Category

Drug Costs

Creating Stakeholder Dialogue Around Drug Pricing

By | Drug Costs, Healthcare Costs, Healthcare Value, Informed Patient, Rising Cost, Uncategorized | No Comments

The increase in prescription drug pricing and spending has been one of main factors contributing to the high costs of healthcare in the United States. In fact, according to a 2015 report by the National Center for Health Statistics, the national health expenditure for prescription drugs made up 10.1% of the total national health expenditure that reached $3.2 trillion that year [1]. Certain measurements of drug pricing villanize manufacturers an industry with outrageous cost and spending of prescription drugs. For example, patent exclusivity, research and development efforts, and competition in the market are generally blamed for the initial price increases. However, these measurements also cause skepticism and inaccuracies, thus shining a negative light on pharmaceutical companies. Therefore, the outliers misrepresenting pharmaceutical companies and the number of failed drugs need to be addressed in order for patients to have a better understanding on drug pricing.

Two outliers that don’t represent the overwhelming amount of biopharmaceutical companies are Mylan and Turing Pharmaceuticals. In 2007, Mylan Pharmaceutical acquired EpiPen, a handheld device that injects epinephrine to an individual with life-threatening allergic reactions, and increased the price of the drug by 500% [2]. The price rose from $100 to $600 in 2008 without any justification [3]. To no surprise, the company came under fire by the media for its unethical approach. The price increase can be attributed to Mylan’s patent use which allowed them to profit off of the drug without facing competition from a generic drug for a period of time [4]. In a similar situation, Martin Shkreli, founder and CEO of Turing Pharmaceuticals, raised the price of the drug Daraprim from $13.50 to $750 a tablet overnight [5]. What were once ‘affordable’ drugs became unaffordable for the vast majority of users causing outrage and shaming for pharmaceutical companies. Again, there are outliers that don’t represent the overwhelming majority of pharmaceutical companies that are developing new and novel drugs.

According to the 2017 Edelman Trust Barometer, the trust in the healthcare industry is slowly increasing compared to last year [6]. The trust in pharma in the U.S. seems to be “neutral.” With pharmaceutical companies like Mylan and Turing, it’s understandable why Americans might not be fully invested in pharma. When pharmaceutical companies make the headline in the news, it usually is unfavorable.

Furthermore, research and development is key when it comes to developing new drugs and used as justification for drug pricing. As we know, the process of creating a drug involves a lot of trials and errors where high costs are incurred in order to satisfy regulations imposed by the Food and Drug Administration (FDA); thus, it can create opportunities to price the drug even higher than it actually cost to get it out to the market. According to the 2017 Edelman Trust Barometer, 8 out of 10 people believe the pharmaceutical industry puts profit over people [7]. In reality, pharmaceutical companies only realize 39% of initial gross drug expenditures [8]. In addition, companies like Gilead are helping subsidize the cost of its drug, Epclusa, in Australia, which will help approximately 200,000 Australians that face the challenges of hepatitis C [9]. For example, Merck created an HPV vaccination program for cervical cancer in Rwanda [10]. Despite the media’s negative coverage, several other pharma companies have partnered with organizations like the Gates Foundation and UNICEF to provide medications for the developing world [11].

Lastly, it’s critical to address the failed formularies that ultimately lead to higher pricing as these costs must be recouped. The price to develop a drug is over $500 million [12]. According to the Tufts Center for the Study of Drug Development, the cost to develop and win marketing approval for a new drug is $2.6 billion [13]. The variance in the two aforementioned distinguish by fourfold, but it’s really expensive. Aside from this statistic, during clinical research phase studies, only 25-30% of initial drugs move to phase 4 where the drug is trialed by volunteers with the disease of interest [14]. The development of a drug can take a long time, especially when it comes to illnesses like cancer or HIV. During this time, the initial fund to conduct these studies starts to deplete. As patients, we need to understand that these are factors that even pharmaceutical companies have no control over.

