The Other Drug War (Part 2)

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June 23, 1993

 

http://www.mercola.com/2001/aug/15/drug_war2.htm

 

 

The Other Drug War (Part 2)

 

 

 

Page 2 of 2

 

by James Love, The American Prospect

 

Little Orphan Ceredase

 

To appreciate how the orphan drug act has worked, consider the case of Ceredase

(trade name for Algucerase), which is used to treat Gaucher disease, a severely

debilitating disease that causes hematologic disorders, enlargement of the liver

and spleen, bone erosion, and pain.

 

Ceredase and its efficacy in treating Gaucher disease were discovered by NIH

researchers. Beginning in 1976, NIH entered into a series of contracts with the

New England Enzyme Center at Tufts University to manufacture Ceredase for use in

several clinic trials administered by NIH.

 

In 1981 the New England Enzyme Center was closed, and the Ceredase contracts

were transferred to Genzyme, a profit-making firm whose founders included Henry

Blair, the former head of the Tufts Center. Through 1992, Genzyme received

nearly $9 million from NIH, plus more than $5 million in fees from patients

receiving the drug under an FDA investigational drug program.

 

In 1991 Genzyme received FDA approval to market Ceredase commercially, including

seven years of exclusive marketing under the Orphan Drug Act. Despite NIH's role

in the discovery and development of Ceredase and the grant of an orphan drug

marketing monopoly, the government has no control over the prices the company

charges.

 

The cost of the drug to patients, most of whom must take it indefinitely, is

between $77,000 and $552,000 per year. (The first year of treatment is very

costly, followed by lower maintenance costs.)

 

In early 1992 Genzyme said it was treating more than 900 patients, who were

paying an average of $140,000 per year for the drug. The high cost of treatment

has imposed extreme hardships on patients, sometimes exhausting the lifetime

benefits of private health care policies, leaving their families without

insurance for other medical expenses.

 

The federal government does not require companies to disclose their costs, but

based on figures provided to the Congressional Office of Technology Assessment,

Genzyme claims that its costs of manufacturing, distributing, and marketing

Ceredase were $1.60 per unit in 1992, or less than half of the $3.50 per unit

cost of the drug.

 

This includes charges to the depreciation of manufacturing facilities, which

will apparently be used for products other than Ceredase.

 

Genzyme claims bad debts and free distribution of the drug to indigent patients

to cost about $.30 per unit, leaving a profit of $1.60 per unit. Manufacturing

costs are expected to decline substantially as the drug is produced in larger

quantities. Ceredase could generate a billion dollars in revenues for Genzyme

over the seven years of its marketing monopoly.

 

Attempts to redirect the Orphan Drug Act toward its originally conceived mission

have generally failed. In 1990, George Bush vetoed legislation that would have

allowed the FDA to consider rates of growth of client groups, largely to remove

AIDS from the orphan drug list, and which would have granted marketing rights to

companies that develop drugs simultaneously.

 

In 1992, legislation that would have eliminated orphan drug marketing

exclusivity after the drug generated $200 million in cumulative revenues died in

the face of stiff opposition from the drug companies, despite testimony that

revenues for many " orphans " vastly exceeded development costs.

 

 

 

Is Fair Fair?

 

While the need for drug pricing controls has become clear to researchers and

policy makers, federal attempts to implement controls have been halfhearted at

best. The NIH instituted the " fair pricing " guidelines only in response to the

public outrage over the $10,000 price tag Burroughs Wellcome put on the AIDS

drug AZT. The drug had been largely developed by government money and

researchers.

 

Officials at NIH are extremely uncomfortable with questions about the pricing of

medical technology. The agency's primary mission is to promote the advancement

of science in the health care field, and it has demonstrated neither the

interest nor the expertise to develop useful models for setting prices.

 

But even with the best of intentions, NIH is only one of several federal

agencies managing health care R & D, and in every case agencies must work within a

legal framework that increasingly promotes exclusive ownership of federally

funded R & D.

 

NIH has used the fair pricing clause sparingly. The first two fair price

agreements were for Taxol and a separate agreement with Bristol-Myers Squibb to

market the AIDS drug ddI, a drug patented by NIH and licensed to Bristol-Myers

Squibb on an exclusive basis for ten years.

 

Nothing in the Taxol fair pricing clause addresses the relationship between the

company's investments, risks and, the product price -- a deliberate omission.

For both ddi and Taxol, NIH officials compared the company's announced price to

the prices of products used to treat similar diseases.

 

Thus, for example, the Bristol-Myers Squibb price for ddi was considered

reasonable because it was less than the initial price charged for the drug AZT.

The irony of using a comparison to the price for AZT, which was widely

considered to be excessive, is obvious. NIH never asked Bristol-Myers Squibb to

compare the price of the drug with its costs of manufacturing, testing, and

marketing.

