When drugs pricing can be the bitterest pill

Martin Shrkeli hiked the price of a life-changing new drug by 5,000 per cent. Picture: Bloomberg via Getty

Interest in drug pricing within the pharmaceutical industry has not really been of much interest to the general public. However, when a US Democratic presidential candidate and pharmaceutical company CEO recently came to verbal blows on the subject of controlling drug prices it became world news.

Martin Shkreli, an ex-hedge fund manager, is now the CEO of Turing Pharmaceuticals, a new, small company that has recently bought the US marketing rights to Daraprim, a drug that fights parasitic infections. Almost immediately he hiked the price of the drug up by 5,000 per cent – causing public outrage and placing political attention on other drugs that have made similar moves. The story caught the attention of Hillary Clinton, who tweeted that the practice was “price gouging” and “outrageous”.

Even though Shkreli quickly backtracked and announced that he would lower the price, the pharmaceutical and biotech industries are still reeling. This is why. Pharmaceutical and biotech companies are not usually transparent about how they price their drugs. There are many factors that go into drug pricing – the cost of researching and developing the treatment, the costs of manufacture and distribution, the price of other competing treatments to name but a few.

But what if you happen to have developed the only treatment for a hitherto untreatable, deadly disease? Pricing then boils down to how much individuals or healthcare providers are prepared to pay. It’s good old fashioned supply and demand. Recently, we’ve seen some really innovative new drugs for devastating diseases coming to market. They’re highly priced, but they save lives where previously there was no hope. Eculizumab, also known as Soliris, will allow around 200 people with a rare blood disorder, paroxysymal nocturnal hemoglobinuria, to live independently for an extra 25 years. The drug was approved for use by the National Institute for Health and Care Excellence (NICE), the body responsible in the UK for deciding which drugs the NHS can prescribe. They said it offered gains of “a magnitude that is rarely seen for any new drug treatment”. NICE judged that this made Soliris worth the £340,000 cost per patient to the NHS each year, or around £10 million over the total treatment.

But it’s not just drug pricing that’s driving up healthcare costs. There are other factors. Firstly, the cost of delivering healthcare continues to rise. There are many reasons for this, including the cost of administration, regulations – and new technologies to deliver healthcare are constantly emerging, such as moving from X-rays and PET scans.

Secondly, our expectations are rising all the time. We want a modern healthcare system to meet our expectations and we want cures for diseases such as cancer. We want treatments developed and delivered quickly that are safe, effective and appropriate to our individual needs. “Personalised” or “Precision” medicine has come of age. We are moving away from standard treatments such as chemotherapy to a position where we are able to give patients the treatment that will best help their condition based on characteristics of their particular form of disease. This is recognised as the new way to deliver healthcare – but it is expensive.

Drug companies make most of their profits from drugs that are still under patent. A drug patent lapses 20 years after it is filed, at which point generic drug companies can start making their own copies of the drug.

For drugs like Daraprim, for which only about 8,000 prescriptions are filled a year (a drop in the bucket by pharmaceutical standards), it simply isn’t worth it for other companies to come up with generic alternatives. This allows for a price monopoly in which the drug manufacturer can set virtually any price it wants.

That is, until Shkreli. Indeed, the attention paid to Daraprim’s price is unprecedented, and could lead to some major changes to the drug industry.

Shkreli justified hiking up the price of Daraprim by saying it would help his company develop a better version of the drug later. Nobody is buying that one!

Undoubtedly, Shkreli has done the pharmaceutical industry a major disservice by bringing some of the worst attributes of the investment banking industry into an industry that is, by and large, ethically focused and committed to advancing healthcare. Clearly, pharmaceutical companies have to make a profit, otherwise no one would ever invest in them, and the number of new treatments that we still require for diseases like muscular dystrophy, multiple sclerosis, motor neuron disease, cancer (the list goes on…) will never arrive. I’m a proponent of free markets and in general defend drug companies in their price setting, especially when they’re introducing new, innovative products with real clinical and financial benefits. However, in this case I agree Shkreli’s behaviour was outrageous. This is not the way a pharmaceutical company should behave and quite rightly he was challenged. Each biopharmaceutical company may be juggling the apparently conflicting interests of shareholders and patients, but it is crucial that at the heart of its operations it understands and builds goodwill with the public – rather than be seen to make money from its misfortune.

Most pharma companies deeply understand this. That is why here at the Edinburgh BioQuarter campus, we will continue to work with clinicians, researchers and industrialists to help drive innovation so that we can continue to chip away at the number of untreatable diseases. We can’t do this without the skill and resources of the pharmaceutical industry. Maybe we just need to be more choosy about who we let in.

• Dr Mike Capaldi is CEO of Sunergos Innovations – formerly the Edinburgh BioQuarter Commercialisation Team