As we wait for a viable healthcare reform under the current administration, it’s important to push for one that restores the well-being and decreases the burden of millions of Americans. During the process, there needs to be increased dialogue between patients and providers, such as pharmaceutical companies. All to avoid situations like that of Mylan and Turing. If drug pricing continues to increase, the biopharmaceutical industry will face more scrutiny. There will be increasing tension between patients, pharmaceutical companies, and pharmacy benefit managers (PBM). It’s important for all stake holders to be open and transparent in order to resolve these issues successfully. In an ever changing environment, we must learn to understand the process in order to appropriately resolve issues plaguing our society. We are ever changing.

To further explore the drug pricing trends, CHI is organizing the 5th Annual Healthcare Executive Roundtable on October 12, 2017, in Manhattan, New York. The Center for Healthcare Innovation’s “Understanding Value in Consumer-Orientated, Patient-Centric Era” Roundtable is an intimate, invitation-only, expert roundtable discussion for healthcare executives, key opinion leaders, and patient groups to discuss how stakeholders throughout the healthcare ecosystem can address critical issues related to healthcare value, quality, and cost. This year’s Roundtable will focus on several key market forces that affect the current state of healthcare in the U.S. Please visit http://chisite.org/roundtable/ for more information.

Work Cited

[1] Health Expenditures. Centers for Disease Control and Prevention. https://www.cdc.gov/nchs/fastats/health-expenditures.htm. Accessed September 14, 2017.

 

[2] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. https://www.nytimes.com/2016/08/25/business/mylan-raised-epipens-price-before-the-expected-arrival-of-a-generic.html?mcubz=3. Accessed September 14, 2017.

 

[3] Mylan finalizes $465 million EpiPen settlement with Justice Department. CNBChttps://www.cnbc.com/2017/08/17/mylan-finalizes-465-million-epipen-settlement-with-justice-department.html. Accessed September 14, 2017.

 

[4] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. https://www.nytimes.com/2016/08/25/business/mylan-raised-epipens-price-before-the-expected-arrival-of-a-generic.html?mcubz=3. Accessed September 14, 2017.

 

[5] Drug Goes From $13.50 a Tablet to $750 Overnight. The New York Times. https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html. Accessed September 20, 2017.

 

[6] Trust in Healthcare: Making Progress. Edelman. https://www.edelman.com/post/trust-healthcare-making-progress/. Accessed September 20, 2017.

 

[7] Trust in Healthcare: Making Progress. Edelman. https://www.edelman.com/post/trust-healthcare-making-progress/. Accessed September 20, 2017.

 

[8] Majority of Drug Revenue Not Going to Pharmaceutical Companies. The American Journal of Pharmacy Benefits. http://www.ajpb.com/news/majority-of-drug-revenue-not-going-to-pharmaceutical-companies. Accessed September 20, 2017.

 

[9] New Hepatitis C Drug to be subsidized in Australia. The Pharma Letter. https://www.thepharmaletter.com/article/new-hepatitis-c-drug-to-be-subsidized-in-australia. Accessed September 25, 2017.

 

[10] Even Pharma’s Good Deeds Are Criticized. Forbes. https://www.forbes.com/sites/johnlamattina/2013/05/06/even-pharmas-good-deeds-are-criticized/#612c29ec4cd3. Accessed September 20, 2017.

 

[11] Even Pharma’s Good Deeds Are Criticized. Forbes. https://www.forbes.com/sites/johnlamattina/2013/05/06/even-pharmas-good-deeds-are-criticized/#612c29ec4cd3. Accessed September 20, 2017.

 

[12] R&D Costs For Cancer Drugs Are Likely Much Less Than Industry Claims, Study Finds. NPR. http://www.npr.org/sections/health-shots/2017/09/11/550135932/r-d-costs-for-cancer-drugs-are-likely-much-less-than-industry-claims-study-finds. Accessed September 20, 2017.

 

[13] Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion. Tufts Center for the Study of Drug Development. http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study. Accessed September 28, 2017.

 

[14] Step 3: Clinical Research. U.S. Food & Drug Administration. https://www.fda.gov/forpatients/approvals/drugs/ucm405622.htm. Accessed September 20, 2017.

 

Need for Diversity in Clinical Trials

By | Clinical Trials, Diversity & Inclusion, Drug Costs | No Comments

Clinical trials are essential to bringing new medicines to patients. An important aspect of clinical trials is to make sure that the drug is effective for a diverse group of people. Diversity in clinical trials has recently been a key issue. There is no comprehensive way of defining diversity, as it could include gender, race, ethnicity, sexual orientation, and more, depending on the dimension from which it is viewed. Unfortunately, many clinical trials lack diversity in representation.