 

To appreciate the flaws in this approach, consider the initial NIH analysis of

the " fair price " for Taxol. While NIH has yet to ask Bristol-Myers Squibb for

data on the company's costs in manufacturing, testing, and marketing the drug,

it is a matter of public record that Bristol-Myers Squibb obtains Taxol from its

supplier for less than $.25 per milligram.

 

Rather than focus on Bristol-Myers Squibb's actual costs, NIH officials told the

firm to price Taxol in the range of other cancer drugs. NIH submitted to

Bristol-Myers Squibb a list of 15 drugs and their estimated " monthly wholesale

cost. " Bristol-Myers Squibb was asked to price Taxol so that a month of Taxol

would cost no more than the median for the group.

 

NIH was, in essence, telling Bristol-Myers Squibb that it could price Taxol, a

government-funded drug invention, the same as other cancer drugs were priced,

regardless of where the funding came from. The median cost of the drugs on the

list was $1,776. The BMS wholesale cost of Taxol for a typical patient suffering

from ovarian cancer is about $1,685 per month -- compared with a cost of $86.50

to produce the drug.

 

Federal efforts to control the prices of drugs developed with federal funds is

part of a larger problem of controlling drug prices. Senator David Pryor and

Congressman Ron Wyden have been vocal critics of NIH's feeble efforts to

introduce fair pricing agreements on federal government CRADA and license

agreements, and NIH is reviewing its policies.

 

But even if NIH adopts better methods of determining fair prices, most of the

federal funding for new drug development is performed by universities and other

institutions and therefore not under the control of any federal agency.

 

The most difficult problem is to set prices on new drugs just entering the

market.

 

The pharmaceutical industry proposes to limit the rate of overall drug price

increases to the consumer price index in an attempt to avoid such price

controls. The industry proposal will control only on the rate at which prices

can be increased, not the roll out prices on new drugs.

 

And older drugs are expected to face downward pressure on prices from managed

competition, even without the industry's proposed voluntary limits on the rate

of price increases.

 

The Clinton administration has not yet made official statements regarding its

proposals to control drug prices. In May the New York Times reported that the

administration would ask for the creation of a drug review board, which would

investigate the pricing of drugs, but would not set prices. The board's powers

would be limited to moral suasion.

 

But a drug review board should be more than just the government's conscience.

 

It should collect detailed information on industry costs and revenues and set

prices or limit patent protection for drugs priced too high. It should also be

required to consider the extent to which a drug's development costs were paid

for by taxpayers.

 

Moreover, universities and other recipients of federal grants and contracts

should be required to disclose the contents of contracts for exclusive

development and marketing rights on government-funded drugs, and to allow the

federal government to review the agreements, following public comment, and

determine if the agreements are in the public interest.

 

While the most important factor driving the politics of drug pricing are the

high powered fundraising, lobbying, and public relations efforts of the drug

companies, who believe they are in the biggest battle of their lives, there are

also important dilemmas facing policy makers regarding the impact of regulatory

schemes of the industry's R & D investments.

 

In many cases, federal efforts to limit drug prices will lead to less private

sector R & D investments. The current arrangement, however, is a particularly

inefficient way to attract R & D investments. The federal government should

collect detailed information on the actual investments in drug R & D, and to set

national targets regarding investments.

 

If R & D falls below target rates, the federal government has a number of options,

including direct subsidies to firms (through tax credits or grants).

 

One promising idea surfaced from the industry several years ago.

 

When Bristol-Myers Squibb was seeking a renewal of its exclusive license of the

cancer drug Cisplatin, several companies asked the government to make the drug

available on a non-exclusive basis. One company proposed that the federal

government impose a royalty on the non-exclusive license and then use the money

to fund R & D. NCI rejected the proposal.

 

The prospects for reform on these matters are surprisingly remote. Some policy

makers say it would be politically impossible even to collect data from the drug

companies on drug prices and revenues, despite the fact that private sector

firms, such as Dun and Bradstreet, already collect and disseminate these data

for the industry.

 

Congressional staffers consider it virtually unthinkable that Congress could

muster the votes for any legislation that gives the government the power to

regulate the prices for new drugs.

 

The political and technical problems inherent in controlling the prices of

pharmaceutical drugs are similar to the problems that confront many new sectors

of our increasingly sophisticated economy.

 

Faced with dynamic changes in technology and a Congress and civil service that

pander to industry pressures, there is a disheartening tendency to abandon

efforts to protect consumers or taxpayers. If the public service is to gain the

respect that it once enjoyed, however, policy makers have to confront these

difficult problems and find ways to make the government work to the benefit of

ordinary citizens.

 

The American Prospect (Volume 4, Issue 14. June 23, 1993

 

 

 

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