Oh, the Prices We Pay, Reloaded - Celgene Balks at Explaining High Price of Thalidomide

A brief article on Bloomberg.com implied that Celgene has been fighting efforts by the Canadian Patented Medicine Prices Review Board to get pricing data about the drug Thalidomid (thalidomide):

Celgene Corp., the biotechnology company specializing in blood-cancer medicines, will get a hearing before Canada’s highest court over the country’s demands to provide pricing information for the drug Thalomid.

The Supreme Court of Canada today agreed to hear Celgene’s appeal of a Federal Court of Appeal ruling that said Canada’s Patented Medicine Prices Review Board was entitled to information about the pricing of the drug. The high court gave no reason for its decision.

Celgene’s two top-selling drugs are Revlimid and Thalomid, for a form of blood-cancer called multiple myeloma. They brought in more than 80 percent of the company’s total $2.25 billion in 2008 revenue.

It should be no surprise that Celgene may be sensitive about the price of Thalidomid. We posted back in 2005 about the stratospheric prices of new drugs that seemed disproportionate to manufacturing and development costs on one hand, and the value of the drugs for patients on the other. We noted that thalidomide, a very old drug that notoriously was found to cause birth defects when it was given to pregnant women, but that then showed promise as an anti-cancer drug, was being marketed in the US for $29 per capsule (approximately $25,000 a year), while a generic form sold in Brazil for $0.07 per capsule.
 
The amount Celgene manages to make from this very old (and demonstrably cheap to produce) molecule is vivid, albeit anecdotal evidence about what has gone wrong with health care prices in the US.  Despite health care insurance companies' protestations that their goal is to provide reasonably priced health care, they seem utterly incapable of negotiating down the prices of even the most obviously over-priced drugs.  And the US government Medicare program so far is prohibited by law from negotiating prices.  How our supposed free market health care system has tilted so far in favor of pharmaceuticals is a reason to wonder, but ought to be reason to investigate. 
 
Meanwhile, Celgene's 2010 annual report shows that the company has sold more than $400 million worth of Thalidomid yearly since 2007. The company's total sales in 2009 were $2.567 billion, while it spent $795 million on research and development, and $754 million on general, sales, and administrative expenses. According to the company's 2009 proxy statement, in 2008 its CEO received over $8.5 million, its COO over $5.1 million, its CFO over $2.1 million in compensation, and a senior vice president over $3.0 million. The total compensation of its five highest-paid hired managers (compare to a total of 2813 full-time employees in 2009), approximately $20.5 million 2008, was was approximately 2.6% of the company's net income in 2009, and just under 1% of its total sales.
 
As we have said previously, so the health care bubble continues to inflate.  One cause is"compensation madness," including "insiders hijacking established institutions for their personal benefit."  Another is the amazing acquiescence of those who pay bills at all levels, from the individuals who ultimately fund health care through salary dollars not earned, health insurance premiums, co-pays and the like, and tax payments, through the health care insurers and government agencies who did not balk at paying $25,000 a year for thalidomide in 2005.  If we really want to provide accessible health care of good quality and a reasonable cost, we will need to develop mechanisms to pay more reasonable amounts for health care goods and services. This will require some courage facing down the corporate and organizational insiders who have made themselves very rich from the current craziness.

Post Title → Oh, the Prices We Pay, Reloaded - Celgene Balks at Explaining High Price of Thalidomide

The Exorbitant Costs of Orphan Drugs

The Wall Street Journal ran an article this week on the unintended consequences of the Orphan Drug Act of 1983. (Now available free on the web here. )

The Orphan Drug Act was meant to facilitate production of drugs for rare diseases. A product granted orphan drug status by the US Food and Drug Administration (FDA) gets seven years of patent-like protection, without the need to go through the patent application process. Orphan drug status can be given to a product already on the market. Orphan drug status also gives companies tax credits for research and development, grant money for drug testing, and assistance in getting products approved. Furthermore, it is harder for generic drug companies to gain approval to market generic versions of former orphan drugs than of drugs that go off patent.

