Another Government Report Tackling Pharmaceutical Pricing in the United States that Takes Aim at Patenting Practices

The State of Minnesota has recently released a 94 page report on drug pricing and access titled, “Report of Minnesota Attorney General’sAdvisory Task Force on Lowering Pharmaceutical Drug Prices.”  The Executive Summary of the very thorough report points to several problems leading to the high cost of pharmaceuticals in the United States and the state of Minnesota, including 1) product hopping; 2) abuse of the patent system, including the creation of patent thickets (with Humira as the example); 3) pharmaceutical benefit manager practices and a lack of transparency with respect to pricing; and 4) pharmaceutical company practices with respect to direct marketing to consumers and price discounts to consumers for selecting brand name drugs.  The report has many recommendations, including the formation of a commission to investigate and deal with pharmaceutical pricing and other issues; importation of four important drugs from a vendor (insulin, epipens, Truvada and Naloxon); create price gouging legislation; “Strengthen Minnesota’s consumer fraud laws;” “Enact a state anti-kick back law;” “Strengthen Minnesota’s antitrust laws;” advocate for change to federal patent and data exclusivity laws; heavily regulate pharmaceutical benefit managers; ensure greater transparency; more utilization of the federal 340B drug pricing program; and improved usage of bulk purchasing.  The report also includes action steps for the various recommendations. The report details the impact of high drug prices on citizens of Minnesota as well as case studies of drug prices that are “excessive.”  

I am sure the issue regarding the cost of healthcare and pharmaceuticals in the United States will receive a lot of attention in U.S. presidential race this year.  Last April, Chris Holman and I co-organized a conference at University of the Pacific, McGeorge School of Law, in Sacramento, California, on pharmaceutical IP and pricing that tackled the issue. The conference website is available, here.  We may offer a follow-up conference next year after the presidential election.  If you have an interest in attending or participating, please let me know.  

Trump Administration FDA Moves to Speed Up Biosimilar Process in United States

The high cost of health care in the United States is a significant issue.  Some research points to two causes of the high cost in the United States: 1) high pharmaceutical cost; and 2) high wages for health care workers.

Notably, two pharmaceutical companies, Novartis and Pfizer, recently announced that they would not implement pharmaceutical price increases on certain drugs.  This is apparently from pressure from the Trump Administration.  

The Commissioner of Trump's Food and Drug Administration, Scott Gottlieb, MD, recently released comments concerning pricing reform for a Brookings Institution discussion on pharmaceuticals.  His comments define the problem with rising drug costs by placing a focus on biologics and the very slow movement in the United States for biosimilars to reach the marketplace.  His comments further explain how improving competition can lead to decreased prices and savings for the United States.  He details some solutions to the problems, including increased cooperation with regulators outside the United States to speed up biosimilar approval.  He further points to how intellectual property tactics taken by biologic owners are slowing down the process for biosimilars to reach consumers and how the FDA plans to work with the Federal Trade Commission to address these tactics.  Here is an excerpt of his comments:

While less than 2 percent of Americans use biologics, they represent 40 percent of total spending on prescription drugs.

So, enabling a path to competition for biologics from biosimilars is a key to reducing costs and to facilitating more innovation.

By enabling a path for competition from biosimilars, we also give innovators an added incentive to invest in further research that’ll lead to the discovery of even better drugs that deliver additional benefits for patients.

At the FDA, we’re focused on advancing policies that make the process for developing biosimilars more efficient.

To achieve these goals, I’m pleased to announce today that we’re releasing our Biosimilars Action Plan. This plan is an important piece of the Administration’s bold Blueprint to Lower Drug Prices and demonstrates the progress being made against the deliverables the President laid out.

Our plan is aimed at promoting competition and affordability across the market for biologics and biosimilar products. Before I focus on some of the details, I’d like to talk about some of the broader goals we’re focused on.

. . .

Biologics represent 70 percent of the growth in drug spending from 2010 to 2015. And they’re forecasted to be the fastest growing segment of drug spending in the coming years.

To make sure that the next generation of breakthroughs remains affordable, it requires vibrant competition from biosimilars. But it also means that we must consider new payment approaches. Models that allow us to take advantage of the competition that biosimilars offer.

Our current payment system, which reimburses drugs based on their average sales price, was designed in a single-source world. It was a market of biologics where there was typically only one drug in a category. And there wasn’t a lot of therapeutic variety or competition.

At the time, there was only one EGFR inhibitor on the market, and just one VEG-F inhibitor. I was there when this system was designed and implemented. And I can tell you many of us didn’t envision a world where there’d be so much competition in these therapeutic categories.

