For Policy Wonks: Bayh-Dole Act and Reducing Pharmaceutical Costs

AB Engelberg et al. NEJM 2022; 386: 1104-1106 (Commentary). A New Way to Contain Unaffordable Medication Costs — Exercising the Government’s Existing Rights

This commentary notes that the National Institutes of Health (NIH) spends more than $40 billion each year to fund biomedical research. “We believe that medicines discovered at public expense should be affordable.”

A Few Excerpts:

  • “Existing laws provide two paths for achieving this result. First, the Bayh–Dole Act of 1980 gives the government a royalty-free license to use patented inventions that were discovered using federal funding. The government has never exercised its Bayh–Dole license”
  • “Second, 28 U.S. Code §1498, which dates to 1910, gives the government immunity from being sued for patent infringement in federal courts, while giving patent owners the right to receive reasonable compensation when the government makes or uses a patent-protected product”
  • Case in point: “Recently, the government signed a contract with Merck to purchase molnupiravir (Lagevrio), an oral antiviral drug that reduces the severity of Covid-19. The contract price of $712 per treatment is estimated to be more than 35 times the cost of producing the drug at a reasonable profit. Molnupiravir was discovered at Emory University using government funding, and Emory’s patent applications acknowledge the government’s Bayh–Dole license.5 Molnupiravir payments for Medicare, Medicaid, and VHA patients could cost the government billions in 2022. This amount could be reduced by more than 90% if the government exercised its license and allowed a generic manufacturer to supply the drug for patients in government-supported programs.”

My take: U.S. taxpayers should get a return on their investment when new medications are developed with government funding rather than paying more for these medications than any other country.

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Ravenel Bridge, Charleston SC (blue skies -no filter)

Insulin: “Poster Child For Everything That’s Wrong” with U.S Drug Costs

Fortune Dec 2021-Jan 2022: Insulin’s Deadly Cost Thanks to Stan Cohen for sharing article.

Some excerpts/key points:

  • “Insulin in the U.S. costs on average some 800% more than in other developed economies. And yes, people die for lack of it, sometimes within days or even hours of missing their dose. No one knows how many; data suggests that in the U.S. it’s at least a few every day. Far more may suffer other ravages of diabetes—blindness, heart attacks, loss of limbs.” In addition, 40% of Americans who have died from COVID-19 were diabetics.
  • “Manufacturer’s compete not by cutting prices but by raising them.” This is often due to pharmacy benefit managers (PBMs), the middleman between manufacturer’s and insurers. PBMs negotiate drug prices and establish formularies. PBMs make more money if they able to discount higher rebates on the list cost; hence, to influence PBMs to choose their products, manufacturer’s are incentivized to raise drug costs, even if the average price is unchanged. Higher list prices affect those least able to cover the costs, namely those without insurance as well as many with high deductibles.
  • List price for Humalog (Eli Lilly) more than doubled from 2013 to 2018, Lantus (Sanofi) more than quadrupled from 2005 to 2016
  • Some patients have obtained insulin in Canada where costs for a vial could be more than 10-fold less (though this is illegal). There are also more than 12,000 listings with “insulin” in the title.
  • For the insulin market, some recent changes include the emergence of GLP-1 analogs for Type 2 diabetes (~90% of diabetes in U.S.). Trulicity is now Eli Lilly’s bestselling medication. In addition, the FDA recently approved Semglee, an interchangeable biosimilar for Lantus which is reducing costs.

My take: “The story of insulin is a poster child for everything that’s wrong with a free-market approach to drug availability,” says Arthur Caplan…”It’s almost inexcusable morally.”

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Is An Unproven Medication Worth More Than the EPA or NASA?

For those who have not followed the FDA’s controversial decision of approving Aducanumab for the treatment of Alzheimer’s disease, the NEJM has two useful commentaries:

Key points -from 1st article:

  • “Biogen…has announced a list price of $56,000 –10 times the evidence-based benchmark recommended by the independent Institute for Clinical and Economic Review…if even 10% of U.S. patients with Alzheimer’s disease were prescribed aducanumab, drug spending for Medicare Part B would increase from $37 billion to $69 billion per year”
  • The authors note that Medicare Part B payments rely on average sales price (ASP) from private insurers rather than a direct negotiated price; thus, the higher the price for private plans (even if poorly covered), the higher the Medicare rate
  • Hospitals and physicians are incentivized at higher prices due to receiving a 4-6% reimbursement price over the acquisition price
  • “The $56,000 price for aducanumab is a rational manufacturer response to an irrational insurance system.”

