that question, but (as the Times points out early and often) there is a provision in the latest Medicare legislation that keeps the program from even using such evidence of functional equivalance in its payment decisions. As you'd imagine, Amgen is arguing that this provision makes the planned Medicare/NCI comparison study a moot point. Why compare?

This would seem like an easy call: the drug companies are slamming the door on something that might cut into profits. Hey, I work here, and I'm sure that that was the motivation, too. But I should add the standard comparisons to other industries at this point, though, and note that car makers are not required to prove that their latest models actually work better than the older ones, or better than the competition's. Nikon doesn't have to run head-to-head trials with Canon, nor Gateway with Dell.

I like those examples, but I realize that there are some other considerations. For one thing, we're talking about public funds here, right? Partly, yes, although the managed-care corporations have a big interest in this, too. I'd add that the government spends a lot of money on goods and services that are not required to be comparison tested (but are selected on the basis of lowest bid.) We'll get back to that topic in a couple of paragraphs. The other big factor is that my car and computer comparisons are discretionary purchases. Health care is treated differently. It's an emotional issue, a life-and-death issue, and it's always going to be held to a different standard than other businesses.

So, let's test! But as the article makes clear, it's not as easy to test these things as you'd think:

. . .Rarely are such studies able to answer all the most important questions. The National Cancer Institute has been mulling the appropriate design for the Aranesp-Procrit trial for nearly two years and will probably need another year before starting the test. . . In the end, more than one trial may be needed, Dr. Feigal (of NCI) said.

Dr. Feigal declined to estimate the cost or size of the eventual trial or trials, but similar tests have cost millions of dollars. Indeed, for comparative trials to be the size needed to measure true differences between drugs, they generally need to be large, lengthy and expensive.

Indeed they do. The article goes on to talk about the hypertension drug comparison study that got such play in the media a few months ago - not least from the New York Times itself. It hasn't settled the question, though. There are still real doubts about which therapy is most effective (for one thing, because patients in the study didn't take more than one type of drug, although in the real world this is a common mode of treatment.) This was a huge study already, and adding arms to assess combination therapies would have bulked it up considerably.

Still, I'm in favor of doing some head-to-head tests, because I think that there are several therapies out there that don't offer much for their price. (I'm looking at you, Nexium!) Here's my proposal - and yes, I'm going to go ahead and treat the drug industry unlike any other. If a company wants to bring out a me-too therapy, it will be required to show evidence of whatever factor differentiates it from the existing agents. The company gets to choose the battlefield: more efficacy? Quicker onset? Fewer follow-up visits to the doctor? Whatever. Pick a reason you're going to promote the drug, and come up with data to back it up. I think we'd end up with fewer me-toos on the market, but we'd lose fewer of them than many critics might think. Many times, drugs that look the same can indeed act differently. Admittedly, it would take some careful clinical work to bring some of the differences out, though.

This change would require a major shift at the FDA. For existing therapeutic modes, you'd need to switch at some point from placebo-controlled trials to competition-controlled trials. Perhaps you could run an initial test-the-water placebo control (after all, these are drugs that have a high chance of working), and from then on you run versus the competition. There are complications - which competitor, for example. But it's possible to do, and it's an idea that has been talked about for a long time.

And who's going to pay for all this? Well, you are (if you're a patient, that is.) Believe me, we're going to pass those costs on, and pronto. Raise the regulatory barrier, pay more money: it's a law of nature. And the lost revenue from the me-too drugs, which have higher chances of success (but still aren't sure things!) will be passed on, too. I think that there are still savings to be realized here - but they're not going to be as big as they seem.

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February 23, 2004

One Of Us Is Hallucinating

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Posted by Derek

I've been involved in the comments section of another blog, a discussion of pharmaceutical prices which took off from the posts over here. Things have taken a turn that I didn't expect, so I thought I'd run it past the readers of this site. There's a specific misapprehension that I'm running into, one that I've never quite seen before. Am I right to be puzzled? Read on.

