Price Pressure on Drugs

With patents giving drug companies a virtual monopoly on a drug treatment and peoples' lives on the line, what, if anything could put pressure on the companies to cap their drugs' prices? Shareholders are pressuring pharmas for higher profits while the cost of developing drugs continues to soar as does pressures from the government for safety. Isn't it only reasonable that a pharmas charge as much as possible for the few drugs that eventually do make it through to the market?

In a story featured in the WSJ last March, Dr. Steven Harr, an analyst at Morgan Stanley, says "no." Although drug companies may not be responsive to the complaints of a single patients, those patients have political representatives, representatives that can make life very difficult for drug companies if they choose to regulate drug prices.

Although the government has yet to step in to set price controls, there is some thought that the Democrat controlled Congress may do just that if prices grow too high. Prices for cancer drugs are increasing rapidly with five costing over $40,000 for a course of treatment. Cancer drugs accounted for 13% of the country's drug spending in 2002, in 2007 it will be 22%.

The reality of the situation, as Dr. Harr puts it is: the "market structure effectively provides no mechanism for price control in oncology other than the companies' goodwill and tolerance for adverse publicity." But this is the kind of incentive that companies need to undertake the risk of developing new drugs, right?

Although financial incentives of this magnitude certainly provide motivation for undertaking such risky ventures, they also lead to fairly inefficient and unproductive drug development processes, processes that won't change unless there are financial reasons. This is precisely what has been done in so many other industries; even though the complexity of the product has increased, costs have been kept under control and so too have prices to the consumer. If the computer and telecommunications industries can do, so can the pharmas.

Risk Mitigation

As a serial entrepreneur you may think Dr. Michael Bristow has a high tolerance for risk, but in a talk yesterday morning at the downtown Denver offices of Holland & Hart, Dr. Bristow stressed the importance of mitigating risk in the drug development process. Dr. Bristow was a founder and the Chief Science and Medical Officer of Myogen, a biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapeutics for the treatment of cardiovascular disorders. In November 2006, Myogen was sold to Gilead Sciences for $2.5 billion.

Although a whopping success by most counts, Myogen did not achieve this lofty value without a few pitfalls. Development of enoximone, their first drug to be brought to clinical trials, was halted in Phase III after burning through $100 million on development due to its failure to demonstrate significant benefit. Ironically, Myogen's stock began to climb after this, the result of investor confidence in the other drugs in Myogen's pipeline.

When asked what could have been done to have better predicted the outcome of the enoximone trial, Dr. Bristow indicated that it was known that a certain patient sub-group characterized by a phenotype responded better to the drug than the population as a whole. He felt that by selecting for patients with this phenotype for inclusion in the clinical trial would have greatly improved the efficacy of the drug to the point where it would have received approval. But either because recruiting a sufficiently large patient sub-group with this phenotype would have taken too long or the FDA had not yet accepted a personalized approach to drug therapy, that approach was scrapped and the more risky strategy of recruiting patient's from the broader population was adopted.

Dr. Bristow has once again taken a risk on risk mitigation by starting up a new company; ARCA Discovery that is developing genetically-targeted therapies for cardiovascular disease. The FDA and the pharmaceutical industry is warming to the idea of personalized medicine as a way of improving patient health and reducing the costs of drug development.

Aversion to Adverse Events

The Wall Street Journal reported on Saturday on a report commissioned by the FDA regarding their development of a next generation Adverse Event Reporting System for the tracking of dangerous side effects associated with drugs on the market. The report was prepared by the Breckenridge Institute and delivered to the FDA in November 2006 but has not been released to the public. Although we don't know what it says specifically, "highly critical" is probably putting it lightly. No wonder the FDA is keeping it under wraps.

But reading between the lines, is the FDA really making major managerial mistakes here? The report contends that the FDA could have purchased an off-the-shelf software product in 2004 and have it up and running by 2005 for around $4.5 million. This would have only covered drugs and not medical devices which are also regulated by the agency. The FDA would then have to come up with another system, perhaps a custom built one, to cover medical devices and then integrate it with the off-the-shelf system.

If you put a conservative safety factor of two to the off-the-shelf system, double that for the medical device system and then throw in another $10 million to integrate them we're talking $40 million not including maintenance, support and training. The Breckenridge report states that the off-the-shelf software was a "one-time cost"? Wasn't the theory of "one-time cost" software thrown out with OS/2?

The FDA is making due with an existing "dysfunctional" system; their original AERS which results in a loss of 45 minutes per day per FDA employee because of inefficiencies and snags in the system. Presumably better software would solve that problem but it is a difficult call. Ideally the entire process could be automated resulting in the loss of the FDA employee, which is highly unlikely.

What the FDA needs now is a study to analyze why they gave the contract to the Breckenridge Institute in the first place.