[Ip-health] PLOS Blog: Drug pricing is out of control, what should be done?

Jamie Love james.love at keionline.org
Wed Oct 21 10:59:11 PDT 2015

I was number 4 in a series of PLOS blogs on drug pricing.  Els Torreele,
Jessica Wapner, Atif Kukaswadi and Manica Balasegaram have also written
blogs for this series so far.


Talking Drug Prices, Pt 4 Drug pricing is out of control, what should be
done? By James Love

Posted October 19, 2015 by PLOS BLOGS

Welcome to part four in a PLOS BLOGS six-part series, Talking about Drug
Prices & Access to Medicines. To borrow a phrase from one of our bloggers,
“Rage and public outcries are not a rational way to manage high drug
prices.” We agree, while also acknowledging that the recent public and
media uproar over the 5000% price hike and subsequent “roll back” of a 40
year old medicine by Turing Pharmaceuticals may have opened a useful window
on larger issues, including misaligned incentives around drug R&D efforts
and the related unavailability of necessary medicines to people around the

Featured bloggers include two global health experts working on access to
medicines, an international intellectual property analyst, a Canadian
public health epidemiologist, a tropical disease researcher and a science &
medical journalist. For this series, PLOS BLOGS Network benefited from the
involvement of PLOS Medicine Chief Editor, Larry Peiperl. We acknowledge at
the outset that there are several important voices not yet adequately
represented in this series; for example, the perspectives of researchers
who are directly involved in drug development in industry settings.  If you
would like to contribute a guest post on this or any related topic, please
contact us at: blogs at plos.org  — Victoria Costello, PLOS BLOGS Network

Pt 4. Drug pricing is out of control, what should be done?

By James Love, International intellectual property rights analyst,
Knowledge Ecology International

Today we are confronted with three related set of issues dealing with the
pricing of new drugs, vaccines and medical devices. There are cases where
older drugs, out of patent protection, are subject to price gouging, due to
a lack of competition in the local market.   Prices for new drugs, or new
uses of drugs, are exploding, with no obvious ceiling or limit. And, trade
negotiators, pushed by the United States and the European Union, are
advocating a series of binding international norms that collectively make
drug, vaccine and medical devices monopolies stronger, and products more
expensive. What to do?

The problem of price gouging for unpatented drugs is largely a consequence
of regulatory barriers to trade. Turing’s aggressive increase in the price
of Daraprim to $750 per pill in the United States occurred when several
generic versions available outside the United States are available for less
than $1 per pill, including from markets subject to regulatory safeguards
comparable to those of the United States.[1] The situation is reminiscent
of a shortage of treatment for Fabry disease, a rare genetic disorder of
lipid metabolism, when the drug Fabrazyme  was available from a single
company, Genzyme/Sanofi, in the United States market.  As there was a
second supplier with an acceptable substitute, the U.S. Food and Drug
Administration indicated to the National Institutes of Health (NIH) that it
was possible to permit the import and sale of the unregistered foreign
product into the United States, by exercising enforcement discretion.[2]
 Whether or not this measure is legally possible under current U.S.
statutes[3], it should be, to address the issue of domestic shortages like
those involving Fabrazyme or the cancer drug Doxil, [4] or cases like
Daraprim, which involve price gouging from a sole source supplier of a
generic product.

More generally, the global patchwork of drug regulation can be improved by
reducing barriers to marketing products that are available from suppliers
in countries that have sufficiently rigorous regulatory standards to
protect consumers.  One example of this is in the area of HIV drugs, where
systems of “pre-qualification” of generic drugs by the World Health
Organization or the U.S. FDA have been quite important in driving prices
down to remarkably affordable levels.

The largest immediate challenge on drug pricing is to respond to the
dramatic price increases in medicines for cancer and other severe
illnesses. The most common comment is to ask governments to negotiate drug
price, including for Medicare, or to order rebates on prices. When price
negotiations are based upon threats to withhold reimbursements, narrow
permitted uses on formularies or increase patient co-payments for expensive
drugs, the patients are effectively hostages in the negotiation, and often
suffer.  In the UK, several very important breast cancer drugs will not be
reimbursed beginning in November, because prices are too high.[5]

The monopoly should be at risk, rather than the patients, when prices are
too high. Intellectual property rights should be seen as a privilege, not a
right, and the legal monopoly should be ended if prices are excessive.[6]

What type of pricing systems make sense for new drugs?

Certainly one would want as much transparency and evidence as possible of
R&D costs and risks, as well as the benefits that products provide.   An
ideal pricing system would consider not only benefits, and not only R&D
costs, but some combination of both, and also realistic budget
constraints.  For the U.S. Veterans Health Administration, Senator Sanders
has proposed a system that allows patents to be overridden when prices are
excessive, and compensation to patent holders to be constrained by the
Department of Veterans Affairs budget for drug purchases.[7] This approach
could be scaled for Medicare.

