FactPower: Facts, figures, and talking points for Resistance activists.
Reining in Health Care Costs Through A Public Sector Drug Pipeline
We Americans have increasingly experienced sticker shock over the spiraling cost of prescription medications. According to the president, the drug industry is "getting away with murder,"and the government should negotiate lower drug prices. Big pharma is in fact one of the most profitable of all industries, with gross profit margins running as high as almost 80% for Pfizer. Big pharma companies can reap their huge profits because they can literally hold our lives hostage. Nowhere has this been more obvious than in the case of Martin Shkreli, CEO of Turing Pharmaceuticals, who bought the rights to Daraprim (used in the treatment of parasitic infections related to HIV) and jacked up the price from $13.50 to $750 per pill, a 5,500% increase.
More commonly, we are seeing jaw-dropping price points on new classes of miracle drugs for treating cancer, with treatment running from $100,000 to as much as $1,000,000 per year. These drugs are commonly worth at least several thousand times their weight in gold. Pricing of these drugs has nothing to do with their manufacturing cost, or even the cost of research and development (as manufacturers like to claim), but rather whatever the manufacturers feel "the market will bear." Put in more more crass terms, they optimize their prices on their estimation of what a person is willing to pay to save his/her life. Obviously more effective drugs can command higher prices, even if the R&D costs might be similar, which is the only reason a therapy like Yescarta, introduced at $373,000, is more expensive than an earlier generation checkpoint inhibitor drug like Yervoy, introduced at $120,000 per treatment round.
We don't know a lot about the research and development costs of these drugs, but we get occasional glimpses. Because of more detailed accounting by Medarex, which developed Yervoy, we can estimate the drug cost less than $400 million to develop. Today the drug is produced by Bristol Meyers, which acquired the drug by acquiring Medarex for $2.1 billion. The acquisition price of over 5 times the R&D investment says quite a lot about how lucrative the industry is. To recoup its initial investment of $2.1 billion at $120,000 per treatment round, Bristol Meyers would have to sell 17,500 treatments. The drug is most commonly used to treat advanced melanoma, a disease resulting in approx 60,000 deaths globally per year. Acquisition, research and development costs were probably recouped within the first year of FDA approval, 2011, and yet the drug is still jaw-dropping expensive -- for no other reason than it can save or prolong a person's life. The unavoidable reality is that big pharma companies care much more about profits than people, as we would expect of any commercial endeavor.
What would it mean if we can solve this problem? How much would our healthcare costs come down? The answer is that it "depends." For the average health care consumer, pharmaceuticals are not a huge component of total healthcare costs -- about 19% of group health plan benefits and Medicare benefits. Although the savings would bring down insurance costs, which would be welcome relief in most households, the impact still would not be that significant overall.
However, for people suffering from very serious illnesses requiring exotic, state-of-the-art, patented medications, the sky-high drug costs can mean the difference between getting treatment and not -- or between financial solvency and bankruptcy. Many elderly people on fixed incomes must choose between food, rent, and pills. Roughly 25 - 35% of low-income and uninsured people report having cut pills in half, skipped dosages, or not filled prescriptions because of cost. Many people with chronic respiratory conditions or diabetes remain chronically impoverished because they have no choice but to pay whatever is demanded for medications. Many people with cancer have no access to the latest generation of immunotherapy drugs that often sell for more than their homes are worth. This leaves the American people vulnerable to many major illnesses in the country that develops more miracle drugs than any other country in the world. This is a problem that cuts across all demographics and political affiliations. Republicans, Democrats, and Independents all agree that prescription drug costs are a problem and need to be brought down.
BIG PHARMA SCIENTISTS
At the core of research and development of any groundbreaking drug is the scientific community. Many people seem to think of big pharma scientists as a resource developed within the industry -- a resource that would not exist, were it not for the industry. This is simply not true. Scientists are born entirely from the academic sector. During their graduate and postgraduate studies, they are supported in varying degrees by government research funding, for instance from NIH.
Upon earning their doctorates, most young scientists wish to continue their work in the academic sector, whether in a good postdoctoral fellowship or a tenure-track professorship, where they can enjoy scientific freedom and an academic lifestyle. Their desire is not to get rich, but to do good work and make important discoveries. They spend long hours in the lab, with only modest (and often meager) pay, because the next discovery is what gives their lives meaning. Pursuit of the unknown is what gives them joy.
Unfortunately the sciences are not well funded, and there are never enough good postdoctoral and professorial opportunities to go around. This presents an opportunity for military and commercial interests to recruit from this population. I speak from personal experience when I say that young scientists consider both of these paths "going to the dark side." Scientists are typically very idealistic and do not trust how their research might be used by the military, but that path provides them the academic freedom they desire, along with potential problems like having one's research classified and having intellectual freedom abridged.
In the biomedical fields, big pharma represents the other major non-academic path, and it is a darker side by far. Big pharma scientists are not well respected by the mainstream scientific community, because their work is suspect of bias. Their job is usually to "prove" that a given molecule is safe and efficacious in the treatment of some disease, irrespective of whether it is really safe or efficacious. Job advancement is tied to "success" in this regard. It is through this process, for instance, that Prozac was not known to prescribing physicians as a suicide risk, because those data were suppressed by Eli Lilly. Because the big pharma pathway has its problems with scientific integrity, those who follow it are generally not the picks of the scientific litters.
Otherwise, big pharma scientists are no different than any other scientists. They have no additional skills, knowledge, or talent imparted to them by their companies. Scientists learn from each other, collaborate, and expand on knowledge through new discoveries. It is the same in a commercial laboratory as in an academic laboratory. However, big pharma research suffers because profits and truth often do not align. As healthcare consumers, our best interests would be better served if pharmacological research were done in the academic sector by a more talented pool of less-biased researchers.
