David's New Book

Sunday, July 4, 2010

Antibiotics vs. Pricing

I just read a very interesting report entitled, “An Economic Assessment of the Relationship between Price Regulation and Incentives to Innovate in the Pharmaceutical Industry” published by the European School of Management and Technology (ESMT) and sponsored by Novartis (https://www.esmt.org/fm/479/WP-109-03.pdf).  A careful look at the data might suggest that much of the data used by the ESMT came from Novartis itself.   Much also came from the Tufts Center and from other publicly available documents.  The bottom line comes as no surprise to anyone involved in pharmaceutical R&D over the last couple of decades.  The less people are willing to pay for new drugs, the fewer new drugs we will have.  It’s actually quite simple. 

The ESMT report gets much more granular.  They look at various pricing strategies and their effects on pharmaceutical innovation. 

  • ·      External Price Benchmarking, according to which the price of a drug in a country is pinned to the price of the same drug in a basket of other countries;
  • ·       Internal Reference Pricing, according to which the price of a drug in a country is pinned to the price of similar, potentially already off-patent, drugs in the same country;
  • ·      schemes based on a pharmaco-economic assessment, according to which the price of a drug depends on its cost-effectiveness.


One case example they use is Germany.  A better one, at least for antibiotics, might have been Australia.  These counties exemplify situations where, for advances in side effect profiles and ease of drug administration, where the molecule in question is not a totally new or novel class, governments won’t pay – or at least not very much.  In both cases there are examples where new drugs have simply not been marketed.  But if such policies were to spread to other world markets, this would clearly have a major impact on drug discovery and development within industry.

The fact that such pricing strategies are already having an effect can be seen by simply looking at the kinds of drugs in development in large pharmaceutical companies. A perusal of Clintrials.gov or the PhRMA website showed that there are 5-8 times more trials being carried out for cancer than for antibiotics. In the ESMT analysis, under almost all pricing scenarios, antibiotics are placed in the lowest priority among projects at various stages of development compared to all other therapeutic areas in a large pharmaceutical company.  Of course, this is patently ridiculous given what we know about the medical need for new antibiotics.  But it reflects today’s perceptions of pricing in a world where health care costs are government budget busters.

My conclusion is that in a world where drug-pricing strategies are designed to keep drug prices low even when drugs offer clear answers to important medical needs, antibiotics end up at the bottom of the priority list within the pharmaceutical company.  The company tends to focus on drugs where governments cannot argue too much over price – like cancer and Alzheimer’s disease. Antibiotics are not helped by the fact that they are miracle drugs and cure disease.  In fact, because there are cheap antibiotics that still work for many infections, antibiotics are hurt by their own success in most drug pricing scenarios. Even when they meet the medical need and innovation tests to justify a high price, the patient population to be treated becomes so small (Pseudomonas aeruginosa resistant to all other antibiotics) that the market is hardly worth thinking about. 

Reality check – Zyvox and Cubicin are high-priced antibiotics in most countries where they are sold. Cubicin was approved relatively recently.  Therefore, not too long ago, Cubist was able to defend its position during the drug pricing negotiations with most countries.  What this means is that the perception within industry does not necessarily reflect realities on the ground.  I think it also means that the pricing policies of many countries are not very transparent and what they say is not always exactly what happens.

My conclusions.

  1.              Pressure on drug prices will, by necessity, mean fewer new drugs.  Period.
  2.  Antibiotics, for many reasons, will still struggle to be prioritized within large pharmaceutical companies.
  3.    Pharmaceutical companies need to improve their studies to demonstrate the societal and economic value of the antibiotics they bring forward to the marketplace.
  4.    Governments need to be much more transparent regarding their pricing policies and their expectations for data justifying higher prices. 
  5.     Governments also need to keep the problem of antibiotic resistant infections in mind in developing their pricing strategies for antibiotics in particular.


The day will come (unfortunately), as I noted in another recent blog, where antibiotics active against those resistant Pseudomonas will fetch 10s of thousands of dollars per course of therapy just like oncology drugs.