Must we endure excessive drug prices to encourage pharmaceutical R&D?


The business model of the pharmaceutical industry has been based on drugs that alleviate the chronic diseases of the developed world, such as depression, hypertension and stomach acidity. By selling huge volumes of pills at moderate prices, companies could recover the expenditure involved in drug development and clinical trials and still make lavish profits.

But only a few drugs fit that model. Many recent pharmacological discoveries are relevant to the acute illnesses of a few rather than the continuing ailments of the many. These are drugs such as Halavan, mainly used in patients with advanced metastatic breast cancer, and Sovaldi, a treatment for hepatitis C.

The US price of Halavan is about $500 per vial and of Sovaldi $1,000 per pill. Since manufacturing costs are small, both drugs are extremely profitable. Gilead, which markets Sovaldi, may recoup annually the $11bn it paid in 2011 for Pharmasset, the company which developed the drug. The main source of revenues for drug companies is the US healthcare system, funded through private insurers and Medicare. The manufacturers of both these drugs have access schemes for patients without adequate insurance coverage.

Britain has the most hard-nosed approach to these issues. New treatments are assessed by the National Institute for Health and Care Excellence, which determines whether they should be made available within the National Health Service. The key test is the quality-adjusted life years (QALYs) that are gained by treatment. On that basis Sovaldi, which cures a chronic condition that frequently leads to debilitating and sometimes fatal liver diseases, makes the cut; Halavan, which increases life expectancy by an average of two to three months, does not.

But it is not so easy to be hard-nosed. An estimated 150m people worldwide are infected with the hepatitis C virus, which is transmitted through poor hygiene and hence associated with deprivation.

Gilead is making Sovaldi available in less developed countries where the disease is widespread at little more than 1 per cent of the US price, although $900 for a course of treatment is still a lot for poor people and creaking healthcare systems. The price discrimination involved in Sovaldi’s programme is effectively a mechanism of US foreign aid, never voted on by Congress, and funded by employers and taxpayers. Yet it may be more effective than most of the programmes which have won legislative approval.

In developed countries, hepatitis C is common among intravenous drug users. These victims do not tug the heartstrings of the public in the same way as do the potential beneficiaries of Halavan. Vocal public pressures have led the UK government to establish a Cancer Drugs Fund, outside the normal framework of the NHS, and explicitly devoted to the funding of treatments such as Halavan.

This is no more than an expedient political fix. A mechanism of funding pharmaceutical research which leads to drug prices far in excess of marginal cost is bound to lead to anguish and injustice. But is there a better idea? Perhaps governments should finance the payment of a national licence fee for drugs, with supplies then made available at a price close to production cost.

A rising proportion of medical expenditure is now devoted to prolonging the lives of the very old and the terminally ill. The costs of this are potentially unlimited.

We should pause to ask ourselves the questions raised by the surgeon Atul Gawande in his book, Being Mortal. Perhaps the greatest challenges in modern healthcare are not those of meeting the spiralling cost of advanced medical technologies. They lie in accepting that we are all going to die, and learning to do so with dignity.

This article was first published in the Financial Times on March 25th, 2015.

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