THE VALUE THAT BIG PHARMA COMPANIES ADD
If scientists are the brains of the operation, the companies themselves are the brawn. They manage the business affairs, fund the research, navigate the clinical trials, develop the branding, and ultimately market the product. Of these, marketing the product is the only thing that brings value to the health care consumer. Marketing not only involves running endless annoying advertisements on television, but also promoting products to medical providers, such as your physician. In this sense they educate health care professionals about their new products. Sadly, this process is fraught with bias, and drug representatives are not often the most knowledgeable about the drugs they market. These representatives offer physicians many perks, including dinners out, and many physicians make no secret of exploiting their generosity.
A BETTER WAY
There is no reason the academic community cannot do the pharmacological research necessary to bring a drug from concept to market. Moreover, with its greater pool of talent and its unbiased approach to scientific research, it can do a better job. It simply needs the funding. A group of oncologists and researchers have proposed how this might happen.
Many drugs already trace their origins to the academic sector, and these tend to be the most clinically important drugs. The ground-breaking research leading to these drug discoveries likewise has its origins mostly in the academic sector. This is increasingly becoming the case as large, multidisciplinary research institutions are being formed for exactly this purpose, for instance the Institute for Applied Cancer Science at MDAnderson in Houston.
The research leading to these discoveries is funded mostly by the government -- mostly through the National Institutes of Health (NIH). NIH holds patents assignments on some of these drugs, but the vast majority of these drugs are privately patented and developed commercially. This should not be the case. When the taxpayer funds the research leading to the discovery, the discovery should belong to the taxpayer. This is how it's done in the commercial sector (with the company holding patents on its employees' discoveries).
Once promising drugs are discovered, they must go through clinical trials to determine whether they are safe and useful. Phase I clinical trials, which determine whether a drugs show promise, are already funded by through government grants, but Phase II and III trials, which determine safety and efficacy, are typically funded by pharma companies after the promising drugs have been patented and their rights sold. There is no reason these trials cannot be funded by the government, perhaps through a new funding agency under the NIH or FDA. Although clinical trials are expensive, they are not nearly as expensive as the name-brand drugs emerging from the commercial drug pipeline. If taxpayers were to underwrite this expense, they would be rewarded by better drugs at much cheaper prices.
There is already an infrastructure for Phase II and III clinical testing in the academic sector. There are fully certified academic pharmacies and hospitals capable of manufacturing and testing candidate drugs. Drug manufacture could also be done in partnership with commercial generic drug manufacturers.
After passing Phase III clinical trials and being approved by the FDA, new drugs would then be manufactured by generic pharmaceuticals companies, which operate at much tighter and more competitive profit margins. These manufacturers could also engage in the marketing. Further savings could be achieved if generic manufacturers were required to comply with pricing regulations. (Mark-ups on many generic drugs are insanely high, whenever one manufacturer manages to establish a monopoly.)
The authors cite the following two factors that are "mission critical" for a public-sector pipeline to succeed: "First, academic organizations will need to abide by their societal responsibility and resist the temptation to sell their drug candidate to the highest bidder. Second, it will be imperative that agreements on price caps are part of the negotiations with potential investors or with companies that take forward drugs arising from academic drug development."
Many would consider satisfaction of these factors unlikely; however, that's where government should become involved. Congress should:
require that drugs discovered under government-funded research grants be patented by the granting agency (e.g. NIH).
appropriate sufficient funding for clinical trials of promising government-patented drugs.
regulate pricing of government-patented drugs by generic pharmaceuticals manufacturers.
regulate marketing/promotional practices for government-patented drugs.
A RESEARCH AND DEVELOPMENT TAX TO LEVEL THE PLAYING FIELD
Under the above plan, research costs would be funded by the taxpayer, with the health care consumer paying no more for a drug than its manufacturing cost plus mark-up. Big pharma companies, by contrast, would have to recoup their Research and Development (R&D) costs in the pricing of their drugs, which would put them at a competitive disadvantage. This would make the big-pharma business model untenable and unprofitable, which would be detrimental to our interests as health care consumers. This competitive disadvantage could be eliminated with an "R&D" tax collected on government-patented drugs. The tax would be imposed on a drug only until the R&D expenses have been recovered, and the revenue would be used to fund further research. Big pharma companies could be competitive in this model to the extent they can do research more efficiently than the academic sector, and to the extend that they price no more than their actual R&D costs into their products. The playing field would be level -- and the products much more fairly priced. Moreover, the R&D tax could be applied to exports (perhaps waiving the tax for impoverished, third-world countries), so that those who benefit from our research internationally also contribute to it.
Without doubt, the academic sector is America's most under-utilized resource. If we were to establish the funding and infrastructure to put our nation's most talented scientists to work doing what they love doing, medical science would deliver better drugs at generic prices. Blockbuster drugs like Keytruda and Opdivo would sell for hundreds of dollars, not hundreds of thousands of dollars. And our total healthcare costs (and hence insurance costs) would drop dramatically. Big pharma would not like this plan. There would be fewer opportunities to exploit government-funded drug discoveries, and name-brand, patented drugs would have to compete on the basis of sensible R&D costs. However, people would no longer have to pay outrageous ransoms to save their lives, so that executives in fancy suits could pull in ten and twenty million dollar annual bonuses. The academic sector has the talent and skill-set to do all of this work. It is only a matter of legislation and funding.