So a system was designed that accepted the fact that government programs, like Medicare, would be price takers.

We didn’t have the advantage of drug competition to enable the development of formularies, bidding and market-based negotiations like we have under Part D prescription drug plans.

So the system we designed—using the average sales price as a benchmark for reimbursement—was designed to help make sure that drug makers wouldn’t be able to take big price increases once the drugs reached the market. But it wasn’t a system designed to take advantage of price competition. Because we didn’t foresee that there would be multiple drugs in these different categories.

                . . .

While the FDA has approved 11 biosimilars through 2018, only three are now marketed in the U.S.

Competition is, for the most part, anemic.

It’s anemic because consolidation across the supply chain has made it more attractive for manufacturers, Pharmacy Benefit Managers, Group Purchasing Organizations and distributors to split monopoly profits through lucrative volume-based rebates on reference biologics—or on bundles of biologics and other products—rather than embrace biosimilar competition and lower prices.

It’s anemic because litigation has delayed market access for biosimilar products that are, or shortly will be, available in markets outside the U.S. several years before they’ll be available to patients here. These delays can come with enormous costs for patients and payors.

Let me give you one measure of those costs.

At the FDA, we did an analysis of biosimilar competition across all Organisation for Economic Co-operation and Development (OECD) markets. We looked at what would have happened if all the biosimilars that the FDA approved in the U.S. were successfully marketed here in a timely fashion.

We’ll release the full details on this analysis soon. But I want to give you a sense today of what we found.

To measure the potential impact of this biosimilar competition, we assumed that the savings achieved in the U.S., in terms of price discounts, would have been on par with the experience enjoyed in the other OECD nations.

Based on these assumptions, our analysis showed that if Americans had the opportunity to purchase successfully marketed, FDA-approved biosimilar prescription drugs, they could have saved more than $4.5 billion in 2017.

These are large savings. They’re about half of the nearly $9 billion in total savings in 2017 from all of the 2017 generic drug approvals, according to earlier FDA work.

This analysis assumes that all of the biosimilars that the FDA approved were successfully marketed.

But we know that’s not the case. We know that litigation blocked a lot of these launches. Yet our study found that entry of a single biosimilar product in non-U.S. OECD markets lowers prices relative to the reference product by 30 percent; markets with three to four biosimilar entrants have prices 35 to 43 percent lower than their reference biologics.

Our savings estimate doesn’t include additional potential savings from biosimilars approved in 2018. Estimated savings would therefore be significantly greater than $4.5 billion if these additional FDA-approved biosimilars were also marketed at or near the time of their approval.

Biologic manufacturers have a right to defend their legitimate intellectual property interests. And we want them to continue to offer the benefits of improved versions of originator biologics. These benefits might include biologics that target disease in new ways, such as delivering a toxic payload directly to cancer cells, or biologics that target multiple targets of disease at the same time.

. . .

But rebating schemes or patent thickets that are purely designed to deter the entry of approved biosimilars are spoiling this sort of competition. Long-dated contracts are another toxin. The branded drug makers thwart competition by dangling big rebates to lock up payors in multi-year contracts right on the eve of biosimilar entry.

We’re also concerned that volume-based rebates may encourage dysfunctional clinical treatment pathways. We’ve heard from multiple sources that some payors are requiring step-therapy or prior authorization on the reference biologic before patients can access a biosimilar. We see no clinical rationale for these practices, since a biosimilar must demonstrate, among other things, that it has no clinically meaningful differences from the reference product as a part of demonstrating biosimilarity.

The branded drug industry didn’t build its success by being business naïve. They are smart competitors.

But that doesn’t mean we need to embrace all of these business tactics, or agree that they’re appropriate.

Some of these tactics should be unacceptable to every member of the drug supply chain.

Biosimilars may be relatively new, but manufacturers’ tactics to delay and frustrate Congress’ legislative intent to promote competition in drug pricing date back decades.

These tactics were first honed in battles between branded companies and manufacturers of small molecule generics after the passage of the Hatch Waxman Act in 1984.

And these battles played out for a time. But ultimately competition prevailed, and so did the benefits of generics.

In 1983, generic drugs accounted for only 13 percent of U.S. prescriptions. Today, in 2018, it’s 90 percent. And generics can cost 75 to 90 percent less than their branded competitors.

