Do big R&D bud­gets jus­ti­fy US pre­mi­um drug prices? No way, an­a­lysts scoff

Do you want a new for­mu­la for cal­cu­lat­ing “ex­cess” prices paid for brand­ed drug prices? A group of health­care re­searchers found a ripe prospect: Tack­ling the pre­mi­um built in­to US drug costs.

Big Phar­ma R&D is a game of block­busters. Find­ing one, get­ting one ap­proved and then build­ing the mar­ket is a multi­bil­lion-dol­lar quest. And there’s been con­sid­er­able fo­cus on the US pre­mi­um, the ex­tra that big bio­phar­ma col­lects in this coun­try while sell­ing the same drugs in tight­ly con­trolled sin­gle-pay­er mar­kets in Eu­rope for much, much less.

That US pre­mi­um, the com­pa­nies of­ten in­sist, is es­sen­tial to ac­com­mo­date huge R&D bud­gets re­quired to cov­er the bil­lions in av­er­age costs for new drug de­vel­op­ment, what Pres­i­dent Trump and oth­ers re­fer to as a huge sub­sidy that this coun­try pays to help oth­er coun­tries who won’t share the load of in­no­va­tion.

Writ­ing in Health Af­fairs, though, a trio of in­ves­ti­ga­tors says the ar­gu­ment is bunk. They crunched the num­bers on the list ex-US price against the av­er­age net in the US, us­ing VA and Med­ic­aid dis­counts to try and achieve a clear­er pic­ture of the bot­tom line for man­u­fac­tur­ers. And they found that the US pre­mi­um paid for the top 20 drugs on the mar­ket far ex­ceeds the to­tal amount the same 15 com­pa­nies spent on their glob­al R&D bud­gets.

That pre­mi­um, they say, nets 15 com­pa­nies $116 bil­lion in ex­tra an­nu­al rev­enue, com­pared to $76 bil­lion in to­tal re­search spend­ing. And 3 com­pa­nies earn more in pre­mi­um pric­ing for one prod­uct than they spend on re­search each year: Ab­b­Vie — Hu­mi­ra, Bio­gen — Tec­fidera; and Te­va – Co­pax­one.


Nan­cy Yu, Zachary Helms and Pe­ter Bach — fi­nan­cial an­a­lysts at the Cen­ter for Health Pol­i­cy and Out­comes at Memo­r­i­al Sloan Ket­ter­ing Can­cer Cen­ter — write:

We found that the pre­mi­ums phar­ma­ceu­ti­cal com­pa­nies earn from charg­ing sub­stan­tial­ly high­er prices for their med­ica­tions in the US com­pared to oth­er West­ern coun­tries gen­er­ates sub­stan­tial­ly more than the com­pa­nies spend glob­al­ly on their re­search and de­vel­op­ment. This find­ing coun­ters the claim that the high­er prices paid by US pa­tients and tax­pay­ers are nec­es­sary to fund re­search and de­vel­op­ment. Rather, there are bil­lions of dol­lars left over even af­ter world­wide re­search bud­gets are cov­ered.

If you take out the pre­mi­um US pay­ers cov­er for these drugs rel­a­tive to R&D spend­ing, you could save $40 bil­lion off of the to­tal $325 bil­lion paid for drugs in 2015.

Don’t look for any rapid adop­tion in the US, though. These com­pa­nies aren’t in the busi­ness of cov­er­ing costs, and bleed­ing prof­its isn’t on the agen­da in Wash­ing­ton DC. Trump’s fo­cus, to the ex­tent we un­der­stand it so far, is to make drug de­vel­op­ment sim­pler, with few­er reg­u­la­to­ry re­quire­ments and there­by less ex­pen­sive, of­fer­ing a route to low­er costs. This new piece un­der­scores, though, that there is no di­rect re­la­tion­ship be­tween re­search spend­ing and block­buster drug prices.

The sto­ry trig­gered an in­ter­est­ing round of com­ments on Twit­ter this morn­ing.

“If the ar­gu­ment is disin­gen­u­ous figleaf­ing for mo­nop­oly pric­ing be­hav­ior, it has now al­so been fal­si­fied,” Bach re­spond­ed to crit­i­cism of his piece.




Mer­ck is tak­ing the ax to its US op­er­a­tions, cut­ting 500 jobs in its lat­est re­or­ga­ni­za­tion

Merck is cutting 500 jobs in its US sales and headquarters commercial teams in its latest effort to find new ways to streamline the operation.

Endpoints News

Keep reading Endpoints with a free subscription

Unlock this story instantly and join 62,500+ biopharma pros reading Endpoints daily — and it's free.

Alice Shaw, Lung Cancer Foundation of America

Top ALK ex­pert and can­cer drug re­searcher Al­ice Shaw bids adieu to acad­e­mia, hel­lo to No­var­tis

Jay Bradner has recruited a marquee oncology drug researcher into the ranks of the Novartis Institutes for BioMedical Research. Alice Shaw is jumping from prestigious posts intertwined through Mass General, Harvard and Dana-Farber to take the lead of NIBR’s translational clinical oncology group.

Endpoints News

Keep reading Endpoints with a free subscription

Unlock this story instantly and join 62,500+ biopharma pros reading Endpoints daily — and it's free.

Mi­rati preps its first look at their KRAS G12C con­tender, and they have to clear a high bar for suc­cess

If you’re a big KRAS G12C fan, mark your calendars for October 28 at 4:20 pm EDT.

That’s when Mirati $MRTX will unveil its first peek at the early clinical data available on MRTX849 in presentations at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics in Boston.

