[Ip-health] The Economist- The new drug war: Hard pills to swallow

Thiru Balasubramaniam thiru at keionline.org
Thu Jan 2 08:49:49 PST 2014


*The new drug war*

Hard pills to swallow

*Drug firms have new medicines and patients are desperate for them. But the
arguments over cost are growing*

Jan 4th 2014 | NAIROBI AND NEW YORK | From the print

LOUIS MACHOGU, the owner of a pharmacy near Nairobi, has noticed a change.
In the past decade Kenya, like much of Africa, has seen a surge in foreign
aid to fight infectious diseases. Thanks to antiretroviral treatments, HIV
is no longer a death sentence. But the decline of one scourge means that
people are living long enough to fall sick in other ways. “The same way we
had HIV killing people,” Dr Machogu says, “we now have hypertension and

Treatment often depends on the whim of pharmaceutical firms’ philanthropic
programmes. Cancer drugs are particularly lacking. The Kenya Medical
Supplies Agency buys medicines for public hospitals, but not those for

In Tampa, Florida, Marilyn Weisman also depends on charity for treatment.
The 72-year-old thought she had a bad rash. She turned out to have
cutaneous T-cell lymphoma, a rare cancer. Though she is insured, she could
not afford her share of the payment for the drug her doctors recommended.
So a pharmacist at her hospital, Moffitt Cancer Centre, helped her to apply
for charitable aid. Mrs Weisman’s situation is surprisingly common for
American cancer sufferers. Many insured patients in one of the world’s
richest countries cannot afford their medicines.

A new drug war is looming. The market is growing: patients in rich
countries are ageing and those in developing ones are getting richer and
suffering from chronic diseases. But as demand for drugs rises, so does
concern at their price. A record $1 trillion will be spent globally on
medicines in 2014, predicts IMS Health, a research firm. “The costs of many
new medical products are becoming unsustainable for even the wealthiest
countries in the world,” said Margaret Chan, the head of the World Health
Organisation (WHO), in August.

*On every front*

Skirmishes are breaking out from Brunei to New England. Negotiators for the
Trans-Pacific Partnership (TPP), a giant trade deal that would cover 12
countries, including America, are battling over access to medicines. Health
activists are trying to block a costly Hepatitis C drug from being patented
in India. Brazil and South Africa are mulling over patent reforms that
could make drugs cheaper.

Eli Lilly, an American pharmaceutical firm, is suing Canada for letting
competitors sell copies of two medicines there, which it says violates the
North American Free Trade Agreement. In October Maine became the first
American state to allow drugs purchases from cheaper foreign online
pharmacies. The drugmakers’ lobby has sued, charging that the policy is an
attempt to circumvent federal law.

Meanwhile firms are crunching reams of data to prove their wares’ worth.
But even as they try to justify high costs, they are testing new pricing
models. “The starting point always is, what is the right price for a
medicine?” says Severin Schwan, the chief executive of Roche, a Swiss
pharmaceutical giant. “And there is no objective answer…At the end you are
discussing, what is the price of life?”

Drug development is expensive, slow and chancy, so pharmaceutical firms
charge a lot. But if drugs are too pricey, support for patents will
collapse. Ian Read, the boss of Pfizer, an American giant, recently laid
out the threat: “Unless we’re respected by society, unless we’re seen as
good stewards of our resources, then we run the risk of both losing patents
and losing the ability to price our medications.”

The prelude to today’s fight came more than a decade ago. Africans with HIV
were dying by the million. South Africa’s government passed a law allowing
cheaper patented drugs to be imported; dozens of pharmaceutical firms sued,
claiming a breach of trade rules. Protesters accused them of putting
“profits before people”. They backed down.

The brawl helped to increase aid for health care. Schemes such as the
Global Fund to Fight AIDS, Tuberculosis and Malaria; America’s President’s
Emergency Plan for AIDS Relief; and the GAVI Alliance (formerly the Global
Alliance for Vaccines and Immunisation) mean more patients are now treated
for infectious diseases.

Today’s battle pits drug firms against governments both rich and poor. Rich
ones want to slow the growth of health budgets; poor ones want to improve
health care, but are struggling to decide which drugs to supply and at what
cost. Compounding the problem are new products with hefty prices. In 2012
American regulators approved 39 drugs, the most since 1996. Of the 12 for
cancer (see article<http://www.economist.com/news/science-and-technology/21592599-researchers-and-drug-companies-are-ganging-up-new-push-against>),
11 cost at least $100,000 a year in America.

America is the pharmaceutical industry’s honeypot, accounting for a third
of global drugs spending. Prices there are higher than elsewhere, and in
contrast to many other rich countries, treatments are chosen with little
regard for cost. Britain’s National Institute for Health and Care
Excellence (NICE), for example, works to a rough threshold of
£20,000-30,000 ($33,000-49,000) for each additional year of good health
when deciding which treatments should be available on the National Health
Service. But in America any mention of cost-effectiveness prompts rabid
accusations of rationing and death panels. Though the Affordable Care Act,
better known as Obamacare, created a body to compare treatments’
effectiveness, Congress barred it from considering cost.

