By Dalia Deak
The issue of drug pricing has been thrust center stage (again) after Turing Pharmaceuticals raised the price of daraprim from $13.50 to $750 per dose. The public issued a loud outcry, the pharmaceutical industry condemned the move, and presidential candidates are now discussing drug prices (as discussed previously on this blog). The reactions were so swift and loud that Turing eventually backed down, indicating that they will lower the drug’s price, though it is unclear by how much.
The drug in question in this debate, daraprim, is a 62-year old drug used to treat toxoplasmosis, a parasite that is particularly dangerous in infants, AIDS patients, and cancer patients. The curiosity of this case in particular is that the usual host of development incentives implicated in driving up the cost of a drug (e.g., patents, market exclusivity) was not in play. The reason Turing was able to raise the cost of daraprim is because no other generic competitor for the drug is on the market to drive down the cost. This is largely a result of the small market for daraprim, which had 13,000 prescriptions filled for it last year. This begs the questions: specifically for disease areas where populations are small, will drug prices, even for generics, remain stubbornly high?
Historically, competition with generic drugs has played a large role in bringing down prices. The Hatch-Waxman Act of 1984 eased some of the regulatory hurdles for generics and provided incentives for their development. Among the most important of the changes Hatch-Waxman made with regards to generics is changing the regulatory standard for approval to bioequivalence by way of the Abbreviated New Drug Application (ANDA) and granting generics manufacturers a 180-day exclusivity period among generics. As a result of these and other developments, including a large cohort of blockbuster drugs coming off patent, we have seen a large spike in the number of generic drugs on the market. Indeed, before Hatch-Waxman, generics constituted 15% of the market and today they constitute 80% of the market.
Given the rise in generics, pharmaceutical companies will price a drug protected by patents and/or granted market exclusivity at a higher cost. This is to help recover losses associated with research and development and generate a profit before generics enter the market and drive down the price. Because drugs for small patient populations already have such limited profitability, a number of incentives, including extended exclusivity provided by the Orphan Drug Act, were put in place.
While these incentives were designed to bring drug development in, the prices of these drugs not only start high but remain so. This is because the incentives may be insufficient to spur generic development in the first place, let alone competition among generics. As an Institute of Medicine (IOM) report on orphan drugs and rare disease incentives highlights, orphan products are less likely than non-orphan products to face competition from generic drugs and, given the decreased likelihood of multiple generic drugs in these cases, price competition is not expected to persist. Thus, treatments for these diseases will likely stay close to where the brand name drug initially priced, given that the first generic on the market usually prices at a “shadow price” (or price just below the brand name price).
Additional attention and focus on the rising cost of drug prices, particularly in cases where there are small patient populations, will certainly be needed. While it seems that the value proposition may sometimes be too weak for generics manufacturers to enter, there may be creative ways to help drive competition and bring down prices. One promising proposal put forth a suite of pathways that could be offered by the FDA to bring generics manufacturers in and help drive down the costs of increasingly rising generic prices. These and other proposals for market and regulatory solutions will be needed moving forward to help ensure that affordable drugs are available for patients.
