The first in a two-part series examines the business of Big Pharma and the role of patents and competition in the drug pricing process. For those who suffer from multiple sclerosis (MS), perhaps the only thing more shocking than receiving their diagnosis is learning how much the disease modifying drugs (DMDs) used to control it will cost. Patient demand, research and development costs, and competition all affect the pricing of these life-altering medications. MS is a chronic, progressive, and often debilitating autoimmune disease that affects the central nervous system, including the brain, spinal cord, and optic nerves. More than 400,000 people in the U.S. have been diagnosed with MS, while worldwide that number is in excess of 2.1 million. The first MS DMD to be approved by the U.S. Food and Drug Administration (FDA) was Betaseron, which came on the market in 1993. Drug makers predicted there would be such a high demand for the product that it was initially prescribed by lottery. Only one in five patients who applied received it.



Since then, nine other DMDs have joined the ranks of medications proven effective at reducing the number of relapses an MS patient suffers. Some have even been shown to slow the disease progression. With no cure in sight, many patients must take these medications indefinitely. The fact that there are so many options available to patients is the good news; the bad news is that they all come with a substantial price tag. The chart below shows today’s drug prices, as quoted by Walmart and Walgreen’s pharmacies in northeast Florida.

Current Cash Prices for a One-Month Supply of MS Medication Drug Name (Manufacturer) Dose Walmart Walgreen’s



1 month supply 1 month supply Aubagio (Genzyme) 14MG (30) (Pharmacist could not locate in database) $4,757.19 Avonex (Biogen Idec) Prefill 30MCG/0.5ML Kit $4,877.08 $5,058.19 Betaseron (Bayer) 0.3MG INJ (14) $5,154.54 $5,809.69 Copaxone (Teva) 20MG 1PK=30 INJ $5,507.32 $6,000.09 Extavia (Bayer) 0.3MG INJ (15) $4,430.46 $5,589.99 Gilenya (Novartis) 0.5MG CAP (28) $5,372.18 $4,790.19 Novantrone* … … … Rebif (Merck KGaA/Pfizer) 44MCG/0.5SYG INJ (12) $5,150.54 $5,304.49 Tecfidera (Biogen Idec) 240 MG CAP (60) $5,139.01 $5,320.09 Tysabri (Biogen Idec) 300MG/15 INJ $5,418.62 $5,629.49 *Administered by IV every 3 months and is prescribed in multi-dose vials. Single-month pricing information was unavailable. In 2010, when Novartis won FDA approval of its much-anticipated, first-ever pill treatment for MS, Gilenya, the company set the price for the oral medication at $4,000 per month. At the time that price was 30 to 50 percent above that of other established DMDs, according to a post written by noted MS blogger Lisa Emrich. Other drug manufacturers soon responded with price increases to match.



Tecfidera, the newest pill treatment to enter the market, is also priced in the range of $62,000 per year.

Just How Are Drug Prices Set? “That is the blackest of all black boxes,” said Dr. Kenneth Kaitin, a professor at Tufts University School of Medicine in Boston, Mass., in an interview with Healthline. “People in the industry will never talk about drug pricing. [Unless they are directly involved, they are] kept in the dark about all of it just because the less they know about it, the better.” None of the drug makers we contacted responded to requests for comment. “There is [no publication] I have ever seen that describes the pricing process because there is no incentive for industry to provide any clarification on that process. Industry says that it’s the enormous cost of drug development…and bringing to market new medicines that drive these very high costs,” Kaitin said. “The real factor is value. If you develop a very expensive drug that few people are interested in, then you’re not going to price it high because then even fewer people will be interested in it. In that regard, pharmaceuticals are just like any other commodity, any other product.”

Medications as Commodities The pharmaceutical industry has been around for a very long time. While Merck boasts of being the oldest drug company on the planet since its inception in 1668, the very first drug store opened its doors in Baghdad in the year 754. And the pharmaceutical industry survives and thrives based on the same business practices that drive all companies that produce consumer goods. “If you develop a product that doesn’t cost too much to manufacture, however if it’s of tremendously high value, it’s going to be priced very high,” Kaitin said. “If you compare a Mercedes and a…Hyundai, the fact is the Mercedes may not cost that much more to develop, but there’s a higher demand for it and there are people that are willing to pay for it, and therefore the price is very high.” To further illustrate his point, Kaitin said there is a high demand for “lifestyle” drugs like Rogaine to promote hair growth. “People are willing to pay for [them], so the products will be priced accordingly. It’s not based on the cost of production; it’s based on the value.”



The issue, of course, is that DMDs for MS are not “lifestyle” drugs, and patients do not so much choose to take them as have to. Besides value, Kaitin said, pharmaceutical companies “consider any kind of competition or therapeutic alternatives that are out there. If they are competing with other products in the same therapeutic area…they have to take that into consideration.” Competition doesn’t always mean other drugs. The new medication could be competing with surgical procedures, physical therapy, or even changes in lifestyle. “Think of it this way,” Kaitin explained, “if everybody could be convinced to lose weight then the cost of anti-hypertensives [for high blood pressure, which has been linked to obesity] would have to go down because…people’s blood pressure would go down as well. But people tend to not lose weight so…there’s still demand for high blood pressure drugs.”

The Role of Patents in Drug Pricing Another important factor, besides value and competition, is the patent life of a drug. For new medications just hitting the market, patients can expect to wait five to 10 years before seeing generic competition.



It’s during this time that drug companies must glean as much profit as possible because, according to Kaitin, “Once the product goes off patent, if it’s a popular product, there will be generic competition and the market share will erode by about 80 percent with the first two months or so. They lose market share very, very rapidly.” “In an ideal situation, a pharmaceutical company would have a balanced portfolio of products that are reliable generators of revenue, like [DMDs for MS], and then the revenues that come in from those drugs help sustain their efforts to find cures for diseases that are untreatable, or not adequately treated. It’s a balance,” Kaitin added, “and industry is always struggling with that balance.” During the early 2000s, pharmaceutical companies took a lot of criticism for making only incremental improvements to existing drugs, as opposed to looking for “breakthrough” drugs in new areas. Now, the industry is trying to re-balance the portfolio, putting more emphasis on breakthrough products, which is leading to a rash of partnerships between big companies and smaller companies that typically focus on breakthrough drugs.



Smaller companies, according to Kaitin, have a “life or death situation with those products. These small companies are created to develop a product with a lot of promise. If the product fails in development, often the company will disappear. But if it doesn’t, that’s where a lot of the breakthroughs are coming from.” If the drug fails in clinical trials, it also means big losses for the larger company that invested in the partnership.



“Just like anybody’s financial portfolio, they have a hedge against different problems,” Kaitin said. “If a breakthrough drug fails in development, they’ve got these more standard drugs that are more likely to continue to generate revenue for them.”