The Economy of Exclusivity Within the Pharmaceuticals Industry

Written By Armando A. Diaz, Writer, WellAway Limited.

Inflation in the pharmaceutical field is rampant and shows few signs of slowing. Hide your wife, hide your kids and show your wallet, the rate of increase is growing for both hospital and non-acute settings and is expected to rise by close to 8% in 2018.

Specialty medication such as “biosimilars” and “orphan drugs” are being used far more often than ever and less expensive generic brands continue to drop. The fall of generic prices should mean that pharmaceutical prices also go down. Why don’t they?

Shouldn’t competition lower prices?

There are more and more companies popping up and with more competition there should be a decrease in prices, but there isn’t. Are these companies talking to each other, keeping the price up, or is there another reason? Even older cancer drugs, that are flooding the market, have shown increases as high as 55% in the past decade. (E.g. Novartis’ Nelarabine and Rituxan) Many of these medications also have generic alternatives circulating the globe but skipping the United States, the country with the highest overall healthcare cost.

An extreme example is the cancer drug, Imatinib. In the US, its cost is $146,000 for a year’s supply. In India, it’s only $400. That’s because in the US only Novartis, which owns the patent on the drug, can sell it.

First, let’s play devil’s advocate and defend the medical behemoths. Many medications hit the market toting high price tags because of the expansive cost of identifying, developing and testing new drugs. Then there’s the cost of clinical trials which can soar as high as the hundreds of millions. This all adds up, so it is of no surprise that these meds show up with hefty price tags.

Blame the game, not the player.

In some cases, sometimes a drug is used all over the world. It should be easy for an American pharmaceutical company to pick it up, re-package it, and offer it to its citizens. Yet, because a steroid such as deflazacort, which treats children with Duchenne muscular dystrophy, has never been approved in the United States, the FDA consider it a “new drug” and force big pharma to throw millions of millions into the approval process, which then gets billed to every day folks. In Europe or Canada you can purchase the drug for 1000 to 2,000 USD for a year’s supply, whereas in the United States it can reach 90,000 USD.

Subsequently, the company has a 7-year monopoly over said drug, at which point they are the sole distributors of the substance. Essentially, society must pay for the development of new drugs. However, these companies take advantage of this and charge people, who have little other choice but to pay prices as high as 85,000 USD a year for a drug that should only cost approx. 1,000 USD.

Additionally, insurance programs such as Medicare and Medicaid are, as per the law, are not allowed to negotiate drug prices and must pay what the drug makers charge. Our institutions are gearing the pharmaceutical giants with the tools to take advantage of the average joe.

We want generic, we want generic!

Exclusivity regulations, such as the 7-year monopoly on new drugs, are being further exploited by tactics such as “evergreening” and “hard switching.” Pharmaceutical executives dread the end-point of their complete control.

What is evergreening? A company essentially extends their exclusivity time by getting a patent on a “new” product. The drug is only slightly changed from the previous patent and then they promote the newer medicine as being superior to the earlier version, creating a new market in which they once again have exclusivity on this drug, keeping the price soaring and the patent exclusive to them.

Another post-patent technique is called “hard switching,” in which a manufacturer stops the sale of older drugs about to lose the patent and replace it with the new high prices product, so by the time they lose the patent, the patients are already hooked on the new expensive substance on automatic renewal from their prescriptions.

Society pushes back.

All is not lost, non-profits such as the Institute for Clinical and Economic Review has started performing cost-effecting analyses of many high-priced drugs, to help insurance companies and doctors steer patients to medications that are more affordable and just as effective.  There is also the case of globalization, in which injustices are more likely to see the light and get people to oust the upper echelon and change the status quo. (I.e. Pharma bro’s Daraprim price gauge in 2016)

We could also take a step in the right direction and consider restructuring our exclusivity system and our non-negotiation regulations. Price gauging has made headlines in recent years, and unless a change is made, there is little sign of stopping.

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References:

https://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/

https://www.scribd.com/doc/72900468/Global-Pharmaceutical-Industry-Overview-and-Success-Factors

The Elsevier Journal, April 2017 edition