Things got underway when the blogger Prometheus 6 picked up a link to my recent drug and research cost pieces from Sebastian Holsclaw's site. (There are a number of comments over there, which are rather easier to deal with than the ones we're coming to.) P6 started off with a blast at the concept of using imputed interest rates to calculate drug costs. We both reference Marginal Revolution on that one, but he's not buying it.

The discussion then split up into a couple of issues. The first was the whole imputed interest / opportunity cost issue, which ended up in another post. Sebastian Holsclaw reappeared to take P6 to task in the comments section, but I don't think that anyone is going to convince anyone else on this issue. This part is worth reading if you want to see some of the difficulties people can have when discussing economics (no doubt my fellow Corantean Arnold Kling gets this kind of thing all the time.)

The other issue arose from P6's final contention in that initial post above. He finished up his take on research costs by saying that "Most of the money spent was federal money." That, as you can imagine, set me off pretty quickly in his comments section. Here's some of what I wrote:

"As for your second question, there are a lot of people claiming that most new drugs are really straight from the NIH, or some such. This is not true. Even if you get an idea for a drug target right out of a paper in the Journal of Biological Chemistry, from an academic lab funded 100% by government grants. . .even then, you're still looking at, on average, that 800 million dollar figure to find a drug and develop it. The amount spent in grant money pales, imputed interest rate and all.

To pick a recent example, the University of Rochester did not develop a COX-2 inhibitor, although they discovered the COX-2 enzyme. Drug companies did - and a majority of companies that tried to make one failed, and all the money they spent to do it is gone.

Academic labs rarely, if ever, come up with a compound that is ready to go to clinical trials. They're doing academic research, as they should: broad fundamental studies that point the direction you should go in to spend your 800 million.

When a drug company does the fundamental research part as well, the costs are even higher."

This spilled over into yet another post, and here's where I've come to realize that I'm not making any headway. P6 seems to believe that most pharmaceuticals should be in the public domain, unless every single bit of every idea along the way was generated inside a drug company. Here's some of his take:

"Let corporations have process patents on the ways they've developed to mass produce the drug, but if it was developed in government funded research the drug itself should be in the public domain."

"My reasoning is, the risk pharmaceutical companies undertake is in creating the processes whereby the drug is produced, packaged and distributed safely (I include testing in this). They are entitled to a process patent. But in most cases the company neither discovered the compound nor ascertained its primary effects."

What's happening here, I thought, is that he's assuming that academic labs produce drugs. And drug companies, it seems, just test them some more and find ways to manufacture them. What a life we'd lead then! So off I went again, in his comments section:

"Unfortunately, you are wrong. In the huge majority of cases (well over 95%, off the top of my head), the compound was discovered by the drug company. Academic labs do not, as a rule, discover drugs. They are not in that business. They discover biological pathways, new behaviors of known proteins, interesting biochemical regulatory mechanisms. Interesting stuff, valuable stuff. But they do not discover drugs. I can think of almost no exceptions. . .

That's how we can patent the compounds, you know. If anyone else has made a compound before and described it in any way, we cannot own the chemical matter by a patent. And we will almost never go ahead with a project unless we're absolutely sure that we own the chemical matter.

Whoever told you otherwise is gravely misinformed. You would do your source a favor by correcting them."

P6's most recent reply to all this begins:

"Sadly, I have no source. I just know what is done in academic research and give it more weight than you."

Well, we can finally agree on something: that's sad, all right. My first impulse was to have him show me some of this academic research that lead right to a new drug, but I wanted to take this over to my readers first, for either irritation or entertainment value as the case may be. As I mentioned, I haven't come across this delusion - that drug companies don't actually discover drugs - at quite this level of virulence before. Is this something widespread? And if it is, how did we in the industry let things get to this state?

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February 22, 2004

Reimportation's Just the Beginning

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Posted by Derek

Here are some interesting points raised by reader Duane Oyen, from e-mail and quoted by permission

"I think that any reimportation scheme has to be done on the basis (honest basis, not demagogic political windbaggery, which is where it usually ends up) of free trade- thus causing ME to "get to" YOU- because of the need to eliminate the egregious price discrimination that currently exists. The safety argument, as you state, is a legitimate reason to be cautious, not forbidding. Thus Canada is the perfect guinea pig- even citing NAFTA as the rationale. If a drug company sees that the Canadians are playing price control games with their product, they should be perfectly free to leave that market without having their patents violated, and the US should enforce the IP.

