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High Drug Prices Hurt Everyone Genevieve M. Halpenny* ABSTRACT: Turing Pharmaceuticals raised the price of Daraprim 5,500%, illustrating how the absence of competition in the sale of low-volume, low-price drugs can lead to price gouging. For patented medicines, society allows supracompetitive pricing to incentivize innovation. However, Gilead’s decision to sell Sovaldi for $84,000 per course of treatment raised the question whether society must accept any price set by the patent holder. Unfortunately, these incidents illustrate a broader trend in which pharmaceutical prices are greater in the United States than abroad, placing the United States at the top in per capita expenditures on pharmaceuticals. The Canadian and Indian approaches to balancing patient access to medicines with other policy objectives, including stimulating investment in R&D, point to a multifaceted solution. Proposed solutions include prevention, increasing pharmaceutical coverage, and increasing transparency. Strategic policy requires access to information regarding R&D costs, private listing agreements (prices charged to different customers), and patient outcomes.
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medicines increased 13% in 2014 as compared to 5% in healthcare spending overall. Greater consumption of pharmaceuticals accounts for some of the differences in pharmaceutical spending between different countries. Another factor is that pharmaceutical prices are consistently greater in the United States than abroad. There is no satisfactory justification for the pricing disparity. Every American should be concerned about the accessibility of medicines that reduce suffering and save lives. Some surveys report that up to one in four patients cannot afford and do not fill their prescriptions. The patients who suffer most under the current regime are the elderly and patients with chronic conditions. In addition to escalating pharmaceutical expenditures increasing the burden on taxpayers, we are all in the process of aging and face the risk of catastrophic illness. Medication accessibility is a problem for each American.
uring Pharmaceuticals made headlines for raising the price of Daraprim, a treatment for toxoplasmosis and malaria, from $13.50 to $750, a 5,500% increase.1 About one-third of the population is infected with Toxoplasmosis gondii, the parasite that causes toxoplasmosis. Most people experience no symptoms. However, toxoplasmosis can cause blindness, seizures, and impaired cognition in infected people with compromised immune systems. For example, 24−47% of T. gondii-seropositive AIDS patients developed encephalitis without prophylactic treatment.2 Because this drug is used to treat a small number of patients and is also inexpensive, there is no motivation for generic pharmaceutical companies to produce generic pyrimethamine even though the patent expired decades ago. This lack of competition allowed Shkreli to acquire Daraprim and immediately increase the price. Price gouging is not limited to low-volume, low-price drugs. For patented medicines, supracompetitive pricing is expected, but should we tolerate any price? In 2011, Gilead Sciences acquired Pharmasset, which discovered sofosbuvir, the active ingredient in the hepatitis C medication, Sovaldi.3 Gilead launched Sovaldi in December 2013 and charged $84,000 per course of treatment (Pharmasset had planned to market the drug at $35,000). Sovaldi costs $130−350 per course of treatment to manufacture, allowing Gilead to recoup its $11 billion acquisition price in just one year of sales. Because many hepatitis C patients qualify for Medicare, providing Sovaldi was expected to increase Medicare Part D spending by $3−6 billion annually. In July of 2014, Congress opened an investigation into the price of Sovaldi that revealed Gilead’s pricing strategy was intended to capture the largest market share, at the highest price, for as long as possible. In contrast, the price of a course of Sovaldi in Egypt is $900, a price that would make the drug accessible to many more of the three million hepatitis C patients in the United States. Hard cases may make bad law, but a closer look at the ability of patients to access life-saving medicines reveals that these cases are hardly exceptional. The United States ranks first in per capita expenditures on pharmaceuticals and medical nondurables (Figure 1). In 2014, the Centers for Medicare and Medicaid Services (CMS) paid $140 billion on prescription drugs for seniors, the working poor, and people with disabilities.4 This figure does not include amounts paid by other state and federal programs, insurance, and individuals. CMS spending on © XXXX American Chemical Society
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FAILURE TO JUSTIFY HIGH PRICES Pharmaceutical companies argue that price regulation abroad forces pharmaceutical companies to charge more for patented medications in the United States to fund research and development of new and improved medicines. However, R&D expenditures hover around 20% of sales, less than pharmaceutical companies typically allocate toward marketing. And cuts in pharmaceutical R&D spending are regularly reported. Pharmaceutical companies refuse to substantiate their arguments by providing information about the cost of developing new medicines. These circumstances undermine the credibility of such arguments. At the same time, enough profit is required to incentivize investment in pharmaceutical innovation.
