[Ip-health] Forbes: How To Charge $1.6 Million For a New Drug And Get Away With It

thiru at keionline.org thiru at keionline.org
Tue Mar 20 08:59:44 PDT 2012


Matthew Herper, Forbes Staff

I cover science and medicine, and believe this is biology's century.
3/19/2012 @ 2:28PM |14,267 views
How To Charge $1.6 Million For a New Drug And Get Away With It

A clerk counts US dollar bills at a bank in Ta...

Call it a warning shot: last week an Indian patent court shocked the $600
billion global pharmaceutical business by ordering Bayer, the German
health care giant, to allow a tiny Indian generic drug company to sell
cheap copies of the blockbuster cancer drug Nexavar – even though everyone
agrees that the drug is protected by a patent. Instead, the court decided
that Bayer had an obligation to make Nexavar available to people in India
who needed it.

The Indian decision is “arbitrary,” says Sapna Palla, a lawyer at Kaye
Scholer who represents pharmaceutical firms in patent litigation. Why
Nexavar, and not any other high-priced drug? She says it “undermines the
innovative pharmaceutical industry in India in the long run” and predicts
the decision will “stymie foreign investment in India” because it will add
to doubts about the Indian patent system. (Bayer contests the decision,

It’s a basic tenet of the pharmaceutical business that companies have a
right to charge high prices for new, innovative medicines. Because more
than 90% of experimental drugs fail to be proven safe or effective, it’s
necessary for medicines to generate billions of dollars in sales in order
to entice investors and companies to sink money into research. Patent
protection is not the ideal way to fund medical research, but nobody has
found anything better.

But in this case, the Indian patent court and Natco Pharmaceuticals, which
brought the case, have a point. The many thousands of Indian patients
suffering from kidney or liver cancer could not get their hands on
Nexavar. Only a few percent of them took it.

Knowledge Ecology International, a group that campaigns for people in
developing world to have better access to new medicines, says Nexavar was
priced at $69,000 for a year of treatment, 41 times the per capita income
in India. For comparison, a drug that cost 41 times the U.S. per capita
income would cost $1.6 million. The Natco price? $177.

In the U.S., Nexavar actually costs even more in real dollars. The average
liver cancer patient would pay $80,000 for a ten-month course if he were
paying the wholesale acquisition cost of Nexavar; kidney cancer patients
pay $96,000 a year. Except, of course, that they don’t pay. Insurers cover
much of the cost. Bayer and partner Onyx Pharmaceutical, which split sales
duties in the U.S., have a program to make sure that eligible patients
aren’t responsible for more than $100 of copayment. They also have
programs to make sure that uninsured patients have access to the drug.

Even for mass-market drugs, it is increasingly the reality in the U.S.
that the patient doesn’t pay. Insured patients can get $160 worth of
branded Lipitor for $4, with maker Pfizer picking up the rest of the
co-payment. Meanwhile, Pfizer is negotiating with health plans to convince
them to buy its Lipitor over the $120-a-month generic version.

This is even more true for the specialty medicines, like cancer drugs,
that are the drug industry’s stock-in-trade these days. The customer is
not the patient but the insurance company or government picking up the
check. That’s why drug companies refer to governments and insurers as “the

As a result drug companies can price new medicines at a cost that no
individual person could pay. I count ten medicines that have an average
per patient cost of more than $200,000 per patient per year, including the
treatments made by Sanofi’s Genzyme unit, Biomarin, Alexion
Pharmaceuticals, and now Vertex’s new cystic fibrosis drug, Kalydeco — the
first medicine ever to work on the genetic defect that causes that lung
disease, but only for a select few that have a particular mutation.

It’s an open question, but it’s possible that it’s better to have $300,000
drugs that are highly effective than $3,000 drugs that aren’t . All these
medicines are priced as they are because the Payors will pay. Alexion,
whose Soliris treats rare and lethal disorders that destroy blood cells or
damage the kidneys. “Even at a $400,000+ per year price point, the manage
to justify the value of their medicine for the small patient populations
with the relevant diseases,” writes Sanford C. Bernstein analyst Geoffrey
Porges. Proof? Alexion’s stock has been outperforming Apple‘s. That will
get a lot more companies interested in rare diseases. We’re still not at
$1.6 million per patient per year, the per capita equivalent of Bayer’s
price in India, but there is no reason to think we can’t get there.

But moving these drugs into other countries often means giving even more
away. One executive once told me his emerging markets strategy for these
ultra-rare disease drugs was to get any patient who needed the medicine on
it, and then to try to convince governments or insurers to pay full price
for one patient, then another, then another. The key is that the medicines
be worth the money.

Even at Nexavar’s comparatively low price point of “just” $80,000 a year,
this same strategy can work. Assuming Bayer can make Nexavar for about the
same price as Natco, it could break even getting paid for one out of four
hundred prescriptions. It needs to do better than that, financially, but
it also needs to find ways to make the drug available to patients who need
it worldwide. The new pharma compact may well be that companies can charge
what they will, but that they must in the meantime make sure patients get
their medicines. How long this system will be sustainable is, of course,
anybody’s guess.

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