Senators Want Investigation On Massive Increase In Drug Prices... But Will They Really Seek A Solution?
from the monopolies-are-bad dept
We recently covered the news that the FDA had retroactively granted a monopoly to KV Pharmaceutical on the widely used drug Makena (which is used to prevent premature births). The drug had been sold at $10 per dose, but the second KV got the monopoly, it pushed the price up to $1,500 per dose -- or around $30,000 vs. $200 for a full treatment. The news of this massive price hike certainly got a lot of attention, and now two Senators are asking the FTC to investigate KV Pharmaceutical to see if this is legit. It's nice to see the Senators, Sherrod Brown and Amy Klobuchar, stepping up to express their concern about this, but if they really wanted to make a difference, they shouldn't just be investigating KV. After all, KV is playing by the rules that the US government set up. What they should really be exploring is why we give monopolies on important life saving drugs that create problems like this in the first place?
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Filed Under: amy klobuchar, drugs, makena, monopolies, patents, sherrod brown
Companies: kv pharmaceutical
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First off, why the question mark. There is no question. "What they should be doing" isn't a question, it is a statement (and erroneous one, but that is the next thing).
Now, as to your point, you never seem to consider that perhaps many life saving drugs would not be created (or not created as promptly) without patent protections. With the incredible amounts of money required to develop, test, and get approval for medications, as well as the insane legal exposure if there are any adverse effects makes it unlikely that anyone would want to bring discoveries to market.
I am unable in this specific case to understand the process that had the drug go from "open" to "closed" and none of the information that you have presented makes any sense. Perhaps if you take the time to explain what happened, people could form a better opinion. Just ranting about a price increase sounds a little like chicken little.
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Would you care to enlighten us?
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So yeah, let try to work with a slightly more modern example. You are using Mike's usual bullcrap, going back in history to find a situation that isn't parallel to the current situation.
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So, lawyers kill babies, but make up for it by protecting the entitlements that lead to new erectile dysfunction drugs.
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Business Week Article February 6, 2011
If you don't like what Mike gives you then use Google...or do you feel guilty about that?
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A Regulatory Path to Monopoly-- explained:
The Makena situation is complicated, and it is a good illustration of unintended consequences of government regulation. If also demonstrates the consequences of lawsuits on the marketplace.
Despite the content of many comments here today, what this story DOES NOT involve is patents or research and development.
Rather what this story does show is how government intervention in the marketplace can produce an effective monopoly, even without a patent or other IP law at play.
Here are the facts:
--> Delalutin = Makena = hydroxyprogesterone
1) 1956: Delalutin is approved by the FDA for treatment of abnormal uterine bleeding.
2) 1970: FDA approves additional indication for treatment of uterine cancer.
3) 1973: Bristol Meyers Squibb requests approval for an indication to treat threatened miscarriage (The indication for which 'Makena' is now being marketed). The FDA denies this request, saying that there is too much risk of birth defects. This usage of Delalutin continues however as physicians prescribe it "off-label".
4) After patent expiration, multiple manufacturers produce/market hydroxyprogesterone in the US.
5) 1977, 1978: The FDA requires additional labeling warnings on Delalutin regarding birth-defects.
6) After the warnings are published, lawsuits blaming Delalutin for birth defects occur during the 1980's, prompting some manufacturers to withdraw from the market.
7) 1999: The FDA decides that further scientific evidence does not support the worries about birth defect risks, and the requirement for warnings against using the drugs in pregnant women are removed -- [but it's too late.]
8) 1999: Bristol, Meyers Squibb, the last remaining manufacturer, notifies the FDA without explanation that they had stopped supplying Delalutin several years earlier. [One may assume that BMS took this action because it was a low volume drug with low profit versus its legal liability.]
9) 2000: Delalutin's FDA approval is withdrawn.
10) 1990's - 2006: Certain small companies in the "compounding pharmacy" business continue to supply hydroxyprogesterone to physicians who continue to use it off-label to suppress miscarriage.