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CANADA’S LESSONS LEARNED In 1987, amendments to Canada’s Patent Act were codified to balance the competing policy objectives of encouraging pharmaceutical R&D investment in Canada and discouraging “excessive” prices for patented medications.6 Increased patent terms failed to stimulate sustained increases in R&D investment. In exchange for increased patent terms, Canada’s Research-Based Pharmaceutical Companies agreed to
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DOI: 10.1021/acsmedchemlett.6b00139 ACS Med. Chem. Lett. XXXX, XXX, XXX−XXX
ACS Medicinal Chemistry Letters
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Figure 1. Average per capita pharmaceutical expenditures in 2013. Reprinted with permission from OECD Health Statistics 2015.5
Figure 2. Average Gleevec price in 2013. Republished with permission from International Federation of Health Plans (http://www.ifhp.com/) 2013 Comparative Price Report.9
Alliance, which has negotiated lower drug prices. However, private insurance companies have not been able to obtain lower prices, because individually, they lack market power to negotiate prices down. Another problem with reference pricing is that the prices negotiated are often confidential under Private Listing Agreements, making it difficult to ascertain the low-end drug prices for comparison. Here, three lessons can be gleaned from the Canadian experience. First, practical business and infrastructure considerations impact R&D spending more than patent term. Second, lower prices can be negotiated when payers cooperate and leverage their collective market power. Third, confidential Private Listing Agreements undermine the effectiveness of reference pricing schemes.
increase R&D investment from less than 5% of sales in 1987 to 8% by 1991 and 10% by 1996. Although these companies hit their target of 10% of sales in 1993, R&D investments peaked in 1997 and have dropped down to 5.4%. Factors, including head office location, clinical trials infrastructure, and scientific clusters, are more determinative of where R&D takes place than patent term. The Patent Act created the Patented Medicine Prices Review Board (PMPRB), which reviews drug prices and compares them with the prices in seven countries: France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States (“reference pricing”). The PMPRB also has the power to adjudicate whether prices are excessive and to order price reductions or offsets. Although the PMPRB sets price ceilings, Canada does not have universal drug coverage. Initially, provinces independently negotiated drug prices. Recently, drug expenditures in Canada have increased. To curb further price increases, several provinces took a cue from EU countries that have been able to obtain lower prices through collective negotiations and formed the pan-Canadian Pharmaceutical
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INDIA LIMITS PHARMACEUTICAL PATENT PROTECTION When India gained independence, drug prices were among the highest, despite being one of the poorest nations.7 This is a B
DOI: 10.1021/acsmedchemlett.6b00139 ACS Med. Chem. Lett. XXXX, XXX, XXX−XXX
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increasing transparency regarding the price of pharmaceutical R&D and determining what drug prices fairly compensate pharmaceutical companies for R&D; increasing transparency regarding pharmaceutical price negotiations and pooling market power to obtain fair prices in negotiations; and prohibiting excessive prices and exploiting licensing rights retained by federal funding agencies. Pharmaceutical spending increases are unsustainable, and pharmaceutical pricing policies that increase patient access to medicines need to be developed now.
common phenomenon in third world countries, where medicines are imported for sale only to wealthy citizens. At the outset, India aimed to widely provide medicines to its 400 million people and to develop an indigenous pharmaceutical industry. Initially, India banned patenting pharmaceuticals and foods, and limited the term of process patents. Under this regime, India formed a robust generic pharmaceutical market the fed both domestic needs and the needs of the least developed countries. Then in 2005, India joined the World Trade Organization, which required India to conform its intellectual property system to the Agreement on Trade Related Aspects of Intellectual Property (TRIPS Agreement). India reinstated patent coverage for pharmaceutical products and increased patent terms to 20 years from application. However, the TRIPS Agreement includes numerous flexibilities that allow signatories to achieve policy goals, such as ensuring access to medicines. Section 3(d) of the Patents Act of 1970 excludes derivatives of known substances from patent eligibility, unless such derivatives display significantly enhanced efficacy. This term disapproves “evergreening”, effectively extending the term of pharmaceutical patents by patenting modified forms of drugs whose patents are about to expire (e.g., new delivery systems and new uses of the drug). For example, in 2013, the Indian Supreme Court affirmed that Novartis’s Gleevec, a leukemia treatment with a different crystal structure than its predecessor, is ineligible for patent protection under section 3(d).8 Gleevec failed to meet the section 3(d) requirement that the new structure have significantly enhanced efficacy. Figure 2 illustrates the prices of Gleevec in seven developed countries. The annual cost of Gleevec in the United States totals $70,000; in India it is $2,500. Similar restrictions on patentability in the United Sates are consistent with the current statutory scheme, but would require new judicial precedents to reinterpret those statutes.
