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Is pharma gaming the system?

With drug prices continuing to rise, there’s a whole lotta finger pointing going on, but there’s reason for hope, too.

(page 1 of 3)

From the pages of In Business magazine.

When Frederick Banting invented insulin in 1923, he was so thrilled to be saving lives that he never put his name on the patent. In fact, his colleagues ended up selling it to the University of Toronto for just $1, believing that patients should be able to afford their life-or-death medication.

In a 2017 report, the Centers for Disease Control (CDC) claimed that in 2015, more than 100 million Americans were living with either diabetes or prediabetes. In Wisconsin, an estimated 517,000 people, or 10.6 percent of the adult population, have diabetes but 142,000 don’t know it. Many more adults, 1,550,000 have prediabetes, or slightly elevated glucose levels, which if left untreated can lead to a type 2 diagnosis.

The CDC lists diabetes as the seventh leading cause of death, but a more recent study from Boston University suggests it could rank as high as third when other factors often found in diabetics — obesity, high blood pressure, or heart disease — are taken into account.

Eli Lilly produces and owns the patent for two common insulin brands, Humalog and Humalin, and prices have been shooting up, from $21 a vial in 1996 to $275 in 2019. That means someone with a type 1 diagnosis will pay $600 per month on average for their insulin, depending upon how much their body requires.

Insulin, a 96-year-old drug, still has no lower priced generic alternative on the market, but hope is on the horizon.

In the 1950s, Jonas Salk discovered the polio vaccine, all but curing a disease that had been paralyzing between 13,000 and 20,000 children each year. Salk’s vaccine proved 90 percent effective and led to a nationwide inoculation program paid for entirely by the U.S. government.

On April 12, 1955, Salk was a guest on See It Now, a national radio program hosted by CBS journalist Edgar R. Murrow. Murrow asked Salk who owned the patent for the vaccine. “The people, I would say,” Falk answered, and then added, “There is no patent. Could you patent the sun?”

Fast forward to 2019. Humira, a medication used to treat rheumatoid arthritis and other conditions, is manufactured by AbbVie and can cost RA patients tens of thousands of dollars a year. Josh Bindl, CEO of Madison-based National Cooperative Rx, estimates Humira accounts for 60 percent of AbbVie’s annual sales. That is, $16 billion annually from one drug, and AbbVie produces dozens.

Sovaldi, a life-saving and curative drug for people diagnosed with Hepatitis C, can cost $1,000 a pill. Multiply that by a 12- or 24-week treatment and the total cost could run between $84,000 to $170,000 or more.

These are just a few examples of scientific innovations done well, but in terms of affordability for those who need these drugs to survive and lead productive lives, one can’t help but wonder how we got to this point. Greed? Research and development costs? Or the U.S. patent system itself? In fact, it could be all of the above.

What happened?

“Pharma figured out years ago that they could make money developing treatments for conditions with very small patient populations as long as they charged us [a lot of] money for those treatments,” Bindl answers. He deals with this subject on a daily basis at NCRx, and he admits it’s incredibly complicated.

NCRx is a member-owned cooperative and not-for-profit comprised of employers, government entities, unions, and coalitions. The organization leverages their collective purchasing power to access the best discounts and cutting-edge clinical programs from a pharmacy benefit manager (PBM) chosen via a competitive-bid process. Currently, the organization has 325,000 members covered “live” and just over 220 employer groups, health trusts, and third-party administrators across 20 U.S. states.

One of the biggest drivers of rising drug costs, Bindl says, is that an overwhelming majority of research and development goes toward “specialty medications,” or those that are highly complex, not easily replicated, and come with very high price tags.

That’s not good news for people with type 1 diabetes — an autoimmune disease affecting about 1.25 million Americans who have no other options. Without any alternative drugs right now, they have to pay the price or risk their lives.

Between 2012 and 2016, the cost of insulin for a type 1 diabetic nearly doubled, from $2,864 per year to $5,705 per year, according to the Health Care Cost Institute.

First, a few helpful definitions: The generic versions of branded medications are considered “generic alternatives,” while the generic equivalent of specialty medications that treat just a small percentage of the population are called biosimilars.

A biologic, such as insulin, is a medication created from living cells — sugars, blood, proteins, or DNA. Biologics can also come from living sources like mammals, birds, insects, plants, and bacteria, according to GoodRx, a website/app that tracks drug prices across the nation.

A biosimilar is a biological product that is very similar to its original but has no clinically meaningful differences in terms of safety, purity, or potency, according to

While biosimilars are not considered a “generic” in the same way, they can result in significant cost savings. In fact, the RAND Corp. believes biosimilars could save the U.S. health system close to $44 billion in the next 10 years.

