Something that likely went under most peoples’ radar this past week was that the FDA announced the approval of a new drug for multiple sclerosis, Tecfidera, from Biogen Idec. That’s pretty good news for a disease that generally doesn’t have a lot of good news associated with it. Here’s some disease-progression data for it compared to placebo. Looks pretty good.
Looks like it works
After the approval, Biogen Idec also announced the price — $54,900 per year, which seems like a pretty big chunk of change to me. So what’s the deal? Is Tecfidera some sort of stem cell technology derived super-medicine? Maybe some sort of advanced gene therapy? Or a hard-to-isolate protein? No. Not really. Here is the structure of Tecfidera:
Dimethyl fumarate
If you’re thinking that structure looks decidedly low tech, you’d be right. And if you got your degree in chemistry, you’re probably thinking, “Isn’t that just dimethyl fumarate?” — and you’d be right again. From Biogen Idec’s prescribing information, the yearly dose of Tecfidera is about 2 grams. Now, from that screenshot, you can see that I can buy 100 grams of dimethyl fumarate from a chemical supplier for about $56. That breaks down the cost-of-goods for a yearly prescription of Tecfidera to about a dollar. Yow.
Should you be surprised? Should you be outraged? Maybe. But probably not for the reasons you think.
First off, putting Tecdifera though clinical safety and efficacy trials probably cost Biogen hundreds of millions of dollars. Literally. Hundreds of millions. And that money is all spent before they found out whether the drug would even be approved. If the FDA had said “no”, then all that money is out the window (and I’ve been on that side of an FDA decision in my career — the aftereffects ain’t pretty). So yes, Biogen has a LOT of investment in the compound to recoup before they make a penny of profit on it. I think most people can understand that.
The other aspect is probably a little harder to comes to terms with — and that’s the fact that drugs are a commodity. Like oil. Like coffee. Like cars. Like smartphones. Like houses in a desirable neighborhood. As a seller, you charge the price the market will bear. Apple can charge $400-600 dollars for an iPhone. Why? Because people will pay it. The selling point for your house will be determined by comparisons to others like it nearby. Drugs aren’t really that different. For example, Biogen placed their yearly price for Tecfidera about $4000 below that for Novartis’ competitor drug, Gileyna. For better or worse, you could say that $50-60k per year is the market price for a front-line MS medication.
Of course, when you NEED medicine, you’re more likely to take a high drug price more personally than say that of an iPhone because you’re probably a lot more attached to your health than your phone. Though these days, I’m not so sure about that. And hearing prices like that, whether justified or not, always prompts a discussion among those of us that work in the drug industry: What is the appropriate profit for a beneficial or life-saving medicine?
And of course there is the justified finger pointing between the medical community, patients, insurers, and government about the high cost of healthcare, but that’s not what I’m talking about here. My question to you is: If you had spent $400,000,000 on developing a drug that you could sell to a small patient population and your nearest competitor is selling their product at $60000 per year, what would you charge?
Stevil 
Steve, what’s to stop a clever MS sufferer from buying themselves a little scale and 50 years worth of dimethylfumarate?
Absolutely nothing. And a lot of industry insiders think that there will be a big “black market” here. I can’t imagine that’s going to be very good from a PK/PD and side effect profile, but I bet it’s going to happen.
There’s a great line in a “West Wing” episode. “Yeah, the second pill costs 15 cents to make. The first one cost $400,000,000.” I wonder what would have happened if a drug company spent $500,000,000 to find a cancer cure, and the end result would be aspirin and caffeine. Would they be allowed to charge $50,000 a year for Anacin?
Tom — I’m going to see if I can find a youtube clip of that dialog and I promise to use it (and cite you) every time I have this conversation.
What this tells me is, as a company, if you’re going to devote time and money to create a drug that will help a small per cent of the population, you should base your business plan on NOT generating a profit from this drug but to raise the price of the other drugs in your arsenal that help 99 per cent of the population. I would gladly pay double for my bottle of Tylenol if I knew it would lower the cost of small batch medicine.
The FDA has a distinction for truly rare diseases, which they call “orphan diseases” in which they ease the path to approval (and thus the cost of development) — so that can help in some cases.
Also, smaller companies like Biogen often don’t have other drugs to sell — many are one-trick ponies. So they’re either made or broken with the one that gets to market. Larger companies might be able to do that though — though I imagine tylenol still gets sold at a pretty hefty profit.
