The U.S. biopharmaceuticals industry continues to grapple with the perennial issue of drug pricing. 

BY Julian Issa

Breaking Down Drug Pricing

April 01, 2019

Image courtesy of Adents

A look at the U.S biopharmaceuticals industry would be incomplete without approaching the elephant in the room – drug pricing. The 2020 presidential election campaign will no doubt be one of the hardest fought, both in the primaries and the election itself. Record numbers of funds have already been raised by the candidates and possibly the only thing in common between the Trump administration and the Democrat hopefuls is their desire to lower drug pricing. In his 2019 State of the Union speech, Trump appealed to Congress to pass legislation to deliver fairness and price transparency for American patients: “We should also require drug companies, insurance companies and hospitals to disclose real prices to foster competition and bring costs way down," remarked Trump.

Undeniably, Americans spend a lot on their healthcare and, justifiably, the majority of the population want this to change. U.S. healthcare spending accounted for 17.9% of overall GDP, reaching an astonishing US$3.5 trillion, or US$10,739 per person in 2017, according to the National Health Expenditure Accounts (NHEA). The 2017 figure represented a 3.9% year-on-year growth in healthcare spending. When breaking the spending figures down, from 2017 to 2026, payments to hospitals and doctors are expected to grow by US$1.1 trillion, more than four times the growth in prescription drug spending, according to CMS – National Health Expenditure Projections. Moreover, U.S. spending on prescription drugs as a share of total healthcare dollars in 2017 was at 12%, lower than in Germany, France (both 13%) and Canada (14%) in 2015, according to the Organisation for Economic Co-operation and Development. When taking into account that 2018 was yet another record year for FDA drug approvals with 59 novel drugs and biologics, and that the United States regularly approves more than half of the world’s new drugs despite having one of the most stringent approval systems, blaming the biopharmaceuticals industry for healthcare costs sets a dangerous precedent. “Medical innovation is simultaneously both at its moment of greatest hope and under the greatest political pressure we have seen,” underlined James Greenwood, president and CEO of the Biotechnology Innovation Organization. “By nature, science is always advancing, so our capacity to provide treatments and cures has never been better. However, the potential policies following on from President Trump’s emphasis on high drug prices over the course of his 2016 campaign and ever since could be very detrimental to that progress and innovation. We have 100 new members of Congress that were elected in a climate where drug pricing was a major factor. The threat is very real, and we are busy figuring out how to explain our business model – it is often not understood that the private sector contributes to the lion’s share of R&D money while taking on all of the risk.”

Indeed, there is money to be made in the biopharmaceuticals industry, but this is what drives innovation in a high-risk industry. Tufts Center for the Study of Drug Development put the cost of getting a drug to approval at US$2.6 billion in 2014, a colossal increase of 145% from their 2003 figure. Despite this, net drug price increases have been in decline and in single digits for the past six years. The industry needs to come together in this precarious moment to help educate Congress and the population about drug discovery and development. When a system is broken, as the U.S. healthcare system seems to be, it is easy to want to point fingers. However, when an innovative drug or technology has the capability to become a treatment, or even a cure, and subsequently prevent decades worth of healthcare costs, it puts the price of drugs into perspective. Gilead’s series of drugs – Sovaldi®, Harvoni® and Epclusa® – have cured Hepatitis C. When taking into account the significant healthcare costs incurred by Hepatitis C patients, a virus that can necessitate a liver transplant through hospitalization and associated procedures, the long-term savings enabled by these drugs, or “costs avoided,” are clear.

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