Eventually, the loss of market volume by the company, and the loss of treatment efficacy by the country, will cause the transaction prices to float to a more appropriate level. The ultimate price movements in smaller markets such as Canada will be less significant, as well as relatively slow, giving the lie to those politicians (leftist inheritance limo lib Mark Dayton, bawl your office) who claim that reimportation is a panacea for rising medical costs."

The situation in Canada is: would you rather make a little off your drug up there, or make nothing at all? Companies choose the former - there's no way out. Duane's right that in a more rational situation, the balance between the need for profit and the need for the drug would allow things to reach some sort of equilibrium, but I'm not sure that the warm, windless political conditions needed for that state are ever going to exist.

He goes on to say, in a discussion of what the future of drug pricing holds, that:

"I simply do not see a collapse in drug R&D and discovery. I see relatively significant changes in the business models, but they are already occurring regardless, as more and more of the sclerotic behemoths look to entrepreneurial startups and university spinoffs to feed their pipelines, and drug treatment follows network broadcasting into "narrow-casting". If market changes were established that reduced the ability to internationally price-discriminate, we should do three other things at the same time- a) make adjustments to patent laws (Forbes has made some good suggestions on this over the past couple of years); b) change the NDA process to reduce qualification costs and share risk more fairly (which means that ATLA attorneys have to be reined in a bit); and c) strengthen orphan drug incentives; perhaps even encourage more industry participation in NIH grants."

These are good points. I don't think, though, that there are enough startups and university ideas to keep everyone's pipeline alive - at least, not yet. The in-licensing game is very competitive, and has been for some years now. But he's right that changes in patent law and regulatory approval are basically going to have to take place eventually, and it's time that we starting thinking about what these should be. The idea of strengthening orphan drug-type incentives is floating around in several places, too. This week I'll be talking about a paper that's just appeared that argues for some changes like this in detail.

In coming years, we could be moving to different ways to reward drug discovery other than patent exclusivity and pricing power. It'll be a rough transition, too. The industry had better starting thinking about these issues seriously, or we're going to be dragged, biting and clawing, in directions not of our own choosing.

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February 15, 2004

Drug Prices and Costs - From the Mail

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Posted by Derek

Here are some of the responses to the recent posts on drug prices and research costs. First off, from Dave S.:

"I'm a skeptic on the idea that the proceeds from the temporary legal monopoly represented by a patent is, in fact, used by pharmaceutical companies to finance R&D. Yes, I know it stands to reason and it's the prevailing wisdom, but is it true? One way to investigate this would be to see how the companies themselves view R&D. This, in turn, may be determined by how real R&D expenditures vary with real revenue. If, as real revenue rises, R&D expenditures rise either proportionally or faster, it would be a reasonable conclusion that patents do support R&D. If, however, R&D expenditures grow more slowly than revenues or not at all, it would be equally reasonable to conclude that the prevailing wisdom is wrong and that patents do not in fact support R&D but just raise profits, which nice as it is for the companies involved is not the constitutional purpose of a patent."

Interesting point. I'll see if I can round up some figures, but I'm not sure how good they'll be. Like any other industry, pharma companies do all tricks with earnings statements that they possibly can, in order to tell Wall St. a coherent story. And there's also the tendency to think, as the money comes in, that "Hey, we don't need to increase research that much. Look how well we're doing with what we have!" Conversely, on the way back down, as revenues fall, R&D isn't always the first thing to get cut. By that time, it's clear that the only thing that will save the situation is for some new profitable breakthrough to emerge from the labs. But let's see what the numbers say.

There have been several letters along the lines of this one, from Mark S.:

"What I find baffling is that no one is pointing out who the enemies really are. Americans are subsidizing the world. Subsidizing AIDS drugs in Africa may be defensible, but subsidizing cholesterol drugs in Europe isn't. I'd like to see some information about what would happen to American drug costs if Europe (and Canada) were just cut off. Obviously some money is getting into pharma coffers, the question is how much? What sort of profits are European Pharmas making in America vs Europe (i.e. are they extorting Americans, too)?"