High American prices support research and subsidise lower prices elsewhere,
points out Tomas Philipson of the University of Chicago. But this looks
unsustainable. In 2012 doctors at Memorial Sloan-Kettering, one of
America’s leading cancer centres, said they would not prescribe Zaltrap,
from Sanofi and Regeneron, which cost $11,000 a month at the time and
extends life by a median of six weeks. In April more than 100 cancer
specialists wrote an editorial in *Blood*, a medical journal, criticising
the cost of drugs for chronic myeloid leukaemia. And though politicians
remain mute on cost-effectiveness, insurers increasingly consider it when
deciding whether to cover a drug and how much of its cost to make patients

*An emerging fight*

The next few years will see spending on drugs in established markets in
North America, Europe and Japan grow by just 1-4% annually, predicts IMS
Health (see chart). So multinationals are eyeing developing countries,
where growing middle classes and governments’ desire to see more people
treated promise new markets. IMS expects drug spending in emerging markets
to grow by 10-13% a year until 2017. Generics will account for much of
this; many treatments for chronic conditions are now off-patent. But
spending on patented drugs will rise, too.

Until recently in poorer countries pharmaceutical firms mainly sold
off-patent branded drugs, which command a premium over local generics,
since patients trust their quality. The pricier patented ones they marketed
only to the few very rich patients who could pay out of pocket, says
Kalipso Chalkidou of NICE International, the British agency’s foreign
advisory arm. The private Aga Khan University hospital in Nairobi’s leafy
suburbs, for example, offers cancer care to the Kenyan elite that comes
close to what they would receive in the rich world.

But price-pressures are fierce in Kenya and other developing countries, as
drugs must compete for new spending with many other health-care needs,
including new hospitals, more staff and more surgery. In part because
health budgets are small, drugs often already account for a bigger share of
health spending in poorer countries than in rich ones. India spends 44% of
its total on drugs and China 43%. America and Britain spend 12%.

Poorer Kenyan cancer patients, unable to afford the Aga Khan, end up in the
concrete towers of Kenyatta National Hospital, a decaying 46-hectare
complex. The waiting time to be seen at its oncology department—the only
public one in a country of 43m—is often longer than six months. And after
surgery patients often have no money left for chemotherapy, says David
Makumi of Kenya’s Cancer Association.

Some middle-income countries are copying NICE’s approach, extending
coverage with bureaucrats ruling on cost-effectiveness. Brazil has used its
huge purchasing power to win low prices and persuade firms to transfer the
technology for some drugs to local manufacturers when patents expire. More
controversially, India’s patent controller recently granted a compulsory
licence to Natco, a local manufacturer, authorising it to make copies of a
patented cancer drug from Bayer, a German firm. In other instances
officials have decided that foreign firms’ drugs failed to meet India’s
standards for gaining a patent, meaning local generic manufacturers can
copy them.

Similar rows are among those delaying agreement in the TPP. America’s
proposals, made public by WikiLeaks, include many provisions that favour
drugs firms, including allowing patents for a new version of a drug even
when there is no evidence that it works better than the old one. That could
enable firms to keep their products patented for longer by tweaking dosage
or delivery methods. Critics such as Médecins Sans Frontières, which sends
volunteer doctors and nurses to many poor places, say that America’s
proposals would hinder countries from using compulsory licences or limiting
frivolous patents. James Love of Knowledge Ecology International, an
advocacy group, fears that the TPP may make it easier for drug firms to sue
governments, and that taxpayers could be liable for huge damages.
Negotiators will meet in the coming weeks, having failed to hammer out a
deal in 2013.

*Seeking a detente*

It is unclear who will triumph in the trade dispute. But faced with the
prospect of price controls, hostile patent laws and compulsory licences,
firms will need new tactics. “If you’re in industry, if your goal is to
preserve an intellectual-property system, the only way to do that is to
ensure affordable access to medicines,” says Thomas Bollyky of the Council
on Foreign Relations, a think-tank. In November Mr Read of Pfizer described
the drugs his firm donates to treat trachoma, a bacterial infection which
causes blindness, as promoting “dialogue with governments and health
ministers to further our needs of access and protection of intellectual

Donations are important in humanitarian emergencies, but not the full
answer, says Seth Berkley of GAVI. In normal times licensing works better,
he thinks. Some firms have signed royalty deals with generic manufacturers,
cutting the cost of treatment for HIV in poor countries.

Adrian Towse of the Office of Health Economics, a British research group,
argues that the best way to balance altruism and capitalism is to vary
prices according to income, both between countries and within them. But
such schemes create opportunities for grey-market arbitrage: the illicit
export of drugs from poorer countries to richer ones where their price is
higher. And they are logistically and politically difficult. Because drugs
are cheap to produce, governments are tempted to tie their prices to those
in poorer markets. That saves them money, but cuts firms’ incentives to

Encouragingly, however, some firms and countries are experimenting with
varied pricing. Roche sells a drug for Hepatitis C to the Egyptian
government at a deep discount, with different branding and packaging to try
to stop exports to rich countries. Pfizer, Novartis, Merck and Sanofi are
working with the Philippine government and the Bill and Melinda Gates
Foundation to test varying drug prices by patients’ income on the island of

In established markets firms are testing another idea: charging only if a
drug works. Such schemes require complex data systems, but in 2013 there
were more than 140 worldwide, up from fewer than 20 a decade earlier. New
pricing models should eventually ensure that drug firms profit from
innovation and more patients get the care they need. But for the millions
who need treatment now, the wait will seem very long.

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