Robust competition has led to generic drug prices that are often less expensive here in the U.S. than in other developed markets in Europe and Asia. The Association for Accessible Medicines, a trade group that represents generic drug makers, estimates that generic medicines have saved the U.S. well over $1 trillion over the last decade.

The generics market that we see today, while not perfect, is robust in most respects. But it took about two decades to develop. It took a long time for providers to grow comfortable prescribing generics and patients to be confident in taking them. It took a long time to work through legal tactics that were put in the way of competition. It took a long time for the coverage systems to be changed to take brisk advantage of generic entry.

Sometimes it feels as if we’re seeing the biosimilars version of “Groundhog Day,” with brand drug makers replaying many of the same tactics, and all of us being too susceptible to many of the same misconceptions about biosimilars’ safety and efficacy relative to originator biologics.

We’re falling into some of the same doubts and policy constraints that were used to deter competition from generics in the years after the Hatch Waxman Act.

But we’re not going to play regulatory whack-a-mole with companies trying to unfairly delay or derail the entry of biosimilar competitors. We’re not going to wait a decade or more for robust biosimilar competition to emerge.

Expanding access to affordable biosimilars, and slowing the rise of health care inflation, is an even more critical issue today than it was in 1984. The higher costs, and longer timelines, required to develop biosimilars relative to generics means that these delaying tactics can make it uneconomical for biosimilar sponsors to postpone entry for extended periods of time. I’m worried that the biosimilar manufacturers may pull out of these endeavors altogether if the brand drug makers are able to lock up markets even in cases where there’s a fully interchangeable competitor.

Ultimately, this behavior is also putting innovative drug development at risk by eroding public confidence in market-based pricing mechanisms. Too many people now are shooting at the branded drug makers. And the shrapnel isn’t just going to tear apart the gaming tactics that we might agree are gratuitous and ill conceived.

I’m worried that the shrapnel could also fray the fragile market-based rewards that support new innovation.

Our Biosimilars Action Plan applies many of the lessons learned from our experience with generic drugs to accelerate biosimilar competition with four key strategies.

First, improving the efficiency of the biosimilar and interchangeable product development and approval process.

Second, maximizing scientific and regulatory clarity for the biosimilar product development community.

Third, developing effective communications to improve understanding of biosimilars among patients, providers and payors.

And fourth, supporting market competition by reducing gaming of FDA requirements or other attempts to unfairly delay market competition to follow-on products.

I don’t want to get into the details of the entire plan in my remarks today. We’ve issued a plan that lays out all of the discrete elements of our approach.

But I want to highlight a few key actions that we’re taking.

I believe some of these actions can be transformative for sponsors’ ability to bring high quality biosimilars to market.

As part of this effort, the FDA is seeking to strengthen its partnerships with regulatory authorities in Europe, Japan and Canada. Such partnerships can enable greater efficiency in developing safe and effective biosimilars.

For example, we’re actively exploring whether data sharing agreements could give us better insights into biosimilars’ real-world safety and efficacy and, in some circumstances, facilitate the increased use of non-U.S.-licensed comparator products in certain studies to support an application under Section 351(k).

We know that when those developing biosimilars use biologics sourced ex-U.S. as their comparator product, it can lower the cost of clinical studies since many of these products can be procured more easily, and cheaply, in European and Asian markets.

We’ll also be updating the Purple Book and evaluate how we can incorporate additional information into that resource to give product developers more transparency.

And we’re also taking new steps to make the biosimilar development process more efficient.

. . .

Today, the FDA issued its final guidance on biosimilar labeling. The FDA wants to make sure that biosimilar products have labeling that allows health care practitioners to make informed prescribing decisions for their patients. Our guidance gives recommendations to applicants on how to prepare this labeling for review by the FDA.

We’re also going to be updating guidance to provide additional clarity on how biosimilar manufacturers can carve out indications from their labels where a branded drug maker might still maintain some IP. And we’re going to describe how these indications can be efficiently added into a biosimilar label once that IP on the branded alternative has lapsed.

We are also currently developing and implementing new FDA review tools, such as standardized review templates, that are tailored to applications for biosimilar and interchangeable products. We’ve already adopted similar approaches when it comes to generic drugs. These templates will improve the efficiency of the FDA’s review.

We’re also developing an index of biosimilars’ critical quality attributes relative to their reference products.

Such an index can allow sponsors to better understand how the FDA evaluates data from comparative analytical studies performed to support a demonstration of biosimilarity, and how to use suitable analytical methods.

And we’re going to be taking new steps to challenge some of the gaming tactics I talked about earlier. This includes new efforts to coordinate with the Federal Trade Commission (FTC) to address anti-competitive behavior.