Well, the larger European companies depend on revenue from American sales, too, I can assure you of that. As for cutting off the European market, it would be a difficult, although intruiging, thing to calculate. I don't know of any company that publicly breaks down cost-of-sales for the two markets, though (although I'm sure that these figures are worked out internally.) Marks' suggestion:

"While not a big fan of regulation, I think it would be fair to regulate drug prices in America this way: The cost to Americans is the lowest cost negotiated with any other country. It doesn't cap drug costs, it just evens them out. Drugs could cost anything, but everyone would be paying the same amount for the same product. Pharmas are free not to sell to any country if doing so would lower the US price. They are also free to negotiate different prices for different countries, the US would always match the lowest."

I think that this would fall victim to a sort of Gresham's Law - bad prices would drive out the good. Countries with national health plans already can use their muscle to negotiate prices that couldn't be sustained across the worldwide market - "You want to make a tiny amount of money here, or nothing at all?" As long as the US runs a different sort of market, things wouldn't mesh too well. Here's an approach to that problem, from reader Clark H:

"If the US, the last of the free markets, ever starts allowing reimports or does "National Bargaining", I would suggest that the Drug Companies start the bargaining BEFORE they have finished their R&D. When they still have leverage. The problem with any product with a large up-front cost and relatively small operating costs is that it is at a huge disadvantage bargaining with a small number of customers after all the costs are "sunk". The customer knows the hand of the supplier. The supplier can't walk away because any positive cash flow is a good thing at that point. The drug companies should get to phase 2, when they know roughly what to expect (after all they are designing the phase 3 endpoints), and then bargain. If the countries aren't willing to pay an adequate rate, they walk away having spent only the cost that would otherwise have been spent. Not a perfect solution, but. . ."

I think that there's something to this, although the Phase III failures would throw a wrench into the works. Of course, that's what they do now, actually. I wonder, though, if what would happen under this plan is that countries would just apply a standard calculation for what they thought the Phase III trials and regulatory approvals would cost, which would take things right back to the "already knowing the hand of the supplier" stage.

Well, the mail on this topic doesn't show much sign of letting up, so we'll keep it open and revisit it in a few days. Brainstorms appreciated.

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February 12, 2004

More on Prices, High and Otherwise

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Posted by Derek

The key questions raised in the e-mail I quoted in the last post are: is it fair to fund drug research through high prices on drugs? And especially, is it fair to do so by raising prices on individual drugs, rather than across the board?

My answer to the first question, as you'd guess, is "yeah boy!" I have some disagreements with the assumptions that Nick H. is making. For one thing, the money spent on research isn't necessarily an "investment cost" in the way that some might think of it. Now, overall, it's true that we expect a return on research money, so you could classify the whole think as an investment that way. But research (unlike, say, bonds) involves a lot of sunk costs. Once spent, they can't be recovered or converted back to cash. The investment equivalent is a stock that goes to zero. A drug company's "investment portfolio" consists of a bunch of Webvans and the occasional Microsoft.

But that analogy isn't quite right, either, because it gives too much credit to the individual drugs. Microsoft can, by its own actions, try to preserve its profits indefinitely (and boy, don't they ever.) But every drug is a wasting asset, essentially. The key difference is intellectual property. A drug's patent will always expire after a few years, although companies will try every contortion they can think of to delay the day. The longer the R&D&A (A for approval!) process takes, the shorter the lifetime left on the patent. It is very common, and has been for some years now, that a drug chews up more than half of its patent life before it ever makes it to market. So every drug is born onto the market from a deep pit of sunk costs, and has a relatively short time to make them up (and pay everyone's salaries, and fund the current research projects, some of which had better pay off to keep the whole thing going.)

