Why people don’t trust drug makers

Peter J. Pitts

When former hedge-fund manager and current Turing Pharmaceuticals chief executive Martin Shkreli hiked the price of his generic anti-parasitic drug pyrimethamine from $13.50 to $750 per pill, he invited understandable national outrage.

Americans think price gouging on prescription medicines is rampant. This isn’t surprising, since the pharmaceutical industry has done a poor job of explaining why drugs cost what they do. More than three-quarters of Americans support mandatory limits on the price of certain drugs. And 86 percent want drug firms to disclose how, exactly, they set prices.

The best way for drug firms to quell this outrage is to give Americans what they’re asking for: more information. Specifically, the industry needs to shed light on the huge sums they spend on research, their rising research-and-development failure rates and the refusal of insurers and pharmacy-benefit managers (PBMs) to pass on manufacturer discounts to patients.

Of course, drug pricing is a complicated matter. Which is why the industry should focus on a few basic points when making their case.

First, the cost of research. Since 2000, drugs firms have spent over half a trillion dollars developing new medicines. And research costs for the last year alone totaled more than $51 billion. That’s up from $15.2 billion in 1995.

These are extraordinary spending levels, even compared to other research-intensive industries. In fact, the pharmaceutical sector spends five times more on R&D than aerospace, and 2.5 times more than the software and computer industry.

The industry also needs to do a better job explaining just how many failures they endure searching for the next breakthrough medicine. Drug companies must develop hundreds of compounds until they find one suitable for testing on humans. Of those rare compounds that make it to phase-1 human trials, fewer than 12 percent win approval from the FDA.

That’s why bringing just one drug to market costs an average of nearly $2.6 billion dollars and takes more than 10 years, according to researchers at Tufts.

Drug prices are the result of a lengthy process of meetings and negotiations between manufacturers and payers over a long period of time. Insurers and PBMs — not drug companies — are the ones who determine what patients pay for medications.

Consider the controversy surrounding the hepatitis C drug Sovaldi — “the $1,000 pill.” This may be a great sound-bite, but it’s hardly accurate.

In reality, insurers and PBMs negotiated discounts that reduced the price of Sovaldi by 20 to 50 percent. But they didn’t pass the full discount on to the consumer. Instead, insurers and PBMs pocketed the money to pad their bottom lines and executives’ wallets.

Most Americans, of course, are largely unaware of this information, which is why opinions have turned so sharply against the pharmaceutical industry. If they intend to win back the public, drug companies have some explaining to do.

Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine.