Reasonable Rx: Solving the Drug Price Crisis

Date: Jan 11, 2008

There is a huge outcry about prescription drugs, particularly their high cost. The authors of "Reasonable Rx" review the prescription drug crisis in the U.S. and suggest that there is a reasonable solution to the growing problem.

If you want the rainbow, you gotta put up with the rain.
—Dolly Parton

Is it any wonder that there’s such a huge outcry about prescription drugs, particularly their high cost? Consider this: If your only source of information was commercial television, no one could fault you for thinking that GERD was a public health crisis in the United States on the scale of AIDS in Africa. In the time it takes you to read this paragraph, you can reasonably assume that American TV watchers saw dozens of advertisements encouraging them to check with their doctors to make sure they don’t need to treat GERD with the Purple Pill.

What’s GERD? It’s the acronym for gastrointestinal esophageal reflux disease, commonly known as acid reflux disease—a condition in which the stomach releases an acid back into the esophagus. Until the 1980s, physicians rarely used the term, and when they did mention GERD it was probably to describe a complication of a rare pancreatic disorder. But that was before drugs like Zantac and Nexium came onto the market.¹

In the late 1970s, drugs began to be introduced to reduce the acidity in the gastrointestinal tract, which is a source of unpleasant symptoms that can sometimes be related to serious illness. These innovative drugs worked so effectively that they were imitated and, by the end of the 1980s, at least four drugs were doing very well in the marketplace: Zantac, Tagamet, Pepcid, and Axid. Then, in the 1990s, the next generation of acid-reducing medicines, with more elegant molecular mechanisms, became even bigger blockbusters than the originals. You know them as Prilosec, Nexium, and Prevacid.

In 1981, Glaxo (now part of GlaxoSmithKline) introduced Zantac, the trade name for ranitidine, for the control of gastrointestinal acidity. This chemically innovative drug inhibits the stomach’s production of acid, and its underlying process won its discoverer a Nobel Prize. While actually the second entrant in its therapeutic class (some call this a “me-too” drug), after Tagamet (cimetidine), Zantac had few adverse side effects and few negative interactions with other drugs. Glaxo wanted to match the success Smith, Kline, & French (also now part of GlaxoSmithKline) had with Tagamet and produced an excellent medicine—one promoted aggressively at a premium price.²

The initial indication for Zantac and similar drugs was to control and treat peptic ulcer disease. Manufacturers commissioned economic cost-benefit analyses to demonstrate that the drugs saved money by reducing the need for hospitalizations and surgical procedures, and the anti-ulcer drug market grew rapidly. But as successful as Zantac was in this market, a much larger market remained untapped—but not for long.

Physicians soon began to prescribe Zantac off label—in other words, for something other than what the drug was approved for (it’s perfectly legal to do this)—to control symptoms of acid reflux from the stomach to the esophagus and throat. Glaxo saw an opportunity and quickly won approval from the U.S. Food and Drug Administration (FDA) for its drug to be prescribed to treat GERD. For some people, GERD can lead to serious illness if left untreated—but most people who take medicines such as Zantac are not part of that at-risk population.

Tens of millions of people now have a box of Zantac or Prilosec, which are no longer prescription drugs, in their medicine cabinets. You take them when you have heartburn—a condition experienced episodically or chronically by millions of people. What was once classified as simply a physical discomfort has been medicalized by association with a sometimes serious disorder. And while you’re busy buying and taking those pills for something that you’re now told is a disease, a drug company is reaping the profits.³

The Zantac story illustrates how business has encroached on science in the world of pharmaceuticals. It’s surely not the most monumental example: The drug’s importance pales in comparison to cancer treatments, HIV drugs, or a number of others for much more serious diseases. But how Zantac came to be in your medicine cabinet is symptomatic of something that happens with drugs for more life-threatening conditions.

“There’s little point in diagnosing a disease until something can be done to treat it,” a physician colleague of ours is fond of saying. His point is aptly illustrated by the popularity of Zantac and several other new medication classes. As the focus of new drugs went from treating acute ailments such as infections to chronic ailments such as depression, drug companies set out to expand the markets for their products. When newly discovered drugs had beneficial effects that went beyond existing diseases they could treat, the industry worked to instill among consumers the idea that there was something very troubling these drugs could “cure.” Some critics have called this medicalizing ordinary life.

