Rob Shaffer responds to A. Gordon Smith’s article, “The Cost of Drugs for Rare Diseases Is Threatening the U.S. Health Care System” (Harvard Business Review).
Rob Shaffer, Ph.D., leads early stage research at Valerion Therapeutics, focusing on rare genetic musculoskeletal diseases. He obtained his PhD in Biochemistry from Boston University and his dual BS from Rensselaer Polytechnic Institute in Bioinformatics and Biochemistry/Biophysics.
Think of a newly approved drug as you would buying a new home. With the new home comes a mortgage, taxes, insurance, and upkeep; the mortgage is often the most significant of the three, at least upfront. After the 15- or 30-year payment term, you own your house, and just have to pay taxes, insurance, and upkeep, a far less expensive monthly total. Drugs are similar: under patent protection the innovative company can charge a premium to recoup development costs and turn a profit to encourage further investment in the company. After patent expiration, cheap generics compete and drive down the price of the drug, similar to paying off your house and only having to spend on taxes, insurance, and upkeep.
When articles such as “The Cost of Drugs for Rare Diseases Is Threatening the U.S. Health Care System” in Harvard Business Review rail against the price of rare disease drugs, they ignore the long-term view and the benefit of genericization. After the patent life has ended, these drugs should become generic, and as competitors enter the market, price is likely to drop by up to 90%. Furthermore, drugs continue to drive savings by sparing expensive and rising medical service costs, such as for hospital admissions and surgeries, which, unlike drugs, never go generic.
But when drugs can’t go generic due to technical reasons or won’t due to legal maneuvers like patent thickets, that is where society gets a bad deal and throws a wrench in the attempt to establish treatment for all diseases. Patients continue paying high prices for drugs that not only no longer reward innovation, but also perversely incentivize stagnation by reducing the need for new sources of revenue. Peter Kolchinsky’s book The Great American Drug Deal dives into regulatory/legislative recommendations for forced/contractual genericization to avoid such situations from happening, including discussing concerns about maintaining the manufacturing production of newly genericized drugs. Investors do not model returns after a drug has had 10-15 years on the market; forcing a steep price cut if generic competition does not materialize will not impact investment, but will importantly incentivize innovation to develop the next top-selling drug to retain regular revenue growth. These are the kinds of reforms and solutions we need to be talking about, not the proposals in the Harvard Business Review article that advocate for measures that would lower on-patent drug prices, cutting into the “mortgage payments” that incentivize and fuel innovation.
Development of a “NICE or ICER-like post-approval value review,” is problematic for numerous reasons and similarly does not take genericization into account. Requiring that “pharmaceutical companies […] disclose and justify development costs” sounds like a good idea but may be impossible to implement given complexity of R&D budgets that include numerous failed drug candidates; in fact, this requirement may potentially lead to even higher prices if companies simply start spending a larger portion on R&D. It seems clear enough that the industry spends over $100B a year on R&D (that’s evident from public financial statements) and produces 30-40 new drugs each year (also public knowledge), which comes out to the $2.5-$3.3B/drug often cited by credible academic literature. Unless Congress plans on doing drug development, it’s hard to see how more transparency into the costs of particular programs will result in lower costs to develop drugs.
The HBR article explores other similar, somewhat simplistic ideas. But let’s say for the sake of argument that all of these actions are enacted and drug prices come down by 50%. That would be great, right? Well, if a rare disease patient needs a $118,820 treatment (price suggested in the HBR article) that gets cut down to $59,410, that price would not be any more affordable to the average family, while decimating the company that took the risk and developed the drug. What patients need is better insurance coverage, one of the biggest underlying problems with drug affordability. Yet such deep cuts to prices would decimate innovation.
The key to solving affordability clearly lies in insurance reform, whereas the key to ensuring that America continues to get value for its investment in novel drugs is to ensure that they all go generic without undue delay For some drugs this necessitates enacting legislation for off-patent forced/contractual genericization. The end result of this Biotech Social Contract is an ever-growing armamentarium of cheap generic drugs available to patients that reduce our spending on expensive medical services that never go generic. Eventually, maybe or maybe not in our lifetimes, all rare diseases will be able to be treated with cheap generics and we will never have to have this debate again. Unless of course, we halt innovation in its tracks; then we’ll keep this debate going ad infinitum.