The $750 pill: Why do drug companies charge so much?
October 4, 2015 12:00 AM
Unlike every other advanced country, the United States permits drug companies to charge patients whatever they choose.
By Marcia Angell
In 1953, a new drug was released by Burroughs Wellcome, a pharmaceutical company based in London. Pyrimethamine, as the compound was named, was originally intended to fight malaria after the microorganisms that cause the disease developed resistance to earlier therapies. The drug was used against malaria for several decades, often in combination with other compounds. It’s mostly used now to treat toxoplasmosis, a parasitic infection that can be life-threatening in people whose immune systems are suppressed, for example, by HIV/AIDS or cancer.
More than 40 years later, Burroughs Wellcome merged with the British pharmaceutical giant Glaxo. In 2010, the company, now GlaxoSmithKline, sold the U.S. rights to pyrimethamine — which is marketed under the brand name Daraprim — to another firm, CorePharma. By then, the patent on the drug had long since expired, but because nobody bothered to make a generic, Daraprim was essentially a monopoly.
In August, there was another significant development in the drug’s history: CorePharma’s parent company, Impax Laboratories, sold it to Turing Pharmaceuticals. Almost immediately, the company raised the price from $18 a pill to $750, a more-than-40-fold increase, and then sent out its brash chief executive, Martin Shkreli, to aggressively defend the new cost.
A course of treatment for toxoplasmosis is about 100 pills, which under the new pricing would run $75,000. Why the astonishing increase? The answer is: Why not?
Unlike every other advanced country, the United States permits drug companies to charge patients whatever they choose. (In this case, with Daraprim’s patent expired, Turing is probably in a hurry to make as much as possible before a generic version can enter the market. It announced after the fury over the increase that it would lower the price again, but you can bet it won’t fall all the way back to $18 a pill.) In Britain, in contrast, GlaxoSmithKline sells the drug for 66 cents a pill, and in India, it costs even less.
The new U.S. price grabbed public attention because it was so sudden and extreme. But exorbitant charges for drugs that treat serious diseases are hardly unusual. Avastin, for example, a cancer medication of dubious benefit, can cost close to $100,000 for a year’s treatment. And prices for almost all prescription drugs are rising much faster than the background inflation rate.
Drug companies say high prices are necessary to cover their research and development costs, enabling them to discover innovative new medicines. Turing says it planned to use the profits from Daraprim’s higher price to fund research into better treatments for toxoplasmosis.
But in fact, Daraprim illustrates the way most drugs are priced: They are invented not by the companies that sell them now but by someone else. Then, like big fish swallowing little fish, larger companies either buy small firms outright or license promising drugs from them.
Very often, the original discovery occurs in a university lab with public funding from the National Institutes of Health, then licensed to a start-up company partly owned by the university and then to a large company. There is very little innovation at the big drug firms. Instead, their major creative output is trivial variations of top-selling medications that are already on the market (called “me-too drugs”), to cash in with treatments just different enough to justify new patents.
For example, the first of the statins, drugs that lower cholesterol, was Merck’s Mevacor, which came on the market in 1987. There followed a whole family of me-too statins, including Zocor (also made by Merck), Lipitor, Pravachol and Crestor. There is little reason to believe that one is more effective than another at equivalent doses.
Moreover, the major drug companies are hardly strapped for money to cover their R&D: A look at their annual reports shows that they spend more on marketing and administration than on R&D. Pharmaceutical manufacturers are consistently among the most profitable companies.
Drugmakers are now getting some pushback from the public in response to their claims that they need the money, but they fall back on the rhetoric of the free market. They are investor-owned businesses, after all, they say, and they have a right to charge whatever the market will bear (which for desperately sick patients or their insurers is quite a lot).
But the pharmaceutical market is hardly an example of unfettered capitalism, because the companies are totally dependent on government support. In addition to receiving huge tax breaks and government-granted exclusive marketing rights, they are permitted to acquire drugs that resulted from NIH-funded university research.
For example, Gleevec, a drug to treat a form of leukemia, stemmed mainly from work by an NIH-funded scientist at Oregon Health & Science University; its development was relatively quick. Still, Novartis priced it at about $30,000 a year when it came on the market in 2001. So the public paid twice: once for the research and then an exorbitant amount to buy the drug. Gleevec, meanwhile, now costs triple its initial price.
About half of the major drug companies are European, including the makers of Avastin and Gleevec. But their research arms are often located in the United States, not only because this is their profit center but also because they want to be near universities that receive generous NIH funding, in order to develop close relationships with the researchers.
The public should demand something in return for all that governmental support. Other advanced countries regulate drug prices in one way or another: Some cap profits, some cap the rate of price increases, some have formularies that limit drugs in each class to those that are most cost-effective, and some regulate in more than one way. But they all have some form of regulation, and the result is much lower prices for the same drugs.
In the United States, by contrast, Congress has blocked even Medicare from negotiating the price of drugs or creating a formulary for patients. It’s time that we, too, move to stop price-gouging by the pharmaceutical industry — even when no one notices.
Marcia Angell is a senior lecturer in social medicine at Harvard Medical School and a former editor in chief of the New England Journal of Medicine. She wrote this for The Washington Post.
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