A video of the Brookings Institution talk along with panelist responses can be found, here. 

Trump White House Releases Biopharmaceutical Pricing Reform White Paper

The White House Council of Economic Advisers recently released a report titled, “Reforming Biopharmaceutical Pricing at Home and Abroad.” [Report]  The Report points to basically two problems: 1) overpricing in the United States; and 2) underpaying outside the United States.  The Report states:

U.S. patients and taxpayers alike have mainly financed the returns on R&D investments to innovators. Unlike other developed countries with single payer systems, which nearly all impose some sort of price controls on pharmaceuticals, the U.S. drug market is less financed by the public sector and more open to private market forces. In a free market, prices of products reflect their value as opposed to prices in government-controlled markets, which reflect political tradeoffs. CEA estimates that because of the American market system, more than 70 percent of OECD patented pharmaceutical profits come from sales to U.S. patients even though the United States only represents 34 percent of OECD GDP at Purchasing Power Parity (OECD 2016). Thus, innovators across the world rely heavily on Americans paying market prices to underwrite the returns on investments into products that improve their health because governments abroad use their monopsony power to set prices below market-levels. The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations. This indicates that our current policies are neither wise nor just.  Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area. In addition, prices paid by Americans for many drugs are too high, particularly so when paid for in government programs. This is the result of poorly designed reimbursement policies and regulations that inhibit price competition, and it is therefore a poor use of taxpayer money. 

The Report further notes that, “The U.S. market makes up 46 percent of OECD sales of brand name innovative drugs, funds about 44 percent of world medical R&D, invests 75 percent of global medical venture capital, and holds the intellectual property rights for most new medicines (BMI 2017; Moses et al. 2015; TEC 2017). Furthermore, publicly funded medical research in the United States has produced two-thirds of the top-cited medical articles in 2009, underlying the university research that often leads to medical breakthroughs (Moses et al. 2015).”

The Report points to issues regarding Medicaid, including opportunity for pharmaceutical companies to game and artificially raise prices.  The Report further provides suggestions concerning Medicare as well as the Pharmacy Benefit Manager Market.  Notably, the Report fails to address biosimilars in very much detail, but notes that there may be two more years before final regulations concerning interchangeability are issued.  This delay is raised as a potential reason why interchangeability approval may be slow.

This Report could drive the Trump Administration's approach to dealing with the high cost of health care.  

Trump on Drug Prices: Pharma/Bio Stocks Drop

Some have criticized Donald Trump for backing off of some of his campaign promises.  However, in a press conference on January 11, 2017, Trump reiterated his concern with drug prices stating that drug companies "are getting away with murder."  I don't know if he could have expressed himself in stronger terms.  Notably, the Washington Post reported that the stock of pharmaceutical and biotechnology companies dropped after the press conference and that concerns were expressed by one biotechnology insider that venture capitalists may move away from biotechnology companies.  This is troubling given the competition that already exists for venture capital funds from software startups and the promise of expensive to develop biologics.  Moreover, some successful securitization deals have greatly benefited a few universities.  The move to take a big step toward drying up the pipeline for new biologics may not be the best approach.  What are some other ideas Trump could consider?  Should Trump look to other developed countries to help carry the supposed very high cost of pharmaceutical/biologic development?  That's not very satisfying.  Should the government invest more public funds into research and development?  For more on pharmaceutical pricing, see here, here and here. 

Costs of New Pharmaceutical Development Approaching US $3 Billion

The Tufts Center for the Study of Drug Development (“Tufts Center”) has recently published a study estimating the cost of new pharmaceutical development approaching US $3 billion.  The Tufts Center at Tufts University "provides strategic information to help drug developers, regulators, and policy makers improve the quality and efficiency of pharmaceutical development, review, and utilization."  The Tufts Center notes that:

The $2.558 billion figure per approved compound is based on estimated average out-of-pocket costs of $1.395 billion and time costs (expected returns that investors forego while a drug is in development) of $1.163 billion.

When post-approval R&D costs of $312 million are included, the full, product lifecycle cost per approved drug, on average, rises to $2.870 billion, according to Tufts CSDD. Post-approval studies, required by the U.S. Food and Drug Administration as a condition of approval, assess new indications, new formulations, and new dosage strengths and regimens, and monitor safety and long-term side effects in patients. All figures are expressed in 2013 dollars.

The Tufts CSDD estimate also accounts for expenses incurred for product development efforts that did not reach fruition, which Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, said reflects the full cost of winning marketing approval for a new drug.