Key points -from 2nd article:

  • By one estimate, the potential cost will exceed the budgets of agencies such as EPA or NASA
  • “In granting accelerated approval to aducanumab, the FDA concluded that the drug’s ability to reduce amyloid plaques was reasonably likely to translate into clinical benefits. But this claim is hotly contested and was not presented to the FDA’s advisory committee, which voted against recommending approval of the drug because of the lack of a demonstrated clinical benefit”
  • If Medicare refuses to cover medication, this would leave a burden to state budgets. “As a legal matter,…state Medicaid programs are required to cover nearly all FDA-approved drugs.”
  • “Congress could adopt new legislation specifying that state Medicaid programs need not cover aducanumab…Protecting state budgets shouldn’t require Medicare to cover an expensive drug with unproven clinical benefits.”

My take: This type of huge fiscal burden may provide the rationale for Medicare and Medicaid to reexamine whether/how they cover expensive FDA-approved medications.

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Exorbitant Medicine Costs -Generics Discounts Often Minimal

A recent story in the NY Times (Patients Eagerly Awaited a Generic Drug. Then They Saw The Price. ) shows that the availability of a generic drug does not guarantee that exorbitant pricing will be remedied.

An excerpt:

Syprine, which treats a rare condition known as Wilson disease, gained notoriety after Valeant Pharmaceuticals International raised the price of the drug to $21,267 in 2015 from $652 just five years earlier…

In promoting its “lower-cost” alternative to Syprine, a Teva executive boasted in a news release that the product “illustrates Teva’s commitment to serving patient populations in need.”

What the release didn’t mention was the price: Teva’s new generic will cost $18,375 for a bottle of 100 pills, according to Elsevier’s Gold Standard Drug Database. That’s 28 times what Syprine cost in 2010, and hardly the discount many patients were waiting for.

Nearly three years after Valeant’s egregious price increases ignited public outrage, the story of Syprine highlights just how hard it can be to bring down drug prices once they’ve been set at stratospheric levels.

My take: This type of excessive drug cost is why critics demand additional regulation be placed over the entire pharmaceutical industry; it can occur only in a system which has limited competition and indirectly shares the cost across the entire system by having insurance companies foot most of the bill.

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Turning Liquid into Gold: A Pharmaceutical Rumpelstiltskin Story

A recent letter to the editor (LA Probst, TR Welch. NEJM 2017; 376: 795-6) provides a sad tale of how well-intended legislation to promote safety and efficacy of pediatric liquid medications has led to both an increased number of liquid formulations approved by the FDA but with a much higher cost than previous extemporaneously compounded formulations.

The liquid version of lisinopril is priced 775 times the cost of the equivalent tablet.  Other medications with high liquid to tablet cost ratios include enalapril (21 times), indomethacin (49 times), glycopyrrolate (14 times), and pyridostigmine (11 times).

The authors note that there are additional costs for developing/manufacturing these liquid formulations.

My take (borrowed from the authors): “there must be a better way to support the costs of developing the drug formulations that many children and some severely impaired adults desperately need.”

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Chattahoochee near Azalea drive

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Orphan Drugs –Very Profitable

Did you know that Remicade and Humira are orphan drugs?  For those concerned about pharmaceutical costs, a recent NPR article is a must.

From NPR: Drugs For Rare Diseases Have Become Uncommonly Rich Monopolies

Here’s an excerpt:

Lucrative financial incentives created by the Orphan Drug Act signed into law by President Reagan in 1983 succeeded far beyond anyone’s expectations. More than 200 companies have brought almost 450 so-called orphan drugs to market since the law took effect.

