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Drugs for Smaller Patient Populations Drive Costs Even Higher

Annual sales of $1 billion are a strong incentive to focus on blockbusters and the large patient populations to which they can be marketed. The flipside is a disincentive to develop drugs for smaller markets. In 1983, in an effort to mitigate the problem, Congress enacted orphan drug legislation that gives market exclusivity to firms that introduce medicines with U.S. target populations of less than 200,000 and establishes difficult hurdles for potential competitors seeking to prove superiority of a new drug.8

With the orphan drug law, you see the beginnings of a premiumpricing model for new, smaller-market therapies. In a sense, it’s the opposite of the blockbuster model. When Genzyme Corporation developed Ceredase and Cerazyme to treat Gaucher’s disease, a rare genetic disorder of lipid metabolism that afflicts (among others) Jews of Eastern European descent, the potential U.S. patients numbered only in the thousands. Without the new drug, patients would likely die in childhood. But Genzyme found an enzyme extracted from placentas (later synthesized using recombinant DNA techniques) to be fully curative of the disorder. The market protection for its orphan drug made it possible for Genzyme to turn a profit, selling very small quantities of the drug at a very high price. In 2002, the price for an annual course of treatment was approximately $170,000, but few insured patients with a prescription drug benefit had any difficulty accessing the medicine or getting reimbursement. That was because the number of people with Gaucher’s disease is so small that the cost impact on insurers is minimal when averaged over all insured patients. Genzyme achieved early market success and substantial revenues.9 Other biotech firms addressed small “niche” or “boutique” drug markets. Biogen developed one of the first efficacious treatments for multiple sclerosis (MS), a neuromuscular degenerative disease of autoimmune origin that afflicts only around 400,000 people in the United States. (In the world of pharmaceuticals, you’ll often hear about “efficacy” and “effectiveness.” In this context, efficacy is the ability to produce a specifically desired effect, and is usually demonstrated in clinical trials. Effectiveness is demonstrated in practice.) Immunex developed a new treatment for rheumatoid arthritis (RA), a condition affecting only some 300,000 U.S. patients.10 Like Genzyme’s new drug, these drugs need to be taken every day for the rest of a patient’s life, or until something better comes along—at a substantial cost.11

These examples set the new premium-pricing model for new, smaller-market drug therapies. It was a model that fit for many drug introductions that followed, including for Crohn’s disease, a progressive gastrointestinal disorder of autoimmune origin; allergies and asthma; psoriasis; fungus infections afflicting immunocompromised patients; and the new, targeted cancer therapies. The model applied even to a stalwart class of drugs: antibacterial antibiotics. There’s always a need for new antibiotic medications because the evolution of disease-causing organisms leads to drug resistance. New antibiotics are typically reserved by doctors for patients who aren’t responding to any of the older drugs, and so the market size and revenues are limited. But these antibiotic drugs are sold at a premium pricing level, which is exactly how the few totally new antibiotics introduced in the past two decades have entered the market. The model also applies to the major advances achieved in the treatment of HIV/AIDS, which were once nearly always fatal but are now treatable, chronic conditions. The high prices, though, limit access in the developing world, where HIV/AIDS is far more prevalent.

The latest wave of scientific advances, which facilitates new approaches to select therapies for ill patients, promises to raise even greater cost challenges. The sequencing of the human genome gives scientists detailed information about the functions of a number of genes, and drugs are being developed to correct, ameliorate, or otherwise address genetic defects that lead to disease. And in theory, it’s even possible to test—with high confidence—which patients with a given defect will benefit from the treatment.

How much higher will drug prices go with these new therapies? They come at a very high cost, according to a Business Week article reviewing new cancer therapies, titled “Going Broke to Stay Alive.” Among other drugs, the story discusses Gleevec, a Novartis drug that treats two forms of cancer associated with a single genetic defect, and Genentech’s Herceptin, which treats a hereditary form of breast cancer that afflicts some 15–25 percent of all patients who develop the disease. Gleevec specifically targets a genetic defect and is highly efficacious in the target group of cancer patients and responsible for significant increases in patient survival, but does nothing for patients with other forms of cancer who do not have the genetic defect. Herceptin has an antibody that targets only patients whose genomes include the BRCA-1 gene; in other words, it interferes with the progression of the cancer. A diagnostic test predicts with high confidence which patients are candidates for the therapy. This drug also increases a patient’s chances for survival compared to earlier therapeutic approaches.12

Gleevec costs $2,200 a month and can be taken indefinitely, while Herceptin runs $3,200 a month, with an additional expense of $100 a pill for an anti-nausea drug to relieve side effects. Hence the article’s title. Gleevec’s annual revenues were $2.2 billion, exceeding the blockbuster threshold, while Herceptin’s revenues were near $1 billion a year between 1998 and 2005.13

Targeted therapies aimed at a specific patient’s unique characteristics will only become more common. But the costs to patients and payers (insurance companies and health plans) are becoming more and more prohibitive. Even the director of the National Institutes of Health acknowledges that the overall cost society pays for drugs cannot be reduced unless people stop taking drugs from which they don’t realize much (or any) benefit.

How will the marketplace for pharmaceuticals respond to monumental scientific breakthroughs and the new model for premium pricing for smaller target populations?14 To what degree do we have to fail to capitalize on scientific and technological advances before policy makers have had enough? Which therapies that might work, but never get developed, have to fall by the wayside before people demand that our broken system be fixed? Are you willing to watch your loved ones suffer while business considerations get in the way of taking the next steps to get needed medicines?

If prices keep rising, many more people will lose access to needed medicines. If the drug companies don’t take in billions in profits, they claim they’ll have to put the brakes on innovation. The incentives are all askew and society’s interests get short shrift in the fallout. Business decisions encroach on medical advances—a situation none of us can afford.

To understand just how big a deal this is, let’s explore one scientific breakthrough that is suffering from this condition.

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