Derm Drugs: The Price is Too Darn High!

Transcription

1 Derm Drugs: The Price is Too Darn High! By Jacob Levitt, MD, FAAD Vice Chairman, Program Director, and Associate Professor The Mount Sinai Medical Center Department of Dermatology New York, NY 1

2 Disclosures I have served on Advisory Boards for: Amgen Janssen Biotech Genentech Medac Ranbaxy Pfizer From , I was a vice president and majority shareholder in Taro Pharmaceutical Industries Ltd. 2

3 Acknowledgements Barrie Levitt, MD, FACC author of: A Prescription for Success in Pharmaceuticals (in press) A book on how to run a pharmaceutical company 3

4 Drug Prices are Rising 4

5 Drug Prices are Rising Brands Generics 5

6 6

7 U.S. Health Care Market 2013 health care spend = $3.8 trillion (Forbes) $300 billion on Rx drugs annually (almost 10% of total spend) (IMS) > 80% of prescriptions written are filled generically (IMS) 7

8 Increasing Prices in the Topical Market From 2008 to 2015, esp. after 2010 Across generic topical suppliers Actavis Fougera (division of Sandoz Novartis) Perrigo Taro (subsidiary of Sun Pharmaceuticals) Teva Pharmaceuticals 8

9 ARS: How much does generic clobetasol ointment 60g cost out of pocket? A. $10 B. $50 C. $100 D. $500 E. $1000 9

10 ARS: How much does generic clobetasol ointment 60g cost out of pocket? A. $10 B. $50 C. $100 D. $500 E. $

11 Actavis Clobetasol 1,292% Price increase cf: US Inflation Rate 10% ( ) Year Price 2008 $ $ $ $ $ Source: IMS data $ $ $ $ $ $50.00 $

12 Taro Desoximetasone 0.05% cream 4,426% Price increase $ $ cf: US Inflation Rate 10% ( ) Year Price 2008 $ $ $ $ $ Source: IMS data $ $ $ $ $50.00 $

13 Fougera Desonide 1,034% Price increase cf: US Inflation Rate 10% ( ) Year Price 2008 $ $ $ $ $ Source: IMS data $ $ $ $80.00 $60.00 $40.00 $20.00 $

14 Fougera Fluocinonide 961% Price increase cf: US Inflation Rate 10% ( ) $60.00 $50.00 $40.00 Year Price $ $ $ 4.25 $ $ $ $ $ $- Source: IMS data

15 A problem just for patients? Nobody wants to pay for expensive drugs! 15

16 ARS What percent of your prescriptions require Prior Authorizations (PAs)? A.1% B. 5% C. 10% D.20% E. 30% F. >50% 16

17 ARS: For 1 day of practice, how many hours of employee work does a single physician generate in your office from prior authorizations? A.1 hour B. 5 hours C. 10 hours D.15 hours E. 20 hours 17

18 Higher Drug Prices Don t Just Cost Our Patients! 18

19 Examples Outside Topicals Generics: Between July : Pravastatin - 577% increase Divalproex 797% increase Digoxin - 828% increase Doxycycline 4,400% ($3 $135)!!! And that s SMALL POTATOES! Brands: In 2012: 11 of 12 oncology drugs cost > $100,000/year Prices doubled in past decade Imatinib (Gleevec) initially $30,000/year, now $90,000/year For Novartis, revenue of $4.7 billion in

20 More Participants AIDS 1989: AZT cost $8,000/year then the most expensive Rx drug in history Cystic Fibrosis Ivacaftor (Kalydeco, Vertex Pharmaceuticals) Costs $311,000/year Hepatitis C Ledipasvir/sofosbuvir (Harvoni) at $1125 per pill $189,000 for 24 weeks Sofosbuvir at $80,000 to $160,000 for a 3- to 6-month course in Egypt and India, the drug company provides the full course of treatment for $900 It seems that the U.S. healthcare participants subsidizes foreign healthcare participants 20

21 How? & Why? 21

22 Setting the Price of a Brand Recoup costs R&D Manufacturing Prices of competing therapies Set price to take sales from market share of competitors What market will bear 22

23 Purpose of Generic Drugs Reduce costs to patients and insurers 23

24 Generic Drugs Legal Definition: Same active ingredient, dose, form, strength as the brand Same extent and rate of absorption (+/- 20%) or clinical bioequivalence Drug approved by FDA by means of an ANDA (Hatch Waxman Act) Functional Definition: Formularies mandate generic price 80% brand introduction Otherwise mandatory substitution is denied 24

25 Standard Reasons For High Generic Prices Competitors drop out Drug Shortages (none or single-source) Reasons for Dropouts & Barriers to New Competitors: Raw material shortages New FDA regulatory requirements for or delays in approval Lack of product profitability Technical difficulties with manufacturing Problems with analytic methods Product stability problems Don t Explain It Present both before and after runaway price escalation 25

26 Let s play a game 26

27 ARS: Brand price is $1000/bottle. Your breakeven price is $50/bottle. You are the first generic to market. What would your price be? A.$999 B. $900 C. $800 D.$500 E. $100 27

28 ARS: You are now the second generic. Brand is $1000. First generic got license from the Brand and, in order to get on formularies, price at $800. Your breakeven price is $50/bottle. What will you charge? A. $800 B. $790 C. $700 D. $600 E. $500 28

