From the Editor: Drug Prices? Eenie Meenie Miney Mo

For an industry rooted in science, why are drug prices set so unscientifically?

By Agnes Shanley, Editor in Chief

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The pharmaceutical market does not follow the basic laws of economics. If it did, there would be, at least in each country, one set, limited price range for each drug, dictated by supply, demand and other market fundamentals.

Instead, we seem to have chaos. Prices that U.S. consumers pay for name-brand and generic drugs vary widely depending on one’s insurance carrier. I tested this recently by trying to use two different insurance cards to order an asthma inhaler: in one case, the cost was $250, in the other, $46. (It would have cost even more than $250 without insurance—a sobering thought.)

U.S. prices remain far above those in other countries.Can the U.S. consumer’s willingness to pay more for pharmaceuticals, indefinitely, be assumed?

But variability is also seen outside the U.S. A recent European Union study found that prices for 150 name brand medications varied by 24% across member states, and that generic drug prices could vary by a factor of 16!

In May, a group of pharma CEOs spoke candidly about drug pricing at the Reuters Health Summit. After reading a report on it, blogger Jim Edwards’ take on the meeting —“Four Pharma CEO’s Admit They Jack Up Prices For the Hell of It”—didn’t seem far from the truth.

AstraZeneca CEO David Brennan noted the lack of transparency on pricing in the U.S., Reuters reported.Shire CEO Angus Russell was quoted as saying, “Prices were just shoved up every year to make more money and meet earnings.”

“The industry has been in volume decline for three years—it’s been propped up on price,” said Tim van Biesen, head of Bain & Co’s healthcare practice, as quoted by Reuters. “You have to ask how long that can continue.”

There is a call for more transparency about all things, but particularly drug pricing. Last month, Unicef began to publish the prices that drug manufacturers quote for vaccines. In addition, in the U.S., a group of Democratic Congressmen wrote to drug manufacturers asking them to clarify the means by which they’re establishing prices for new drugs. One of the two drugs targeted is Avanir Pharmaceuticals’ neurological treatment, Nuedexta.

Nuedexta is reportedly a combination of quinidine and dextromethorphan, both inexpensive ingredients, and the lawmakers asked why a product made with $20 worth of ingredients was being sold for $600. They demanded cost figures for clinical trials and post-market studies, marketing budgets, and details on how the price was established.

Newspapers and blogs also discussed the high prices for some newly approved drugs, including Optimer’s Dificid and Vertex’s Incivid, and the fact that price isn’t being openly shared, up front, with the groups who need that information most: physicians and patients.

As consumers become better educated about drug effects, how willing will they be to pay much more for a drug that may, in some cases, provide only marginally better performance?

In Europe, the move is toward “Value Based Pricing.” This approach, critics argue, is keeping the latest innovations from patients. Others say it is keeping prices, and manufacturer hype, down to manageable levels.

Last year, in the U.K., the National Institute for Health and Clinical Excellence (NICE) failed to recommend three new cancer drugs because the treatments were too expensive relative to the benefit they offered. NICE is said to be working on a value-based approach, set to take shape by 2014. Germany has also drafted a “value-based” set of requirements for drug manufacturers. Can the U.S. be far behind?

Undoubtedly, this developing trend will add to the challenges of getting new drugs approved. However, it will also force drugmakers to ensure that new drugs convey additional value to physicians and patients to justify a higher price.

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