A new drug for side amotrophic sclerosis costs $158000: but where does that come from?

A new drug for side amotrophic sclerosis costs $158000: but where does that come from?

But the next day, the price of the drug became known: $150,000 a year, which was much higher than what the Institute of Clinical and Economic Reviews, an independent non-profit organization that analyzes health spending, rated as a reasonable price, which in their opinion was between $9,000 and $30,700.

Americans, however, may not have been shocked; prescription drugs in the US cost about 2.5 times more than in other countries, and a quarter of Americans can't afford them; almost every new cure for cancer costs more than $100,000 a year; and a 2022 study showed that the average price of newly released drugs increases by 20% each year.

The way drugs are priced in the US is a mysterious black box, and pharmaceutical companies explain their high price as one of the most frequent reasons that a high price is needed to justify the money invested in research and development.

"You hear that so often," says Olivier Wowers, Associate Professor of Health Policy at the London School of Economics and Political Science. "That's why I thought, let's gather some data because I don't believe it. I don't think anyone believes it."

In September 2022, he and his colleagues published a new article in JAMA in which this simple argument was vetted. In the course of the study, they examined 60 drugs that were approved by the U.S. Food and Drug Health Supervision Authority between 2009 and 2018, for which public information on both R & D expenditures and prices was available. And then they compared the figures. "In fact, it was like a journalistic investigation to check all receipts, track them over time," he said. If R & D expenditures were the cause of high drug prices, one could expect a high correlation between them. Instead, they did not find correlations.

Wooters admitted that the sample size of the study was small, but that was because pharmaceutical companies kept most of their financial data under lock and key, and he said that if the industry wanted to refute the conclusion in his article, pharmaceutical companies needed to provide more data.

For all those who work in this field, the response to the findings is: "Well, yes. We know what drives pricing on drugs," says Ezequiel Emanuel, head of the Department of Medical Ethics and Health Policy at the University of Pennsylvania. "This is: How far can I go? What will the market hold?" However, Emanuel says it is important to have empirical data like this study to refute the industry's assertion.

It seems intuitive that the price of a drug would be associated with its research and development costs — a risky business of innovation very expensive. It turns out that even this is very controversial. In 2020, Wooters published another article in JAMA that revealed how much it was really worth putting a new drug on the market, which experts have been trying to figure out for decades. The number that was most often mentioned was taken from a newspaper, which was based on confidential data provided by pharmaceutical companies, about $2.8 billion. "These estimates are sort of cloaked in secret. There are many disputes around them," says Wouters. Instead, he and his colleagues found that the figure was close to $1.3 billion, which is less than half the generally accepted estimate.

You can see from time to time behind the scenes how pharmaceutical companies actually determine the price of a drug. An example of this is the drug for hepatitis C Sovaldi, which was released to the market in 2013 at a price of $84,000 per 12-week course. In 2015, an 18-month U.S. government investigation, which examined some 20,000 pages of the company's internal documents, showed that Gilead, the company that owned the drug, set a high price "to ensure that its drugs have the largest share of sales." Gilead responded that "he is responsible for pricing our treatments because of the benefits they bring to patients and the significant value they represent to payers, suppliers and our entire health system by reducing the long-term costs of treating chronic hepatitis C".