29 ARS: Brand is $1000. First generic got license from the Brand and, in order to get on formularies, price at $800. Second generic came in at, say, $600. Your breakeven price is $50/bottle. You are now the third generic. What will you charge? A. $800 B. $700 C. $600 D. $590 E. $500 F. $200 G. $51 29

30 Back to our show. 30

31 The Theory Underlying Generic Drugs Generic companies will price their products below the brand price Presumes competitors goal is to get 100% market share Anticipates competition via continual price reduction Mandates sacrifice of profit on the altar of sales (IRRATIONAL!) A cognitive bias we all share 31

32 Two Problems with the Generic Price Theory 32

33 Two Problems with the Generic Price Theory Companies may focus on profit not market share Lower prices may not be passed on to the consumer 33

34 WHY Companies May Focus On Profit Over Market Share 34

35 Profit Price 3/27/2017 $700,000 Market Share (Units) vs. Price Market Share (Units) vs. Profit $12.00 $600,000 $10.00 $500,000 $8.00 $400,000 $300,000 $200,000 $6.00 $4.00 $100,000 $2.00 $ $0.00 -$100,000 Units in 000's ($2.00) Profit Price 35

36 Consider the following 2 scenarios: 36

37 Scenario I Brand sells at a high price Generic enters at 80% of brand Multiple generics fight for market share by lowering price This may be irrational as we have learned Low equilibrium generic price results If one manufacturer were to raise his price No one would buy from him Customers will buy at the lowest price 37

38 Scenario II Brand enters at high price Generics enter at 80% Multiple generics enter at high price hoping for a reasonable fraction of the market & good profit High equilibrium generic price What if one person dares to raise the price? Everyone else raises theirs, market share stays the same, and profits remain high 38

39 Scenario I in Today s Market Scenario I was: Low equilibrium generic price What if one person raised the price? No one would buy from him, low price competitor keeps the whole market Competitors would raise their price. Everyone keeps their market share at a higher price. Where is the ceiling? We are still exploring the ceiling. 39

40 Is There Price Fixing In the Generic Marketplace? Pharma is inbred Many persons move from one company to another E.g., Fougera/Sandoz, Perrigo, Taro, etc. Marketing philosophies move with the people Not anti-trust collusion per se 40

41 How Lower Prices ARE NOT Passed onto the Consumer 41

42 Health Insurance Before 1965: Patients paid out of pocket for drugs (small role of health insurance) keeps prices down Patients shopped from pharmacy to pharmacy for the best price 42

43 Health Insurance Before 1965: Patients paid out of pocket for drugs (small role of health insurance) keeps prices down Patients shopped from pharmacy to pharmacy for the best price After 1965: Medicaid, Medicare, and increasing availability of health insurance One party (physician) instructs a second party (patient) to purchase a prescription drug. A third party (government or insurance company) pays for it. Impairs negative feedback control by patients on prices 43

44 Price Controls by Executive Order (1971) To prevent inflation, President Nixon froze prices for 90 days. Thereafter, in anticipation of another price freeze, manufacturers and middlemen maintained high invoice prices and used rebates to compete on price. Discounts from high invoice prices became the standard. 44

45 Let s compare two perceptions of pricing Traditional Pricing Mark-up culture General Public s assumptions Actual Generic Drug Distribution Rebate culture 45

46 Traditional Pricing Drug costs $3 to make. Manufacturer marks up drug to middleman for $30, earning $27. The middleman (distributor) marks up drug to patient for $50, earning $20. 46

47 One Middleman Who are the middlemen? Two Middlemen Manufacturer Pharmacy Chains (CVS, Walgreen s, Walmart) Consumer Manufacturer Wholesalers (AmerisourceBergen, Cardinal Health, McKesson) Pharmacy Chains (CVS, Walgreen s, Walmart, Private Pharmacy, etc.) Consumer 47

48 Contract Prices Hidden by Rebates Generic Drug X costs $3 to make Manufacturer invoices the drug to the middleman for $100 Manufacturer marks down to a confidential contract price with the middleman of $30 Manufacturer pays middleman a $70 REBATE to get to the contract price Middleman can mark up drug to patient for $120 48

49 Patient Perspective Manufacturer appears to be the bad guy since the consumer pays $120 Manufacturer makes same profit, i.e., $27, either way Middleman makes $90 keeps markup ($20) + the rebate ($70) on the back of the consumer 49

50 So what have we revealed Generic pricing theory that lower price means more market share means more profit is a cognitive bias that gives us unreasonable expectations from rational profit seekers in a capitalist market. The rational behavior for a manufacturer is to raise prices for optimal profit rather than lower prices to take market share. 50

51 2. Health insurance dissociated the negative feedback of patients on price. 51

52 3. At the same time, inflationary pressures resulted in the evolution of an invoice system to distributors with opaque rebates and high end-consumer prices. In the absence of negative feedback, prices rose. 52

53 In Summary Competitors are not lowering prices Rebates in the supply chain are not passed on to consumers DRUG PRICES ARE HIGH Q.E.D. 53

54 Some solutions? Price transparency Make it illegal to rebate off of high WAC pricing Lower barriers to generic competition Government subsidies to drug developers but require pricing caps after costs plus some reasonable profit is achieved Force pharmacies to stock the lowest priced drug in the market Cap mark up beyond a certain percentage 54

55 Thank you for your attention! 55