Mirati has been experiencing the full effect of a rival’s initial success at targeting the G12C pocket found on KRAS, offering the biotech some support on the concept they’re after — and biotech fans a race to the top. Amgen made a big splash with its first positive snapshot on lung cancer, but deflated sky-high expectations as it proved harder to find similar benefits in other types of cancers.

Endpoints News

Keep reading Endpoints with a free subscription

Unlock this story instantly and join 62,500+ biopharma pros reading Endpoints daily — and it's free.

Hal Barron, GSK's president of R&D and CSO, speaks to Endpoints News founder and editor John Carroll in London at Endpoints' #UKBIO19 summit on October 8, 2019

[Video] Cel­e­brat­ing tri­al fail­ures, chang­ing the cul­ture and al­ly­ing with Cal­i­for­nia dream­ers: R&D chief Hal Bar­ron talks about a new era at GSK

Last week I had a chance to sit down with Hal Barron at Endpoints’ #UKBIO19 summit to discuss his views on R&D at GSK, a topic that has been central to his life since he took the top research post close to 2 years ago. During the conversation, Barron talked about changing the culture at GSK, a move that involves several new approaches — one of which involves celebrating their setbacks as they shift resources to the most promising programs in the pipeline. Barron also discussed his new alliances in the Bay Area — including his collaboration pact with Lyell, which we covered here — frankly assesses the pluses and minuses of the UK drug development scene, and talks about his plans for making GSK a much more effective drug developer.

This is one discussion you won’t want to miss. Insider and Enterprise subscribers can log-in to watch the video.

Endpoints Premium

Premium subscription required

Unlock this article along with other benefits by subscribing to one of our paid plans.

Flu Virus (Source: CDC)

FDA ex­pands Xofluza ap­proval as Roche strug­gles to catch loom­ing flu mar­ket

As a potentially powerful flu season looms, so does a big test for Roche and its new flu drug, Xofluza. The Swiss giant just got a small boost in advance of that test as the FDA expanded Xofluza’s indication to include patients at high risk of developing flu-related complications.

Xofluza (baloxavir marboxil) was approved last October in the US, the first landmark flu drug approval in 20 years and a much-needed green light for a company that had watched its leading flu drug Tamiflu get eaten alive by generics. Like its predecessor, the pill offered a reduction in flu symptoms but not a cure.

EMA backs sev­en ther­a­pies, in­clud­ing Mer­ck­'s Ebo­la vac­cine

The first-ever Ebola vaccine is on the precipice of approval after the European Medicine’s Agency (EMA) backed the Merck product in this week’s roster of recommendations.

The drugmaker $MRK began developing the vaccine, christened Ervebo, during the West African outbreak that occurred between 2014 and 2016, killing more than 11,000.

The current outbreak in the Democratic Republic of Congo (DRC) has shown case fatality rates of approximately 67%, the agency estimated. Earlier this year, the WHO declared the outbreak — which so far has infected more than 3,000 people — a public health emergency of international concern.

Ronald Herb­st fol­lows Med­Im­mune ex­o­dus to Pyx­is CSO post; Jeff God­dard to suc­ceed CEO of AIT Bio­science

→ The outflow of top execs from MedImmune continues to fill the leadership ranks of smaller biotechs. The latest to take off is Ronald Herbst, the head of oncology research, who’s assuming the CSO post at Pyxis Oncology.  

Herbst was part of the old MedImmune organization AstraZeneca CEO Pascal Soriot restructured earlier this year, reorganizing the company and eliminating the storied subsidiary as a separate organization.

Endpoints News

Keep reading Endpoints with a free subscription

Unlock this story instantly and join 62,500+ biopharma pros reading Endpoints daily — and it's free.

Med­ical an­i­ma­tion: Mak­ing it eas­i­er for the site and the pa­tient to un­der­stand

Medical animation has in recent years become an increasingly important tool for conveying niche information to a varied audience, particularly to those audiences without expertise in the specialist area. Science programmes today, for example, have moved from the piece-to-camera of the university professor explaining how a complex disease mechanism works, to actually showing the viewer first-hand what it might look like to shrink ourselves down to the size of an ant’s foot, and travel inside the human body to witness these processes in action. Effectively communicating a complex disease pathophysiology, or the novel mechanism of action of a new drug, can be complex. This is especially difficult when the audience domain knowledge is limited or non-existent. Medical animation can help with this communication challenge in several ways.
Improved accessibility to visualisation
Visualisation is a core component of our ability to understand a concept. Ask 10 people to visualise an apple, and each will come up with a slightly different image, some apples smaller than others, some more round, some with bites taken. Acceptable, you say, we can move on to the next part of the story. Now ask 10 people to visualise how HIV’s capsid protein gets arranged into the hexamers and pentamers that form the viral capsid that holds HIV’s genetic material. This request may pose a challenge even to someone with some virology knowledge, and it is that inability to effectively visualise what is going on that holds us back from fully understanding the rest of the story. So how does medical animation help us to overcome this visualisation challenge?

UP­DAT­ED: J&J's Xarel­to, Amar­in's Vas­cepa are cost-ef­fec­tive, not bud­get friend­ly — ICER

ICER, an increasingly influential cost-effectiveness watchdog in the United States, has concluded in its review of treatments for cardiovascular disease that while the cost of J&J’s Xarelto and Amarin’s Vascepa meet its benchmark for value pricing — the two treatments will not likely treat as many patients as hoped without surpassing the annual budget threshold calculated by ICER for each therapy.