Bindl concurs. “If we can get more of those to market, we can provide cheaper alternatives to the specialty medications and can help drive prices down.” Instead, he says specialty medications are treating 1 percent of the population but driving upward of 50 percent of prescription costs.

Another issue with pricing, he explains, is patenting. The aforementioned Humira, a so-called designer drug serving just 1.3 million Americans diagnosed with rheumatoid arthritis, was first approved by the
Federal Drug Administration (FDA) in
2002 and hit the market in 2003.

“Generally, a drug has 12 years of exclusivity,” Bindl explains. When the patent expires, other companies are free to produce less expensive generic alternatives.

But every time a change is made to a drug, a new patent is filed, extending the length of the company’s exclusivity period. According to Bindl, AbbVie has secured as many as 130 different patents on Humira, making it “incredibly difficult” for a cheaper alternative to come to market.

Critics of the current patent system — and they are numerous — doubt that some of these changes represent actual improvement in the drug therapy.

To further complicate matters, there are “authorized generics” that are identical to brand-name products, made by the same manufacturer — often in the same facility — then relabeled and sold at two different prices, and not all brands have an authorized generic.

None currently exists for Humira thanks to a deal Bindl says was struck between AbbVie and the manufacturer producing the alternative drug. “The deal keeps the alternative off the market until 2023,” he says, “which essentially gives AbbVie 20 years of exclusivity.” Until then, it can set its own prices and does.

“Pharma has learned to game a system and laws that were originally intended to provide a company an exclusivity period after discovery so that it could replace the R&D dollars spent,” he says. They’re doing it legally, without transparency, taking advantage of America’s lax regulations.

Employers have noticed, too.

“From our perspective, self-insured companies really get hit,” Bindl adds. “We actually have some members/employers excluding specialty medications from coverage because of the costs.

“It’s not something we recommend because there could be some legal ramifications, but some employers are looking at it and saying, ‘We can’t afford it! One drug could cripple our company, so we can’t allow it on our plan,’ and that’s too bad because a lot of these drugs are very important treatments for certain individuals.”

He continues: “Honestly, I think drug prices are based on what a [drug manufacturer] thinks the market can bear.”

Pharmaceutical companies often set a high price out of the gate, and if the product doesn’t move quickly enough, they may cut the price in half. “They’ll still make money at half the price,” Bindl says, “or they wouldn’t do it! Pharmaceutical reps visiting a doctor’s office are not coming in because they have the lowest cost, most effective treatment on the market. They’re coming in armed with a marketing budget and flyers because they need to get people to use their drugs.”

Statins, for instance, are commonly prescribed to treat high cholesterol. Historically, they’re effective and comparatively inexpensive, but now there are “super statins,” Bindl explains, that can cost consumers thousands of dollars compared to the original price of $100 or so.

Super statins, he explains, are designed for a small population of patients, “but if people automatically switch to super statins because they may have seen an ad on TV and believe they’ll work better, it adds thousands upon thousands of dollars of cost to the system.”

Which brings us back to insulin.

If insulin still was identical to the formulation Banting first invented in 1923, lower-cost generics may have existed years ago, but with changes made through the years, the manufacturer’s exclusivity has been extended multiple times.

According to a report, the U.S. represents just 15 percent of the global market for insulin, but “generates almost half of the pharmaceutical industry’s insulin revenue.” In fact, three U.S.-based insulin manufacturers — Eli Lilly, Sanofi, and Novo Nordisk — control 99 percent of the insulin industry, and all have been jacking up their prices for insulin, citing the cost of innovation. The question is, what constitutes innovation?

In a 2017 report titled “Insulin Price Hikes Tell Us A Lot About What’s Wrong With Drug Pricing in America,” Yale endocrinologist Kasia Lipska argued that the changes have been incremental, benefiting some but not all patients, yet insulin prices have increased “hugely.”

How hugely? Between 2001 and 2015, Humalog prices increased 585 percent.

Patients are beginning to file legal protests, with some alleging price fixing. A class-action lawsuit filed in 2017 against the three insulin manufacturers is pending.

Bindl says the U.S. patent system must be reformed because currently, it takes very little — perhaps a minor improvement, a change in how a drug is administered, or even tying a competitor up in court — for a drug manufacturer’s exclusivity period to be extended beyond the 12-year period allowed by law.

“I’m all for rewarding companies that are discovering these very innovative products and curing horrible conditions,” he acknowledges, “but at some point, how much is too much?”


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