From the company point of view, it is justifiable that they at least break even. But the scale is simply ridiculous. So, the answer to your final rhetoric is, no, I have no clue how much I would sell the drug for.
Perhaps there could be a government policy involving cheaper or subsidized pre-clinical and clinical tests for life saving medication? But would that lead to human-right and animal-right violations? Right now, the high cost of clinical trials in the US makes many drug companies outsource clinical trials to third worlds like India, where even without their insurgence, human rights are not really anything to write home about.
Complicated world.
LG — living in a capitalist I guess I’m inclined to say that I think a company should be able to make as much as it wants — or at least feels like it should be able to. Certainly, people have talked about government subsidies — though that’s essentially happening through the big payers and Medicare negotiating lower prices.
The damn thing is you could say — stop making companies spend hundreds of millions before going to market. But then, who’s going to be blamed if the compound is found later on to be unsafe?
I liked Blogdramedy’s idea. Raise the price on something that is used by many people.
It is a complicated world. And I wouldn’t mind paying a bit more for some of my meds to help balance the lower demand meds.
Lauri — like I said above, many companies like Biogen are one-compound companies. They’re going to live or die depending on how that drug sells. Tweaking revenue streams might be an option for the giant mutlinationals, but small and mid-size companies don’t have that capacity usually.
None of my iPhones cost that much. They must like me! I *did* pay $2400 for the brand-new mbp SSD with retina display, which was insane on my part. I could’ve gotten $200 cheaper but REALLY wanted SSD and REALLY wanted retina.
Lily — hah. I only know that price b/c we had to replace the Beloved’s phone the other month after it was stolen and we didn’t have insurance on it. Silly us.
I prolly get a repeat-offender discount. I did for my Nook HD ($50 off on that!). I honestly don’t know what it is for the phone but I have the oldest contract in ATT history.
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What a great post, Steve. It’s vital that people understand that most pharma innovators are not monsters. That said, I think the question on what to charge needs to be combined with another question: who’s going to look the debilitated patient in the eye and tell her what it will cost?
I have a solution though. Since we’re talking about oil, doesn’t Exxon make something like $4 billion per year? And not that it matters since their CEOs probably use hundred dollar bills to clean their kitchen floor; but some oil and computer companies do want to clean up their image. How about Big Pharma join up with the government, health insurance companies plus the richest people in the world. and make a donation pool to recover some of the expense for drug testing?
Then knock out the Republicans and we can get single payer insurance passed. Problem…..solved?
amelie — I like your solution! Bill Gates has lead the way with billions donated to research in curing diseases in the third world. However, a plan that relies on the generosity of oil companies and executives? Sadly, I don’t think we should hold our breath.
Dumb question, is this drug covered if you have drug coverage? If not, what good does it do to develop a drug that no one can afford?
Lynn — usually, but not always, these drugs are covered through insurance. That, maybe more than anything, is I think the evil heart of why the “market” is the way it is. Inflated drug prices make for more-inflated premiums.
The answer is probably something like government funded research via universities, and pricing based on realistic production costs.
Sez me taking my relatively cheap Warfarin daily.
(Waves to Wisconsin Alumni Research Foundation!)
Lauwolf — gov’t funding gets to be tricky, because who then becomes responsible for it if something goes wrong. Also, universities typically don’t have the people that have the expertise to drive a drug to market, so that would take a major re-organization of what it means to be “academic”.
Just looking at it from a strictly business viewpoint – and answering your actual question – I’d probably charge no more than $50,000. 8000 users would pay back my initial 400M, then I could lower the price. Pointing at my competitor and saying, “Look how much THEY charge!” would be a little easier with a larger margin.
GOM — I think your plan might be pretty close to reality. It’s hard to think of something as a “deal” at $50k/year, but I think that’s the language — at least the marketing language — that gets bantered around.
I think you’re getting into the arena of medical ethics when you start calling a life-saving drug a “commodity” and compare it to an iPhone, which I’ve already said is a poor analogy. Nobody needs an iPhone, no one will die if they don’t have an iPhone, as countless parents have told their teenaged children. The products Apple makes are essentially luxury goods, while decent medical care should be a human right.
I understand the need to compensate a pharmaceutical company for the hours of research, the staff they hired, the equipment they’ve purchased, the rent paid for the laboratory, etc. I get it’s not cheap to produce a licensed drug. The University of California system however receives millions of dollars in public grants to do medical research, so don’t taxpayers have a proprietary right to the results of research by a public university? If a private company receives a federal grant for developing a drug that will enable a child with a rare neurological disorder to live a nearly normal life, shouldn’t the company be expected to provide some of its products pro bono?
