Drug firms have new medicines and patients are desperate for them. But the arguments over cost are growing
LOUIS MACHOGU, the owner of a pharmacy near Nairobi, has noticed a change. In the past decade Kenya, like much of Africa, has seen a surge in foreign aid to fight infectious diseases. Thanks to antiretroviral treatments, HIV is no longer a death sentence. But the decline of one scourge means that people are living long enough to fall sick in other ways. “The same way we had HIV killing people,” Dr Machogu says, “we now have hypertension and cancer.”
Treatment often depends on the whim of pharmaceutical firms’ philanthropic programmes. Cancer drugs are particularly lacking. The Kenya Medical Supplies Agency buys medicines for public hospitals, but not those for cancer.
In Tampa, Florida, Marilyn Weisman also depends on charity for treatment. The 72-year-old thought she had a bad rash. She turned out to have cutaneous T-cell lymphoma, a rare cancer. Though she is insured, she could not afford her share of the payment for the drug her doctors recommended. So a pharmacist at her hospital, Moffitt Cancer Centre, helped her to apply for charitable aid. Mrs Weisman’s situation is surprisingly common for American cancer sufferers. Many insured patients in one of the world’s richest countries cannot afford their medicines.
A new drug war is looming. The market is growing: patients in rich countries are ageing and those in developing ones are getting richer and suffering from chronic diseases. But as demand for drugs rises, so does concern at their price. A record $1 trillion will be spent globally on medicines in 2014, predicts IMS Health, a research firm. “The costs of many new medical products are becoming unsustainable for even the wealthiest countries in the world,” said Margaret Chan, the head of the World Health Organisation (WHO), in August.
On every front
Skirmishes are breaking out from Brunei to New England. Negotiators for the Trans-Pacific Partnership (TPP), a giant trade deal that would cover 12 countries, including America, are battling over access to medicines. Health activists are trying to block a costly Hepatitis C drug from being patented in India. Brazil and South Africa are mulling over patent reforms that could make drugs cheaper.
Eli Lilly, an American pharmaceutical firm, is suing Canada for letting competitors sell copies of two medicines there, which it says violates the North American Free Trade Agreement. In October Maine became the first American state to allow drugs purchases from cheaper foreign online pharmacies. The drugmakers’ lobby has sued, charging that the policy is an attempt to circumvent federal law.
Meanwhile firms are crunching reams of data to prove their wares’ worth. But even as they try to justify high costs, they are testing new pricing models. “The starting point always is, what is the right price for a medicine?” says Severin Schwan, the chief executive of Roche, a Swiss pharmaceutical giant. “And there is no objective answer…At the end you are discussing, what is the price of life?”
Drug development is expensive, slow and chancy, so pharmaceutical firms charge a lot. But if drugs are too pricey, support for patents will collapse. Ian Read, the boss of Pfizer, an American giant, recently laid out the threat: “Unless we’re respected by society, unless we’re seen as good stewards of our resources, then we run the risk of both losing patents and losing the ability to price our medications.”
The prelude to today’s fight came more than a decade ago. Africans with HIV were dying by the million. South Africa’s government passed a law allowing cheaper patented drugs to be imported; dozens of pharmaceutical firms sued, claiming a breach of trade rules. Protesters accused them of putting “profits before people”. They backed down.
The brawl helped to increase aid for health care. Schemes such as the Global Fund to Fight AIDS, Tuberculosis and Malaria; America’s President’s Emergency Plan for AIDS Relief; and the GAVI Alliance (formerly the Global Alliance for Vaccines and Immunisation) mean more patients are now treated for infectious diseases.
Today’s battle pits drug firms against governments both rich and poor. Rich ones want to slow the growth of health budgets; poor ones want to improve health care, but are struggling to decide which drugs to supply and at what cost. Compounding the problem are new products with hefty prices. In 2012 American regulators approved 39 drugs, the most since 1996. Of the 12 for cancer (see article), 11 cost at least $100,000 a year in America.
America is the pharmaceutical industry’s honeypot, accounting for a third of global drugs spending. Prices there are higher than elsewhere, and in contrast to many other rich countries, treatments are chosen with little regard for cost. Britain’s National Institute for Health and Care Excellence (NICE), for example, works to a rough threshold of £20,000-30,000 ($33,000-49,000) for each additional year of good health when deciding which treatments should be available on the National Health Service. But in America any mention of cost-effectiveness prompts rabid accusations of rationing and death panels. Though the Affordable Care Act, better known as Obamacare, created a body to compare treatments’ effectiveness, Congress barred it from considering cost.
High American prices support research and subsidise lower prices elsewhere, points out Tomas Philipson of the University of Chicago. But this looks unsustainable. In 2012 doctors at Memorial Sloan-Kettering, one of America’s leading cancer centres, said they would not prescribe Zaltrap, from Sanofi and Regeneron, which cost $11,000 a month at the time and extends life by a median of six weeks. In April more than 100 cancer specialists wrote an editorial in Blood, a medical journal, criticising the cost of drugs for chronic myeloid leukaemia. And though politicians remain mute on cost-effectiveness, insurers increasingly consider it when deciding whether to cover a drug and how much of its cost to make patients pay.
