Drug firms need to explain the prices
Like it or not, Martin Shkreli is the new face of pharma. And for an industry already struggling with an image problem over the rising costs of prescription drugs, companies are going to have a hard time distancing themselves from one of the most controversial men in America.
The reason is a lack of transparency. Drug makers do not really want to explain how medicines are priced and, as a result, they have adopted an air of secrecy in which one cowboy can create havoc for an entire industry.
"The [Shkreli] episode is really an extreme manifestation of an attitude that has taken over the industry," said Bernard Munos, a former corporate strategy adviser at Eli Lilly who is now a senior fellow at FasterCures, a medical research think tank. Most drug companies "are not raising prices by 5,000 percent, but large prices will leave patients with the same impression."
To recap, the 32-year-old former hedge fund manager caused a firestorm last week when his company, Turing Pharmaceuticals, jacked up the price of a decades-old, life-saving medicine from $13.50 per pill to $750. At the same time, Shkreli made it impossible for competitors to produce low-cost generic versions of the drug.
Shkreli, responding to criticisms on social media, then unleashed a defiant stream of mocking insults that sparked the equivalent of an Internet lynch mob. This made it easy for the pharmaceutical industry's main US trade group to argue — albeit, tepidly — that Shkreli was an outlier whose behavior did not reflect the way global drug makers conduct business. The leading biotechnology trade group, meanwhile, kicked Shkreli out of its club.
In some of his less inflammatory remarks, Shkreli relied on the familiar explanation that drug development is expensive, and said he plans to use the added revenue from the price rise to generate an improved version of his drug.
Whether you believe him is not the point.
It's certainly true that funding drug discovery is expensive. The latest estimate of what it costs to get a drug out the door is, on average, $2.6 billion, according to a 2014 Tufts University report that was funded in part by industry.
Yet pharma leaders have done a poor job of explaining how the cost of R&D translates into a need for climbing prices or the sky-high sticker prices that are commonly set for new medicines from the get-go. Rather than opening their books, drug makers continually repeat the refrain about increasing development costs, and they avoid any candid discussions about cost that may invite more interest in setting price controls.
"The drug makers say they don't embrace huge prices or price hikes, such as what Shkreli did, but they don't condemn them either," said Alan Sager, a health policy researcher at Boston University.
The most visible tactic is the overnight spike of the kind that Shkreli engineered. But incremental increases can hurt budgets, too. Valeant Pharmaceuticals, for example, has boosted the price of an injectable drug used to treat excess ammonia in the blood three times since January — from $31,425 per vial to $45,660.
"This approach may not invite as much attention," said Scott Knoer, chief pharmacy officer at the Cleveland Clinic. "But it can be just as damaging."
Then there are the high prices set for new medications — such as the hepatitis C treatments from Gilead Sciences, which cost $1,000 or more per pill. The company argues that the drugs can save money down the line if patients avoid costlier care years later. There is sound logic to this argument, but in the short run health care budgets are strained.
The issue is compounded still further by the tug of war between drug makers and insurers, with each blaming the other for the pricing controversy. Drug makers say they offer rebates and discounts to insurers that then shift more out-of-pocket costs onto patients, while insurers argue the prices are set too high in the first place.
In the end, the pricing problem is like peeling the proverbial onion. If the pharmaceutical industry wants to win consumer confidence, it will have to come clean about the mechanics behind its pricing. Otherwise, drug makers should brace themselves for increased scrutiny and calls for greater oversight.
Shkreli may seem an aberration to some, but he is, in reality, the latest example of an ongoing and widespread grappling with the cost of medicines. Like safety warnings in a pharmaceutical ad, the industry may hope we look the other way, but Shkreli is a side effect that is simply too hard to ignore.