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Sadly, No Free Lunch

The Russell Transcript 

Sept 16, 2004 | Drug pricing is legitimately complicated. But the industry's collective whine to protect prices to preserve profits to stoke the innovation engine is annoying and won't win over consumers. They don't care, and probably shouldn't. The real question is: What are we — the United States and everyone else in the world — getting for all the money being spent?

Last month, an overflow audience packed MIT's Sloan School of Management auditorium to attend an ambitious symposium entitled "Global Drug Pricing and Sustainable Medical Innovation: Can They Coexist?" The speakers were smart and accomplished: Judy Lewent (Merck), Mark McClellan (Centers for Medicare and Medicaid Services, videotaped), Patricia Danzon (Wharton School, University of Pennsylvania), and Hannah Kettler (Bill and Melinda Gates Foundation), to name but four.

It was taken as a given by most speakers that differential pricing by geography for patent-protected drugs is the right tool for distributing drugs to the needy while simultaneously culling profits from the prosperous to support innovation. This is certainly true on some level. Developing countries simply can't afford needed drugs, and many intriguing formulas — indexing prices to GDP was just one — were presented. But somebody has to pay the drug development tab.

There was also a large outcry against parallel trade. Porous borders that leak lower-priced drugs prevent the sound management of the market by the industry. "Consumers just don't get it" was a consistent theme. The drug industry is unique, speakers argued. It has a uniquely high R&D cost burden. It has a unique time-to-market burden. It has a uniquely beneficial mission. It deserves special treatment, but must avoid government meddling. Educating the public was the proposed answer.

At one point, Una Ryan, chair for the event and CEO of AVANT Immunotherapeutics, agreed that ethics was certainly part of the industry, but declared ethics should play no role in pricing. In her closing remarks, Ryan said, "I think we go out and we try to do Genomics 101 or Nanotechnology, you know, for the simple minded, and I think we aren't really telling the public what we do in our industry, which is save lives, grow hair, whatever you want."

The key question is:
What are we getting for all the money being spent?
"I've done my own personal poll, from taxi drivers to Logan (International Airport), [and] they do not understand how long our cycle is ... They think it's a job, and we come in and make [drugs] and sell them at exorbitant prices."That is exactly what the public thinks. No education plan will change that, and talk of saving lives, though clearly true, sounds a trifle sanctimonious. Sturdy steel girders and functioning auto brakes save a lot of lives, too. If the industry has a "special responsibility" and deserves "special protection," it must convince consumers it is making a bona fide effort in fulfilling the former. Well-heeled executives from companies losing money, dashing off to catch planes, won't convince them.

This doesn't mean Ryan is all wrong. It means her solution is. So, the key question remains: What do we get for our money, and how big and robust should the innovation engine be? Conceivably, it could be any size we're willing to fund. Clearly, pharma profits fund its R&D and much of biotech. The cold competitive argument may simply be that differential pricing is a small price for the United States to pay to remain the leader in biomedical research and preserve its highly skilled workforce.

This is a little unsatisfying.

I suspect McClellan realizes that a runaway government locomotive, powered by public opinion, will crash madly into differential pricing unless drug prices come down for many. In the United States, he's gambling that the largest class of prescriptions — that is, those written but never filled — will actually get filled by card-carrying seniors buying mostly generics. McClellan's bet is that those who need drugs will get them, that the larger sales volumes will offset lost profits from patent-protected drugs, and provide enough capital to keep the innovation engine humming here in the States. I hope he's right. * 

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