On to the second question. I think that Nick's main objection is that prices get raised on individual drugs, rather than across the board. His point can be illustrated by Abbott's price hike on Norvir, a drug that has (from their perspective) been underperforming. If Abbott needs more money, why should only the HIV patients pay up? (I know, they've assured Medicaid, etc., that the price hike doesn't apply to them - but some HIV patients or their health care providers are going to pay more, though. Otherwise, why raise the price? Unless it's just to make Norvir more expensive for the competition, which is one possibility that can't be shaken off.)

One answer - not the best one- would be to turn the question around: why should someone who takes one of Abbott's other drugs have to pay for the problems they've having with Norvir? This argument doesn't hold up too well, though - after all, we pass on the research costs of the whole drug portfolio to everyone. Why not pass on the sales shortfalls?

Well, in a larger sense, we do. But I'd say that companies - and not just drug companies - raise prices where they think that they can, when they think they can. A company may decide that it's feasible to raise prices in one market, and not another. To use Nick's supermarket analogy from the previous post, should we require all the products in a supermarket to have the same profit margin? I would actually expect a supermarket to raise its profits by increasing prices on the items it thought would be most likely to bring in the most increased revenue. (That probably wouldn't be the bread and flour, though.)

This is what the marketing types call "pricing power," and it varies a lot. A drug company has quite a bit of it, during that time its drug are patent protected. Countering that, of course, is the negotiating clout of Medicare, HMOs, and other bulk purchasers. That's the general tug-of-war of the market (making some allowances for Medicare.) Really countering a company's pricing power, outside the US, is the governmental price-setting ability of national health plans. That's where the market mechanism is breaking down, to my eyes. Many people see intellectual property laws as a thumb on the scale in favor of the drug companies. But at least patent protection goes away.

(There's a lot of interesting e-mail coming in on this subject, and I'll bring up some of the points people raise in another post. I should mention that Nick, the person who starting this topic off, has a blog of his own, too.)

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February 11, 2004

The Contact Sport of Cost Accounting

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Posted by Derek

I have just enough time to post an interesting e-mail, from Nick H. in the Netherlands, responding to the links I posted the other day about research costs.

"I agree that accountants calculate costs in the way described, but accountants do a lot of accounting in ways which aren't always quite fair to all stakeholders. I have to disagree that all research costs should necessarily be paid fully by the buyer(s) of a limited number of products. The money spent during research/on research could also be seen as an investment cost. It is quite normal to defray part of investments by increasing the price of product X, it is just as normal to defray part of those costs in other ways (e.g. lower dividends, accepting lower profits or by raising the costs of all products to a lower extent). Saying this is the only (fair/possible) way to do things just isn't cutting it.

. . .the real argument which we can find buried way back in the mists of time is why a limited number of customers should pay for all costs incurred for no other reason than to increase business returns as well as increasing those returns. If your supermarket puts up a new building you'd be well miffed if they raised the price of ONLY the bread and flour to defray the building costs. Especially if the raised it to the extent needed to pay back all of the building costs within 10 years. It would be seen as unfair and wrong by pretty much everyone anywhere that this supermarket would hold just this limited (local) part of the population at ransom by suddenly raising the price of an essential condiment by a large margin in order to pay for what ultimately is mainly to the benefit of the supermarket itself. I hope you agree that there is a grain of reason in the madness of suggesting that costs should be divided more evenly over the various stakeholders."

I don't agree with all his points, but I thought I'd put them out there to stimulate debate. I'll post my response to these tomorrow. The phrases "intellectual property" and "sunk costs" will appear prominently.

(I should mention that my post-a-day schedule will probably be hitting a few potholes over the next few weeks. I'll keep the content flowing (I like doing it!), but there will be weeks when only three or four new posts appear.)

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February 8, 2004

Darn Those R&D Costs, Anyway

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Posted by Derek

I wanted to pass along a couple of recent articles that address drug pricing and research costs. It's a subject that attracts nonsense like a cloud of gnats; every so often you have to shoo them off. Here's a fine post from Alex Tabarrok at Marginal Revolution:

In 2003, Joseph DiMasi, Ronald Hansen, and Henry Grabowski published an important paper in the highly-regarded Journal of Health Economics that estimated that the average cost of developing a new drug was around $805 million dollars. Hal Pawluk at Blog Critics repeats some nonsense from Public Citizen to claim that high research costs for pharmaceuticals are a myth and that this paper in particular is part of a conspiracy of pharmaceutical companies to raise prices. Frankly, the comments of the critics are laughable but not everyone sees the joke so I will explain. . .

