Competition in the Pharmaceutical Marketplace: It's Not About Prices

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Last week I wrote about pharmacoeconomics and drug prices. Pharmacoeconomics, which attempts to quantify the value of drug benefits in economic terms, certainly can be an important tool in our national discussion about health care costs generally and pharmaceutical prices in particular. However, while pharmacoeconomics can sometimes serve to make the high price of a drug seem more reasonable by showing that it produces an overall savings in health care costs, it doesn't explain why competition in the pharmaceutical marketplace does not result in substantially lower prices. After all, if two or more drugs for the same indication provide the same pharmacoeconomic benefit, it would be logical to expect that buyers would choose the least expensive, the other pharmaceutical companies would respond by lowering their prices, and this process would continue until a price equilibrium was reached below which the producers of the drug would be unable to earn a profit or reasonable return on their investment. But that does not happen. Prices do not drop substantially on a name brand drug until a generic of that drug is introduced. Even then, the prices of its competitor drugs are not significantly reduced, although their market share may drop as adoption of the generic increases. How can this be?

Still more on Pricing and Pharmacoecomics- this time from the American Society for Clinical Oncology

Just after putting up today's post on Pricing and Pharmacoeconomics, I came upon yet another major story on this topic:

Sasha Damouni and Robert Langreth, Cancer Doctors Will Rate Cost Effectiveness of Expensive Drugs, Bloomberg/Business Week, April 17, 2014 available at http://www.businessweek.com/news/2014-04-16/cancer-doctors-plan-to-rate-expensive-drugs-cost-effectiveness  

Clearly this is a very hot topic, and I hope the post below aids in understanding this complicated and important subject.

Pricing and Pharmacoeconomics

Last week's (April 12th) blog post was an overview of the highly idiosyncratic nature of the pharmaceutical marketplace and the pricing of pharmaceuticals. Today's The New York Times carried a front page story by Andrew Pollack, The New York Times biotechnology industry reporter, about how doctors may increasingly be influenced by treatment costs when advising patients.¹ Interestingly, while the focus of the article is on the general impact of health care costs on physicians' decision-making, other than a passing mention of MRIs, the only other examples of cost are drawn from the world of pharmaceuticals-- Avastin vs. Lucentis for macular degeneration, Aloxi for chemotherapy-related vomiting and, everyone's favorite target of late, Solvadi for Hepatitis C. Pollack's article also discusses the decision by some physician groups, such as the American Cardiology Society (ACS), to rate the value (that is economic value) of treatments in their joint clinical practice guidelines and performance standards. The article notes that the ACS committee that wrote the new policy recommended using QALYs (quality adjusted life years, a widely used standard in health economics) as a principal metric in measuring a treatment's cost effectiveness. So, given the continuing public attention to pharmaceutical prices, this week I will briefly discuss pharmacoeconomics, which should have, but only in some cases does have, an effect on pharmaceutical prices.

Drug Prices and the Pharmaceutical Market

In recent weeks a fair amount of discussion in the news has focused on the high price of drugs. Some of that is attributable to the high price Gilead Pharmaceuticals set for Solvadi, as mentioned in my last post. Last week, the Massachusetts Biotechnology Council "MassBio" issued a report which warned that the increasing pressure on drug prices along with the overall push to contain healthcare costs could threaten the future growth of the biotechnology industry and the rate of innovation in the pharmaceutical industry.¹ For many years, the major pharmaceutical companies and their trade association, now known as PhRMA,² have been engaged in a reasonably successful effort to convince the American public and their elected representatives that the high cost of many drugs is the result of the very high costs of drug development, which is frequently estimated at $1.2 billion to bring a new drug to market. I don't want to use this post to debate that $1.2 billion dollar figure. Drug discovery and development is a very expensive process, with high costs and many failures, which may well bring the total costs per new drug approval to $1.2 billion. However, I begin my course on FDA Law by asking students "What determines the high cost of drugs?" The success of the PhRMA public relations effort is reflected in the very large percentage of students who do indeed answer, "The high cost of developing new drugs." I then proceed to give them their first lesson on pharmaceutical policy-- which is that the market for pharmaceuticals is like almost every market in our essentially free market U.S. economy. This means that sellers set the price of their goods at what the market will bear.