11) 2006: The FDA begins a new safety initiative to remove unapproved or untested drugs from the marketplace. The FDA begins forcing compounding pharmacies to stop making hydroxyprogesterone
***[ This event in effect removes all competition from the marketplace. It sets up a situation where the first company to return to the market after having done the testing required by the FDA will have a complete monopoly -- and surprise! Thats exactly what happened. ]
12) Feb 2011: FDA approves Makena for treatment of threatened preterm birth. [Their pharmaco-economists decide that the market will bear a very steep price of 30,000 for a full treatment course. Given that this is in the same price ball-park as in-vitro fertilization procedures, and given that there's NO COMPETITION, what is to stop them?]
13) Mar 2011: Senators call for hearings so they can rant about about price gouging.
--> What they should be looking at is how government regulation (step # 11) has resulted in loss of competition. If Congress had real leadership, or if executive branch regulators cared, the focus of the discussion would be : --> How to preserve both safety and competition. For now however, encouraging competition remains an afterthought at best.
This should be Adam Smith 101, but so many people don't seem to understand so let me say it a few times: Competition, Competition, Competition!!
For additional info, you can read here and here, and, here and here
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There is SOME cost there, but not nearly as much in most cases as people think. The biggest line item for any drug is usually either in "Marketing" or some line item code for "Marketing". Often times the R&D and development costs are footed by public universities.
Now, Makena is an interesting case. It was originally branded as Delalutin by Squibb for use in reducing pregnancy loss in women that experienced multiple fetus losses. Squibb, of course, was the pharma firm that cooked its books so badly that the US Attorney in NJ was granted oversight over the company. They were accused of anti-competitive practices, deceiving the USPTO, paying off generic manufacturers NOT to produce, and filing baseless infringement lawsuits to deter generic entry into the market (costs for this are often rolled into R&D line item overheads).
Squibb voluntarily gave up the brand and Delalutin, or 170HP, became an orphan drug. Then the NIH came out w/a report in 2003 stating that the drug was effective in reducing premature birth instances. Whammo! KV Pharma sponsors the drug to the FDA as Makena, rebranded to avoid pissing people off, and raised pricing on it by 200x.
So, you're comment is just plain silly. Pharma costs are usually NOT heavy on the real R&D side, as public entities do much of that work on the public dime. They market the shit out of their drugs once they achieve or license the patent, and then pretend those marketing costs are included in R&D. But that didn't even happen in this case. All the R&D was done by another company. All KV did was read a report that said the drug was good, get a retroactive patent on a drug they DIDN'T develop, and then charge thousands more for it than was previously charged. W/o doing a thing to bring the drug to market. At all. In any way.
KV, of course, is about as evil a pharma company as there is at their size. They faced felony charges in 2008 when an FDA inspection revealed that they were making and marketing unapproved drugs. Eventually, the FDA shut them down and they lost nearly their entire workforce. They were reapproved for manufacturing drugs in 2010 because they agreed to replace their owner and CEO, Marc Hermelin, who was largely blamed for the controversey. The new CEO? VICTOR HERMELIN, his father.
Sigh...why do pharma firms have to make their evil so blatent?
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Because Nazis are played out as villains this day and age. They're just helping Hollywood come up with new material.
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I've worked for/consulted to: two of the largest pharmaceutical companies, a major research/teaching hospital, a research institution, and the pharmacy school at a very large public university.
So I've had the chance to see this from various angles.
And this statement is not only true, it's EXTREMELY true. The heavy lifting is almost always and nearly entirely done by academics and other researchers, not by pharma personnel. What pharma personnel do -- for the most part -- is flog the drugs at conferences and construct marketing campaigns for them.
This is not to say that there aren't exceptions: there are. Every now and then, a drug company puts in some serious effort (as measured by cash spent). But those really are exceptions: the rule is that the marketing department has an embarrassingly large budget compared to R&D.
Don't even get me started on what the executives make. It's obscene.
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But it's worse than that, actually. Maybe w/your insight you can confirm, but the reports I've read insist that most pharma companies will hide this fact by including R&D and Marketing as a single line item, calling it something else. Then, when anyone brings up the R&D thing, they point to that line item and shriek about how much they spend on it, never including the bit that massive marketing costs are included....
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http://www.thepharmaletter.com/file/85305/us-pharma-slammed-over-marketing-vs-rd.html
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Got it!
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Re: Are you suggesting that actually getting a drug into a commercial form, getting it through clinical trials, getting FDA approval, and then having to accept 20 years of risk is nothing?
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Re: Re: Are you suggesting that actually getting a drug into a commercial form, getting it through clinical trials, getting FDA approval, and then having to accept 20 years of risk is nothing?
