The Rising Costs of Prescription Drugs The health care industry is trapped between serving its patients and enabling pharmaceutical innovation. On back-to-back days in late September, a specialty tuberculosis drug saw its price raised 2,600 percent, while a 62-year-old drug that is the standard of care for life-threatening infectious diseases experienced a 5,000 percent overnight increase. Unsurprisingly, these increases were not received well by the general public, or by specialists in specific medical fields. Rodelis Therapeutics acquired the rights to TB drug cycloserine in August, and subsequently raised the price from $500 for 30 capsules to $10,800. The day after the price hike, Rodelis agreed to return the drug patent to its former owner, the nonprofit Chao Center for Industrial Pharmacy and Contract Manufacturing, which is affiliated with the Purdue Research Foundation. Now, the Chao Center will charge $1,050 for 30 capsules, which is twice what it charged before, but still far less than what Rodelis was planning to charge. The foundation president Dan Hasler told The New York Times the new price was needed to mitigate losses, as the drug has cost the Chao Center roughly $10 million since it acquired its rights in 2007. Similarly, Turing Pharmaceuticals, a start-up run by a former hedge fund manager, acquired the infectious disease drug Daraprim in August. Turing then raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars. After vehemently defending his company decision for 24 hours, Turing CEO Martin Shkreli announced the company had agreed to lower the price of the drug to a point that is more affordable, and will still allow the company to make a profitbut a small profit, he urged. Shkreli did not announce the new price, however. Turing price hike on an old drug is indicative of a growing business trend in pharma where new companies buy old, generic drugs that are mainstays of rare treatments and turn them into high-priced specialty drugs. Of course, with the patent long exhausted, other companies could conceivably step in to produce another generic, but there are business strategies to guard against that. In Turing case, the company switched from selling the drug in drugstores to tightly controlled distribution, making it harder for generic competitors to get access to the drug. Another strategy companies can employillegallyis market manipulation. For example, in August, the Federal Trade Commission (FTC) ruled that Concordia Pharmaceuticals and Par Pharmaceutical colluded to raise the price of generic Kapvay, a medication for ADHD. According to the FTC, Concordia agreed to stay out of the market for Kapvay in return for a share of Par revenue. As Turing Shkreli alluded to, pharmaceutical companies sometimes have a hard time recouping all the costsespecially R&D and regulatoryassociated with developing and manufacturing a drug. Multiple studies in the past few years have concluded that only one-third of prescription drugs make a profit for the developing company. And those drugs are often ones for popular, non-life threatening issues (think Viagra) rather than common illnesses like high blood pressure and asthma. The pharmaceutical industry seems to be caught between a rock and a hard placebetween serving its patients and facilitating innovation. Both require an extensive amount of money, and therein lies the problem. The effect on generic drugs Generic drugs are intended to serve as the national policy solution to high prescription drug prices. Traditionally, when a generic enters the field, drug prices decrease by 80 to 90 percent for oral prescriptions. For specialty infused/injected drugs, prices usually decrease about 60 to 80 percent. In the last five years, however, this has not been happening as it has in the past. According to a recent survey by Consumer Reports, 33 percent of Americans have seen their prescription price rise an average of $39 over the last year. One in 10 said they are now paying at least $100 more than they did a year ago. The cost of medications for asthma, high blood pressure and diabetes went up more than 10 percent each, making them among the drugs that saw the highest increase last year. And given that six of every seven prescriptions filled in the U.S. is for generic medications, the price increases are especially harmful. From 2012 to 2013, the cost of the generic blood pressure medication Captopril climbed more than 2,700 percent, the asthma drug Albuterol sulfate went up more than 3,400 percent and the antibiotic Coxycycline jumped 6,300 percent. One out of four people whose prescription drug costs went up said they were unable to pay their medical or medication bills, according to the survey by Consumer Reports. Seven percent said they missed a mortgage payment, one out of four stopped getting their prescriptions filled and one out of five skipped scheduled doses. For generic drugs, experts place the price blame on aging production facilities, shortages of ingredients and, most importantly, competition. Drugs in the generic specialty (infused/injected) market can require more specialized equipment and knowledge to satisfy regulatory processes. According to Rena