Continuing the Discussion of "Conditional Approval" and the Accelerating Access/Ensuring Safety and Efficacy Dilemma

Last week I commented on an excellent New England Journal of Medicine article by Darrow, Avorn and Kesselheim -New FDA Breakthrough-Drug Category- Implications for Patients, 370 New Eng. J. of Med. 1252-1258 (March 27, 2014)- on the problems of accelerated approval. Then today my attention was drawn to another excellent article on the early access dilemma for critically ill patients: Karl Thiel, Did Chimerix, Inc. (CMRX) Set A Bad Example For Biopharma?, available at http://www.biospace.com/News/Did-Chimerix-Set-A-Bad-Example-For-Biopharma/328076?type=email&source=BE_032614 (visited April 4th 2014). The topic is clearly an extremely important one, and in need of much more serious discussion.

Darrow, Avorn, and Kesselheim on the new FDA category of "Breakthrough" Drugs.

This weeks New England Journal of Medicine includes a terrific article by Darrow, Avorn, and Kesselheim: New FDA Breakthrough-Drug Category- Implications for Patients, 370 New Eng. J. of Med. 1252-1258 (March 27, 2014).  (the full text is available free online at http://www.nejm.org/doi/full/10.1056/NEJMhle1311493).  The authors point to the relatively high rate of post-market safety issues as well as non-efficacy issues that have surfaced in recent years with respect to drugs approved on the basis of accelerated approval using surrogate endpoints.  There is an important balance to be maintained between expediting access to life-saving new drugs and the hasty approval of new drugs that pose serious risks that outweigh their benefits.  The authors make a strong case that this balance has been lost, and that we may well be doing more harm than good for some of the most vulnerable members of our society-- patients affected with life-threatening diseases for which there are few if any therapeutic options. As the article points out, in the case of accelerated approval with commitments for post-market studies (referred to as Phase IV studies), NDA sponsors have generally been very slow in conducting those studies and gathering data. In one of the worst such examples cited in the article: "Gemtuzumab ozogamicin was approved in 2000 for the treatment of pediatric leukemia on the basis of limited data, but it was withdrawn from the market in 2010 after confirmatory trials initiated in 2004 showed increased mortality and no efficacy [citation omitted]." In other words, children with leukemia were treated for 10 years with a drug that in fact increased their risk of dying. In another example cited in the article, bevacizumab (Avastin) was approved for metastatic breast cancer on the basis of accelerated approval using surrogate endpoints. The post-approval data showed no increase in survival, and, given the serious adverse effects of the drug, the FDA withdrew approval for the indication. This subsequent FDA action was nevertheless met by significant opposition from patient groups, which evidences the understandable desperation of terminally ill patients and their loved ones.

Tu, Holman, Mossoff et al. Make a Valuable Contribution to the Often Wildly Inaccurate Discussion of Gene Patents.

There has been a great deal of hyperbole and plain old inaccuracy in public discussion of gene patents. One would have hoped that the Supreme Court's decision in the Myriad Genetics case, Association For Molecular Pathology et al. v. Myriad Genetics, Inc., et al.) (12-398, Decided June 13, 2013) would have put an end to some of the most inaccurate discussions, which wax on about how the human genome is largely covered by patents and science has been stymied. However, the media still repeats those assertions and, remarkably, they even continue to be made in peer-reviewed journals. GENOME MEDICINE recently published another one of those "the end is near" articles and fortunately, just published a well-written and thorough response by a group of law professors who actually know what they are talking about: Tu et al.: Response to ‘pervasive sequence patents cover the entire human genome’. 6 Genome Med 14 (2014). It has been my opinion that whole genome sequencing largely rendered the problem moot, at least for genetic testing, and that other uses of genetic material, for therapeutic purposes in gene therapy or for protein production for biological therapy should continue to be patentable. Truly workable gene therapy methods are undoubtedly patentable because they are still to be invented and clearly non-obvious. However the patentability of the use of genetic material for protein production for biological therapy has been cast into some doubt by the Supreme Court's regrettable resurrection of the product of nature doctrine in the last two years. I believe that in the context of recombinant protein production this is somewhat less troubling than it might otherwise seem, as there just do not seem to be very many naturally occurring, non-immunoglobin proteins left that can be used therapeutically. Other than in the case of very rare Orphan diseases, there have been no recombinant proteins approved for therapeutic use in the U.S. in a number of years. It appears that the low hanging fruit that was brought to market in the days of Epogen, Neupogen, Humulin, etc., may have been the only fruit worth harvesting at all. From a pharmaceutical policy perspective, the message is clear. Gene patents simply are not an issue of importance.