There are plenty of other examples of medicalization. For instance, who hasn’t been disgusted by seeing that nasty dermatophyte, Digger, in television advertisements for Lamisil? For as long as humans have been around, we’ve had to live with disfigurement, particularly of the toenails, caused by tiny fungal organisms. Onycomycosis, the technical name for toenail fungus, was never thought of as a disease. The condition is more of a cosmetic irritation than anything else, so you just endured it. Topical ointments and creams were of no use because the infection is internal to the nail surface. Nail fungus does respond to older, orally taken antifungal antibiotics, but these drugs came with some unpleasant side effects and large risks, particularly to the liver. So, doctors rarely offered any treatment for this condition.

Then came Lamisil, a new, “safer” antifungal drug approved by the FDA to treat onycomycosis. Annual sales of Lamisil exceed several hundred million dollars. People don’t want Digger living in their toenails.

The drug Flomax is another example. It was approved by the FDA for treatment of benign prostatic hyperplasia (BPH), a condition men face as they age. The prostate gland slowly enlarges, which may cause it to press on the urethra and cause a slower and less forceful flow of urine. The symptoms can be triggered by more serious diseases such as prostate cancer, a bladder infection, or bladder cancer, but having BPH is not a sign of risk for these conditions. It’s more a part of the normal cycle of life. And while BPH can be a sign, in some instances, of more serious troubles, whose grandpa doesn’t suffer the inconvenience of getting up in the middle of the night to visit the bathroom?

Boehringer Ingelheim’s advertisements for Flomax are everywhere. The target audience isn’t just BPH sufferers, but “people who care about men with symptoms.” If men complain to their doctors that they are getting up in the middle of the night and their wives complain about being disturbed while sleeping, doctors are more likely to prescribe the drug to address what may well be a lifestyle or convenience issue. The financial stakes in encouraging the use of Flomax are huge: “The incidence of BPH is estimated to equal the age of the men. Therefore, 50 percent of men in their 50s have the disease, and this increases to 80 percent for those in their 80s.”⁴

This example appears to be a case of the medicalization of some thing that is more an inconvenience for most patients than a real health problem. Oftentimes, it’s the satirists who show you the truth. Flomax has been spoofed on Saturday Night Live through a parody advertisement for “Urigro” for the treatment of “weak male urination syndrome.” The parody suggests you turn your weak stream (which the Flomax ads underline) into something a man can be proud of.

There’s nothing wrong with medications for inconvenient urination or heartburn or athlete’s foot. But if you want to understand why drugs cost so much in the United States, you can’t avoid this discussion of medicalization. And the discussion is tied intimately to the “blockbuster” model that drives the pharmaceutical industry.

The “Blockbuster” Mentality

Reports show that pharmaceutical companies spend hundreds of millions of dollars to develop a new drug, even in excess of $1 billion. A 2003 study by the Tufts Center for the Study of Drug Development estimated the cost at about $897 million, driven in large part by the pharmaceutical companies’ search for thousands of molecules that never become drugs. This is a substantial increase from the estimated $500 million that the pharmaceutical industry spent in 1996, as reported by the Center. Drug firms say prices for new drugs are so high because they need to recover the investment in all those failed efforts and compensate for the risk of a promising new chemical entity that ultimately does not work as a drug. No wonder, then, that since the late 1970s pharmaceutical companies have focused so much of their attention on discovering market blockbusters.⁵

What makes a drug a blockbuster? In the pharmaceutical industry, a blockbuster drug is one that achieves acceptance by prescribing physicians as a therapeutic standard for, most commonly, a highly prevalent chronic (rather than acute) condition. Patients often take the medicines for long periods. And then there’s the financial component of the definition. A blockbuster drug is typically defined as achieving annual worldwide sales exceeding $1 billion. Those staggering revenues are generated by two components: the large number of patients who take the medicine and the premium price typically charged (compared to the older drug it replaced). Longterm use by patients, often consistent with guidelines issued by professional physician organizations, creates an annuity for the pharmaceutical company—at least until the patent protection runs out.

Many individuals who follow the prescribed treatments realize benefits that include long-term control of symptoms and signs of illness, and improved qualify of life. But on the scientific side, a key point to make is that blockbuster drugs are, in essence, “one-size-fits-all” therapies. That fact alone feeds their market success.