And his explanation is a good one, right on target. I can speak from experience that this is exactly the way that costs are calculated in the industry, and quite rightly. Check it out and see what you think.

I can also strongly recommend this column from the Wall Street Journal's Holman Jenkins. It's a broadside against the dime-store populism that's turning up in Presdential campaign speeches. Here's a sample:

If this column sounds like one four years ago, that's because Democrats are running against their usual list of "enemy" industries. The party's standard trope is that you're being denied things you need and deserve because enemies are keeping them from you, cheap drugs being today's case in point.

Let's make sense of the industry once more for a Democratic presidential cadre now reaching a high pitch of populist dudgeon. There's a reason analysts, investors and pharmaceutical reps talk about a "pipeline." In one end goes a bunch of money, and out comes a dribble of products years later. The metaphor is also useful in understanding drug pricing. Whatever comes out the end, whether it's nose drops or a chemotherapy drug, is priced at whatever level will allow its maximum contribution to recouping all the money that went into the front end of the pipe.

Just so. It's one of those darn businesses, which, As Is Well Known, are invariably run as a conspiracy against the little guy. (The huge population that actually works for these operations are, by definition, not little guys, it seems. Not after they issue you your Monopoly-man top hat along with your employee ID card.)

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January 29, 2004

From Each According To Their Creativity, To Each According To Their Difficulty?

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Posted by Derek

Alex Tabarrok over at Marginal Revolution is proposing an interesting idea: He's suggesting that the lifetime of a patent be adjusted for the R&D costs that went into the ideas behind it. Things that took little effort would have a short term until expiration, while those who went through expensive slogs would have a better chance to recoup costs.

That's an idea that had never occurred to me, by which you can tell that I'm not an economist. And I can see the appeal - but I can also see the potential for abuse. For a while in graduate school, I shared an apartment with a fairly doctrinaire libertarian. We had quite a few discussions, as you can imagine, but I found that they often fell into the same low-energy state. He would point out the benefits of some scheme, and I would agree in the abstract. But I'd then imagine how it would have worked out in the northeast Arkansas county I'd grown up in. Theory and practice tended, in my view, to diverge.

As I think they would here, too. What I think this would do is create a powerful incentive to hocus one's R&D figures. In the drug industry, each extra year of patent protection can well be worth hundreds of millions of dollars in revenue, which is an incentive indeed (with hot fudge and extra sprinkles on it.) It's not like our drugs come cheaply to us now, but I can see that for an anticipated blockbuster, ways would be found to ensure that the patent racked up the longest possible life. You already see that happening at the back end of patent terms, as the constant battles with generic companies illustrate. Every possible reason is trotted out for why a given patent is invalid, and every possible means to preserve or extend the patent's term is invoked in response.

Frankly, we have enough trouble working out how much things cost in this industry already. I mean, we can see how much money we're spending, but assigning specific amounts to specific projects is harder than it looks. The number of people working on a project fluctuates constantly, for example, and many of them have other simultaneous responsibilities. Many supplies are bought in bulk and shared between projects, and all the analytical work is done on large capital-budget machines that are used constantly for everything. I've seen all sort of schemes to track costs by project, but all of them have a voodoo component.

Another problem is that the big money-making drug is only one part of a large patent, which would typically exemplify dozens or hundreds of separate compounds. Naturally enough, some of these took a lot more effort to discover, make, and test than others. If keeping track of costs per project is tough, costing things out by compound would be insane. Then there's the problem of multiple patents protecting the same drug. You'll see a composition of matter patent, a method-of-medical-treatment patent, several patents on specific formulations. . .when a generic company comes after you, these things are used as firewalls and are fought out as separate issues. And these would all have different R&D cost structures, although I've no idea how you'd figure some of them out, and thus presumably different patent lifetimes.