An Estimate of Pharmaceutical Industry Product Liability Costs

In a previous post I discussed the Generic Pharmaceutical Association's (GPhA) commissioned study of the potential costs of a proposed FDA rule that would allow generic drug manufacturers to update safety warnings and expose the manufacturers to liability. I criticized the methodology used by Alex Brill, of Matrix Global Advisors who authored the GPhA study. Brill arrived at an estimate of $4 billion annually in product liability costs and the GPhA has opposed the proposed rule change citing that figure. My critique of Brill's methodology was principally aimed at his use of early 1980's data for liability costs, and that data was not industry specific. Brill's estimate was thus based on data that would seem to be of very little use in understanding current liability costs or projecting future ones. So, with that introduction, let me explain how I arrived at my own estimate of liability costs for the branded prescription drug industry.

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The FDA Proposes a New Guidance About Distributing Scientific and Medical Publications on Unapproved New Uses: It Doesn't Address the Problem of Publication Bias

On Friday, February 28th, the FDA made available a new proposed Guidance on the subject of pharmaceutical companies' distribution of published materials that report on studies of their drugs for "unapproved" uses.¹ The marketing of pharmaceuticals is a huge enterprise. According to a study by the Pew Charitable Trusts Health Initiative, pharmaceutical companies spent $29 billion in 2012 to promote the use of their drugs, with $15 billion of that spent on direct marketing to doctors by pharmaceutical reps, a practice known as "detailing." For some drugs, a major portion of the promotion effort is aimed at generating "off-label" use, which is the prescription of a drug for diseases or conditions for which the FDA has not received sufficient evidence to determine the drug's safety and efficacy. Until the mid-nineties, the FDA took a hard and fast position limiting the ability of pharmaceutical companies to promote off-label use of their drugs. The FDA's position was straightforward: placing a drug on the market for a use which has not been approved by the FDA is selling the drug without adequate information about its safety and efficacy for that use, which renders the drug "misbranded" in FDA parlance and the marketing illegal. If a drug maker wanted to promote a new use of an already approved drug, then the FDA's view was that the only proper way to do so was to do studies that were reviewed by the FDA and sufficient to support adding that use to the drug's label. Then, in a series of decisions, the District of Columbia Court of Appeals ruled that drug makers' dissemination of information about unapproved uses was commercial speech and merited protection under the First Amendment. That view was partly adopted by statue with the Food and Drug Administration Modernization Act of 1997. Since then, the FDA's efforts have been directed at defining the appropriate limits on off-label promotion, consistent with the First Amendment.

The FDA's proposed rule changes for generic pharmaceutical labels and the GPhA response

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Following the Court's decision in Pliva Inc. v. Mensing that generic drug makers were shielded from liability for inadequate warnings because of their inability to easily strengthen those warnings, the FDA began a rulemaking procedure to change the rule governing generic drug labeling. On November 13, 2013 the FDA published its proposed rule to provide an opportunity for comments by industry and other interested parties.¹ The proposed rule is intended to remove the restrictions on generic drug labeling that lead the Pliva majority to rule that it was impossible for a generic drug company to comply with a state court's determination that generic drug was unreasonably dangerous because the label failed to adequately warn doctors and patients of the drug's risks:

The proposed rule would create parity among application holders with respect to such labeling changes by permitting holders of abbreviated new drug applications (ANDAs) to distribute revised product labeling that differs in certain respects, on a temporary basis, from the labeling of its reference listed drug

The FDA explained that because generic companies that received approval to market a drug under an ANDA, just as the sponsors of new drug applications receiving approval under an NDA, "have an ongoing obligation to ensure their labeling is accurate and up-to-date" and that therefore:

tension has grown between the requirement that a generic drug have the same labeling as its RLD, which facilitates substitution of a generic drug for the prescribed product, and the need for an ANDA holder to be able to independently update its labeling as part of its independent responsibility to ensure that the labeling is accurate and up-to-date.

At the time this is written, the FDA had not closed the comment period, so the rule is not yet in its final form. However, the FDA is clearly taking the position that the potential for tort liability is an important incentive for pharmaceutical companies' efforts to monitor the safety of their drugs, and that the decision in Pliva, by shielding generic manufacturers from liability, undermined their incentive during an important period in a drug's use. In its statement in support of the proposed rule, the FDA cited its own study of the safety-related labeling changes made in 2010, which found that the "most critical safety-related label changes, boxed warnings and contraindications, occurred a median 10 and 13 years after drug approval."²