Pillhead

the personal views of a doctor in industry

Posts Tagged ‘cost of drugs

Growth in Prescription Drug Spending Lowest in 40 years

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The National Health Expenditure Accounts (NHEA) are the official estimates of total healthcare spending in the US.

The latest numbers show that the annual growth in spending on prescription drugs has been on a downward trend for since 1999. The highlights document notes that, “prescription drug spending growth decelerated in 2007, from 8.6 percent in 2006 to 4.9 percent in 2007”. The explanations for this falling trend are given as, “an increase in the generic dispensing rate, slower growth in prescription drug prices, and growing consumer safety concerns”.

Let’s take a look at these three explanations in turn:

The Growth in the Generic Prescription Rate

An article in NEJM (The Ongoing Regulation of Generic Drugs, 2007) gives a decent look at the regulation of generics in the US and also gives data for the proportion of prescriptions that are generic.

generic scripts

I was rather surprised to see how slowly the generic prescription rate is increasing. Over the last two years, 2006 and 2007, the rate of penetration has actually been slowing down.

This decreasing growth trend is obviously not a good explanation for the deceleration in spending of prescription drugs. In fact the trend is the exact opposite of the description given by the NHEA. Perhaps their other two explanations are more substantial.

The Price of Prescription Drugs

The United States Government Accountability Office (GAO) produced a report in 2007 examining trends in retail prices, described as usual and customary prices, which they defined as those prices that an individual without prescription drug coverage would pay at a retail pharmacy, (Prescription Drugs: Trends in Usual and Customary Prices for Drugs Frequently Used by Medicare and Non-Medicare Health Insurance Enrollees).

This analysis proved more difficult than would have been expected (after all the CPI covers drug prices). The authors wrote, “there is no easy to understand and reliably accurate information regarding the price of drugs paid by consumers”; their solution was to create the dataset themselves.

gao drug prices

The results (the nice graph is actually from the newsletter of the American Psychiatric Association) show that over the 7 years through 2006, branded drugs have increased in price by about 6% annually on a slight upwards trend, while generic drugs have been on a relatively flat/decreasing trend increasing by 1% annually. Unfortunately, there is no data here specifically for 2007, the year we are really interested in for this post. However, there is little reason to believe that the trend will dramatically shift in the other direction.

Growing Consumer Safety Concerns

This is an interesting explanation for the deceleration in spending on prescription drugs: people are spending less on drugs because they do not think that they are safe enough. This hypothesis is a can of worms waiting to happen, but let’s take a quick look.

Consumer concern comes from three sources: Drs, the media, and word of mouth. In many respects, these three are interlinked and feed into each other. This is a positive feedback loop with the ability to magnify concerns rapidly.

But there are only two independent sources of input into the system: scientific fact (in the form of clinical trial data), and the local regulatory agency (in the form of warnings, and label updates).

In the US, there is a potential problem because the regulator, the FDA, does not appear to be independent of the feedback loop. In some real sense, the FDA is an active party to the loop:

The FDA publishes a quarterly newsletter on the safety reports that it has received, “Potential Signals of Serious Risks/New Safety Information Identified from the Adverse Event Reporting System (AERS)“. The safety reports themselves are voluntary and generally lack much detail, but they do note a side effect, an identifiable person, and a drug that was being taken at the same time, eg a patient of mine called Mr Blogs complained of pain in his chest while taking drug x. These reports are useful in identifying rare events that may be linked to a drug, but that are so rare that they did not show up in the clinical registration trials, but they are hardly robust. A signal identified would mean that an association between a drug and a given side effect needs to be investigated further, and such signals by definition cannot apportion causality.

But with its public newsletter, the FDA does not identify signals needing further analysis. It identifies “potential” signals that may or may not require further analysis at some time in the future. This kind of crystal ball gazing is embarrasing at best and dangerous at worst. If people are discouraged for unscientific reasons from taking an effective medicine then the consequent morbidity and mortality that results is on the FDA’s hands.