Yet a Kaiser Health News investigation shows that the system intended to help desperate patients is being manipulated by drugmakers to maximize profits and to protect niche markets for medicines already being taken by millions. The companies aren’t breaking the law but they are using the Orphan Drug Act to their advantage in ways that its architects say they didn’t foresee or intend. Today, many orphan medicines, originally developed to treat diseases affecting fewer than 200,000 people, come with astronomical price tags…

More than 70 were drugs first approved by the Food and Drug Administration for mass market use. These medicines, some with familiar brand names, were later approved as orphans. In each case, their manufacturers received millions of dollars in government incentives plus seven years of exclusive rights to treat that rare disease, or a monopoly…

When a drugmaker wins approval of a medicine for an orphan disease, the company gets seven years of exclusive rights to the marketplace, which means the FDA won’t approve another version to treat that rare disease for seven years, even if the brand name company’s patent has run out. The exclusivity is compensation for developing a drug designed for a small number of patients whose total sales weren’t expected to be that profitable…

Industry-wide, orphan drug tax credits cost the federal government $1.76 billion in fiscal 2016

My take: Any objective observer would recognize that the goals of the Orphan Drug Act are being subverted by current practice and changes are needed to achieve the goals of targeting rare diseases and reasonable medication costs.



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Upside Down Incentives in Pharmaceutical Development –Profit over Patients

A good read on why cheap effective drugs may not be coming to the market in the U.S. –as well as solutions. (Full text: AR Kellermann, NR Desai. JAMA. Published online August 17, 2015. doi:10.1001/jama.2015.10114)

Here’s an excerpt:

In 2003, Wald and Law proposed to combine 3 half-dose antihypertensive agents, an intermediate-dose statin, low-dose aspirin, and folic acid into a once per day polypill for primary and secondary prevention of cardiovascular disease. Based on epidemiological models, they estimated that daily use by individuals aged 55 years or older could reduce the incidence of MI and stroke by more than 80%.

In the 12 years since this report was published,3 versions of the polypill have been successfully tested in several phase 2 (safety) studies and a few modest-sized phase 3 (efficacy) trials. Collectively, these studies demonstrated that the polypill was well tolerated, achieved good adherence, and based on intermediate end points, such as reduction of blood pressure and low-density lipoprotein cholesterol level, is efficacious…

The 4 drugs in the current version of the polypill have long histories of safe use. Although all 4 are frequently prescribed in the United States, the US Food and Drug Administration (FDA) has not approved combining them in a single pill…

Although the polypill could produce substantial public health benefits, people in the United States are unlikely to find out anytime soon. This is because the pill’s price is so low (≤$1 per tablet) and the cost of the large clinical trials required for FDA approval is so high, it is unattractive to investors. The inventor’s dilemma is that creating a product that improves health is not enough; the product must also be able to generate a healthy return on investment. In the United States, the surest way to generate a healthy return on investment is to increase health care spending, not reduce it.

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“Using Drugs to Discriminate”

A recent commentary (Jacobs DB, Sommers BD, NEJM 2015; 372; 399-402) highlighted a growing problem.  Many insurers are using drug benefit plans to dissuade sicker people from enrolling in their plans.

Prior to the Affordable Care Act (ACA), insurers charged high premiums to people with chronic conditions.  The ACA attempted to address this problem; in fact, the “individual mandate” was necessary to make sure that insurance companies had enough healthy people in their insurance pool to make it financially feasible.

Yet, insurance companies make more money if they can limit insuring sicker, chronically-ill people.  One way this is happening is through “Adverse Tiering” which substantially increases out-of-pocket expenses for individuals with HIV, cancer, diabetes, mental illness, and arthritis. The difference in out-of-pocket costs, for example, with for each HIV drug was more than $3000 (on average) between adverse-tiered plans and those that were not adverse-tiered.  Even for generic drugs, the cost was nearly a $2000 difference.

A few problems with this approach:

  • Insurer’s drug prices are not usually available to public when choosing a plan; thus, these higher out-of-pocket costs are often unanticipated. (*Price transparency could accelerate rather than hinder this process.)
  • If sicker patients flock to plans without “adverse tiering,” this could make these non-adverse-tiered plans lose money and result in similar design to avoid “adverse selection.”

Conclusion: “Preventing [this adverse tiering and] other forms of financial discrimination on the basis of health status — with the attendant risks of adverse selection in the marketplace –will require ongoing oversight.”

Here’s the NY Times Report on this study: Study Finds HIV Drugs Priced Out of Reach

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