Notably, fewer than 10 percent of new drugs introduced to the market achieve the blockbuster degree of success. But considering the potential financial results, the pharmaceutical companies keep trying to develop blockbusters.⁶

Since Zantac’s introduction in 1981, many other new drugs have grown to blockbuster status, including medicines to treat high blood pressure and high cholesterol, depression and anxiety, and asthma and allergies—to name several of the most successful therapeutic classes. You’ll surely recognize the names of a few of the 100 or so blockbuster drugs that have made it to market. Again, if you’re a TV watcher, then you’ve likely heard about Ambien, Lipitor, Nexium, or Plavix, to name a few. Based just on how many times you’ve seen the commercials, you can imagine the revenues these drugs generate for the manufacturer.

Researchers know that large numbers of people benefit from taking prescribed blockbusters, but they also know from clinical trial results that some proportion of patients—sometimes quite large, depending on the drug—do not benefit. Often, when patients are taking multiple drugs and feeling better, no one can tell which drugs help and which don’t; so, the patient continues with them all. And in still other cases, medicines are used inappropriately, in insufficient doses, or for too short a time for patients to benefit. From a profit point of view, though, it doesn’t matter: In every case, the manufacturer still generates sales revenue.

A class of drugs called leukotriene modifiers—you’ve probably heard of Singulair—is a good example of this phenomenon. These drugs offer significant benefits in controlling asthma symptoms, although many of the patients who tried them in clinical trials experienced no relief. Nevertheless, these medicines are popular with asthma sufferers partly because they can be taken orally on a daily basis, rather than having to fuss with a combination of other medications and unpopular inhalers. Plus, side effects are infrequent.⁷

It’s impossible to know for sure who benefits from taking Singulair or similar medicines for asthma symptoms. If a patient takes the drug in combination with other medicines and enjoys symptomatic relief, how could you gauge the relative contributions of the individual drugs? Right now, there is no way. The point is that if a laboratory test or some other diagnostic method comes along for predicting which patients actually benefit, the market for this class of medicines will likely decline, as will sales revenue. Therefore, the “one-size-fits-all”blockbuster drug will always have a better financial profile. And those blockbusters are going to cost you—the consumer—serious money.

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.

Business Decisions Encroach on Medical Advances

Scientific and technological advances make it possible for researchers to focus on the differences in how individuals respond to medicines by identifying sequences of human genes that correlate with whether patients will benefit from a given treatment. This concept is a veritable revolution in clinical drug development—the long-anticipated personalized medicine. This revolution is driven by something called biomarkers, which are fragments of DNA sequences that cause disease or are associated with susceptibility to disease.

So far, disease-specific or drug-specific biomarkers have been identified for chronic diseases, including diabetes and asthma, as well as various forms of cancer. Herceptin, which was discussed previously, is possibly the best example of a current drug whose use depends on the presence of a genomic biomarker. There’s even a molecular diagnostic test to predict which breast cancer patients will benefit from treatment. This is only the beginning. As scientists pore through huge volumes of data collected from sequencing the full human genome (people’s genetic makeup) and relate the data to observations in the laboratory and to presentations of disease symptoms, they’re going to discover many, many more biomarkers.

We don’t use the word revolution lightly. Biomarkers already have a great influence over how clinical trials are designed and conducted. If researchers can develop a molecular diagnostic test, based on their knowledge of biomarkers, to predict which patients will benefit from taking a medicine, clinical trials can enroll a more homogeneous group and conceivably fewer human subjects and still be able to establish whether a new drug is superior to an earlier therapeutic alternative. It’s the kind of cutting-edge scientific advance pharmaceutical firms should fully embrace.

But what if we told you that this tremendous medical breakthrough is being squandered in the name of profit or out of competitive fear? What if we told you that patients are not accessing potentially powerful cancer medications as fully as possible because of a business issue with biomarkers?

Scientists working in large pharmaceutical firms tell us that financial considerations are getting in the way of fully and rapidly realizing the promise of biomarkers. Who loses? All of us. Consider the tale of Iressa and Tarceva.

In the 1960s, scientists observed that kinase enzymes play an essential role in the growth of certain cancers, and so they began to explore how to block the action of kinase. It took decades before the first kinase inhibitor drug made it to market. In 2001, Novartis introduced Gleevec, “hailed as a miracle drug poised to usher in a new age in cancer treatment.”¹⁵ The drug targets genetic aberrations leading to two infrequently occurring cancers, chronic myeloid leukemia and gastrointestinal stromal tumors.¹⁶ As we previously mentioned, therapy with this drug has produced major survival benefits for patients.

