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..

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Or the continued price increase for the My;an EpiPen

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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.