Before We Act Impulsively on Drug Prices We Should Make Precision Policies

Published: Apr 04, 2017

Before We Act Impulsively on Drug Prices We Should Make Precision Policies

April 4, 2017
By Josh Baxt, Breaking News Staff

Recently, President Trump said drug companies are “getting away with murder” on drug prices. He has repeated his charge numerous times. While perhaps inelegantly put, the President’s comments reflect concerns, on both sides of the aisle, that pharma pricing is out of whack. Recent controversies around Gilead ’s Sovaldi, Turing Pharmaceuticals’s Daraprim and Mylan ’s EpiPen have fanned demands for price controls.

But before we go down that road, let’s define what we’re trying to achieve. Lower prices at the expense of innovation would be a hollow victory. We may help patients now, but what about their children? The ideal policy would support fair prices and accelerate drug development.

To understand the problem, we need to examine why pharmaceuticals can be so expensive. Most drugs take 10 to 15 years to come to market and cost more than $2.5 billion to develop. Those are only the ones that gain approval. Around 90 percent of investigational drugs fail in clinical trials. Companies must recoup their losses when they can or risk weakening their businesses.

Much of the controversy driving demands for price controls—in various forms—is driven by bad actors, such as Turing and Mylan, who jacked up prices on existing therapies because they had monopoly power and simply could.

Then there’s Sovaldi, Gilead’s hepatitis C drug, which cost $84,000 for a 12-week course when introduced in 2014. On the surface, that does seem expensive, but compared to what? Sovaldi actually cures a chronic disease that causes human suffering, repeated hospitalizations and in some cases liver transplants. By comparison, a transplant costs around $580,000, or nearly seven courses of Sovaldi.

Ultimately, a new aggressively-priced hepatitis C drug from Merck drove Gilead’s prices down. This is a common story; prices are high at first but level down as competition increases.

In other words, Sovaldi is a relatively expensive drug that cures a chronic disease, reduces the need for expensive care and is becoming less expensive as competitors enter the market. Adam Smith is smiling down from heaven. Sovaldi is a good example of a high-cost drug that provides significant value, but what about the other side: expensive drugs that offer little value? Many cancer drugs are approved based on surrogate end points—tumor shrinkage as opposed to patient survival. But a recent paper in the Journal of the American Medical Association showed that many of these drugs do not improve overall survival or quality of life for cancer patients and can cost well over $100,000 per course. This issue gets little press, but represents one aspect of the real drug price problem.

For all the sound and fury, there’s little evidence that drug prices are a serious issue across the healthcare system. Overall, pharmaceuticals make up only around 10 percent of healthcare costs, and that number has remained stable for years. A specific drug may be expensive when introduced, but over time competition from other branded pharmaceuticals, and ultimately generics, drive prices down.

But let’s circle back to our goal: keeping prices steady while encouraging innovation. Price controls could potentially drive investors away. Given the high failure rate, and little opportunity to overcome losses, VCs might divert dollars to tech, which has a much shorter product cycle and significantly less regulation.

The real answer is more competition. Help the FDA accelerate approvals for generics and biosimilars. Develop reciprocity agreements with the European Union, so that drugs approved across the Atlantic can help patients here and vice versa.

We are entering the age of precision medicine, in which clinicians have new tools to treat patients as individuals, rather than as parts of one-size-fits-all groups. But along with precision medicine, we need precision policymaking. Clearly there are cases where drugs are overpriced compared to the value they provide or companies blatantly gouge consumers. These should be addressed precisely—in the same way we seek to attack tumors.

Josh Baxt has been a science and healthcare writer for more than 18 years, working at Scripps Health and the Sanford-Burnham Medical Research Institute before going freelance in 2011. He writes about molecular biology, genomics, pharmaceuticals, emerging medical technologies, regulation and public policy. He is based in San Diego.

Back to news