Why Did That Drug Price Increase 6,000%

3/6/2017 Why Did That Drug Price Increase 6,000%? It’s The Law
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PHARMA & HEALTHCARE 2/10/2017 @ 1:52PM 24,770 views Why Did That Drug Price Increase
6,000%? It’s The Law
Groundhog Day, anyone? (Photo by Andrew Burton/Getty Images)
It’s happened again. Of course it has happened
again. A drug company has brought a drug that
has been available as a generic elsewhere in the
world for decades at a shockingly inflated price.
The drug, in this case, is a steroid called
deflazacort, has been approved for treating kids
with Duchenne muscular dystrophy. It has fewer
side effects than existing steroids, and many
patients have been getting it from Europe or
Canada at a price between $1,000 or $2,000 a
year.
Yet a pharmaceutical company in Deerfield, Ill.,
has gotten approval from the U.S. Food and Drug
Administration to sell deflazacort (snazzy brand
name: Emflaza). The company, Marathon
Pharmaceuticals, is charging a list price of
$89,000 – a 6,000% price increase.
Savemoney today…
Matthew Herper Forbes Staff
I cover science and medicine, and believe this is biology’s century.
3/6/2017 Why Did That Drug Price Increase 6,000%? It’s The Law
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If this doesn’t feel like déjà vu all over again, you
haven’t been paying attention. Yes, it was a
5,000% price increase on a drug for a rare
infection that made Martin Shkreli, then chief
executive of Turing Pharmaceuticals, “the most
hated man on the Internet.” But Shkreli’s was an
incremental innovation in price gouging. Before
that, we had the case of Makena, used to prevent
pre­term birth. It was launched in 2011 at a price
of $1,500 when a similar drug was previously
available, from compounding pharmacies, for
$20. The strategy basically worked: AMAG
Pharmaceuticals, which now owns Makena,
booked sales of $93 million in the third quarter
of last year.
Why does this keep happening? Well, with the
exception of Shkreli, enabled by a thicket of
market inefficiencies, because it’s the law. And
that’s very much the case for Marathon and
Emflaza.
Because this steroid has never been approved in
the United States, the Food and Drug
Administration considers it a new drug. That
means that not only did Marathon have to go
through the process of getting it approved as a
new drug, but that it gets the benefit of laws
Congress has passed to encourage drug
companies to develop new medicines for rare
diseases.
Those legal benefits include a 7­year monopoly
under the Orphan Drug Act, and a rare disease
priority review voucher that allows a company to
get a sped­up FDA review for another drug. Such
vouchers can be sold for large sums.
The idea behind those benefits is that society
needs to pay in order for drugs for rare diseases
to be developed. It seems obvious that getting a
generic steroid that is approved in the rest of the
world through the FDA should not have the same
benefits to a company as inventing a new
medicine. Yet, under the law, it does.
This isn’t Shkreli­level malfeasance. Mitigating
factors: Marathon says that only 7% to 9% of the
patients who could benefit from Emflaza were
able get access to it by importing the drug from
other countries. In order to get the FDA
approval, Marathon conducted 17 clinical and
pre­clinical trials, and had to go back and find
the data from studies conducted by the drug’s
3/6/2017 Why Did That Drug Price Increase 6,000%? It’s The Law
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original manufacturer. The FDA is making
Marathon conduct post­approval studies,
including one in children younger than five.
Does this justify a 6,000% price increase?
Marathon says it actually expects to net “only”
$54,000 a year from insurers. The company has
also said its business will not be profitable for
several years. It expects patients with insurance
to get access to the drug for a co­payment, and
will give it away to others for free. In other
words, the high cost of this medicine is not
intended to gouge patients, but to get us all to
pay not only for the cost of getting the drug
through FDA, but also to provide a big profit that
will incentivize drug makers to bring more drugs
to the United States.
This lays bare one of the absurdities of the FDA
process: for a drug to be approved, a company
must do the work of bringing it to market. For
new medicines, developed at high cost by
pharmaceutical companies, this is the right
approach. But for medicines that have been in
clinical use for decades it may not be. Imagine
how much money we would all save if we paid for
the National Institutes of Health to survey such
drugs, collect real­world data on them, and have
the FDA approve them without giving any
company exclusivity? Then generic drug
companies would make the medicines at much
lower cost. Senator Ted Cruz has argued that
drugs approved by European or Canadian
regulators should automatically be approved in
the U.S. That’s not a good idea, because it would
lead to manufacturers of new medicines always
going to whoever set the lowest bar. But for old
medicines a system like that may make sense.
That’s not the system we have. Marathon is
increasing the access of boys with a deadly
disease to a medicine that will help them, and
charging what it thinks is an honest price based
on the regulatory burdens it has. That doesn’t
make the price OK. But it’s how executives can
convince themselves that what they are doing is
OK.
The problem is, it’s not OK. The price is absurd,
and the price increase short­circuits the fairness
circuitry built into the human brain. There’s
some amount that Marathon should charge for
the work it did. But is it $85,000 per patient, or
even $52,000? Probably not. And that priority
3/6/2017 Why Did That Drug Price Increase 6,000%? It’s The Law
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This article is available online at: 2017 Forbes.com LLCâ„¢ All Rights Reserved
review voucher itself could be worth hundreds of
millions of dollars. Congress is obsessed with
these vouchers. Maybe they’re not the best
solution to problems in the pharma business?
Marathon is a member of the Pharmaceutical
Research and Manufacturers of America
(PhRMA), the drug industry trade group. Drug
companies cannot use their usual argument of
saying this is an “outlier.” This is one of their own
– although Marathon may find itself feeling as if
it is being ostracized from the club. As patent
lawyer Rachel Sachs notes, the big drug giants
need to distance themselves from this move –
and maybe find a way to actually come to the
table on preventing big drug price increases.
Pharmaceutical company executives, here is your
problem: You won’t get credit for the wonderful
innovations your companies produce if your
prices make people feel sick.
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