Iressa and Tarceva are two newer targeted kinase inhibitors, which address genetic mutations that have major roles in producing certain types of non-small cell lung cancer (NSCLC), a condition for which older chemotherapies have not produced much survival benefit. (These drugs are also used on or off label to treat a number of other cancers.) Iressa, approved—although with some controversy—by the FDA in 2003, was discovered and developed by AstraZeneca. While only about 10 percent of patients in the trials for Iressa demonstrated shrinkage in tumor size, the FDA gave its okay to get this much-needed therapy to market quicker.

Once the drug was on the market, published reports showed that patients appeared to develop serious complications disproportionately, including lung disease and stroke.¹⁷ Late in 2004 and early in 2005, two clinical trials demonstrated convincingly that patients treated with Iressa did not live longer than those treated with traditional chemotherapy. Meanwhile, many oncologists were observing striking improvements—including arrested disease progression and extended survival—among a small proportion of NSCLC patients they were treating. Several academic and commercial research groups, all independent of AstraZeneca, went on to develop laboratory tests that appear to predict which small, specific subgroups of patients with NSCLC actually benefit from this drug. It appeared that a biomarker was at work here, so the FDA reviewed the new information and, late in 2005, required a change in Iressa’s label. The FDA severely restricted access to the drug to those most likely to benefit.¹⁸ AstraZeneca could no longer reap the profits through sales of the drug to people for whom it wasn’t likely to work.

The FDA’s reclassification of Iressa was made easier because of the agency’s experience with Tarceva, a drug that competes with Iressa. Tarceva was discovered by a small research firm, then developed by a larger biotechnology company, and today is distributed by the pharmaceutical firm that now owns a majority stake in the developer. Clinical trials were outsourced. Using biomarkers, Tarceva’s human studies demonstrate an improved survival of additional months, among NSCLC patients who continue to be treated with it, compared to patients receiving traditional chemotherapy.

The point here is that Iressa’s manufacturers did not bother to identify a biomarker predictive of the drug’s response or toxicity—at least not for the FDA. In fact, the pharmaceutical industry has been quite slow to embrace, at least publicly, the concept of biomarkerenabled medications. Iressa’s biomarker was identified by the university researchers in Boston and New York, and only after they observed that the drug produced unmistakable benefits in an extremely small proportion of patients.

Sacrificed on the Altar of “Market Size”

The extent to which the large R & D-based pharmaceutical firms have developed, or are developing, capabilities to use biomarkers in drug development is somewhat of a mystery. Why? Most likely, they fear that if they predict which specific patients will benefit from a new drug, it will reduce the size of its potential market. After all, as explained above, when a drug is approved for use in all patients—rather than just the few who are predicted to benefit—the drug maker earns revenue even from patients that the medicine doesn’t help.

One startup in the Boston-area cluster of biopharmaceutical firms attracted investors to its business model of partnering with big pharmaceutical firms to search for genomic biomarkers that were specific to drugs in development, particularly targeting common chronic diseases. But there was little interest in such partnerships among pharmaceutical firms. The insurance carriers, though, saw the financial advantage if expensive drugs were given only to those patients with a high likelihood of benefiting. Those carriers pay for medicines.

In 2005, the FDA issued what it calls a “guidance” on the use of genomic data and biomarkers in drug development, aimed at encouraging firms to engage in such work at least on an exploratory basis.¹⁹ The FDA’s initiative offers pharmaceutical firms that collect data on genomic biomarkers a “safe harbor” to submit confidentially what its researchers use “internally,” so the FDA can use this information to gain a better understanding of the potential for improving the effectiveness and efficiency of drug development. The FDA promises these pharmaceutical firms that the data won’t be used to limit approval for a new medicine only for use in patients who can be identified from biomarkers. However, the drug firms, securely tied to their blockbuster mentality, remain unconvinced.

Not long ago, Pfizer was forced to suspend its clinical trials for a new cholesterol-lowering drug because the researchers were finding high levels of toxicity. It was a tremendous disappointment for the company, which had hoped to combine the new drug with its blockbuster, Lipitor, and thus extend the patent life—and also the blockbuster status—of its cash cow. If biomarkers were part of the picture, might things have turned out differently? No one can say for sure. But it’s reasonable to assume that if Pfizer had opted for a strategy to identify a biomarker for the percentage of patients who wouldn’t have the toxicity found in the large trial population, then the outcome would probably have been a viable drug. Yes, it would have a much smaller market. No, it would not rake in the cash like a blockbuster. But patients would benefit. Now, there is no new drug. (More on this story in Chapter 7, “How to Lower Drug Prices.”)

