Dr. Jerry Avorn, of Harvard Medical School and a long-time critic of the pharmaceutical industry, has published an opinion piece in the New England Journal of Medicine, challenging the costs of drug R&D as elucidated by the Tufts Center for the Study of Drug Development. Last November, the Tufts group published an analysis showing that it costs pharmaceutical companies $2.6 billion to develop a new drug. It is Avorn’s belief that the $2.6 billion figure is being “used to justify the cost of several expensive medications and to support longer periods of exclusivity for new drug products.” His criticisms are the usual ones. For example, he falls back on the fact that the industry capitalizes on the work of the NIH, saying that “without knowing which drugs were included in the Tufts analysis, there is no way to know how many of the ‘self-originated’ products also built on underlying basic science research whose costs were borne by the public.” This isn’t new. All industries in the private sector rely on the great work done by the NIH, the NSF, etc. They then use applied science to turn ideas into products. Avorn also goes into the familiar rant that companies often acquire new products from smaller companies, as if this does not justify the right of the manufacturer to profit from such foresight. His thesis:
We need an accurate determination of all the costs that go into the creation of a new drug to inform ongoing discussions about how best to foster such development and the most reasonable way of paying for truly innovative medicines.
The work from Tufts is important because it provides the public with a sense of what is involved in bringing a new medicine to market. The relevance of this is best demonstrated by revisiting comments from Avorn’s colleague at Harvard Medical School, Dr. Marcia Angell, who in a 2004 Today Show interview while discussing the costs of drug R&D exclaimed:
They give a figure of $800 million…. It is nowhere near there. The best educated guess is that it is less than $100 million.
Avorn and Angell are focused on the wrong issue. When it comes to the pricing of new drugs, R&D costs are not the major driver. Nor should they be. The driver should be the value the drug brings to the healthcare system.
Avorn is right to raise issues about drug costs. Recently, Actavis decided to stop making available its Alzheimer’s drug, Namenda, so that patients would be forced to switch to Namenda XR in advance of the introduction of a generic form of Namenda. This was a blatant attempt to keep patients on a more expensive version of a drug in the face of competition. This isn’t really innovation. Rather, it’s an attempt to keep market share. Similarly, it is concerning when the sole manufacturer of an important generic drug decides to double or triple the cost of the drug because it has this leverage as the only source of the medicine. This isn’t innovation either.
But, when innovation leads to the discovery and development of an important new medicine, then its price, in turn, should be driven by the value that it brings.
Alexion sells one of the world’s most expensive drugs, Soliris. This drug treats two diseases: a rare form of anemia and a rare kidney ailment known as atypical hemolytic uremia syndrome. Soliris costs over $400,000 per patient per year, yet payers around the world reimburse the cost of this drug because, before it was available, each of these patients cost the healthcare system $1 million per year. Even at it high price tag, Soliris provides value – and greatly benefits patients.
Innovation, however, doesn’t guarantee pricing. MannKind’s inhaled insulin product, Afrezza, co-marketed with
New drugs for cystic fibrosis, for treating various forms of cancer, and the hepatitis C cures are all expensive. But for many of these drugs, the cost is more than justified by the value they bring. And, as often seems to be forgotten for new medicines, they also alleviate the burdens of disease and extend lives. To paraphrase an old Bill Clinton expression, when it comes to drug pricing: “It’s the VALUE, stupid!”