So Which Explanation is the Best?

The generic prescription rate appears to be on a slowing growth trend lately and certainly does not appear to be influencing the deceleration in spending on prescription drugs.

It is possible that prescription drug price inflation slowed in 2007 but this is not immediately clear from the data publicly available. The trend was fairly stable and showed a slight upward trend from 200-2006.

While it is difficult to measure changes in consumer safety concerns, it would seem reasonable to believe that they had an effect to some degree in the US.  It is a little concerning that the FDA appears to be fanning the flames with its quarterly “potential” safety signal newsletters.

Written by Pillhead

June 14, 2009 at 5:26 pm

Branded Generics, a Mug’s Game

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During the patent life of a drug, Big P must recoup its costs, cover its expenses and make some profit. Throughout those 10 years many of the normal rules of economics are suspended: our volume goes up and, in the absence of competition, our price goes up too (strangely in spite of massively higher volumes going through manufacturing, we do not appear to develop any competitive advantage in the manufacturing process, but that is another article).

And at the end of these happy years, we find that we have put a price umbrella over the market and in so doing we have literally built the market for generic competition to our drug.

Our response has been disappointing: branded generics (also called second brands).

While attempting to maintain the price of our premium branded drug, we launch a branded generic version closer to the generic competition’s price.

There is nothing wrong with pricing your product to different market segments, but the differential must be based on features which some are willing to pay extra for. In the drug business, all three of these drugs options are deemed by the regulators to be clinically the same.

We have a schizophrenic attitude to generic drugs. On the one hand we like them so much that we are selling them, while on the other we keep our original brand implying that there is some superiority. We then launch branded generic drugs which are somewhere in between. We never actually claim that brands are better than generics, we never claim that our generic is in any way less good than our brand.

There is no marketing angle for us in the current model.

You have to take your hat off to the brazen business of offering a drug to a person at one price, and essentially the same drug to a richer looking person at another.

We may learn to our chagrin that people do not like being thought of as mugs.

Written by Pillhead

June 10, 2009 at 3:22 pm

The crass is always greener on our side – Big Pharma does ASCO

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Reporting from ASCO, an article in Forbes asks the question, “Are Cancer Drugs Worth The Money?

 

Probably not, is probably the correct answer. How do we get away with charging so much for drugs that add so little in terms of extra days of life? I suspect that apart from the usual economics of it, there are two additional factors:

 

  1. Once people are given the death sentence of a terminal cancer diagnosis, they become desperate and irrational and therefore demand becomes price inelastic

  2. Cancer tends to hit in middle age and later, a time when people generally have some money put aside

 

Perhaps the pricing of cancer drugs is partly driven by the existence of a market segment of rich, desperate and irrational people.

 

What put a bee in my bonnet this ASCO? The Forbes article did, in particular two quotes in it:

 

The authors note that one trend that may further inflate the cost of cancer therapy is containment rather than cure. The big news is around the possible long term use of therapy to subdue cancer cells, the downside being that if you stop treatment the cancer comes back. William Burns, head of Roche’s pharmaceuticals division happily notes, “we have learned that it is a drug to start with and stay with”. And that phrase rolls off the tongue a little too easily for my taste.

 

But Burns is trumped by OSI Chief Executive Colin Goddard who, speaking about another drug trial that has not shown improvement in survival, noted: “We estimate we have the potential for at least $500 million in new [U.S.] business from this study”.

 

Don’t get me wrong: there is a place and a need for marketing people to do their thing, and for finance guys to do theirs. But ASCO is a medical meeting. If you do not want to look greedy then keep the commercial talk for afterwards.

 

Written by Pillhead

June 1, 2009 at 3:36 pm

NIH to kick-start research into rare and neglected diseases

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“The National Institutes of Health is launching the first integrated, drug development pipeline to produce new treatments for rare and neglected diseases. The $24 million program jumpstarts a trans-NIH initiative called the Therapeutics for Rare and Neglected Diseases program, or TRND.” ( NIH Announces New Program to Develop Therapeutics for Rare and Neglected Diseases, NIH News)

 

Rare diseases are those that affect less than 200,000 Americans, and neglected ones are those that affect the global poor disproportionately.

