HEALTH NEWS

Why Some Drugs Cost so Much and Others Don’t

Written by Jamie Reno on December 17, 2015

Experts say greed is a big reason for the sky-high price of some prescription pills. But it’s not the only reason.

Prescription drug prices in America are through the roof, and they’re still going up.

Consumers spent $374 billion on medicine in 2014, according to the IMS Institute for Healthcare. That’s 13 percent more than the previous year.

Drug Prices

Hepatitis C drugs alone accounted for more than $11 billion in new spending last year. Perhaps that is no surprise, as the drugs Sovaldi and Harvoni both cost more than $1,000 per pill.

Scientific American reports that the average price of a new cancer drug now exceeds $100,000 a year. Even a cancer patient with insurance could spend $25,000 out of pocket.

And then there are people like Turing Pharmaceuticals’ Chief Executive Officer Martin Shkreli — aka “Pharma Bro” — whose apparent greed in raising the price of a lifesaving drug by 5,000 percent has infuriated the public. Shkreli was arrested Thursday morning on security fraud charges stemming from when he was a hedge fund manager and overseeing the biopharmaceutical company Retrophin.

With all of this going on, you may ask: Why are drug prices so high?

The answer isn’t as simple as you might think. Is corporate greed a factor? Yes, but experts say it’s a bit more complicated than that.

Read More: How Do Companies Keep Getting Away with Raising Drug Prices? »

Mergers, Research Are Also Factors

Several pharmaceutical industry analysts interviewed for this story agree that the biggest driver of drug pricing in 2015 was the mergers and acquisitions game that has come to define the sector.

Larger drug companies now routinely buy up smaller biotech firms and take their drugs to market. For better or worse, analysts say, this makes for less competition and higher prices.

Another contributing factor, analysts and pharmaceutical executives point out, is the high cost of doing business in such a research dependent field.

This influences pricing decisions, as does the competition to hire within a limited pool of talented researchers and executives. This has resulted in higher salaries and a more expensive product.

But most everyone agrees that the simple reason pharmaceutical companies are raising prices is because they can. There are few industries in a free market that would not take advantage of such a situation.

In Europe, governments have a say in the price of drugs. In the United States, the Centers for Medicare & Medicaid Services are not allowed to negotiate prices.

“Drug companies employ many scientists, physicians, marketing people, and others who really are motivated by helping others, but there are some industry leaders who don’t get it,” says industry analyst Lea Prevel Katsanis, a marketing professor at the John Molson School of Business at Concordia University in Montreal, who worked as a marketing executive at several drug companies.

Katsanis, author of the new book “Global Issues in Pharmaceutical Marketing,” told Healthline that some drug industry executives don’t understand why people are vilifying an industry that is doing such good things for society.

“They just don’t understand that when they raise the price of a drug by 300 percent, they get pushback,” she said.

Read More: Trade Pact Could Inflate Drug Prices »

Drug Cost Concerns Reach a Tipping Point

Public concern over high prescription drug prices in the United States has clearly reached a tipping point.

People are “fed up,” Katsanis said, largely because of the recent news coverage of people like Turing’s Shkreli. If you missed his instant infamy, here’s a recap: Shkreli’s company acquired Daraprim, a generic drug for toxoplasmosis. For people with suppressed immune systems — such as those with cancer and HIV patients, as well as pregnant women — the drug is not only lifesaving, there are no equivalent medicines on the market.

With the market cornered, he announced the company’s plan to raise the price of the drug by 5,000 percent, from $13.50 a pill to $750 a pill.

Within days of Shkreli’s announcement, Mark L. Baum, chief executive officer of Imprimis Pharmaceuticals, said his firm’s competing toxoplasmosis drug would sell for $1 a capsule. In response, Shkreli said he would back away from the price hike.

Other drug companies followed suit, if only because they’ve been publicly chastised.

Valeant Pharmaceuticals was harshly criticized by members of Congress and others after it acquired two heart medications and then raised the price of the two drugs by more than 200 percent. This week, it announced sweeping price-cutting measures.

The company said Tuesday it plans to deliver more than $600 million in annual savings to U.S. consumers after agreeing to cut the price of several of its drugs as part of distribution agreements with the retail chain Walgreens.

"We have listened to what the marketplace is saying and we've taken positive steps to respond," J. Michael Pearson, Valeant’s chairman and chief executive officer, said in a statement.

Wen Luo, founder and chief scientific officer of Denovo Biopharma, which is preparing phase III clinical trials for a cancer treatment, told Healthline that most drug industry people he knows were “shocked” by Shkreli’s actions and that he hears the complaints from consumers loud and clear.

“It’s important to find a balance between charging enough to sustain a drug company, which relies on research to survive, but not charging so much that patients are unhappy and can’t afford it,” Luo says. “I’m not sure the public is fully aware of how much it costs to get a drug approved. It requires hundreds of millions of dollars and can take 15 years or longer. But that is still no excuse for charging outrageous prices that can not be defended.”

Read More: Diabetes Drug Costs Are High But Could Prices Drop Soon? »

Consumers Want Action, Not Talk

As a result, Americans are becoming increasingly angry over how much they have to pay for their medicine.

Leslie Silverstein, a single mother from Iowa who was diagnosed with Crohn’s disease in 1998, calls it a “shocking situation that can’t be justified by drug company leaders. Preserving this pricing structure for the U.S. is unethical, unpatriotic, and hurting individuals who have families to care for.”

Silverstein, who works in IT for an insurance company, told Healthline she can’t afford the drugs that best treat her condition.

“I'm supposed to take a drug called Pentasa, but last I knew there was only one U.S. maker, no generic version, and I never feel like I can afford it,” she said. “Last time I had a flare, I went to get my scripts and didn't take anything home because it was over $1,000.”

