Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

Forbes

 

Who Pays for a Cancer Drug?

January 06, 2009

By Peter W. Huber

Affluent Americans pay a premium, and the rest of the developed world rides on our coattails.

President-elect Obama will have to choose: more diversity on the pharmacy's shelves or less at the cash register. He says he wants both, but he's going to get only one or the other—more drugs to fit more biochemical profiles, or lower, more uniform drug prices negotiated by the federal government.

He's said to be a strong supporter of "personalized medicine." Good call. One lung cancer drug targets a receptor that predominates in patients of Asian ancestry. White Americans have less tolerance for some antidepressants, antipsychotics and heart-disease drugs. Blacks respond poorly to certain drugs for high blood pressure and hepatitis. Tolerance for many drugs hinges on how well patients metabolize and expel them, which seems to depend on a couple of thousand variants in a couple of hundred different genes. drugs will lead to much better medicine.

But tailoring is expensive. When drugs fragment the market, their huge development costs get spread across fewer patients. The hostile economics of small-market drugs were first addressed by Ronald Reagan and Henry Waxman in a spectacularly successful instance of bipartisan collaboration. Enacted in the shadow of the newly discovered AIDs epidemic, the 1983 Orphan Drug Act provides various tax credits and exclusive marketing rights for any drug developed to treat a disease that afflicts fewer than 200,000 U.S. patients. At the time, AIDs still seemed rare enough to meet that threshold, and a few years later the law helped launch the first pathbreaking hiv drugs.

Since then about 1,600 orphan drugs have been certified, more than 280 have been licensed and used to treat 14 million patients. One recent estimate suggests that 6,000 diseases that collectively threaten 25 million Americans qualify as orphans, and new links between genes and disease are discovered almost every day. Far more drugs will be required to treat uncommon genetic diseases that aren't quite rare enough to qualify as orphans—roughly speaking, flaws that show up (as single copies) in more than 5% of Americans. Countless other genetic differences will be implicated in side effects, driving still more fragmentation in the pharmacy.

In the long run precisely tailored medicine will be cheaper because chemistry is inherently cheaper, and far more effective, than the hands-on care provided by doctors and hospitals. But patients have to cover chemistry's upfront costs, and that means patent protection for a while. It takes a delicate choreography of patent-protected monopoly and cutthroat competition to get innovation first and rock-bottom prices later.

Along with many influential Democrats in Congress, the President-elect also favors having the federal government "negotiate with the drug companies for the cheapest available price on drugs." That means only one thing—weakening the patents involved in the expensive front end of this dance. Placing a single huge buyer between a patented drug and the disease it treats will indeed lower the cost of treating it—so long as someone else has already paid to get the drug to market.

The rest of the world counts on the U.S. to be the someone else. New drugs are introduced here, affluent Americans pay premium prices while the patents last, and less affluent Americans, along with the rest of the developed world, get a sharply discounted ride on our coattails. While the patent lasts, however, some of the free riders don't get the drug at all. The 6,000 British victims of kidney cancer don't get Pfizer (nyse: PFE—news—people)'s Sutent, because the government sets a $23,000 cap on what it will pay for a drug expected to prolong life by six months. Most other countries are openly or tacitly doing the same. Former Bush Administration officials agree it's only a matter of time before the U.S. does, too. The new Administration wants it to happen on the double.

Faced with a monopoly buyer's outright refusal to buy, drug companies do try to cut special deals to recover whatever they can on drugs already developed. But every time another country monopolizes its buying and tightens the squeeze on the patent, the financial picture takes another step back toward orphan. Pfizer won't pull the plug on yesterday's Sutent, the one already bottled and licensed. But a buyer's cartel may well force it to pull it on tomorrow's. Once the U.S. joins the big-government buyer's club, the jig is up. Many smaller- market drugs will never make it through the economic gate at all.

We stand on the threshold of a new era of biochemistry so stunningly powerful that it lets us tune and fix human chemistry from the bottom up. It is dreadfully ironic that affluent countries have chosen this moment to throttle the research engine.

Original Source: http://www.forbes.com/forbes/2009/0112/072.html

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

On Obamacare's Second Birthday, Whither The HSA?
Paul Howard, 10-16-14

You Can Repeal Obamacare And Keep Kentucky's Insurance Exchange
Avik Roy, 10-15-14

Are Private Exchanges The Future Of Health Insurance?
Yevgeniy Feyman, 10-15-14

Reclaiming The American Dream IV: Reinventing Summer School
Howard Husock, 10-14-14

Don't Be Fooled, The Internet Is Already Taxed
Diana Furchtgott-Roth, 10-14-14

Bad Pension Math Is Bad News For Taxpayers
Steven Malanga, 10-14-14

Proactive Policing Is Not 'Racial Profiling'
Heather Mac Donald, 10-13-14

Smartphones: The SUVs Of The Information Superhighway
Mark P. Mills, 10-13-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494