 

The program will identify suitable compounds for research in these disease areas and NIH will take them through pre-clinical development themselves. If they manage to get one through that far then they will look for external partners to take the compound on to phase 1 trials in humans.

 

Why do they feel the need to step in? According to the NIH press release, “Private companies seldom pursue new therapies for these types of illnesses because of high costs and failure rates and the low likelihood of recovering investments or making a profit”. As acting Director Raynard S. Kington notes, “The federal government may be the only institution that can take the financial risks needed to jumpstart the development of treatments for these diseases, and NIH clearly has the scientific capability to do the work.”

 

This is good news. Governments have a duty to to use some of our tax dollars to look after the less fortunate members of society. Some commenters are missing this point. The WSJ health blog for example: “It’s tough to get drug companies to work hard on drugs for diseases that are either rare altogether or common only in parts of the world where people can’t afford to pay much for treatment” (NIH Treads Where Drug Industry Rarely Goes). The point is that the pharmaceutical industry has no duty to be in unprofitable areas, and if it does venture there then it should be recognized for what it is: philanthropy.

 

Written by Pillhead

May 22, 2009 at 1:49 pm

Pfizer offers free drugs to retrenched Americans

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What a good story (Free Lipitor, Viagra, 70 other drugs for jobless, and Pfizer Launches Free Medicines Program For Newly Unemployed Americans). 

By offering to cover the cost of some of their current Pfizer drugs for up to 12 months, this program does three things: 1) takes some financial worry from the shoulders of these people, 2) keeps them on Pfizer’s drugs when they would otherwise be quite likely to either switch to a cheaper version or stop therapy altogether, and 3) increases the chances that those that benefit from the scheme will stay on Pfizer meds when they get a new job.

This is the holy trinity of recession marketing goods: good PR, goodwill, and good business sense.

We also know the name of the chap behind the idea: Dr Jorge Puente, a medical man.

Written by Pillhead

May 17, 2009 at 1:11 pm

Access to Medicines – Andrew Witty at GSK sets the pace

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In a speech at the Harvard Medical School last week, Andrew Witty, CEO of GSK, set out a bold new agenda for increasing access to medicines in poor countries (PharmaTimes, GSK lays out plans to seriously tackle disease in developing world). It was a triumph of substance over style in which GSK identified 4 key steps that it would be taking, and encouraged other firms to join it.

1) A more flexible approach to IP. A patent pool for medicines for neglected tropical diseases including both small molecule and process patents.

2) Pricing discounts for the poorest countries. GSK will charge no more than 25% of the full price as long as this covers cost of goods.

3) Greater collaboration. GSK already has a dedicated research centre set up in Spain and offered joint ownership to other institutions that want to join the 100 scientists already there.

4) Partnership in delivering solutions in the poorest countries. GSK commited to ploughing 20% of any profits made in these poor countries back into local health infrastructure projects.

The pooling of patents is a trick that has a history in industry: an article in Bloomberg (Glaxo’s WItty to Share Research to Aid Poor Nations) notes that industrial cooperation of this sort was used in 1917 to speed the manufacture of warplanes during WWI, but this will be a first for the pharma industry.

Understandably, some are finding this all too progressive to believe (PharmaGossip, Arise Sir Andrew Witty (or is it Saint Andrew?)). Some have noted that this bold plan will not necessarily cost GSK much money as it only made about $43 million in these countries last year (FiercePharma), but to be fair to GSK, Witty said as much: “We’re not putting enormous amounts of money on the table here,” he noted at Harvard.

Rarely does a pharma executive speak with such clarity of purpose, and rarely does a pharma executive accept that he does not have a commercial obligation to try to make money from the poorest countries directly. Bravo Mr Witty on both counts.

Written by Pillhead

February 19, 2009 at 2:11 pm