A diverse nation like the United States has an assortment of populations, with White Americans forming the ethnic majority. Hispanic and Latino Americans amount to 16% of the population, making up the largest racial minority1. African Americans are the second largest racial minority, accounting for 12% of the population1. Adding to this is the international community which lands in the U.S in search of opportunities. Already diverse cities are becoming increasingly mixed with immigrants from Asia, Africa, and Latin America. The U.S. is a diverse country, so why do our clinical trials not reflect the same level of diversity?

Clinical trials are an essential part of drug development. These provide a base of evidence for evaluation of a drug. Each drug needs to be tested for its efficacy, ease of application, side effects, and many other factors before being launched into the market. The average drug developed by a major pharmaceutical company costs billions of dollars to develop. In general, the drugs are not specifically designed with every racial group in mind due to the cost of production. That is why clinical trials are an important tool to determine the drug’s effectiveness on the population as a whole. The trials are performed on a sample population and researchers try to prove its statistical significance on the entire population. Hence, it is very much essential for clinical trials to be diverse to represent the population. People from diverse cultures differ among factors such as their predisposition to diseases or the environment they are exposed to. To create awareness, the FDA announced 2016 as “The Year of Diversity in Clinical Trials.” Despite an increase in awareness, the current trend is unsatisfactory. According to the FDA, African Americans represent 12 % of the U.S. population, but only 7% of clinical trial participants. Additionally, Hispanics represent 16% of the U.S. population but only 1% percent of clinical trial participants2. In a country where minorities are estimated to outnumber white Americans by 2044, the inclusion of individuals of varied races, ethnicities, ages, gender, and sexual orientation in clinical trials can help to prevent disparities in the evaluation of potential new medicines2. Clinical trials ensure top quality drugs and diversity in clinical trials should be considered to provide better treatment.

The 7th Annual Diversity, Inclusion, and Life Sciences Symposium will discuss the trends, facts, insights, and best practices regarding diversity in clinical trials. Attendees will learn the newest insights and ideas, discuss practical solutions, and meet industry and marketplace colleagues. Please visit http://chisite.org/dilss/ for more info or to register.

 

  1. Source: Wikipedia
  2. Source: Center for Healthcare Innovation – DILSS 2016 Executive Summary

Examining the Cost of Drugs

By | Drug Costs, Healthcare Access, Healthcare Costs, Rising Cost | No Comments

drugprices

In a previous blog post, I discussed the complicated nature of drug pricing and the public relations issues that the biotech and pharma industries face. Issues include high-priced drugs and accusations of price gouging as well as unusually or unnecessarily high profits stemming from supposed greed within the biotech and pharma industries. In this blog, I want to provide a few examples of profits, how these profit margins compare to other industries, and the ethics of profiting from potentially life-saving and necessary therapies.

As I pointed out previously, drug pricing is unusually complex. While it is true that manufacturer pricing tends to be a black box, that is, pharma companies closely guard how they price their products, this price is rarely passed on, in full, to the patient. Instead, insurers cover what co-pays do not which is typically a fraction of the whole cost. The involvement of insurance companies as well as government entities (Medicare and Medicaid) are also undoubtedly taken into consideration for drug pricing. Other complicating factors such as intellectual property, foreign market pricing, and drug development costs must be factored in to how drugs are priced by the manufacturer.

In large part due to this lack of transparency, consumers have griped about drug pricing and pointed to pharma profits as being too high, excessive, or, perhaps, unethical.   

An article posted by the BBC [1] in 2014 took the pharma industry to task by highlighting Pfizer’s 2013 profit margin of 42% as evidence of their greed and profiteering. However, as stated in the same article, this figure is inflated due to Pfizer’s spin-off and profit from their animal health branch, Zoetis, which netted Pfizer $10.5B that year. Neglecting this influx of cash, their profit margin came in at 24% which the author claims as “spectacular”. While higher than some industry peers, or other biotech/pharma companies, this is not atypical from profit margins of other industries according to BusinessInsider [2] listing “Software and Tech” at 26.9% and “Beverage and Tobacco” at 29.2%. In terms of industry peers, BI lists pharma and biotech’s average profit margin at 19.3% which is generally in line with most other S&P500 sectors.