Although the law was envisioned as likely to apply to only a few products, there are now 260 orphan drugs on the US market, with 1400 in development. "Today, nearly half of all drugs produced by biotech companies are for orphan diseases."

The Wall Street Journal showed that the protections afforded by the Orphan Drug Act enabled pharmaceutical and biotechnology companies to make huge profits off orphan drugs, often by charging staggering prices for them.

• "Last year, Genzyme Corp. a Cambridge, Mass. biotech firm, posted sales of $840 million on its drug for Gaucher disease, which affects fewer than 10,000 people world-wide. Treating the average patient costs $200,000 annually, the company says. But the price of the drug, dosed by weight, can run as high as $600,000 a year for adults on the higher of the two recommended doses." The Journal documented how this drug was first developed at the US National Institutes of Health (NIH), and a contract to manufacture the drug was given to Genzyme. Genzyme first justified the drug's price because it was produced with difficulty, from human placentas, of which 22,000 were required to make one adult's yearly supply. However, an Office of Technology Assessment study estimated that Genzyme only spent $29.4 million on drug development, because most of the initial work was done by the NIH. Furthermore, in 1994, Genzyme began making the drug using genetically modified cells. The CEO of Genzyme, Henri Termeer "declines to say what the production cost is today." When asked why the price is not lower, he responded, "What's the difference between charging $200,000 or charging $175,000 to a patient? No one can afford it without insurance." The current director of the FDA Office of Orphan Products, Marlene Haffner, commented, "I just find it unconscionable that someone can charge that much."
• "Genentech received orphan-drug protection in 1985 for its first drug, human growth hormone, to treat children who weren't growing properly because of a hormone deficiency - a population of about 20,000 in the US. Revenue grew rapidly as the drug became more widely used. Last year, 19 years after the first version came to market, the drug yielded Genentech revenue of $354 million."
• "In 1999, BioMarin Pharmaceutical Inc., a California firm, raised $67 million in an initial public offering based mostly on the promise of a single orphan drug still in clinical trials - a potential treatment for a rare genetic disease called mucopolysaccaridosis I. Fewer than 4,000 people in the developed world are estimated to suffer from the disease...." "BioMarin, in a joint venture with Genzyme, Inc., brought the treatment to market in 2003 at an average cost of $175,000 per patient each year. The joint venture is expected to have sales of about $70 million this year."
• "Orphan-drug status can also be given to older medicines, if they are being used in new ways." "Calgene Corp. brought a thalidomide pill to market at the price of $6 a pill in 1998 and has since raised the price to about $53. Though thalidomide has been around for decades, it received orphan-drug status for its use in treating a side-effect of leprosy, then later for a certain kind of cancer [multiple myeloma]. The drug is so inexpensive to make that it is sold by other companies in Brazil for seven cents a pill." "The company's chief executive, John Jackson, raised the price - not because it cost more to make or market, but because, he says, many cancer drugs were priced much higher." "A new orphan drug, Velcade, came to market for the same cancer in 2003. Millennium Pharmaceuticals Inc., of Cambridge, Mass., which says it spent many years and millions of dollars developing Velcade, priced it at about $4,400 a month. Mr. Jackson saw the price of Velcade as an opportunity to raise the price of his company's drug further." (See our previous post on thalidomide here.)