Silverstein “went offshore” for meds for a while, then, she says, “I bit the bullet, got what was prescribed, and took as little as I possibly could as needed instead of for maintenance. I'm a normal, working, middle income person who is shocked to learn what has happened to pharmaceuticals. They're out of my financial reach.”

Jim Lewis, a cystic fibrosis patient from California, told Healthline that his regimen of drugs cost tens of thousands of dollars per month.

“If I didn't have insurance through work or now the Affordable Care Act, as I have a pre-existing condition, my situation would be bleak,” Lewis said. “There is another new drug I will be starting next year, Kalydeco, that is supposed to cost $250,000 annually. That is just not sustainable for anyone without insurance. If I did have to actually pay the charged costs of these medicines I require in aggregate, I'd be paying over $500,000 per year.”

Lewis says the cost of prescription drugs is a “national tragedy for people who do not have good access to healthcare.”

Read More: Neurologists Urged to Fight Back as MS Drug Prices Soar »

Doctors Want Lower Drug Prices, Too

It isn’t just consumers like Silverstein and Lewis who are complaining. Doctors have joined the fray.

In an editorial earlier this month in the Pittsburgh Post-Gazette, several medical experts who treat cystic fibrosis wrote that “runaway drug prices” in the United States must be curtailed.

The editorial’s authors insisted that while the price-setting mechanism for prescription drugs has essentially been whatever the free market will bear, it is time for humanitarianism to balance that out.

This summer, more than 100 oncologists from some of the leading U.S. cancer hospitals, including Mayo Clinic in Minnesota, the University of Texas MD Anderson Cancer Center, and the Dana-Farber Cancer Institute in Massachusetts, called for new regulations on cancer drug prices.

The physicians wrote in the Mayo Clinic Proceedings, a peer reviewed journal, that cancer patients have to make “difficult choices” between spending their money on lifesaving therapies, or forgoing treatment to provide for their families. As a result, the doctors explained, as many as 20 percent of cancer patients simply don’t take their treatment as prescribed.

Read More: Merck Challenges Harvoni with New Hepatitis C Treatment »

Hot Topic on the Campaign Trail

The drug price issue has become a hot topic both on Capitol Hill and among the current Republican and Democratic candidates for president.

The Senate’s Special Committee on Aging last week held the first of what is expected to be several hearings on the price increases for some prescription drugs that are no longer protected by patents. A separate congressional committee is looking at increases in the price of new, innovative branded drugs.

In her opening statements at the Senate hearing, the committee’s ranking member Claire McCaskill (D-Missouri), said, “The American pharmaceutical industry leads the world in innovation, and we rightly prize a system that allows the discovery of medicines that save and improve lives.”

But, she added, “there’s a line at which these huge price increases on prescription drugs go from rewarding innovation to price-gouging.”

Most of the presidential candidates have weighed in, too.

Current GOP frontrunner Donald Trump called Turing CEO Shkreli a “spoiled brat” whose plan to increase his drug’s price by 5,000 percent was “disgusting.”

Sen. Marco Rubio (R-Florida) recently blamed increasing drug costs on “pure profiteering” by drug companies.

And retired neurosurgeon Ben Carson recently said, “the same drug that costs 60 dollars here for a pill, you can go to another country and get it for a quarter.”

But none of the Republican would-be nominees has called for any sort of regulation of the drug industry.

On the Democratic side, both Hilary Clinton and Sen. Bernie Sanders (I-Vermont) have spoken out in favor of new regulations that give Medicare more say in the price of a drug.

Clinton, who’s reportedly received more campaign money from drug companies than any other presidential candidate, recently promised to stop excessive profiteering by drug companies and demand that they invest in research and development in exchange for taxpayer support.

Even before he was a presidential candidate, Sanders was one of the Beltway’s outspoken critics of pharmaceutical prices.

In May, when he still chaired the Senate Committee on Veterans’ Affairs, Sanders sent a letter to Robert McDonald, secretary of the Department of Veterans Affairs, urging him to impose federal law on a drug company whose hepatitis C treatment was unavailable to veterans at VA medical facilities because of the drug’s prohibitive cost of $1,000 a pill.

Read More: Rheumatoid Arthritis Patients Bear Heavy Cost for Biologic Drugs »

Even Generics Are Getting Pricey

Even the price of many generic drugs, which now represent 88 percent of all prescribed medicines, are rising.

The Boston Globe reported this week that a group of drug industry veterans who worked at such pharma stalwarts as Genentech and AbbVie has created a nonprofit company that will make affordable generic medications to treat critical diseases. But to date, the group has found the fundraising for the cause to be an uphill battle.

But while there are more than 14,000 generic drugs, they make up only 28 percent of pharmaceutical expenses, according to Chip Davis, chief executive officer of the Generic Pharmaceutical Association.

“Few if any other industries are delivering nearly 90 percent of the demand at less than a third of the cost,” says Davis, who opposes government regulation of drug prices. Instead, he supports a political environment that encourages more competition.

Davis says Congress “must not address outlier pricing actions of individual companies with sweeping policy that restricts patient access or invites other unintended consequences for the entire universe of generic products.”

Still, drug industry analyst Katsanis wonders how any real change in drug pricing will occur unless there is some sort of governmental regulation or oversight. She says the issue of drug pricing really boils down to the need for more industry transparency.

“The public is demanding that drug companies tell us specifically why they increase prices for their drugs the way they do,” she said. “If you can justify the cost, then so be it. If we want that drug, we’ll have to pay for it. But if you are not transparent, there will continue to be speculation, and people will keep asking why the prices are so high.”

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