The press release concerning the study attributes the rising costs of drug development, in part, on the “higher failure rates for drugs tested in human subjects.” 

  

The Pharmaceutical Pricing Problem: A Call to Exercise Bayh-Dole Act March-In Rights Heard?

The United States is struggling with the high cost of healthcare.  Notably, one cause of the high cost is the price of pharmaceuticals.  The importance of the issue and the pressure is exemplified by the focus of the various presidential candidates.  Not only are the Democratic candidates Bernie Sanders and Hilary Clinton concerned, but so is Republican candidate Donald Trump.  Interestingly, California, through an initiative, may directly confront pharmaceutical pricing for many Californians. 

One critique of the current system is that many pharmaceuticals were developed using government funding.  Thus, at least partially, the development costs to create a pharmaceutical may have been borne by the public.  Then, the argument goes, the public must pay again (in many cases) through the supra-competitive price set by a pharmaceutical company because of a patent. The public essentially pays twice for the pharmaceutical.  The Bayh-Dole Act essentially allows this to happen.  However, the counter argument has been that without the patent private industry would be unwilling to invest in commercializing the invention.  We would end up with the pre-Bayh-Dole Act problem—inventions languishing on the government shelf.  The government, through the Bayh-Dole Act, does retain some rights in government funded inventions.  One such right is the ability to exercise march-in rights.  March-in rights can be exercised in the following situations:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such-- 

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; . . . .

Section 201 in 35 U.S.C., subsection (f) defines “[t]he term “practical application” [to] mean[] to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.”  Part of the problem is defining what are “reasonable terms.” Some scholars have rejected arguments that “march-in” rights should include concerns with pricing.  Additionally, the argument against the exercise of “march-in” rights is that the uncertainty interjected into the ordinary process of the Bayh-Dole Act would provide a disincentive for private industry to invest in the commercialization of Bayh-Dole Act funded inventions.  To date, March-in rights have never been exercised. 

Notably, over 50 congresspersons sent a letter to the Director of the National Institutes of Health [NIH] requesting that the NIH issue guidelines defining when “march-in” rights should be utilized.  The belief is apparently that the existence of guidance may provide an incentive for pharmaceutical companies to set prices “reasonably” because of fear of the actual exercise of rights.  Apparently, right now, the belief is that they will never be exercised. On March 16, in congressional hearings, BNA reported that the Director of the NIH noted that they are “open” to exercising the rights.  Will the indication of “openness” to exercise rights cause the pharmaceutical industry to pause before setting the price of a government funded pharmaceutical?  Is current pressure from presidential candidates and from a state like California enough to rethink the setting of the price of pharmaceuticals? 

UCLA to Receive Over $500 Million for Royalty Rights in University Developed Invention

This is supposed to be a “record breaking” deal for a University of California developed technology that was transferred to industry.  The invention is the prostate drug Xtandi.  UCLA’s Chancellor Gene Block stated:

Xtandi is the result of a unique collaboration between researchers from various academic units across campus and an outstanding example of basic science leading to a therapy that is bringing extraordinary benefits to prostate cancer patients worldwide.  By selling future royalty rights to Royalty Pharma, we are strategically supporting one of our essential missions — funding and generating research with practical applications that serve the public good. Facilitating equal access to education also is a campus priority, and we will use a portion of the sale proceeds to support scholarships and fellowships.

Wow!  Talk about a dream deal for UCLA.  I am sure that every technology transfer office in the world and supporter of the Bayh-Dole Act generally will point to this deal as justifying all of the changes that the Bayh-Dole Act may have brought to academia.  Notably, the press release states that federal funding for research has been declining and, here, technology transfer is not only helping with more research funding, but also supporting scholarships and fellowships.  It is hard to argue with $500 million.

The press release also notes that:

By selling the royalty interest and prudently investing proceeds, UCLA seeks to provide stability and minimize risk associated with the volatility of the pharmaceutical industry marketplace.  UCLA will hold its share of the proceeds in a broadly diversified portfolio managed by the University of California’s office of the chief investment officer. Based on the pool’s average annual returns, UCLA anticipates it will receive approximately $60 million annually until 2027.