Just because you see a bunch of commercials on TV doesn't mean that they are spending more on Marketing...
And are you really trying to say that mixing chemicals, and drying them into a little 1/2 cc pill or even cheaper capsule is seriously more than a few pennies?
Where paying for YEARS of Researching Chemical combinations, YEARS of testing in lab animals, the YEARS of human testing/trials, and YEARS trying to get approved by the FDA is cheaper than a few commercials on TV, and a sales rep running around giving samples that cost a few pennies away?
I would love to see how you can back your statements.
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Re: Re: Re: Are you suggesting that actually getting a drug into a commercial form, getting it through clinical trials, getting FDA approval, and then having to accept 20 years of risk is nothing?
1. No single industry has spent more in recent years on federal and state lobbying than the pharma industry. They've averaged roughly $150 million spent PER YEAR just on FEDERAL lobbying in the States. (CPI Report in 2005)
2. Direct to consumer pharma advertising grew "from $791 million in 1996 to $3.8 billion in 2004", and that trend has continued upward to date (CPI Report in 2004)
3. From Dr. Marcia Angell, former editor in chief of the New England Journal of Medicine: “Drug industry expenditures for research and development, while large, were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profi ts but something usually called ‘marketing and administration’—a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade. Note that this is two and a half times the expenditures for R&D.”
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A quick search of TD articles with the "Drugs" tag disproves your statement. But in case your "never" was hyperbole...
Mike does in fact consider the costs and incentives to create new costs. As for the costs, he points out that the costs are often overinflated. For example, much of the research is based on government of university research. Another example is the huge amount of money that goes into marketing. (You don't need marketing to heal people; you need marketing to make money from healing people.) And as for the incentives, another point that Mike makes is that even if you accept the fact that patents are needed to recoup the cost of creating a new drug, this is the wrong system to begin with. The system as it is now encourages profits over health. This is messed up because a country would be far better off (financially, etc) with more of its citizens being healthy rather than the system we have where only lip service is paid to the health benefits.
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Mike mentions costs only to dismiss them, not to really consider them. The only way you have a system that doesn't encourage profts (not over health, just profits) would be to entirely, completely, and totally socialize the medical field, make all research government mandated, etc., or to have the Government set the retail price of every medication sold, turning it into a high risk, low return business that few would be interested in being part of.
The real problems in the US start and end with a liability system in the US that allows for damage awards so high, that the risks of putting a drug on the market often outweigh any potential for income, and that this liablity risk has to be priced into every pill sold.
If you price medicine only on it's marginal costs (the ingredients and producing it), there wouldn't be much development, and certainly no risk taking.
Remember, generic drug companies are playing the safest cards: They get meds after they have been on the market for years, they don't produce generic duds, only hits with low risk. That is how they can price much lower.
You cannot pick and choose when looking at the costs and liablity risks of producing medication. You cannot ignore the expensive failures and drugs that "fail during clinical trials" that cost millions with no return possible. The successful drugs have to pay for those failures too.
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You're fond of hyperbole, aren't you? You're either exagerating or just plain see things in a completely binary fashion. I'm not saying it would be easy, but isn't it worth a shot to try to at least address some of the problems which arise from treating drug patents like any other product in our capitalist system?
The real problems in the US start and end with a liability system in the US that allows for damage awards so high, that the risks of putting a drug on the market often outweigh any potential for income, and that this liablity risk has to be priced into every pill sold.
I would agree that this is a big part of the problem.
Remember, generic drug companies are playing the safest cards: They get meds after they have been on the market for years, they don't produce generic duds, only hits with low risk. That is how they can price much lower.
Mike certainly and anyone else who has a general understanding of this topic knows this. No one is suggesting that all drugs could be developed (under our current system) and sold for what the generics cost. This would be a straw man argument. My take on the situation is that many people think that the costs of drugs are unnaturally inflated, even for a capitalist system.
You cannot ignore the expensive failures and drugs that "fail during clinical trials" that cost millions with no return possible.
Who exactly is suggesting that you should?
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It isn't a strawman at all - what is pushed is to do away with the patents on medication, and to allow any company to produce them. The effect would be taking the drug directly to the "generic equivilant" stage immediately. Without any of the up front costs, the copycat / generic makers would always be able to sell more cheaply, effectively removing the "recovery of investment / covering of risk" parts of the drug cycle.
