The United States needs a better system for financing the discovery of drugs for rare diseases. I have often said that our health care system is predicated on gouging insurers and especially employer plans. Consider the drug, Trikafta, for cystic fibrosis. It’s a specialty drug that costs nearly $14,000 for a prescription, or about $346,000 a year. The patent(s) are not expected to expire for another 11.5 years. Of course, very few cystic fibrosis patients can afford that, but they’re not expected to. Their health insurers or employee health plans are supposed to pony up $350k a year on their behalf. To some degree you can thank Obamacare for hyper expensive drugs. By banning annual caps and lifetime caps on benefits (and mandating drug coverage) the Affordable Care Act created a market for completely unaffordable drugs.
The White House claims that drug companies generate about 75% of global pharmaceutical profits from the American market, despite the U.S. market consisting of only about 5% of the world population. The U.S. is a wealthy country but also has very generous policies towards pharmaceutical prices. Some countries cap the price they are willing to pay, while virtually all countries free ride off the U.S. research & development costs. The marginal cost of producing a pill may be pennies, whereas the lifetime cost of developing the drug may average, say, tens of dollars per pill. Most countries are only willing to pay slightly above marginal cost but not necessarily average cost.
The New York Times reports that some patients from around the world are traveling to find cheaper prices for Trikafta. While people of Northern European descent are the most afflicted by cystic fibrosis, there are also patients in many poor countries. For most conditions drugmakers merely price discriminate, charging different prices in different countries. In that regard, a drug that may cost $10 per tablet in the U.S. may only cost $1 per tablet in Brazil. However, Trikafta is not a regular drug. The price is too steep in developed countries to give much of a break to poor countries. The following is from New York Times:
The company has a monopoly on transformative cystic fibrosis drugs; Trikafta has brought it $49 billion in revenue since launching in 2019. However, Vertex has not registered the drug for sale in many lower-income countries, and has blocked measures to produce lower-cost generic versions, a tactic not uncommon among drug companies seeking to protect their ability to charge higher prices in wealthy markets.
The drugmaker may not sell Trikafta in poor countries, but it has patented the drug in numerous countries it does not sell to. For instance, India is well known for producing generic drugs. It does not produce a generic version of Trikafta because the drug in under patent protection in India, even though it is not sold there. More from NYT:
Now a Bangladeshi company has reverse engineered Trikafta and is using a loophole in global patent law to sell its version, called Triko, for a fraction of Vertex’s price.
Because Bangladesh is classified as a least-developed country, it is exempt from the World Trade Organization’s patent infringement laws. The country is home to a thriving pharmaceutical industry that takes advantage of this exemption by reverse-engineering patented drugs and exporting generics to countries where the drugs have no patent.
The generic version sold in Bangladesh costs $6,350 for a year’s supply for a child. Adult doses are about double that amount. In the United States health insurers and employer plans are required to cover drugs like Trikafta. The mandate is arbitrary, and a rather efficient system for funding rare drug development (or any drug development). Years ago, I became acquainted with an accountant who had a progressive, debilitating disease. When the accountant changed jobs, the new job working in the retail service industry did not last long. I have often wondered if senior executives did not quietly analyze the spike in health expenditures and compare them with hiring. It would not take much to figure out their new accountant was costing $50,000 more in medical costs annually than almost any other potential accounting hire. A huge company may not notice but a small firm with fewer than 100 (mostly young) employees would notice.
Would you travel to Bangladesh to purchase Trikafta for $13,000 if it were unavailable or unaffordable in your country? I suspect most people would. At $250 a week it is still not cheap but far cheaper than $346,000 annually. I recall when a breakthrough drug for hepatitis C became available for $1,000 a pill (84 were required for a cure), some people traveled to Egypt where treatment was only $5,000. Bangladesh has a thriving market for expensive drugs that have been reverse engineered and sold cheaply despite patents.
Read more at NYT: A Loophole Brings Cystic Fibrosis Patients a ‘Miracle Drug’ in Generic Form
Excellent analysis! No one else has noticed the role of the ACA in creating a market for unaffordable drugs.