Without proper and sensible incentives, it’s no wonder the pharmaceutical firms all too often think like businesspeople concerned only about their shareholders rather than like scientists who work for the good of society. Can Americans afford such an impasse? Should we let business concerns determine whether new, innovative medicines get into the hands of prescribing doctors and their patients who need treatment? Wouldn’t society’s interests be best served by moving forward aggressively to realize the full scientific value of biomarkers?

Consider another example. A group of students in an MIT class taught by one of the authors built a model of personalized medicine for asthma, using a medicine mentioned earlier—Merck’s drug Singulair. They found plenty of available scientific knowledge that would make it relatively easy to develop a genetic test to identify which patients would respond positively to Singulair for their asthma. Today, Singulair is a blockbuster, but it must be the case that tens of thousands of patients who buy it realize little or no benefit. The students estimated that limiting the drug’s use only to those who “passed” such a test would increase the efficacy rate of Singulair by a huge margin. But it would also reduce Merck’s revenues by more than a third.

Everyone who takes Singulair but doesn’t fully benefit enriches Merck and depletes society’s resources available for medical treatment. But where are the incentives for the pharmaceutical companies to do business in any other way?

The complexity of the U.S. marketplace has increased since 1980 as the portion of health costs consumed by medicines has nearly doubled. Many private insurers and managed care plans that offer a drug benefit have made it difficult for doctors to prescribe costly, brand-name medicines. Often, that restricts a patient’s access to innovative therapies. For blockbuster drugs with large target populations, payers frequently engage the services of so-called pharmaceutical benefits management (PBM) firms (more about these in Chapter 3, “The Drug Industry Today”) These third-party organizations negotiate discounts from drug manufacturers on behalf of the payers in exchange for helping “move market share” to one drug and away from the competition. For the premium-priced orphan drugs, many payers establish strict criteria for patient selection, restricting access to a small proportion of its covered population. This keeps the impact of their high costs relatively low when spread over a large insured population. The industry calls this measure costs per member, per month. But as more of these targeted therapies enter the market, concerns about the cost impact only heighten.²⁰

Payers also face costs for diagnostic tests required for some of the newest, most innovative targeted therapies. These tests, which come at a significant cost, predict a prospective patient’s response to treatment. Payers have to figure out a cost-effective process that facilitates access to the most expensive drugs for those who will benefit from them. It’s uncharted territory.

The situation seems to go from bad to worse. Scientific advances only spur higher drug prices. Does it have to be this way? Why has the problem gotten so out of hand?

How We Got Here

The proportion of healthcare dollars expended on prescription pharmaceuticals in the United States has risen dramatically in recent years, and today, prescription drugs are a critical part of our healthcare and our lives. Demand for medicines is high because they genuinely contribute significantly to our health, our well-being, and the quality of our lives. But the improvements are so often overshadowed by how much money we have to spend to get those treatments. It’s especially bad for the elderly. Why do senior citizens have to spend nearly $2,000 per month, on average, on their medicines? Why should senior citizens have to travel to another country to save money when they buy their medicines?

The pharmaceutical industry has a stock answer to the cost question. Drug companies contend that research costs hundreds of millions of dollars that they have to recover. They note that they’re continuing to do the research that cures diseases and saves lives. And because they take all the financial risks associated with discovering new drugs, then they cannot lower drug prices without reducing the flow of new drugs. (One company’s current drug ads end with the phrase “today’s medicines finance tomorrow’s miracles.”)

Surely no one would argue against maintaining the stream of innovative new products that emerge from research. So, what’s the solution?

We have an answer. To understand why our solution makes sense, though, you need to understand how today’s medicines were discovered, approved, and introduced to the market. Why does this history matter? Because it’s crucial to see that although the process by which drugs make it to the market is undergoing a radical change, the ways in which their prices are ultimately determined remains mired in the old world.

An innovative approach is needed, a better way to make sure new and better drugs can continue to flow to consumers at a reasonable cost. Our solution makes sense when you grasp the nature of the changes. So, we’re going to look more closely at drug discovery and development, and explore the transformation of the pharmaceutical industry’s structure. Building on this examination, we offer a solution that will lower drug prices without interrupting the flow of new drugs. It’s a solution that fits this new world.