In terms of sales, from 2010 to 2013, Pfizer’s sales revenue dropped from $67B all the way to $52B, a drop of over 22% [3]. Since 2013, Pfizer’s profit margin has dipped as low as 9.4% in the 4th quarter of 2014 [4]. In fact, by their financials, in addition to the cash influx from Zoetis, Pfizer cut roughly $5B from their liabilities in 2013 by reducing “Unusual Expense” which inflated their net income for the year, thus boosting their profit margin. So, while their overall revenue was declining, their net income shot up for one year, and the BBC decided to pick this anomaly as their benchmark.  

In terms of increasing profits year over year, a recent article from Forbes [5] suggested that biotech and pharma companies are facing an uphill battle to increase yearly profits. From their calculations, the top 15 biotech companies only posted a year over year profit increase of 2.4%; dramatically lower than annual profits Apple posted between 2010 and 2012 at 78.5% 66%, 44.6%, and 9.2%, respectively [6]. So, while their sales and revenues are in the billions of dollars, their revenues, over a yearly basis, are not increasing as dramatically as the public may perceive them to be.

The underlying issue here, however, is the ethicality of profiting, no matter to what extent, at the expense of patients in need. The argument boils down to if an average profit margin of 19.3% for the biotech/pharma industry is too high and ethical to do so. On one hand, cutting-edge therapeutics should be provided to patients in need at the lowest cost possible. Therapies should never be a burden to the patients that require them. After all, if the cost is too prohibitive to even get it to a patient, what is the point of developing a therapy? On the other hand, these industries are still composed of businesses that rely on profits to continue to develop innovative technologies, attract the best qualified, most intelligent talent to the their organization, and deliver on the promise to save lives and improve global health.

Of course there’s always room for criticism and room for improvement. Non-profit entities have shown promise for reducing costs associated with drug development and reducing risk for larger companies, but their effectiveness has yet to be proven as the number of non-profit companies remains low. Also, many companies such as Pfizer and Abbvie participate in prescription assistance programs that provide their drugs for free to needy patients unable to afford them.[7,8] In these cases, the drug industry has provided ways to reduce the price burden on the patient.

The Center for Healthcare Innovation remains unbiased, objective and neutral. In future posts, I will continue to look at drug pricing and focus on the issue of high-priced drugs and how this affects public perception of pharma as well as increases costs throughout the healthcare system.

References

  1. http://www.bbc.com/news/business-28212223
  2. http://www.businessinsider.com/sector-profit-margins-sp-500-2012-8
  3. http://www.marketwatch.com/investing/stock/pfe/financials
  4. https://ycharts.com/companies/PFE/profit_margin
  5. http://www.forbes.com/sites/johnlamattina/2015/03/23/big-pharma-but-not-such-big-money/
  6. http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Revenue_Growth/2012
  7. http://www.pfizer.com/health/financial_assistance_programs/patient_assistance_programs
  8. https://www.pparx.org/prescription_assistance_programs/list_of_participating_programs

Drug Pricing Debate Heats Up as Turing Pharma Raises Price 5,000%

By | Drug Costs, Health Insurance, Healthcare Providers, Rising Cost | No Comments

9:30

Drug pricing continues to be a prevalent issue affecting many Americans’ daily lives. In fact, high drug costs are one of the most important issues affecting Americans. This issue recently made headlines after Turing Pharmaceuticals acquired the rights of Daraprim and raised prices from $13.50 a tablet to $750 overnight. That’s a 5,000% increase – Imagine if the price of a $4 gallon of gasoline rose to $222 per gallon. Daraprim is used to treat a parasitic infection called toxoplasmosis that can be life-threatening for people with weakened immune systems like newborns and those with cancer or AIDS. The drug has been on the market and approved by the FDA since 1953, so many are outraged that, after six decades, a drug price suddenly surges more than 5,000%. Even with insurance, people could be paying around $150 per pill, according to the HIV Medicine Association.

