Earlier this year the news that big pharma was raising the price of more than 1,000 drugs created outrage nationwide. As an example of soaring prices, according to a recent industry article, the average out-of-pocket cost for people taking multiple sclerosis (MS) drugs was $15 a month in 2004; by 2016, they were $309.
The federal government has taken note and is working to uncover the issues behind rising drug prices. In May, the heated drug pricing debate was back on center stage on Capitol Hill, with a Senate Judiciary Committee hearing on intellectual property and the price of prescription drugs. The hearing focused on the relationship between the rising price of prescription drugs and the patent protections that drug companies earn to maintain the exclusivity of their pharmaceutical formulations on the market.
There’s no clear answer to what’s causing rising drug prices, and to be fair to big pharma and patent holders on brand-name drugs, rising drug costs are not always caused by greed. The cost to produce a drug - from discovery through clinical trials to approval - can take at least ten years, with costs in the billions in many cases. Increasing regulatory requirements, along with the high costs for advanced technology and equipment add to the financial burden. And, for specialized drugs that treat ailments that affect smaller percentages of the population, the cost to develop the drug always exceeds the cost to produce it.
Big pharma, however, is not going to get any sympathy from patients and insurance firms bearing the burden of increasing costs. It’s important to first uncover what’s really causing rising prices in order to address them.
How can we meet the needs of pharma firms who must remain profitable to accelerate innovation and new therapies, while balancing it with prices that aren’t cost-prohibitive for patients that sorely need them? The solution might lie in ensuring a strong pipeline of raw materials, fostering healthy competition and easing regulatory controls.
Addressing a Scarcity of Raw Materials
A key factor driving up the costs of drugs is the scarcity of raw materials. Just as drug manufacturers are able to drive up costs when they control a market, so too can suppliers of raw materials raise prices based on supply and demand, escalating prices when demand exceeds supply. In addition to heightened demand for specific materials, other factors that can create a shortage of these materials are manufacturing problems or regulatory infractions which force a freeze in production in order to address the problem.
Regardless of the reason, drug shortages seriously impact prices. According to the Annals of Internal Medicine, in the eleven months after the shortage of drugs for the treatment of migraines and Parkinson’s Disease, prices increased by up to 20 percent compared with only nine percent in the absence of a shortage.
To address a shortage of raw materials, many pharma firms and CDMO’s utilize dual sourcing strategies – using two or more suppliers for a raw material, product or service. This can be easier for larger companies who have the resources to properly manage multiple suppliers but smaller companies are not always able to have this type of back-up. When sourcing raw materials used in therapies for rare diseases (that have limited populations and thus produced in smaller batches) some CDMO’s may give manufacturing priority for customers with larger volumes.
Healthy Competition – Including Generics – Drives Down Costs
When one company holds the patent on a life-saving treatment, it basically sets the price, simply because it can, and the market has no other option but to bear the burden or forgo treatment. When products go-off patent, however, it’s anyone’s game and generic alternatives enter the field. Not only does this provide greater options for patients, but it forces patent holders to curb costs in order to compete.
Generic medications are nearly always preferred by insurance providers, since they have been proven to be equally as effective and safe as the brand-name medication. Inactive ingredients may vary, yet generics meet the same requirements and standards for production as the original product and treat associated conditions in the same manner as the brand-name drug.
When generic alternatives become anyone’s fair game, the entire population wins. Generics break the monopoly held by any one company. To understand the danger of monopolies, you only have to look at the backlash around the EpiPen, a life-saving allergy treatment. The drug’s maker, Mylan raised its price by up to 400 percent, simply because there was no alternative. Today, there are two generic versions of EpiPen, including one from the original manufacturer, Mylan, so there is competitive pressure to keep the price from skyrocketing.
Balancing Regulatory Controls with Patient Needs
The FDA walks a fine line, working to balance the need for strict regulatory controls to make sure drug products are produced for maximum efficacy and safety, while enabling products to hit the market in a timely and cost-effective manner to meet patient needs.
The FDA is making some inroads, working diligently to speed up approvals to address the growing need for affordable drugs and healthy competition. For example, in August 2018 the first generic version of EpiPen was granted approval to an Israeli company, Teva Pharmaceuticals. And, last year, the FDA approved 781 abbreviated new drug applications (ANDA) for generic drugs.
Swifter commercialization of vital drug therapies brings more options to the market, eases drug shortages and brings costs down. A key challenge, however, is ensuring that there are enough qualified clinicians and scientists to keep pace with drug applications. There’s clearly no easy resolution to the problem of rising drug costs for the patients that need them the most. Yet, by addressing more effective management of supply chains, fostering healthy competition and working with the FDA to expedite safe and effective drug delivery, we could be well on the road to slowing down its escalation.
Ed Price is President and CEO of Seqens CDMO North America, an integrated global provider of pharmaceutical synthesis and specialty ingredients. From the company’s Newburyport, Mass. operations, Seqens CDMO N.A. provides emerging and mid-sized pharmaceutical companies access to the expertise needed to develop and manufacture complex small molecules.