Searching for an answer to runaway biotech prices

Prices of biotech and other specialty drugs are so high and rising so fast that they now make up 25% of pharmaceutical spending. Today’s Wall Street Journal (As Biotech Drug Prices Surge, U.S. Is Hunting for a Solution) reports on four different suggestions for restraining that growth:

  1. Create a path for generic biotech drugs
  2. Give government negotiating power
  3. Create a federal agency for assessing drug value
  4. Reduce the cost of developing drugs

All of these suggestions have some merit. I like #1 and some aspects of #2 the best.

(1) There aren’t any biotech generic drugs, which means that biotech companies are able to maintain monopolistic pricing indefinitely. There are technical and regulatory hurdles to developing biotech generics, which is why it hasn’t happened yet. There’s not much that can be done about the technical hurdles, but the regulatory ones could be lowered. For example, a generic biotech would require a full set of clinical trials, unlike a traditional generic, which needs only to show that the active ingredient is the same.

(2) The drug industry is against giving the government the power to negotiate drug prices. But as I’ve discussed before, those concerns will start to be surmounted once the cost of the Medicare drug benefit is fully appreciated. Government-granted patents keep drug prices high –so it’s not completely fair for companies to insist that government intervention is necessary to support innovation but bad when it comes to controlling budgets. The best part of the Journal’s analysis is the suggestion to follow Japan’s system, which ratchets down prices automatically over time. Let the drug companies recoup their R&D costs up front with high prices, but then set prices on a downward spiral as happens with most commodities. (If the ratchet system were introduced, it would make #1 less important.)

(3) The third suggestion is to copy the system employed in the UK and Germany. This is tempting, but I worry that value will be based on the size of the budget –it’s too tempting to declare expensive treatments to be not worthwhile. In this case I do agree with the industry position that innovation could be retarded.

(4) The gist of this suggestion is to reduce the number and size of trials needed for approval, especially for drugs that treat rare disorders. Industry would love it, but it would mean more drugs coming to market whose efficacy is unproven. There are ways to reduce development time and length through adaptive clinical trials, which allow trials to be adjusted part-way through without introducing bias –but the Journal didn’t mention this.

I’m glad the Journal is taking on this important topic.

December 28, 2005

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