Not a bad idea for sure.   I found this statement in the press release particularly interesting: “UCLA has no role in the marketing or sale of Xtandi.”  Is that UCLA’s way of stating that they are not responsible for the pricing of the drug (and the amount of money spent on marketing)?  The other way to look at this is to say that the public may be paying for the invention twice.  But again, would we have had it or not?  I have to say that I am happy for the good news for UCLA and that there is a successful drug for treatment of prostate cancer. And, congratulations to Westwood Technology Transfer!  (Hat Tip to Technology Transfer Central)

Regulation over Markets (or More Regulation on Regulation): California’s Initiative on Pharmaceutical Pricing

In California, there are basically at least two ways to create a law.  The first is the traditional route through the legislature with the Governor’s signature.  The second is through the initiative process.  Essentially, an initiative proposal with a certain number of voter signatures can be added to a ballot that the electorate will vote on—think direct democracy.  This process allows a bypass around the legislature and the Governor, and allows voters to, for the most part, enact laws.  According to the Sacramento Bee, the California Drug Price Relief Act has garnered enough signatures to be placed on the November ballot.  The Act will require that the State (so eventually retirees, prisoners, low income folks etc) receive the same price for pharmaceuticals that will be paid by the U.S. Department of Veterans Affairs.  The article reports that proponents of the Act state that this will lead to significantly lower prices for pharmaceuticals and cost savings for the state government.  The pharmaceutical industry has raised a significant amount of money to oppose the measure.  However, even without a lot of money to support it, I think the pharmaceutical industry will lose on this.  Given the level of current poor press about pharmaceutical pricing from the recent concern about generic pricing to the pricing for Myriad’s breast cancer screening test (here), I don’t think there is much public sympathy for the pharmaceutical industry right now.  Also, an argument that "we will raise the prices on veterans" is--not surprisingly--going to go over very badly.  Interestingly, the article notes that there is a chance that the pharmaceutical industry could reach a deal with the proponents of the initiative to withdraw the initiative for concessions on a negotiated bill at the state legislature.  That may be the pharmaceutical industry’s best option at this point.

The Coming Increased Transparency in Pharmaceutical Pricing in the United States?

Pharmaceutical pricing has been viewed as a black box type of affair.  However, a recent Wall Street Journal article authored by Jonathan D. Rockoff titled “How Pfizer Set the Costof Its New Drug at $9,850 a Month” reveals some of the process for at least one drug.  The author essentially observes that the process was mostly influenced by the price of other comparable drugs, the reaction of prescribing doctors to the price, and the amount of paperwork a health insurer may require a prescribing doctor to prepare to justify the medical necessity for the drug.  The amount of work by Pfizer in assessing some of those concerns and others is impressive.  The author makes a fascinating observation about his research: it seems that the price was not tied to the research and development cost for the particular pharmaceutical, which the author notes is the primary justification made by pharmaceutical companies for high prices.  So, would this mean that if insurers increased the amount of paperwork for prescribing doctors for drugs that cost more than $5,000 that the price would drop?  Could the solution be that simple?  My guess is no.  But, I do wonder about the amount of money expended on the marketing of new drugs.  On the other hand, the claimed cost of developing new pharmaceuticals often includes the cost of failure as well as the cost to directly develop a successful drug.  Moreover, it is clear from the article that commercialization costs, such as concerns about costly Food and Drug Administration trials are a large factor in bringing a drug to market.  It also doesn’t seem to be much of a shock that the pricing of new drugs would include analyzing the price of similar drugs which possibly may be non-infringing substitutes. 

The other interesting question is why the increased transparency now.  Well, for one, U.S. Democratic presidential candidate Hillary Clinton has set her sights on the pharmaceutical industry.  She has numerous proposals designed to lower the cost of prescription drugs, including reducing the exclusivity period for data for biologics.  Some proposals are similar to U.S. Democratic presidential candidate Bernie Sanders' proposals described on this blog, here, and some take them another step.  For example, one proposal focuses on pharmaceutical companies that receive Federal funding for research and development:

Clinton’s proposal would require pharmaceutical companies that benefit from federal support to invest a sufficient amount of their revenue in R&D, and if they do not meet targets, boost their investment or pay rebates to support basic research. If elected President, she will convene business leaders, experts on drug pricing, and consumer advocates to set new parameters for federal support in order to ensure this requirement. The basic principle is based on a provision of the Affordable Care Act that required insurance companies to pay rebates to consumers if their profits and administrative costs were an excessive share of benefits actually paid out to consumers.

PhRMA has strongly opposed Clinton’s proposals, here, and so has the Republican Party, here.  The second reason for the transparency is the U.S. Senate’s recent hearings (started on Wednesday) on pharmaceutical pricing—which currently appear focused on generic pricing.  I expect that we’ll see more—rather than less—information released about how companies are pricing pharmaceuticals very soon.