We could go the Canadian route, where we create a single-payer system and all drugs are bought in bulk by the government, which sets the retail price of the medication. It might drive pharmaceutical companies to India or China—I’m told it’s happening even now—and it may stifle competition and hence originality. But market-driven medicine is proving far too expensive for the United States, and the result has been a decline in services, not an improvement. There needs to be at least some medications and procedures that are set aside as benefits for the indigent sick and injured.
HG — there’s a really fascinating question there. Can you compel a business to release its assets for ethical/moral reasons. If someone is starving, can I walk into Vons and take a bunch of rice, beans and vegetables to save their life without paying for them? I really don’t think so. You’re talking about turning a for-profit company into a charity. Steve Jobs survived pancreatic cancer for a long long time because he was able to buy into the latest trials and medicines at a very high price. Are we supposed to fit the bill for everyone that has pancreatic cancer to do that? Who pays for that?
So, you talk about the return on reward for investment by the government. I’ll give you a for-instance. The last company I worked at started a project based on a couple of grants that totaled ~$1M. That drug is slow, but hopefully surely, making its way to the market. My guess is it will have cost about $500,000,000 to get there. So, is the government entitled to 1/500th of any profit — beyond the tax revenue the company has already generated from it and the taxes from the workforce that the project has produced? What happens when the government invests some money and private organizations invest others and everything tanks? Is the government going to “bail out” failures?
I’d disagree that market-driven medicine is too expensive. The average age in the US has increased over the last two generations and that’s WHILE the same population has adopted a considerably less-healthy lifestyle. Cancer, diabetes, heart disease, infectious disease — all in check and lives extended medically.
The stealing-from-Vons is again a wrong analogy. If, say, I was using the Canadian model, I would go directly to the farmers and negotiate a price for a bulk purchase of beans and rice, then sell it at a nonprofit price to members who had already paid dues to shop at my business. Actually, Kaiser Permanente and most HMOs use this model, as do co-ops. It’s how my father pays aspirin prices for his blood pressure and diabetes medications.
Steve Jobs made a spectacular error in his treatment of his cancer by trying “holistic” methods, acupuncture and diet, mainly because he didn’t want to undergo surgery and because of his spiritual beliefs, which were very New Age. When he realized the holistic methods weren’t working, then he turned to cutting-edge medicine, but it was too late. Not even treatment at Stanford or Johns Hopkins could save him, though they may have prolonged his survival briefly.
http://www.nytimes.com/2011/10/21/technology/book-offers-new-details-of-jobs-cancer-fight.html?_r=0
My point there is that you can throw all the money you want at certain diseases, but timing and efficiency are everything in treating cancer. Many people don’t even get that because they don’t see a doctor in time to treat their early symptoms, largely because they don’t have medical insurance, even if the Affordable Health Care Act mandates it. Ironically, individual plans under most private insurers are still out of the reach of most people.
The government does bail out failed companies, but most of these are banks and automobile manufacturers. I don’t know if it would bail out a company that gambled on developing a drug which failed to pass FDA tests. I wonder if there shouldn’t be a kind of insurance for these sort tests, so a manufacturer that had invested years and tons of money in a failed experiment doesn’t end up going belly up.
People in the US do live longer, but we are less healthier, and we have the shortest lifespans of all the developed nations. We cherish our personal freedom, including the right to eat, drink and shoot ourselves to death.
http://www.cbsnews.com/8301-204_162-57563279/report-u.s-life-expectancy-lowest-among-wealthy-nations-due-to-disease-violence/
The buying powers of the payers (Kaiser, BC-BS, Aetna) almost certainly means that they’ll “get a discount” from the stated price. In some ways, the prices feel like those from stores that mark-up merchandise 2x and then “give” you a 30% discount. I do think the cyclic inflation of medical services (drugs, tests, hospital stays) and premiums is what’s driving the rising healthcare costs in the US. Of course, if you go to a monopolized single-payer system, you’re essentially dictating to companies “here is the amount of profit we will let you have”, which is pretty anti-capitalist. We don’t let other sectors have monopolies, why is okay here?
I find the intersection of health/medicine and government oversight fascinating in general. Of course, we’d be healthier if people would eat better, exercise more, get preventative screening. Think of all the sickness and money that could be saved by doing that — and yet we pick up the tab for every person that junk-food eats themselves into diabetes by age 40, or smokes themselves into early lung cancer. You can’t force people to be healthy — but maybe we should?