R&D costs and health benefits from products are both important parameters
that are at least implicit in most pricing models. Making their joint role
more explicit will be helpful.  The point of a good drug pricing model is
to direct the premiums (price over manufacturing costs) in the best way to
stimulate the R&D that is desired, within realistic budgets, without
distorting decisions by physicians to prescribe medicines in the best
interests of the patient.

That was the point in Senator Sander’s medical innovation prize fund
legislation, first proposed in 2005, but it can also be implemented as a
set of prices that meet budget constraints.

Pharmaceutical Drug Prices, Intellectual Property Rights and TPP

Trade policy often is described as a tool to promote “free trade,” but in
the area of pharmaceutical drugs and other medical technologies, the result
is often the opposite. The United States and the European Union are among
the most aggressive in pushing for provisions in trade agreements that
expand and extend intellectual property rights and legal monopolies for new
medical products.  In the recent Trans Pacific Partnership (TPP)
negotiation, the United States acted as an advocate for the large drug
companies represented by the trade associations PhRMA and BIO on a wide
range of issues, pushing for new global standards on the granting of
patents, extensions of patent terms, controversial exclusive rights on the
data that establishes a drug is safe and effective, aggressive standards
for damages for patent infringement, giving drug companies the right to
challenge government decisions on drug reimbursements, and other measures,
all designed to expand and extend drug monopolies and raise drug prices.

While PhRMA companies did not get everything they asked for, the overall
result will be higher drug prices everywhere, and particularly in lower
income countries where the new standards will have the largest and most
harmful impact. These policies are partly justified by the argument that
high drug prices are good for U.S. and EU exporters of medicines, but more
generally on the grounds that higher and higher drug prices stimulate more
and more R&D.

While it is true that high drug prices stimulate R&D, the modest percentage
of sale reinvested into R&D makes this a costly endeavor. PhRMA’s 2015
survey of its members reported $51.223 billion in global R&D outlays[8], a
significant number, but lower than the previous year, and just 4.83 percent
of the $​1.0571 trillion IMS estimated for the total global pharmaceutical
market.[9]  In a previous industry study, PhRMA member R&D represented 70
to 78 percent of all private sector biomedical R&D outlays.[10]  In recent
years, the combined private sector outlays on R&D have been less than 8
percent of global sales and trending downwards as sales have increased
faster than R&D outlays.[11]

High prices for drugs are an expensive burden on everyone, and most of all
in the United States, where prices and marketing costs are higher than
anywhere else.  The companies located in the United States share the burden
of paying for the high prices on drugs, and this makes the goods and
services from the United States less competitive in world markets.

Many want a different trade policy that promotes R&D investments, but
delinks the funding of R&D from high drug prices. In this approach, trade
agreements place obligations on governments to support R&D funding, but
allow for flexible approaches, including by expanding public sector R&D
funding (think NIH grants), R&D subsidies (think Orphan Drug tax credits),
or funding robust innovation inducement prizes.[12] By implementing
delinkage at the global level, national governments will have more freedom
and new incentives to reform the way R&D is funded and avoid pitting
consumer protection and fairness against innovation objectives.


If the United States and other countries want to control high drug prices,
they can, by implementing policies that eliminate monopolies when prices
are excessive, by increasing more efficient global markets for quality
assured generic medicines, and by changing and transforming trade policy,
so the emphasis is on funding R&D rather than raising drug prices.

To implement both the short term incremental reforms or the more
transformative delinkage approaches, policymakers need to talk openly about
budget constraints, and find realistic and practical ways to make access
more universal, rationale and optimal for patients. Ultimately, society
needs to transition to a system that funds medical R&D as a public good.
The movement to delink R&D costs from product prices embraces the most
transformative and rationale approaches for reform.

The flaws in the current system should be obvious enough, and the potential
benefits of the reform also, to induce policy makers to begin the
responsible and forward-looking tasks of proposing, evaluating and then
implementing the policies that eliminate high prices as the primary
mechanism to fund medical R&D.


[1]          A single .25 mg tablet of pyrimethamine is currently retailed
in the Netherlands for .41 Euros (Medicijnkosten), in Australia for .49 AUD
(PBS) and in New Zealand for .739 NZD (PHARMAC).  The BBC reports a price
of .433 GBP in the UK.

