Hi everyone, before I provide additional information, I would like to mention that I have worked in the pharmaceutical industry for 18 years and I have seen the drug development process from up close. So my view may be biased. I will try to be neutral and present the facts. Also it should be noted that my thoughts on this subject do not represent the views of my company. I started writing books and this blog to express my thoughts. The first amendment gives me the right to freedom of speech. I want to be true to you, my readers, true to the topic at hand and finally true to myself. In doing so I am going to choose thought provoking topics that may not sit well with everyone. I am not going to beat around the bush or walk on eggshells on such topics.I am going to choose examples to get my point across. This is not fiction, but real facts about people and issues.

Okay, now that the disclaimer and disclosure is out of the way, let us delve into this issue. Back in mid-September, Turing Pharmaceuticals and it’s CEO came under a lot of fire for raising the price of their drug Daraprim by 5,455% i.e. from $13.50/tablet to $750/tablet. The company cited R&D costs as one of the main reasons for the price increase.

According to many estimates, the cost of bringing a new drug to market is $2.6 billion and it takes 10-15 years. When the drug is discovered, the company applies for patent protection and patents last for 20 years. But given that the company spends so much time and money, it essentially has about 5 years to recoup their cost. Consider the fact that the company is working on more than one drug at a time. It has to go through several stages of development. Actually, I have covered this in my book Taming Ebola. You can find it at http://www.amazon.com/Taming-Ebola-Aniruddha-Railkar-ebook/dp/B00PM1HJMY/ref=sr_1_1?ie=UTF8&qid=1445350572&sr=8-1&keywords=Taming+ebola. So I will not cover it here. But one out of 10 new drug candidates are successful. Sometimes drug candidates fail in later stages and the company cannot recoup their costs at all. For existing drugs that are off patent, cheaper generic versions can be obtained, but even developing a generic drug can take 2-3 years and $10-50 million. So generic drug manufacturers also have to recoup their costs. Unlike an innovator, there may be many generic drug manufacturers for one drug, therefore their margins are very thin.

Drug pricing is also determined by supply and demand, the effectiveness of the drug and other factors as well. For example there are certain diseases that affect a very small number of the population. Obviously, the per unit cost of such drugs is high. Some drugs can cure the disease, while some can slow the progression. For some diseases, there is no cure, but the patients still have to be treated. Another factor is reimbursement by insurance companies. In the US, the private insurance companies as well as government programs cover many drugs and so the out of pocket costs for the patient are less. But in Europe, many drugs are covered by government programs and it is fairly common for them to exclude some drugs off their formulary. But that means some life saving drugs will not be available to everyone. Companies do negotiate prices to make it more attractive for governments to put the drugs on the formulary. This trend is catching up in the US. Pharmacy Benefits Management (PBM) companies like Express Scripts and CVS are negotiating discounts for their members. Recently, Gilead Sciences got approval for a dug that completely cures Hepatitis C. The cost: $84,000/year. The previous treatment was a combination of two drugs: interferon and Ribavarin. The cost: $1,500/year. The cure rate: 50%. CVS made a deal with Gilead. But Express Scripts refused. Instead they made a deal with Gilead’s competitor Abbvie. Lawmakers in the US have challenged the prices and written letters to Gilead management. So far no success. I realize that people who cannot afford medicines or do not have good insurance coverage, should not have to choose between putting food on the table and buying medicines. But I feel we need to look at more than the economics. Given a choice between 100% cure and high cost versus 50% cure and low cost, is that worth a chance? What about costs of hospitalization or an organ transplant? Can you put a price on the amount of time with loved ones and improved quality of life?