Conti, Asst. Professor of Hematology/Oncology at the University of Chicago, there are just not enough players in the generic specialty drug market that have the capability to manufacture these drugs. On top of that, due to an abundance of mergers and acquisitions in the past 15 years, the generic specialty drug market is essentially a monopoly or oligarchy. We need more generic manufacturers to be willing to make older infused/injected drugs because the more entry we have into the generic specialty drug market, the more we can expect price cuts, Conti explained to Laboratory Equipment. Getting two or three manufacturers willing to manufacture these drugs in sizable quantities would naturally break the monopoly and bring prices down. Not only have mergers and acquisitions reduced the number of companies in the market, but contract manufacturers have become increasingly popular. While there may be multiple labels for one drug, there is actually only one manufacturera contract manufacturer that is making the drug for everyone to slap their own label on. We know this is an issue because of drug shortages, said Conti. Shortages appear to be linked to drugs that have very tight ties to contract manufacturing. Drug shortages not only affect customers and prices, but also R&D. If the drug in question is the backbone of a specific therapy, laboratories need increased access to confirm efficacy and carry out additional analysis. Often, these drugs act as the comparative drugs in clinical trials. Another drug for the specific ailment cannot be produced without first evaluating its effectiveness in a clinical trial, which can prove difficult without access to the current gold standard. Conti and her team studied the launch price of new oncology drugs from 1996 to 2012. They concluded that approximately one-fourth to one-third of price increases were related to the quality of drugs becoming better. As for the rest of the price inflation, it a tale as old as time. There is this natural ecology of price where the market appears to be signaling they are willing to pay higher prices, so even after adjusting for inflation, companies know they can price their drug higher than previous years just because the ambient mood for process has changed, said Conti. In other wordssupply and demand. Patent protection If supply and demand is the problem, the solution is simple: increase competition. However, in the pharmaceutical industry, that is easier said than done. Drugs receive a 20-year patent life from the date of filing on the first molecule. This means the patent clock is ticking all through R&D, clinical trials, FDA approval and standard marketing operations. While it varies by drug, in some cases manufacturers only have eight to nine years of patent protection left by time the drug finally enters the market. Given the expense of R&D, that may not be enough time for manufacturers to recoup their costs. Most health care experts, including those Laboratory Equipment spoke with, favor lengthening patent protection, not making it shorter. Patent protection is one of the ways government facilitates innovation in drugs, said Janet Schwartz, Asst. Professor at Tulane University Freeman School of Business. Competition is great for consumers, but it can limit innovation because now drug companies cant patent their molecules or materials so anyone can come along and market the drug and the original manufacturer would never recoup the costs. A situation like that can only lead to one thinginvestors dropping out of pharma because they dont get their money worth. This would decrease competition even further, and put innovation, safety and efficacy on the ropes. Proponents of shorter patent life say shortening the expiration would increase competition, lower overall costs and create an environment that includes more options for consumers. It definitely a balancing act between how much of the patent protection results in innovation and giving up competition that would make prices more reasonable, said Schwartz. So, how do we strike that balance? Schwartz says it all about better pharmacological economics. Drugs should get a preferred status from the government if they are proven once theyve gone head to head with other drugs out there, she said. It would be a way in which manufacturers could recoup some of their costs because they are the best medication to serve the population or illness. They will get the premium from that so they dont have to gauge consumers. Ken Holroyd, Assistant Vice Chancellor for Research at Vanderbilt University Medical Center, agreed that companies would probably feel less pressure and lower their prices if patent life was longer. But, he suggested looking more toward the future than trying to fix the present. We should decrease interest in investing in small molecule chemical drugs and increase interest in developing biologic drugs, Holroyd told Laboratory Equipment. That is an area where there is limited competition even when the drug if off patent because biosimilar pathways are still at an early stage. The government is encouraging companies to invest in biologics, and they are even being given longer market exclusivity. Medicare