Early last week, The Wall Street Journal published an op-ed I had authored, and an accompanying lead editorial, taking to task efforts by politicians (and even some of my physician colleagues) to control prices of drugs recently approved by the Food and Drug Administration. Within days, the media crackled with outrage over a pharmaceutical company named Turing announcing it was going to raise — 5000-fold — the price of a drug named Daraprim that treats infection complications of patients suffering from compromised immune systems. As a result of the shock caused by this aggressive action, I received reprimands and was attacked for condoning predatory business practices that could further compromise the well being of the sick.
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But I did no such thing. My article attempted to explain that while some drugs, such as one that cures a nasty liver disease, hepatitis C, afford more tangible health value than others that extend lives of patients with disseminated cancers for only short intervals, both only become available for patients with great difficulty and expense. While high research costs contribute to this difficulty and expense, the real need for corporate profitability arises from an extraordinarily high failure rate. Nine of ten promising drug candidates crash in clinical trials.
This dismal statistic is a consequence of our bodies’ unpredictability that protects us from invading microorganisms (the good news) but that causes us to respond idiosyncratically to drugs (the down side). The one success must pay for the many failures. Therefore, profitability, accommodated by the relatively brief period of statutory monopoly protection FDA approval of a patented drug affords, enables companies committed to doing so to take many shots on the elusive goal of – as history attests – contributing sometimes spectacularly but usually incrementally to longevity and quality of life.
These “apples” arguments have absolutely nothing to do with the “oranges” of the Daraprim story. Daraprim is an ancient drug and has no patent protection. Accordingly, the company that had manufactured it in the past appropriately sold it relatively cheaply. The explosive price hike plan was the brainchild of Turing’s CEO, who acquired the drug and simply exploited the classical bases of monopoly pricing: no competition and a captive population of customers. No evidence supports that this CEO has any commitment to the difficult drug innovation process that is summarized above and that justifies premium pricing, as discussed in my WSJ op-ed.
While unfortunately predatory actions will always arise due to human nature and circumstances avoidable only in Utopia, the real question is why no competition for Daraprim exists to prevent them. Legislation enacted in the early 1980s encouraged the manufacture of drugs losing patent protection and increased the number of companies introducing such drugs, defined as generic, and the resulting competition resulted in them being sold at far lower prices than their brand forbears.
Although critics idealize this promotion of generic drugs and advocate for removing all efforts brand companies make to delay generic drug entry to the market, generic drug shortages and the Daraprim story contradict this wishful mindset. After all, generic companies are imitators and are not in the innovation business. Generic manufacturers have far lower research and marketing costs than their brand counterparts, but statutory pricing limits and FDA-mandated manufacturing standards can make it impractical to produce such drugs. Hospital conglomerates and group purchasing organizations also use monopoly power to force down drug prices. These constraints and the increasing number of competing generic drug opportunities are factors contributing to the lack of competition that promoted the Daraprim fiasco.
In the end, the market may work, however. Turing’s trade organization, BIO, evicted it. In the wake of immense opprobrium, Turing’s CEO, presumably realizing his future in business was at risk – perhaps over already — backed down from his pricing proposal (although has not announced a specific figure). And I stand by the arguments in my WSJ op-ed: even the threat of price controls spooks investors and upsets the fragile ecosystem of medical innovation. A massive biotechnology equity selloff last week was a stark testimony to that grim reality.
Thomas P Stossel, MD, American Cancer Society Professor at Harvard Medical School and Visiting Scholar of The American Enterprise Institute, is author of “Pharmaphobia: How the Conflict of Interest Myth Undermines American Medical Innovation (Rowman and Littlefield, 2015).
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