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AUTHOR INFORMATION
Corresponding Author
*E-mail:
[email protected]. Notes
Views expressed in this editorial are those of the author and not necessarily the views of the ACS or those of the author's employer. The authors declare no competing financial interest.
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REFERENCES
(1) Hamblin, J.. Pharma Bro Is the Face of U.S. Health Care. Atlantic; September 23, 2015. (2) Subauste, C. S. . Toxoplasmosis and HIV. HIV InSite Knowledge Base Chapter March 2006, available at http://hivinsite.ucsf.edu/ InSite?page=kb-05-04-03. (3) Mullin, R.. Mixed Signals. Chem. Eng. News December 8, 2014, pp 11−17. (4) Slavitt, A.. Remarks of CMS Acting Administrator Andy Slavitt at the HHS Pharmaceutical Forum: Innovation, Access, Affordability and Better Health. November 20, 2015, available at https://blog.cms.gov/ 2015/11/20/remarks-of-cms-acting-administrator-andy-slavitt-at-thehhs-pharmaceutical-forum-innovation-access-affordability-and-betterhealth/. (5) Organisation for Economic Co-operation and Development, Frequently Requested Data, available at http://www.oecd.org/health/ health-systems/OECD-Health-Statistics-2015-Frequently-RequestedData.xls (or query Current expenditure on pharmaceuticals and other medical non-durables, per capita, US$ purchasing power parities at http://stats.oecd.org/Index.aspx?DataSetCode=SHA) (Accessed on May 3, 2016). (6) Patented Medicine Prices Review Board Strategic Plan 2015− 2018, available at http://www.pmprb-cepmb.gc.ca/view.asp?ccid= 1197. (7) Mueller, J. M.. The Tiger Awakens: The Tumultuous Transformation of India’s Patent System and the Rise of Indian Pharmaceutical Innovation. University of Pittsburgh School of Law Working Paper Series; 2006, Paper 43. (8) Bollyky, T. Why Chemotherapy That Costs $70,000 in the U.S. Costs $2,500 in India. Atlantic April 10, 2013. (9) International Federation of Health Plans, 2013 Comparative Price Report, available at https://static1.squarespace.com/static/ 518a3cfee4b0a77d03a62c98/t/534fc9ebe4b05a88e5fbab70/ 1397737963288/2013+iFHP+FINAL+4+14+14.pdf. (10) Abbott, F. M.. Excessive Pharmaceutical Prices and Competition Law: doctrinal development to protect public health. UC Irvine Law Review Spring 2017, Vol. 6, Issue 3, forthcoming. (11) Clerici, J. M.; Bradley, P.. What you need to know about retained rights in federally funded patented drugs. Lexology March 24, 2016, available at http://www.lexology.com/library/detail.aspx?g=7e2b2e6ee303-4125-b78d-1734241cded3.
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DOMESTIC POLICY PROPOSALS At least one scholar proposes incorporating an excessive pricing doctrine into antitrust law.10 Because antitrust law aims to protect consumers, adding protections against price gouging is a natural extension of existing law. To succeed, this approach requires access to information regarding R&D costs, so reasonable and excessive prices can be determined. Representative Lloyd Doggett sent a letter to the Secretary of Heath and Human Services and the Director of the National Institutes of Health, asking them to exercise march-in rights provided by the Bayh-Dole Act of 1980.11 The letter asked the administrative agencies to demand licenses to medicines developed with federal funding when the prices of such medicines exceed the prices in seven of the ten largest countries, i.e., reference pricing. Although this administrative action would require a departure from current NIH precedent, it is an option the United States cannot continue to overlook. Improving access to medicines and decreasing pharmaceutical expenditures are related problems that require a multifaceted solution that includes elements of developing preventative programs that decrease the prevalence of heart disease, diabetes, and other preventable chronic conditions; increasing pharmaceutical coverage; working with doctors and patients to obtain data regarding patient outcomes and encouraging doctors to prescribe generic medicines when new drugs fail to offer improved patient outcomes; C
DOI: 10.1021/acsmedchemlett.6b00139 ACS Med. Chem. Lett. XXXX, XXX, XXX−XXX
