The cost of prescription drugs is a popular topic in healthcare discussions and political campaigns. In the last few weeks the soaring price of prescription medicines has captured the nation's attention because Martin Shkreli, the CEO of Turing Pharmaceuticals raised the price of Daraprim (pyrimethamine) from $13.50 to $750 per tablet. Naturally, he has become public enemy number one and the poster boy for everything that is wrong with the pharmaceutical industry. While everyone can agree that such a dramatic price increase is irrational, it gives us an opportunity to examine the real issue – what should life-saving medicines cost and do they really cost too much?
How should we value life-saving prescription drugs?
To decide whether life-saving medicines cost too much, we should value medicines appropriately. One author recently stated that the cost of the cancer drug Opdivo is 3 times the price of gold. Are natural resources the right metric for valuing medicines? Can we really compare extending and saving life to gold trinkets and other possessions? What is the value of a few more years of life to spend with your loved ones? This is a question our society should answer to appropriately value life-saving medicines.
To value innovative life-saving therapies properly we should compare them to what already exists and the incremental value that we derive from new medicines. For example, novel hepatitis C drugs like Sovaldi can cure over 90% of cases. Older drugs for hepatitis C, ribavirin plus interferon, are half as effective. Liver transplantation is also an option.
A 12-week course of Sovaldi cost about $84,000 while a 48-week course of ribavirin plus interferon cost about $41,000. The cost of a liver transplant, which does not always cure hepatitis C, is over $500,000. What is the most cost effective option? Is Sovaldi and similar drugs really outrageously priced compared to the benefit they provide and the alternatives that are available? Society has accepted paying for liver transplantation and associated long-term costs, but a cure that costs six times less is too expensive!
The power to heal and stave off death is a miracle. That scientists are able to find cures for deadly diseases against all odds is a miracle. Life-saving drugs are miracles of medicine – what is the price of a miracle? The men and women that toil relentlessly to discover these miracles of life should be celebrated.
How much should life-saving drugs cost?
There are many variables that impact the price of drugs. Even pharmaceutical companies do not always know how much they should charge for their life-saving inventions because there is no standard or industry-wide pricing guide for medications. Companies price their life-saving drugs based on:
Drugs are priced based on common business principles. While this may sound cold because we are discussing health and life, we also have to realize and accept that pharmaceutical companies, healthcare insurance companies, and most healthcare companies are not charitable organizations. They are businesses with real cost and they must be profitable or they will seize to exist. Moreover, the pharmaceutical business is very risky and investors will not commit their hard-earned resources to such a risky venture without the chance of a handsome return.
According to Tufts Center for the Study of Drug Development, the cost of bringing a new drug to market is about 2.6 billion dollars and it often takes over 10 years. According to Forbes, the cost of developing a single drug can reach 12 billion dollars. For every 25,000 compounds tested, 25 reach human trials, 5 are approved, and only one breaks even. Very few drugs generate enough revenue to pay for all the previous failures and the cost of future opportunities. Would investors commit their resources to such a risky business without the promise of handsome returns for a few successful products?
Should drug prices be regulated?
We live in a free-market society. Regulating pharma companies opens the door to regulating the cost of hospitalization, insurance companies, physician salaries, and everyone in the healthcare food chain. Rather, competition, patent expirations, the value of each medicine, and what insurers and governments are willing to pay should determine the cost of medications.
Politicians should also consider that if there isn't enough financial incentive for discovering new medicines the government may have to take on this responsibility because investors will not be willing to finance drug discovery. We must also consider the impact of regulating drug prices on our economy. While it makes good political grandstanding to point a finger at pharmaceutical companies, it makes more sense to engage pharma leaders and insurers to find practical solutions that reduce healthcare costs so that more people can benefit from miracles of medicine.