Someone’s got to pay for the R&D . . .

Last updated on: July 21, 2014 at 2:14 pm by Jane the Actuary

Someone’s got to pay for the R&D . . . 2014-07-21T14:14:00-06:00 Jane the Actuary

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From the New York Times, a report on a new medication for cystic fibrosis:

Kalydeco is truly a wonder drug.

Developed by Vertex Pharmaceuticals, it is the first drug that attacks not just the symptoms but the underlying cause of cystic fibrosis, a genetic lung disease that usually kills victims by the time they reach their 40s. It doesn’t work for every sufferer of the disease, but rather for a small subset — probably around 2,000 people — who have a specific genetic mutation that the drug targets. But for those it helps, it is life changing.

. . .

There is one other way that Kalydeco is an excellent example of personalized medicine: its cost. It’s more than $300,000 a year. Because patients will likely be taking the drug for the rest of their lives, it could cost millions of dollars to keep just one patient on Kalydeco. That raises another important question about the coming of personalized medicine. How are we, as a society, going to pay for it?

. . .

Most state Medicaid programs — and private insurers — are paying Kalydeco’s cost because it works so well, and because the patient population is so small.

. . . .

When I asked Vertex how it could possibly justify charging $300,000 for Kalydeco, a company spokesman pointed to the small patient population and “the benefit that the medicine provides.” He also said that the company had spent $6.5 billion on research in its existence, and had only two drugs approved by the F.D.A. In effect, he was saying that the Vertex drug was priced, in part, to recoup not just the research and development that led to Kalydeco but all the company’s R&D.; (For cystic fibrosis sufferers with no insurance, Vertex provides the drug for free.)

This makes the hepatitis C $150,000 cure practically a pittance, not to mention the $13,000 a year AIDs-preventative.

But there’s no easy answer.

Do we negotiate trade deals demanding that other developed countries pay their “fair share” of development costs?

Do we treat drug companies as if they were monopolies, to the extent that they hold the patent for a unique drug, and scrutinize their books to ensure that their profit margin is at acceptable levels?

Should the government get into the R&D; business more extensively, effectively nationalizing the process of drug-development, and leaving only the manufacturing of existing or invented-by-the-government drugs for private companies?

In our current system, private corporations take the gamble that their research will pay off. Would a future government-controlled system be willing to spend the research money to produce Kalydeco? If it’s taken over the entire lifetime of a CF sufferer, and if it prolongs that lifetime from a current 40 years to a normal 80 years, then that’s $24,000,000 per person (though, of course, this ignores the loss of the patent in 20 years).

It is already the case that the UK has a system called “NICE” – National Institute for Health and Care Excellence – which determines whether the National Health Service will pay for new medications based on the cost per “quality-adjusted life year” — if taking this medication gains you an additional year of life, they’ll pay for a medication cost of up to GBP 30,000, with statistical adjustments for medications that are only incrementally better than the prior version. According to this methodology, Kalydeco has no hope of being approved — or, presumably can only be approved by lowering the price for UK customers.

And maybe that’s the right thing. $300,000 per year is a lot of money, paid for by the government or by other policyholders.

The bottom line: our system is pretty lousy — but is any other system any better?

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