"All we wanted to do was make products available for patient who had these rare diseases," said Marion Finkel, former head of the FDA Office of New Drug Evaluation, who wrote to recommend incentives for orphan drugs in 1979. Representative Harvey Waxman, who supported the Orphan Drug Act, said "we did not expect to see thie high cost of orphan drugs."
The article noted that the cost of orphan drugs is now an important part of the huge and growing national cost of health care. For example, "annual spending on specialty pharmaceuticals - the term health-insurance providers use for biotech medicines that treat smaller patient populations, including orphan drugs - rose 23% per member from 2002 to 2003, according to a study funded by the Blue Cross and Blue Shield Foundation on Health Care."
"These companies try to bargain with biotech companies, as insurers do, to get discounts by buying in volume or buying several products. But because there isn't much competition and the markets aren't big, there's less room to negotiate discounts."
The high cost of orphan drugs can be devastating for small businesses who can see their total health insurance bills soar when a single employee starts requiring one of these drugs. A health insurance consultant "says he often hears from people who say they have been targeted for layoffs because of the high cost of their medicines. It's illegal to fire a person because of health costs, but ... it can be hard to prove that was the reason a worker was terminated."
The exorbitant prices of some orphan drugs seems to be an unintended consequence of the way the Orphan Drug Act was written. Although the current director of the FDA Office of Orphan Drug Products noted, "we live in a free country," the Orphan Drug Act clearly did not lead to anything resembling a free market in the products it protected. But it has taken over 20 years for the unintended consequences of this well-intentioned but badly designed law to be noticed. We'll see how long it takes for it to be changed.
This should be a cautionary tale for those who advocate more direct intervention by governments in health care markets.

Post Title → The Exorbitant Costs of Orphan Drugs

Oh, The Prices We Pay: Thalidomide for Cancer

The New York Times recently reported on the high prices paid for drugs to treat cancer, notably the newer "targeted therapies." Some examples included:

• $54,000 per year for Avastatin, made by Genentech,
• $31,000 per year for Terceva, made by Genentech, and
• $25,000 for Thalidomid, made by Celgene.

The article shows how the prices of these drugs drastically ratcheted upwards in the 1990's, starting with Taxol, made by Bristol-Myers-Squibb, at $4,000 per year, starting in 1992, through Herceptin, made by Genentech, at $20,000 per year, in 1998, to Erbitux, at $100,000 per year, made by Bristol and ImClone Systems.
The article stated that these prices are unrelated to manufacturing costs, and simply based on what the market will bear. A biotechnology analyst, Geoffrey Porges, said, "it's sort of one of those things where everyone looks over their shoulder at everyone else, says, 'he started it, it wasn't me,' and it builds."
Of course, this raises the question of why those organizations whose goal is to control health care costs, particularly federal payers represented by the Commission for Medicare and Medicaid Services (CMS), and managed care organizations haven't been able to address this price inflation.
A notable example is Thalidomid, whose price is listed above. Thalidomid is thalidomide, a drug whose adverse effects in the 1960's lead to major reform of the US drug approval process. (For a background article on the history of thalidomide go here: Rouhi M. Thalidomide. Chemical and Engineering News, June 20, 2005. ) "Chemie Grünenthal introduced thalidomide--under the brand name Contergan--to the German market on Oct. 1, 1957, as a sedative to treat insomnia as well as to reduce nausea associated with pregnancy." Richardson-Merrell had applied to introduce thalidomide, under the trade name Kevadon, to the US in 1960, but the application was held up by a diligent officer of the US Food and Drug Administration, because of inadequate documentation of drug safety. The drug never made it to the US market, because by 1961, there were widespread reports in Europe of babies born with severe deformities to mothers who had taken thalidomide. (For more background on the history of thalidomide, see the materials from the NIH here, and from the March of Dimes here.) Later, discoveries that thalidomide had anti-inflammatory properties lead to studies of its use in several severe diseases, including multiple myeloma.
Now, what can the possible rationale for charging $25,000 per year for the nearly 50 year old drug thalidomide for multiple myeloma, other than it is considered a new "targeted therapy?" The drug is a relatively simple molecule first sold, again firs sold almost 50 years ago. Its manufacture does not involve high technology. Celgene raised the price of thalidomide from $6.00 to $29.00 per 50 mg capsule from 1998 to 2004. The price of a 100 mg capsule in Brazil is $0.07.
So thalidomide becomes another poster child, not only for the production of serious birth defects that lead to reform of the drug approval process 40 years ago, but also for how those organizations who claim to control health care costs are willing to pay amazingly high prices for "high tech" health care interventions, even if they are just re-named low-tech interventions from the last century.

Post Title → Oh, The Prices We Pay: Thalidomide for Cancer