Why Did That Drug Price Increase 6,000%? It’s The Law
It’s happened again. Of course it has happened again. A drug company has brought a drug that has been available as a generic elsewhere in the world for decades at a shockingly inflated price.
The drug, in this case, is a steroid called deflazacort, has been approved for treating kids with Duchenne muscular dystrophy. It has fewer side effects than existing steroids, and many patients have been getting it from Europe or Canada at a price between $1,000 or $2,000 a year.
Yet a pharmaceutical company in Deerfield, Ill., has gotten approval from the U.S. Food and Drug Administration to sell deflazacort (snazzy brand name: Emflaza). The company, Marathon Pharmaceuticals, is charging a list price of $89,000 – a 6,000% price increase.
If this doesn’t feel like déjà vu all over again, you haven’t been paying attention. Yes, it was a 5,000% price increase on a drug for a rare infection that made Martin Shkreli, then chief executive of Turing Pharmaceuticals, “the most hated man on the Internet.” But Shkreli’s was an incremental innovation in price gouging. Before that, we had the case of Makena, used to prevent pre-term birth. It was launched in 2011 at a price of $1,500 when a similar drug was previously available, from compounding pharmacies, for $20. The strategy basically worked: AMAG Pharmaceuticals, which now owns Makena, booked sales of $93 million in the third quarter of last year.
Why does this keep happening? Well, with the exception of Shkreli, enabled by a thicket of market inefficiencies, because it’s the law. And that’s very much the case for Marathon and Emflaza.
Because this steroid has never been approved in the United States, the Food and Drug Administration considers it a new drug. That means that not only did Marathon have to go through the process of getting it approved as a new drug, but that it gets the benefit of laws Congress has passed to encourage drug companies to develop new medicines for rare diseases.
Those legal benefits include a 7-year monopoly under the Orphan Drug Act, and a rare disease priority review voucher that allows a company to get a sped-up FDA review for another drug. Such vouchers can be sold for large sums.
The idea behind those benefits is that society needs to pay in order for drugs for rare diseases to be developed. It seems obvious that getting a generic steroid that is approved in the rest of the world through the FDA should not have the same benefits to a company as inventing a new medicine. Yet, under the law, it does.
This isn’t Shkreli-level malfeasance. Mitigating factors: Marathon says that only 7% to 9% of the patients who could benefit from Emflaza were able get access to it by importing the drug from other countries. In order to get the FDA approval, Marathon conducted 17 clinical and pre-clinical trials, and had to go back and find the data from studies conducted by the drug’s original manufacturer. The FDA is making Marathon conduct post-approval studies, including one in children younger than five.
Does this justify a 6,000% price increase? Marathon says it actually expects to net “only” $54,000 a year from insurers. The company has also said its business will not be profitable for several years. It expects patients with insurance to get access to the drug for a co-payment, and will give it away to others for free. In other words, the high cost of this medicine is not intended to gouge patients, but to get us all to pay not only for the cost of getting the drug through FDA, but also to provide a big profit that will incentivize drug makers to bring more drugs to the United States.
This lays bare one of the absurdities of the FDA process: for a drug to be approved, a company must do the work of bringing it to market. For new medicines, developed at high cost by pharmaceutical companies, this is the right approach. But for medicines that have been in clinical use for decades it may not be. Imagine how much money we would all save if we paid for the National Institutes of Health to survey such drugs, collect real-world data on them, and have the FDA approve them without giving any company exclusivity? Then generic drug companies would make the medicines at much lower cost. Senator Ted Cruz has argued that drugs approved by European or Canadian regulators should automatically be approved in the U.S. That’s not a good idea, because it would lead to manufacturers of new medicines always going to whoever set the lowest bar. But for old medicines a system like that may make sense.
That’s not the system we have. Marathon is increasing the access of boys with a deadly disease to a medicine that will help them, and charging what it thinks is an honest price based on the regulatory burdens it has. That doesn’t make the price OK. But it’s how executives can convince themselves that what they are doing is OK.
The problem is, it’s not OK. The price is absurd, and the price increase short-circuits the fairness circuitry built into the human brain. There’s some amount that Marathon should charge for the work it did. But is it $85,000 per patient, or even $52,000? Probably not. And that priority review voucher itself could be worth hundreds of millions of dollars. Congress is obsessed with these vouchers. Maybe they’re not the best solution to problems in the pharma business?
Marathon is a member of the Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry trade group. Drug companies cannot use their usual argument of saying this is an “outlier.” This is one of their own – although Marathon may find itself feeling as if it is being ostracized from the club. As patent lawyer Rachel Sachs notes, the big drug giants need to distance themselves from this move – and maybe find a way to actually come to the table on preventing big drug price increases.
Pharmaceutical company executives, here is your problem: You won’t get credit for the wonderful innovations your companies produce if your prices make people feel sick.
Originally posted on Forbes.com