Expensive Drugs for Serious IllnessesI recently saw an article in the Wall Street Journal (2/1/12) about the FDA approving a cystic fibrosis drug that costs $294,000 for a one year supply. In New Jersey, that is the price of a simple house. The drug is called Kalydeco and is owned by Vertex pharmaceuticals. Cystic fibrosis is a genetic mutation in the body that produces thick, sticky mucus that clogs your lungs. In addition, it obstructs the pancreas and stops enzymes from helping the body break down and absorb food. Patients lose the ability to breathe over time and are prone to infections. Typically patients with cystic fibrosis are given antibiotics for the infections and wear vibrating vests to dislodge the mucus buildup. Kalydeco only helps a small portion of those with the genetic mutation but it is a start on finding the cure.
My first thought was that I hoped the individuals that needed the drug had good insurance. Honestly, who in the middle or lower class can afford this drug? How does a pharmacy stock up on this? This is not the most expensive drug on the market. The most expensive I have seen is Soliris which costs $409,500 a year and treats a rare blood disorder. Once you get into cancer drugs, the prices are more reasonable in terms of comparison to Soliris but still high. As an example, Avastin costs $50,000 a year. I have trouble imagining going into a pharmacy and picking up your monthly prescription for $24,500 and just paying $20 copay. That is great insurance coverage.
Pharmaceutical Costs of Drug Development
We all know that it costs pharmaceutical companies hundreds of millions of dollars to get a drug to market. It is a business model with the expectation to get your money back once the drug is marketed plus profit. The key to the business model is to make a drug for consumption by the mass market. The more people you can treat, the cheaper the drug can be and the more money you make off of it.
If you focus on say cystic fibrosis, you are talking about 100,000 individuals which is limited considering we have 4 billion people on the planet and rising. Now if you were to find a cure for obesity, you are talking about several hundred million people. Your cost as well as your profit potential is split along a larger population size. That is why pharmaceutical companies focus on developing mass market drugs.
Most chemists such as me dream about finding the next blockbuster ($1 Billion) drug. But the reality is that researching and finding the next blockbuster is a pipeline process. I only work on one piece of the pipeline. Think of how cars are manufactured. You find a concept, retool the plant to make that concept car and create an assembly line until you get the final product.
Prescription Drug Development
Prescription drug development is much the exact same way except one thing. At any point along the pipeline, if the drug fails in testing on what it is supposed to do, the drug development process is stopped and your investment is gone. You can’t make half a car and try to sell it. If I remember correctly, only 1 in 5 drugs actually make it to the commercial market when going through the pipeline. So that is an 80% loss rate on research and development.
Based on that loss rate, it makes more sense to develop drugs for a mass market so research and development costs can be recovered. You also have to add the fact that pricing power is limited to about 10 years through patent protection. It can be extended if you had formulation changes but that is rare to do. Once generics get involved, pricing goes down; pharmaceutical companies make a small profit. Although they generate money, it can’t sustain the high costs of research and development. As consumers, we pay for all drug development through our insurance and co-pays. Even if one patient uses Kalydeco through an insurance plan, the price is spread out along all the insurance members. Do you know the price of the most expensive drugs you have taken?