A potential deal between the Trump administration and a pharmaceutical company was harshly criticized by Sen. Bernie Sanders earlier this month.
The Vermont senator, concerned about potentially inflated drug prices, said President Trump was “on the brink of making a bad deal” that would give French pharmaceutical company Sanofi exclusive patents for a Zika vaccine.
The controversy reignited a long-running debate over U.S. taxpayers helping fund pharmaceutical research — only to see pharmaceutical companies jacking up the price once a drug hits the market.
While concerns about unaffordable drugs are warranted, there’s far more to the issue than meets the eye, according to experts who spoke to Healthline.
Sky high prices
A large part of Sanders’ concern over the proposed deal was that Sanofi would overcharge for the vaccine.
Looking at headlines from the past few years, it’s easy to see why he’s concerned.
Sovaldi, a hepatitis C drug developed by Gilead that initially sold for $1,000 per pill, is a prime example of private companies overcharging for a drug that’s research was funded in part by taxpayer dollars, said Will Holley, spokesperson for the Campaign for Sustainable Rx Pricing (CSRxP).
“The R&D for Sovaldi was largely conducted by a small biotech company, later acquired by the current manufacturer, that received the majority of its funding from the National Institutes of Health (NIH),” Holley told Healthline in an email. “Gilead purchased this biotech, and then fully recouped the cost of acquiring the company in just one year of sales of the $1,000-per-pill drug.”
Another high-priced medication that has attracted considerable attention is the EpiPen, an auto-injector that provides epinephrine to people with serious allergies.
Before costs cooled, the price for the device — one that can mean the difference between life and death — more than quadrupled over a 10-year period.
Who’s funding what?
When examining this issue, it’s important to make the distinction between basic and applied research in the field of pharmaceuticals.
Basic research is typically funded through government grants and is conducted by academics.
Applied research is usually paid for by private interests and builds off of the initial basic research.
“With basic research, there are no clear commercial objectives, and the people who do it are driven to publish their results and make them as widely known as possible,” Stuart Schweitzer, PhD, professor of health policy and management at the UCLA Fielding School of Public Health, told Healthline. “On the other hand, there is applied research, where organizations say, ‘Hey, there’s a finding out there. I think that we can make a bundle of money if we pursue that. Let’s see if we can turn it into a commercial product.’”
In effect, it means that while public money can lead to discoveries that are further built on by private companies, most of the money that brings a drug to market is paid for by drug companies rather than taxpayers.
“While government funding supports basic research, America’s biopharmaceutical companies conduct the critical R&D needed to bring new medicines to patients and bear the associated costs and risks,” Holly Campbell, director of communications for the Pharmaceutical Research and Manufacturers of America (PhRMA), told Healthline in an email. “In fact, the biopharmaceutical sectors spend more on R&D than the entire National Institutes of Health operating budget, with all biopharmaceutical companies investing more than $70 billion in R&D.”
Campbell also points to a 2015 white paper from the Tufts University School of Medicine that concluded that 67-97 percent of drug development is conducted by the private sector.
While public dollars rarely fund the direct development of pharmaceuticals, there are exceptions.
Some come under the Orphan Drug Act of 1983, which allows the government to fund pharmaceutical firms to develop drugs for conditions that affect a small percentage of the population while limiting the amount of potential profit by private companies.
Schweitzer cites Epogen, a drug for people on dialysis, developed by Amgen, as a success story of the Orphan Drug Act.
“When Amgen started its work, the number of patients on kidney dialysis was very small,” he said. “But as soon as it was realized that the number of dialysis patients was growing beyond 200,000 patients, then Amgen had to give up its money to the government. I’ve read stories that there are some exceptions to that, where the money hasn’t been given back, and that’s clearly an oversight, with Congress not enforcing the law as tightly as they should. But the principle is there: If it’s a very small market, even though it’s a commercial product, government will come in because nobody else is going to invest in such a small market.”
Even when large amounts of money are poured into research and development, there’s no guarantee that the research will actually lead anywhere.
“I see the pharmaceutical industry as extraordinarily vulnerable to failure,” said Schweitzer. “It’s a very high-risk business. Something like 10 percent of all drugs that are developed get FDA approval. Merck, a couple of years ago, had a drug for inhaled insulin that cost about $2 billion. It was even approved by the FDA, and nobody bought it. It was a failure. They closed it down and sold their patent rights.”
Tweaking the system
Part of what makes this such a contentious issue is a lack of transparency, creating a system where virtually no public data exists to show the link between prices and development costs, said Holley.
“Manufacturers should be required to disclose R&D costs for drugs, including how much of the research is funded by the NIH, other academic entities, or another pharmaceutical company later acquired by the current manufacturer,” he said. “A market cannot function when purchasers have limited information and, in the case of prescription drugs, pricing is a black box. Prices for drugs are clearly rising at rates that far exceed inflation and the level of any rebates or discounts offered by manufacturers.”
Holley says CSRxP would like the Department of Health and Human Services (HHS) to provide an annual report that includes the top 50 increases over the past year by both branded and generic drugs.
That report would also have the top 50 drugs by annual spending and how much the government pays in total for these drugs, and historical price increases for common drugs, including Medicare Part B drugs, over the most recent 10-year period.
Schweitzer said the long FDA approval process can hinder competition, allowing the first company to develop a drug or technology to have a virtual monopoly while other companies go through the approval process.
“An example of that is the EpiPen,” Schweitzer says. “How did they get away with raising their price, and nobody came in and underbid them? You’ve got to look at the FDA’s devices section. The drug in the EpiPen, epinephrine, is a generic drug. There’s no secret to it. The secret is in the delivery system itself. How is it that Mylan developed a really good medical device and nobody else could do that? The FDA devices section takes three years to approve a device, and that really hurt a lot of people. So now there is competition in the market for the EpiPen, but it shouldn’t have taken that long.”
“I’d like to see legislation that would have the FDA lighten up on the approval regulations,” said Schweitzer. “So when a drug price has increased by more than, say, 50 percent in a year, the FDA could scare manufacturers away from doing this by ensuring that there’s going to be [a competing product] in the marketplace quite soon. So my answer lies on the supply side, and definitely not price controls, because I don’t believe that we’re going to get as much drug discovery if we take away the motive of making money with a few of our successful drugs.”
Holley agrees that encouraging competition is crucial.
“The keys to any real solution are increased transparency, removing barriers to competition, especially from generics, and ensuring that prices are correlated with the value that a drug brings to the patients who need them,” he said.