There is no doubt that the advancement of medical technology is a very expensive business. Research into new drugs by the 10 biggest drug companies in 2013, for example, exceeded $66 billion in brand-new spending. That’s a whole lot of money that their investors and shareholders are willing to risk for the NEXT big drug. And this level of investment has actually been growing for about 20 years straight — even more so lately, as global capital is chasing its way into the United States looking for a strong return. A really strong target for this capital is the U.S. pharmaceutical industry.
To its credit, over 50% of the new patented drugs invented worldwide over the past 10 years were invented in the U.S. with U.S. know-how and by people willing to risk lots of capital. It’s a hard fact that a lot of money is spent on research and development on drugs that never make it to market. It’s a risky business, making new drugs, to be sure. Miracles cost money, right?
I have several close friends with debilitating arthritis. The cruelty of this disease is that inflammation occurs when the body’s immune system attacks the joints and connective tissues. It’s just plain horrible. For years I watched them suffer. Several lost their ability to walk and move around, and frankly, their desire to live their lives was sapped away by the disease.
About 15 years ago, drug companies began to experiment with drugs that were made in an entirely different way. Instead of being made in a lab, these drugs were excreted by complex biological organisms that were genetically engineered to just do that and nothing else. Is that wild or what?
The Hep C cures came on the market high, around $1,000 per day for the most common treatments. The average 84-day treatment regimen ran around $84,000. But now, as more treatments have come to market, the prices of these drugs are starting to inch down. They are still pretty expensive, but capitalism seems to be working in the Hep-C space. That’s great news!
These new drugs, called “biologics” have a much more complex molecular structure than other drugs, but one of the earliest was remarkably effective at reducing the inflammation that put arthritis patients out of the game of life, and got many of them right back on their feet – literally. For these friends of mine, this new drug was an outright miracle.
And of course, drugs made in the lab the old-fashioned way can be pretty amazing too. Just two or three years ago, a cure came onto the market for Hepatitis C. The previous treatments rarely cured anyone, didn’t really slow the disease that well and caused horrible side effects including depression. Suddenly, there was a new pill. Almost no side effects. And 90-180 days later, 95% of patients were cured. Permanently. We literally went from no solutions for a horrible condition (currently affecting six million Americans) to a condition that is now curable. Wow!
These amazing success stories have a glaring difference. One of these classes of drugs is becoming rational in its pricing. The other has gone crazy. And both these “miracle cures” cost a lot of money.
The Hep C cures came on the market high, around $1,000 per day for the most common treatments. The average 84-day treatment regimen ran around $84,000. But now, as more treatments have come to market, the prices of these drugs are starting to inch down. They are still pretty expensive, but capitalism seems to be working in the Hep-C space. That’s great news! And we need it to come down, if you consider six million Americans have this condition, and if we gave them all the cure this year at even $50,000 each, that would cost $300 BILLION. That would DOUBLE our nation’s drug spend in a single year. Wow! Let’s hope the prices keep coming down.
Based on my research, I have settled on three reasons why drug companies are pushing these drugs so far out of reach for regular folks
But not so with the old anti-inflammatory drugs. There are now MORE of these drugs on the market today than there were just a few years ago. You would think that might push down prices a bit, right? Well, in terms of money spent, these drugs now absorb more money per person than any other class of drug out there, and the prices are GROWING!
Look at this graph (from the Wall Street Journal) for one of the three most popular anti-inflammatory drugs pricing since 2007. And yes, that’s the price for 12 months of the drug:
In worse news, in 2015 the prices for the entire CLASS of biologic anti-inflammatory drugs, none of which are “new,” went up 15%, about triple medical inflation. You can see capitalism here is CLEARLY not working.
So, what happened? Did their cost to produce the drugs go up? No. Was there some sort of interruption in the supply, causing a shortage? No. In fact, there are many biologic drugs used for the exact same conditions. Let’s call the three most popular AI-H, AI-R and AI-E. There is plenty of each to go around. So, why the price increases?
So, the real question becomes, can you afford your miracle? It depends on how much you, your employer and your insurance carrier are willing to pay.
Based on my research, I have settled on three reasons why drug companies are pushing these drugs so far out of reach for regular folks:
- Because they can. There is no transparency to any customer as to how much these drugs cost. In fact, when a bill was introduced into the Louisiana Legislature this session requiring drug manufacturers to include their actual list price in their marketing literature, the drug interests SWARMED the capital and threatened enough people to kill the bill. I guess we can’t have the common folks knowing their anti-inflammatory costs $4,000 a month.
- Because they are about to lose their patents and are trying to create space in the pricing so that the “generic” biologics, called biosimilars, won’t be any cheaper than the drugs they are replacing. You see, if I’m selling something for $2,000, and a competitor is coming on board with the EXACT same drug, and I can raise the price to $4,000, now I’ve created room for the new guy to sell his for $2,000 and keep my profits intact even if I have to lower my prices to compete with the biosimilar. In addition, the companies that make these anti-inflammatory drugs are LICENSING THEIR COMPETITORS’ BIOSIMILARS, so that the guy making AI-H will make the AI-E biosimilar, and the guy making AI-R will make the Ai-H biosimilar, and so forth. The same manufacturers will control the generics too.
- Their marketing power is unstoppable. In 2013, the same year the top 10 drug companies spent $66 billion on research, they actually spent $137 billion on MARKETING! Now, assuming they are a rational bunch, surely they are getting at least 2x the return on their MARKETING investment than they are on their research and development investment? And who do they market to the most? You and your doctor. Like those drug-based TV commercials? That’s where the $137 billion went, in TV commercials and reps making personal visits to your doctor. Certainly not into making their product more competitive or economical for you, the consumer.
So, the real question becomes, can you afford your miracle? It depends on how much you, your employer and your insurance carrier are willing to pay. Ten years ago, your insurance carrier or employer likely spent around 10% of their total health plan costs in pharmacy. Today, it’s likely to be more than 20%. The result of that higher spending is more expensive premiums. Insurance companies are also working on solutions that could keep costs in check, but it’s possible NO ONE will like those answers. We’ll get into that in a later blog, so tune back in. And in the meantime, let’s hope rationality breaks out among the drug manufacturers so we can all continue to afford our miracles.