In the future, there will be a cure for cancer -- but you won't be able to afford it.

Feb 17 04:23 UTC 2006

Avastin, a drug originally developed for colo-rectal cancer, has
recently shown promise for treatment of late-stage breast and lung
cancer.  The new uses require twice the dosage, and it's common for drug
companies to give a price break at a higher dosage level, since the
incremental expense to them is relatively small.  Not in this case,
however; Genentech, the company making the drug, has announced a one
year supply in the new dosage will cost $100,000.  As justification for
the high price, they're citing not the usual litany of research costs,
but the drug's life-saving abilities.

This is what it comes down to. If you can afford $100,000, you can
significantly extend your life.  If not, too bad.

What's really galling about this is that, like many new drugs, the
research for this one was at least partially funded by government grants
-- though the NIH has refused to disclose exactly how much was given. 
Apparently Genentech is happy to take socialist handouts from the
government, then turn around and play ruthless capitalist when selling
the results back to us.

(NYT story here:
http://www.nytimes.com/2006/02/15/business/15drug.html?_r=1&hp&ex=113997960
0&en=
5ba29332c4ca5d56&ei=5094&partner=homepage&oref=slogin) (Commentary here:
http://marketplace.publicradio.org/shows/2006/02/16/PM200602164.html)

response 2 of 14:

Feb 17 05:01 UTC 2006

  I wonder how much it will cost in Canada.  Or Mexico.  Or China.

 Unless it actually costs a significant fraction of that to make,
 the most likely effect I foresee of their pricing strategy is to 
 create an enormous economic incentive for one or more countries
 to break ranks on intellectual property issues and produce the
 drug without paying Genentech a single penny.

 That's the thing about trying to charge whatever the market will
 bear -- if you misjudge and the market won't bear your price you
 can wind up with consequences you really won't like.

response 4 of 14:

Feb 17 12:08 UTC 2006

Now that we've heard from the "hate the pharmaceutical companies" 
special interest cheering section, what's the real story on this?  

Would we have been better off not having the drug discovered and 
developed so that nobody at all could benefit from it?

response 6 of 14:

Feb 17 16:00 UTC 2006

Could government grants to drug researchers have a clause attached, which
keeps this sort of thing from happeneing?  It seems reasonable that if the
goverment is giving out money in the public interest, that the public should
be expected to reap the benefits.

response 8 of 14:

Feb 17 17:11 UTC 2006

Re 6: NPR did mention such a clause. Apparently the law says drug
companies who use public funds to research drugs are required to sell
those drugs at "reasonable prices". The story pointed to the Drug
Company's campaign contributions as a major reason why "reasonable
prices" is not defined.

I have had a hypothesis for quite a while that the capitalized system of
medicine in the United States makes the socialized systems of other
countries possible by providing an avenue for companies to recoup
profits lost in markets where prices are fixed by the governments. Let
me explain a little better with an example: 

Let's say company ABC makes Drug-X. It took $800 million, and 10 years
of research to create Drug-X. Since it is a new-chemical (NCE) drug, the
patent's exclusivity clause dictates a period of 5 years (after that,
other companies begin making generics, which means ABC will only be able
to sell Drug-X for slightly above manufacturing cost). In order to
recoup the money spent developing the drug, and show a reasonable
profit, ABC Company determines the drug needs to cost $5000 per year per
treatment. We will also assume that the demand for Drug-X dictates a
worldwide market, but the problem arises when some nations with
socialized medicine prohibit ABC Company from selling Drug-X for
anything more than $3000/yr/rx. ABC can not afford to simply not sell
the drug in those countries, because the demand does not exist elsewhere
to offset the loss of sales. Thus, ABC does the only thing they can do;
they raise their prices in the United States to $7000/yr/rx.

Like I said, this is only a hypothesis. I have not tested it, and really
do not have the time to research it. But if it turned out to be true, it
would explain why some drug prices in Canada are so different from the
United States. It would also explain the drug company's opposition from
allowing Americans to buy Canadian drugs. And it might even lend
credence to the argument that socialized medicine in America would not
work as well as it works in other countries.