Essentially, it would create an industry of vultures, waiting for drug developments to be released, so they can copy them without any true development cost.
As for the "failures", you have to remember that if a company develops 2 drugs and 1 "fails" late in the process, the other drug effectively has to carry that development and testing cost as well. So the price for that drug is higher than "it should be" because it has to cover other costs.
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Re: Ridiculous drug prices
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amy
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Dont forget the multi-million dollar Gym's for their employees.
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Really
You try claiming that medicines would actually come to market faster and cheaper if the Patents weren't allowed on them. Can you back up that claim?
Most of the cost of bringing a medicine to market is in the trials and testing, and in the liability awards after the fact when an unforseable side affect arises.
I agree that once the FDA approves a medicine the cost to mass produce it is insignificant, but in your world without patents why would a company even waste time developing new medicines? They would still incure the R&D, the trials expenses and probably the worst part the legal Liabilities, but would be forced to market/sell their product to compete with those that have none of those expenses.
The only way that you would see medicines come to market would be that in addition to getting rid of the patents you would also need to limit the liability, and reduce the costs for approval by the FDA.
Take Phen Phen as a perfect example, both parts of the medicine were on the market for decades. The candidate patients were all overweight and facing serious heart issues if they didn't lose weight. Yet when the medicine caused heart problems the class action lawsuits were awarded billions. Why would a company bother investing in the R&D and FDA Approval if they were forced to compete with companies that shared nothing in those expenses. Then when something like this happens, only the creator would be liable for the lawsuits and the generics would be free to just stop selling and move on to the next medicine to copy.
Competition in physical goods such as cars and appliances does in fact reduce costs. BUT those types of consumables also don't take years of testing just to be approved for sale to the public. When someone has a design flaw they are held liable for that flaw, but their competitors are equally held responsible for flaws in their products if they copy the same flaw.
A lot of what you claim on here I can at least fathom what you are trying to say even if I disagree. BUT this one I don't see it, and would love to see you try to explain exactly how removing the patents would bring anything to market faster?
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This is an orphan drug that became generic, and then got taken out of the public domain of old patents, and marked up massively. This is little more than a massive cashgrab.
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I wasn't refering to this particular drug solely. I agree that the price hike from $10 to $1500 is rediculous in this case.
Mike frequently claims that patents are preventing medicine from getting to where it needs to be, and I have read claims by both Mike and commentors that removing patents on medicines would make them cheaper and also get them to market faster.
I was giving Mike a chance to back up the claims. I rarely agree with Mike's claims but I can at least understand his view point. In the medical world I don't even begin to understand his view point at all.
I agree that the cost of health care is out of control. I will be stoping on my way home to pick up a refill for a single med that is $500 per month for me, and I will be on it for the rest of my life.
Patent's on medicines are already substantially shorter than any other patent to allow Generics to come available sooner. But I see little reason for a company to go through the years if not decades of trials and testing, and to face the huge legal awards, if their formulas are instantly made available to every chemical shop in the world.
Competition would be based on production costs alone, and Generic Manufacturers would be able to manufacturer and sell based on the cost of production only, they would not face potential legal awards because they didn't invent it. They wouldn't have the cost of Trials and FDA Licensing because they are a copy. Their only costs would be in basic quality control. And then on top of that they are awarded the sale by default in most cases because insurance requires the use of Generics when available.
I just don't see where the incentive to produce a new drug under the terms that Mike claims would work.
No matter what idealism we live in few if any companies or people for that matter do things JUST for the good in doing them, there has to be a motivation.
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One step at a time
Tackling this particular company for this particular price hike is a definable way to show why our health care costs are out of control.
I think if the senators tried to change the entire system, the whole thing would get bogged down and nothing would get done. So perhaps incremental steps, and a way to get average citizens outraged, is the most politically effective way to deal with this.
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KV tragedy can still be avoided
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Progesterone Injections
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Simple fix
If you have something you created yourself that doesn't use publically funded patents then have at it.
We paid for them in the first place, so why not turn it into what it should be.
If they want to make the big bucks then they should be financing the whole thing, not having their research funded by the taxpayer and then charging us to use it.
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High prices of compounded drugs
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