[2]          See Email from Kathy Hudson (NIH/OD) to Francis Collins
(NIH/OD), August 5, 2011, subject: Subject: Fabry’s – it is time to act.
Reported, FDA enforcement discretion to allow unregistered generic Daraprim
to be imported and sold at lower prices, October 8, 2015,
http://www.keionline.org/node/2332.  The FDA instead encouraged and
authorized Shire to import Replagal for use in “single-patient INDs,” and
gave Shire a Fast Track designation for a BLA. “In response to the shortage
of Fabrazyme, FDA has been in discussion with Shire regarding possible
options that would allow Fabry patients in the U.S. access to Replagal. At
this time, individual Fabry patients may access treatment with Replagal
under emergency or single-patient INDs based on clinical need as assessed
by their treating physician.”
After the shortage abated, and days after Shire negotiated a license to
certain Fabry’s disease patents in Europe, Shire withdrew its US BLA. See:
KEI asks FTC to investigate Shire decision to abandon efforts to compete in
US market for Fabry’s disease treatments, July 15, 2014.
http://keionline.org/node/2055, and the attached Timeline for Fabrazyme,

[3]              See also, Alexander Gaffney, FDA Loses Major Case Testing
its Enforcement Discretion Authority, RAPS, July 23, 2013,

[4]              Executive Order 13588 — Reducing Prescription Drug
Shortages, October 31, 2011; FDA News Release.  FDA acts to bolster supply
of critically needed cancer drugs.  Announcements build on President
Obama’s Executive Order, February 21, 2012.
FDA News Release:  FDA acts to bolster supply of critically needed cancer
drugs Announcements build on President Obama’s Executive Order, February
21, 2012.

[5]          Andrew Ward, Cancer drugs cut as UK budget clampdown bites,
September 4, 2015, Financial Times.
http://www.ft.com/cms/s/0/01ac9236-5327-11e5-b029-b9d50a74fd14.html;  James
Gallagher, Cancer drugs fund cuts 23 treatments, BBC, 4 September 2015,

[6]          Sarah Boseley. “Health secretary urged to tear up patent on
breast cancer drug,” October 1, 2015, The Guardian; Ben Hirschler. “Call
for Britain to over-ride patents on Roche cancer drug,” October 1, 2015.
Reuters; Coalition for Affordable T-DM1 Crown Use Request (for patents on
cancer drug Kadcyla), October 9, 2015.

[7]              Senator Bernie Sanders proposal to expand Veterans access
to patented medical inventions, September 19, 2015.

[8]2015 biopharmaceutical research industry profile.Washington, DC: PhRMA;
April 2015. Table 1.

[9]          Total Unaudited and Audited Global Pharmaceutical Market by
Region 2014 – 2019, IMS Health Market Prognosis, May 2015.

[10]        See Figure 3 in the 2013 PhRMA Annual Industry Survey, which
cites a Burrill & Co. analysis for PhRMA.

[11]        For data and cites, see: https://goo.gl/Yi48OM

[12]            Senator Sanders introduces two medical innovation prize
bills in U.S. Senate to de-link R&D costs from drug prices, May 27, 2011.
http://keionline.org/node/1147; Press Release. March 10 2014; German
company wins EU’s €2 million inducement prize for innovative vaccine
technology, European Commission. March 10 2014.
http://europa.eu/rapid/press-release_IP-14-229_en.htm; The NHS INnovation
Challenge Prizes. http://www.england.nhs.uk/challengeprizes/; PROPOSAL by
Bolivia, Suriname and Bangladesh. Prizes as a Reward Mechanism for New
Cancer Treatments and Vaccines in Developing Countries, April 15, 2009.
http://www.who.int/phi Bangladesh_Bolivia_Suriname_CancerPrize.pdf; Charles
Clift, Kevin Outterson, John-Arne Røttingen, Towards a New Global Business
Model for Antibiotics: Delinking Revenues from Sales October 9, 2015 Centre
on Global Health Security, Antimicrobial Resistance.
James Love, Alternatives to the Patent System that are used to Support R&D
Efforts, Including both Push and Pull Mechanisms, with a Special Focus on
Innovation-Inducement Prizes and Open Source Development Models, World
Intellectual Property Organization, CDIP/14/INF/12, September 19, 2014.

James Love is the Director of Knowledge Ecology International (KEI). Mr.
Love is also the U.S. co-chair of the Trans-Atlantic Consumer Dialogue
(TACD) Intellectual Property Policy Committee. He advises UN agencies,
national governments, international and regional intergovernmental
organizations and public health NGOs, and is the author of a number of
articles and monographs on innovation and intellectual property rights. In
2006, Knowledge Ecology International received a MacArthur Award for
Creative and Effective Institutions. In 2013, Love received the EFF Pioneer
Award, to recognize leaders who extend freedom and innovation in the realm
of information technology. Knowledge Ecology International was created in
2006 as a separate entity to carry out work earlier done through the Center
for Study of Responsive Law and Essential Information. Mr. Love was
employed by the Center for Study of Responsive Law from 1990 to 2006. Mr.
Love was previously Senior Economist for the Frank Russell Company, a
lecturer at Rutgers University, and a researcher on international finance
at Princeton University. He holds a Masters of Public Administration from
Harvard University’s Kennedy School of Government and a Masters in Public
Affairs from Princeton’s Woodrow Wilson School of Public and International
Affairs. On Twitter: @jamie_love

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