No, I think that passage of such a law would turn out to be the Cost Accountant and Patent Lawyer Full Employment Act of 200x. As I said, I can see the theoretical appeal. But in practice, I think that this attempt to reward the costs of innovation would only create more expensive makework, none of which would have anything to do with research itself. We've got too steady a supply of such as it is.

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January 14, 2004

The Pricing Weapon

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Posted by Derek

I've been meaning to get around to the subject of Abbott's HIV protease inhibitor, Norvir (ritonavir.) Actually, the subject I've really need to get around to is its price, which in December went up by about a factor of four. That's a pretty steep move for something that's been on the market for seven years, isn't it?

Norvir is a protease inhibitor, one of many these days. It was a front-line therapy when it came out, but now it's settled into an unusual role as a supporting player. When added into other "cocktail" treatment regimens for HIV, Norvir seems to make everything more potent. There's no voodoo involved here, actually. Norvir turns out to be a good inhibitor of one of the liver enzymes (CYP3A) that is responsible for metabolizing many other medications.

That effect is enough to stop development of some drugs, to tell you the truth. No one is going to take something for a lesser illness that's a CYP3A inhibitor, because it'll make the blood levels of so many other drugs go haywire. But for HIV, especially when Norvir first came out, all sorts of side effects were tolerated. And over the years, the liver enzyme inhibition has turned from a bug into a feature. (It's still something to look out for, though, if a patient taking Norvir also takes things like sidenafil (Viagra) or a statin - see this PDF for details.)

But there's a side effect of the side effect. Norvir's taken at lower doses than other anti-HIV drugs, because it's only partially being given for its intrinsic protease inhibition. Back in 1996, as a stand-alone therapy, it was given at 1200 mg/day, which cost about $20. Today, as an adjunct to other therapies, it's given at about 100 mg/day, with a corresponding decrease in Abbott's financial expectations.

Thus the price hike, or so one has to figure. Abbott has said that the new price "better reflects the current market value of Norvir," and they point out that newer therapies run in the $20/day range, while Norvir, even at the new price, will be $8.57/day, at a 100 mg dose. Of course, that would make the original 1200 mg/day dose pricey indeed, but you don't see Abbott mentioning that. (Here's their letter to physicians (PDF) on the issue.)

Companies can charge what they want to for their products, or at least they should be able to. So Abbott is completely within its rights to raise their price to try to recoup some of what they originally thought Norvir might bring in, although you wonder if the bad press doesn't cancel that out a bit. But there's another explanation that looks even less appealing: Abbott has a more recent combination HIV therapy (Kaletra) that has Norvir as one of its components.

The new Norvir price now makes other combination therapies more expensive than Abbott's own Kaletra. So in their way, they may well be trying to compete on price here, but by raising the price of their competition rather than lowering their own. That's a rough way to do business, but given the state the drug industry's in, it wouldn't surprise me if that's exactly the plan. Profits are where you find them. I'm sure that Abbott's competitors have already made up their minds about what's going on.

So, is it right to do this sort of thing? This is where arguments about drug prices diverge from arguments about, say, the price of pearls, chocolate chip cookies, or ski equipment. There's an unavoidable moral aspect that comes into the discussion when you're talking about patients with a deadly disease. It wouldn't be nearly as big an issue if Pfizer, say, racked up the price of something that hypothetically made Viagra work better. But HIV's different.

On the purely pragmatic plane, I realize that I just said up there that I think that companies should be able to charge what they want to charge. I'll stick to that, but that doesn't mean that it's always a good idea for them to go ahead and do it. Abbott needs to realize that its actions look - no matter how strenuously they deny it - like an attempt to body-check its competition by making everything more expensive. And they need to realize that we pharmaceutical companies might not have the pricing power that we once did. If we keep doing this kind of thing, we're going to end up with no pricing power at all, and people will be clapping and cheering while we all tip over into the trash. Think about it, guys.