Part D Medicare, specifically Part D, plays a huge role in prescription drug prices. It also one of the most hotly contested issues in the pharmaceutical industry, and not just between politicians, but among scientific experts, as well. Medicare Part D is a federal government program that subsidizes the costs of prescription drugs and insurance premiums for Medicare beneficiaries. The plan went into effect on Jan. 1, 2006. Now, however, it has fallen under scrutiny as drug prices continue to rise across the nation. The big deal with Medicare Part D is this: it has a noninterference clause that bars the federal government from negotiating prices directly with pharmaceutical companies. All the negotiations are left to private insurers and drug companies. The United States is the only nation that operates this way. Most other countries give the government direct sayand most other countries have significantly lower drug prices than the U.S. So, it makes sense that some experts would lean this way. But, according to Kenneth Thorpe, Chair in the Department of Health Policy and Management at Emory University, there is more to Medicare Part D than meets the eye. The drug program, which covers 37 million seniors, has come in $350 billion under budget with a 90 percent satisfaction rating. Monthly premiums for the program are expected to be $32.50 for 2016a price that has barely risen in the last five years. In fact, Part D accounts for just 14 percent of Medicare budget but is responsible for 75 percent of its projected savings in the next decade. The secret to Part D affordability, Thorpe told Laboratory Equipment, is the noninterference clause. He says there could be dangerous consequences if the government was allowed to negotiate prices directly with industry. If government negotiators set prices too low, pharmaceutical companies could be left off drug formularies, denying seniors access to many medicines, said Thrope. And, artificially low prices could deprive drug companies of future funds to invest in the risky, expensive research that leads to better treatments and cures. Essentially, government-led negotiations in Part D could stall the pipeline of new drugsone that has highly benefited from the plan previously, Thorpe says. By expanding the number of seniors with prescription drug insurance, an additional source of revenue was opened up to pharmaceutical companies for future devlopment. For example, before Part D was implemented, there were 18 Alzheimer drugs in development. Now, there are 82. Additionally, the number of diabetes drugs in development jumped from 34 to 142, and 29 arthritis drugs in the pipeline became 92. Thorpe insists that prescription drugs are not just about price. The most useful way to look at whether we are getting value for our dollar is the actual treatment. With diabetes or hypertension, it important to look at the total medical care costs of treating those conditions, he said. According to a 2011 study published in JAMA, by helping seniors manage their chronic illness, Part D has saved Medicare $12 billion annually in costly hospitalizations and nursing home stays. University of Chicago Conti agrees that Medicare Part D has been a success, and would like to see the model extended to other arms of Medicare. She also agrees that wiping out the noninterference clause and allowing the government direct negotiations would have disastrous effects. The difference between the U.S. and other OCED nations is sizethe U.S. is responsible for approximately 50 percent of total drug spend in the world. No other single nation is even close. Additionally, drug prices around the world are pegged off the U.S. price. If the U.S. was to implement a drastic policy change, it would have enormous ripple effects worldwide, harming R&D expenditures the most, Conti says. Once you have a situation where the government is the majority payer, then you get into situations of government procurement, said Conti. Before drugs get produced, the payers say yes we want them and we will pay the high costs for R&D. But once they are produced, the government can then turn around and say now we want the lowest price possible for this drug and as your majority purchaser, whatever price we negotiate is the standard price. It acts as a floor for everyone else. In those type of markets, innovation dries up. Of course, there is another side to the story. While some will argue that the government direct interference is unfair and it hurts pharma ability to innovate; at the same time, many people feel the industry has taken advantage of the fact that the government cant step in and the prices have gotten out of control, said Tulane Schwartz. Vanderbilt Holroyd is in favor of direct negotiation by the government, but for a different reason than other experts. If we cant pay for drugs without putting the burden on our children and grandchildren, should we be spending the money right now on pharmaceuticals? Or should we wait for them to be developed more slowly? Currently, we want them now and are borrowing the money from the future. I do think if the government was more involved with that, it would be a better transition process for the future.