An emerging fight
The next few years will see spending on drugs in established markets in North America, Europe and Japan grow by just 1-4% annually, predicts IMS Health (see chart). So multinationals are eyeing developing countries, where growing middle classes and governments’ desire to see more people treated promise new markets. IMS expects drug spending in emerging markets to grow by 10-13% a year until 2017. Generics will account for much of this; many treatments for chronic conditions are now off-patent. But spending on patented drugs will rise, too.
Until recently in poorer countries pharmaceutical firms mainly sold off-patent branded drugs, which command a premium over local generics, since patients trust their quality. The pricier patented ones they marketed only to the few very rich patients who could pay out of pocket, says Kalipso Chalkidou of NICE International, the British agency’s foreign advisory arm. The private Aga Khan University hospital in Nairobi’s leafy suburbs, for example, offers cancer care to the Kenyan elite that comes close to what they would receive in the rich world.
But price-pressures are fierce in Kenya and other developing countries, as drugs must compete for new spending with many other health-care needs, including new hospitals, more staff and more surgery. In part because health budgets are small, drugs often already account for a bigger share of health spending in poorer countries than in rich ones. India spends 44% of its total on drugs and China 43%. America and Britain spend 12%.
Poorer Kenyan cancer patients, unable to afford the Aga Khan, end up in the concrete towers of Kenyatta National Hospital, a decaying 46-hectare complex. The waiting time to be seen at its oncology department—the only public one in a country of 43m—is often longer than six months. And after surgery patients often have no money left for chemotherapy, says David Makumi of Kenya’s Cancer Association.
Some middle-income countries are copying NICE’s approach, extending coverage with bureaucrats ruling on cost-effectiveness. Brazil has used its huge purchasing power to win low prices and persuade firms to transfer the technology for some drugs to local manufacturers when patents expire. More controversially, India’s patent controller recently granted a compulsory licence to Natco, a local manufacturer, authorising it to make copies of a patented cancer drug from Bayer, a German firm. In other instances officials have decided that foreign firms’ drugs failed to meet India’s standards for gaining a patent, meaning local generic manufacturers can copy them.
Similar rows are among those delaying agreement in the TPP. America’s proposals, made public by WikiLeaks, include many provisions that favour drugs firms, including allowing patents for a new version of a drug even when there is no evidence that it works better than the old one. That could enable firms to keep their products patented for longer by tweaking dosage or delivery methods. Critics such as Médecins Sans Frontières, which sends volunteer doctors and nurses to many poor places, say that America’s proposals would hinder countries from using compulsory licences or limiting frivolous patents. James Love of Knowledge Ecology International, an advocacy group, fears that the TPP may make it easier for drug firms to sue governments, and that taxpayers could be liable for huge damages. Negotiators will meet in the coming weeks, having failed to hammer out a deal in 2013.
Seeking a detente
It is unclear who will triumph in the trade dispute. But faced with the prospect of price controls, hostile patent laws and compulsory licences, firms will need new tactics. “If you’re in industry, if your goal is to preserve an intellectual-property system, the only way to do that is to ensure affordable access to medicines,” says Thomas Bollyky of the Council on Foreign Relations, a think-tank. In November Mr Read of Pfizer described the drugs his firm donates to treat trachoma, a bacterial infection which causes blindness, as promoting “dialogue with governments and health ministers to further our needs of access and protection of intellectual property.”
Donations are important in humanitarian emergencies, but not the full answer, says Seth Berkley of GAVI. In normal times licensing works better, he thinks. Some firms have signed royalty deals with generic manufacturers, cutting the cost of treatment for HIV in poor countries.
Adrian Towse of the Office of Health Economics, a British research group, argues that the best way to balance altruism and capitalism is to vary prices according to income, both between countries and within them. But such schemes create opportunities for grey-market arbitrage: the illicit export of drugs from poorer countries to richer ones where their price is higher. And they are logistically and politically difficult. Because drugs are cheap to produce, governments are tempted to tie their prices to those in poorer markets. That saves them money, but cuts firms’ incentives to innovate.
Encouragingly, however, some firms and countries are experimenting with varied pricing. Roche sells a drug for Hepatitis C to the Egyptian government at a deep discount, with different branding and packaging to try to stop exports to rich countries. Pfizer, Novartis, Merck and Sanofi are working with the Philippine government and the Bill and Melinda Gates Foundation to test varying drug prices by patients’ income on the island of Palawan.
In established markets firms are testing another idea: charging only if a drug works. Such schemes require complex data systems, but in 2013 there were more than 140 worldwide, up from fewer than 20 a decade earlier. New pricing models should eventually ensure that drug firms profit from innovation and more patients get the care they need. But for the millions who need treatment now, the wait will seem very long.