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January 7, 2004

Good Sense Wins a Round

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Posted by Derek

Regular readers will know that I often rant about pharmaceutical price controls. The issue of Canadian drug reimportation is what usually sets me off, but that's far from the only border where pharmaceuticals can be profitably arbitraged. Take the countries of the EU, for example. There's no central EU health plan (not yet, anyway - can you imagine what an empire-sized bureaucracy that would be?) Each country's national health plan negotiates its own price. And some of them are indeed lower than others (Spain, for example.)

So, what happens is just what you'd expect would happen. People try to buy in the cheap places and sell in the more expensive ones, which activity has probably been going on since the goods involved were spear points and mastadon tusks. The middlemen are happy; the drug companies aren't. The only way they've been able to do anything about it is to try to restrict the amount of wholesale stock that makes it to the lower-priced markets, which is the same thing that we now see happening here with the Canadian pharmacies.

Bayer got dragged into court a few years ago for doing just that, and they lost their case on antitrust grounds. Fines ensued, and Bayer appealed to a higher court, which ruled in their favor in 2000. But another appeal went through to the European Court of Justice, which has just ruled in Bayer's favor again, to the delight of the pharma industry. Bayer's comment was particularly pithy: they expressed relief that they "are under no obligation to supply the entire European market from the member state with the lowest state-regulated prices." Just so.

It's not not just the pharma industry that applauded this news - car prices are just as out of whack across Europe, for example, and the same sort of games are played. As you'd expect, I agree with the court's decision, too. I'd much rather live in a world without price controls at all, but if we're going to let governments restrict the price of goods, then I think we should give the producers the option to restrict their supply. Trying to have it otherwise is like legislating sunny weather and free ice cream, which would be vote-getters, too, come to think of it.

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July 22, 2002

More on Drug Prices

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Posted by Derek

I can strongly recommend this piece from Robert Bartley in the Wall Street Journal today. It's a clear-eyed look at the issues involved.

There are a couple of misconceptions in it, though. He mentions an "acquisition" of Imclone by Bristol-Meyers Squibb, but their deal was always about clinical candidates, not acquisition. BMS did make a large equity investment in Imclone (well, at the time it was large,) but not enough to have control of the company. That was left in the strong, capable hands of the Waksals.

Bartley also proposes that some drugs be allowed onto the market after Phase II trials are complete, but before the larger (and longer) Phase IIIs. It's easy to see why proposals like this come up, since that's one of the few places in the whole drug business where you can push costs down.

Bartley states that Phase I and II trials "establish safety and offer some evidence of efficacy" as opposed to Phase IIIs. Unfortunately, it's often the other way around. Getting through Phase I does indeed show that there aren't any immediate toxicological issues. And Phase II trials, if well-run, can be enough to establish efficacy. Phase IIIs, though, can be just as much about safety as they are about efficacy. As you expand the patient population and the length of the study, problems that never even broke the surface during the earlier trials can surface.

So, I'm afraid that putting drugs on the market after Phase II would require some sort of tort reform. The sorts of unpleasant surprises that show up in Phase III would be now be showing up in your patient population. And then the liability lawyers would swoop down with eager squawks, pick us clean, and leave our bones bleaching in the sun.

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July 19, 2002

The Dismal Science of Drug Prices

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Posted by Derek

I'm a little disconcerted by Instapundit's endorsement today of the Wellstone drug reimportation bill. My position on this is closer to Andrew Sullivan's (and the reader he quotes here.)

That is to say, I believe prescription drugs aren't correctly priced in Canada and overpriced here. They're underpriced in Canada (and Europe,) and overpriced here to help make up for it. We can argue about individual drugs, and we can argue about just how much one side of the issue balances the other. But I've seen at first hand the amount of money that gets poured into projects that don't lead to a marketed drug, and that money's got to come from somewhere.

That's every single project I've worked on in my 13 years in the industry so far. No, that's an underestimate. I don't think that any of the projects to develop a completely new molecule at any of the companies I've worked for in the last 13 years has made it to market yet. I'm racking my brain, but I can't think of a single one. There are a couple of close calls in there, and a couple that look like they're going to make it, but so far, nothing. That's an insane amount of cash that we're never going to see again, and it's obvious that you can't run forever like that. What's going to give?

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