I was lying awake last night thinking about this again (darn you for writing such an interesting post!) and I was thinking about the product analogy. Maybe I’m talking nonsense here, but I wonder about this whole resource issue. For example – the iPhone is a mechanical product. It uses chemicals of course but it’s more like a car or a radiator. We depend on it to behave a certain way.
Now take drugs. We’re talking about chemicals, not a mechanism. To me that’s more like what Coke or Pepsi do; they formulate chemicals to sell a product. Suppose Coke spent a ridiculous amount of money to make their product irresistible. I know, the process for drugs is much more complex and it requires test subjects. But in the end, Coke still cannot charge much more than the basic process and the cheap ingredients involved. And it’s not even a product that can save a life.
I know you weren’t taking a side on the issue Steve, but I felt confused the more I thought about this. As you pointed out, we’re basically talking about an informed way of selling a chemical.
putting Tecdifera though clinical safety and efficacy trials probably cost Biogen hundreds of millions of dollars.
Sorry to sound dense, but what specifically did they spend that money on? Doctors, probably, monitoring of patients, lab animals, etc, is that the brunt of the money? Or am I missing something? Is someone down the line (FDA, doctors, etc) making a bonanza on this testing process?
Forgive me for the scattered comment. I’m just thinking out loud.
Amelie — sorry to have cause you any sleeplessness. That’s for those of us in the business!
Well, to use your Coca-cola analogy, they can charge whatever people are willing to pay for it. People are willing to pay 3x for coffee at a coffee shop over that at a diner. Is their a 3x difference in value? To those people that pay it, their must be.
The chemical production costs for most drugs are probably in the low millions of dollars. A large scale synthesis and purification has to be worked out so that you can make your product in kg+ quantities time and time again with essentially no batch-to-batch difference. I remember when I worked at Abbott we had a huge problem with our HIV protease inhibitor in that a new batch didn’t match the necessary specifications from previous batches. It took the compound off-line for months, cost millions to figure out what went wrong, cost millions in lost sales, not to mention the patients that had to switch to other therapies, or go without. So, drug product synthesis is a big deal.
But most of the hundreds of millions go to organizing and paying for human clinical trials. Actually, it starts before you ever treat a human. The FDA (rightfully i think) requires animal toxicity studies (rodent and non-rodent) before a dosing regimen in people be proposed. The FDA then requires what’s known as Phase I trial. These are done for safety in people (usually 6-10). First you give healthy volunteers a small dose and take blood and urine samples and make observations. Then a larger dose etc. Once you get a sense of that you can do multiple dose trials that begin to mimic what a treatment regimen looks like. Each Ph-I trial is roughly $1M and you can do as many as 4-6 to get things right.
Assuming your compound is tolerated, you go onto Ph-II which is a first look at a patient population. Usually, these are small trials (a dozen or two people) are placebo-controlled and double-blind (neither the patient nor the clinician knows which version the patient is receiving). These are done to a) see if the drug works, b) see if it’s tolerated, c) work out the operational details for upcoming larger trials. Ph-II trials run into the tens of millions of dollars. And you’ll probably run 4-8 of them so that the FDA will give you a green light for, you guessed it — Phase III.
Phase III are called “pivotal” because they are designed to be done on a massive scale (hundreds to thousands of patients, depending on the indication), they take everything you learn in Ph-II and are designed to produce statistically significant results that show both safety and efficacy in a patient population. Each one of those can run $100M or more. When you’re done you can apply to the FDA for approval to go to market.
Now the FDA used to require only that drugs had to be 1) safe, 2) efficacious. And they would let physicians and the market figure it out. But now, the FDA requires that if you’re applying for a condition where “good” drugs already exist you have to show that you are “better” than current therapies. That requires BIG head-to-head trials that can take a long time depending on the condition. And if the results don’t show that you’re better than what already exists? Well, in total, you just spent half-a-billion dollars and probably 6-10 years to find out you can’t go to market. Talk about a REALLY bad day.
So, yes, all along the way, people get paid. Clinics, hospitals, lawyers, manufacturers, administrators, plus lots of meetings with the FDA and their associated fees.
Thank you Steve for the really great and comprehensive response. Lots to think about.
We have tin rattlers and pen and badge sellers and fetes and runs here to help fund research. When there’s a breakthrough, some company buys the results up and makes us pay all over again. It sucks.