Two Democrat presidential hopefuls, Bernie Sanders and Hillary Clinton, both expressed outrage over this sharp drug price hike and have proposed plans to reduce drug costs and to prevent seemingly drastic arbitrary drug price increases if elected.  Sanders drew Turing into an ongoing congressional investigation of drug price increases as Daraprim is not an isolated case of drug price spikes. Sanders along with his colleague, Elijah E. Cummings, stated that “Americans should not have to live in fear that they will die or go bankrupt because they cannot afford to take the life-saving medication they need.” Clinton echoed this sentiment by stating, “nobody in America should have to choose between buying their medicine and paying their rent.” Even industry representatives showed outrage.  In what was perhaps one of the most stinging criticisms, John J. Castellani, President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s trade group, disavowed the company and Shkreli.  “PhRMA typically does not comment on matters related to individual company products or product pricing decisions,” he said in a statement. But, “Turing Pharmaceutical is not a member of PhRMA and we do not embrace either their recent actions or the conduct of their CEO.”

Turing CEO Martin Shkreli defended the new pricing of the drug by stating that the increase in revenue will be used to further research treatments for toxoplasmosis with fewer side effects, as well as allowing the company to invest in marketing and education to raise awareness of the disease. “This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business. This is still one of the smallest pharmaceutical products in the world,” he said. “It really doesn’t make sense to get any criticism for this.” He went on to say that Daraprim only has about an 80% success rate for treating toxoplasmosis, with also some possible toxic side effects. With increased funding for research and development, he believes that Turing can make a better drug with a higher success rate.  He went on to argue in an interview with CBS News that there “hasn’t been one pharmaceutical company focused on [the disease] for 70 years,” and this increase in funding will help the company dedicate itself to finding a cure to toxoplasmosis. He further stated that it would be losing money if it didn’t raise the drug price and now at the current price they are making “a reasonable profit, not excessive at all.”

Other professionals in the industry vehemently disagree. “Patients shouldn’t be taxed and charged for future research and development. Patients should pay for the drug they’re getting and what they need in the situation that they are” Oncologist Dr. David Agus said. He further added that “it’s predatory practice and it’s inappropriate.”

Shkreli emphasized the importance of the profitability success of his drug company which can be applied to other companies as well. “There’s no doubt, I’m a capitalist. I’m trying to create a big drug company, a successful drug company, a profitable drug company,” he said. “We’re trying to flourish, but we’re also — our first and primary stakeholders are patients, there’s no doubt about that.” However, the NASDAQ biotech index went down 4.41 percent on Monday September, 21st after headlines regarding this issue spread.

Questions of how the patients using the life-saving drug before or new users can obtain it if they cannot afford the new prices were prevalent immediately following Shkreli’s decision. After facing backlash, Shkreli made an announcement that if someone cannot afford the drug, the company will “give it away totally for free,” according to Bloomberg. He went on to state that the company would not deny someone a drug based on their inability to pay for it.

Dr. Judith Aberg, Chief of the Division of Infectious Diseases at Mount Sinai, raised concerns that hospitals may find the drug too expensive now after the price increase to keep in stock, which could result in treatment delays. She went further to say that “this seems to be all profit-driven for somebody and I just think it’s a very dangerous process.”

The case of Turing demonstrates that drug pricing still remains a hot bed issue. In December 2013, the FDA approved a new drug, Sofosbuvir, for the treatment of Chronic Hepatitis C.  The drug, commonly known as Sovaldi, was developed by Gilead Sciences, a U.S. biotechnology company.  The initial price tag of a 12-week treatment of Sovaldi was reported as approximately $84,000, or nearly $1,000 per pill.  This resulted in considerable media attention and an ensuing pricing controversy.  Editorials and op-eds sprung up around the country debating Sovaldi’s price tag and the broader debate over fair drug pricing.  Some politicians expressed outrage over the cost of new drugs, while others argued for free market pricing and rewards for the considerable R&D costs that biopharmaceutical companies incur when bringing a new drug to market.  The often niche drug pricing debate had officially spilled over into the mainstream conversation.  Payers, policymakers, pharma, patients, and providers all voiced strong— and sometimes contrasting— opinions.

To be sure, the issue of drug pricing is a hotbed issue that won’t go away anytime soon.