Insurers to blame for high drug prices?

February-Legal-RoundupKEY TAKEAWAY: Peter Pitts tries to come to pharma’s defense about the cost of prescription drugs, but the court of public opinion is too strong and too many pharma CEO’s have acted in bad faith.

As a former member of the FDA I respect Mr Pitts in his points around pharma including:

  • Since 2000, drug firms have spent more than $500 billion developing new medicines. Research costs last year alone totaled almost $59 billion, up from $15.2 billion in 1995. The pharmaceutical sector spends five times more on R&D than aerospace, and two and a half times more than the software industry.
  • Much of this money goes toward the hundreds of potential treatments that never make it to market. Of those few medicines that enter human testing, just 12 percent win federal approval. The high failure rate is why creating just one FDA-approved medicine costs nearly $2.6 billion.
  • Drug companies don’t have “infinite pricing power,” as critics claim. Just look at the fierce competition among the makers of hepatitis C treatments. Gilead, the first company to enter the market, priced its two cures, Sovaldi and Harvoni, at $84,000 and $94,500 for full courses of treatment. Soon other firms entered the market, sparking a fierce price war that led to 50 percent discounts for insurers. Hepatitis C drugs now cost less in the U.S. than in Europe.

These are all valid points, but Mr Pitts forgets that profit margins for pharma companies are among the highest of any industry, pharma CEO’s pocket millions of dollars in compensation and Gilead did not develop the Hep-C drug, they bought it from someone who was a VA employee.

How does Mr Pitts defend the price increases for insulin..


Or the continued price increase for the My;an EpiPen


Insurers say they are seeing huge cost increases for some commonly used generic drugs, with prices surging 15, 25, and even 75 times what they were just two years ago.

Mr Pitts is right to suggest that the cost of developing new drugs is expensive, but what he misses is that pharma is raising prices on drugs that have already been approved because “they can”.   Baxalta raised the price of their cancer drug for leukemia because they thought the price was too low.  They did not spend any R&D money, they bought it from another company.

The old arguments about R&D and drug failures maybe relevant when it comes to developing new drugs but let’s not try and say that price increases are not about shareholders and Wall Street.


2 thoughts on “Insurers to blame for high drug prices?

  1. What you miss and Peter Pitts gets right, is that the major contributor to soaring drug list prices is continual and progressive rebating demands by Big Insurance and the PBMs. Without at all justifying Mylan (they need to account for their own actions), do you not find it noteworthy that they raised price on EpiPen by 31% in 2015 and also saw a 7% increase in prescriptions, yet net revenue from EpiPen actually DECLINED by 2%? That implies that Mylan did not keep a dime of the 31% increase and actually went backward in sales, which would have declined even more without the 7% increase in units sold. Where did that money go? It went to rebates and fees to the PBMs, wholesalers, etc. We are stuck in a vicious, escalating circle of rising rebates, requiring drug innovators to take ever higher list prices, of which they only keep some fraction or even none. There is no transparency so everyone can know who is taking what part of the drug dollar. What you also miss is that the pharmaceutical industry invests more of net revenue in R&D–almost 20% on average–than ANY other industry, and its Return on Equity is actually around 42nd place (24th if you only look at the large companies). That reflects the reality that almost 9 out of every 10 drugs invested in by the industry fails. Yes, if you happen to be one of the lucky few who succeed, you may see outsized revenue and profits for a limited exclusivity period. But the vast majority of the few thousand biopharma companies are currently unprofitable, yet 80% of the innovation is being produced among the small, unprofitable companies. In other words, drug innovation is an ecosystem that has led to the US producing about 60% of all new drugs, with only about 4.5% of the words’ population. That is an enviable system. And yes, there most certainly are excesses by a minority, but there’s a real risk of throwing the proverbial “Baby out with the bathwater” if we go for easy soundbites rather than the more difficult analysis that is needed. As to generic drug price rises, they are partly related to the issues above, but even more to the compression of that industry over time, due to multiple mergers, closing of manufacturing lines by regulators and rising costs and time lines of getting approval for new generics. These require separate solutions, as the generics side of the industry i very different from the innovator side. 90% of all prescriptions today are for generics–they are commodities, old drugs that are supposed to be manufactured and sold cheaply forever, to allow the system the financial leeway to pay higher prices for new, better, innovative drugs.

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