Are drug prices fair?

Recently in the Huffington Post, Allen Frances wrote a blog asking, “Why are most cancer drugs so expensive and so ineffective?” The link is below for those interested.
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That is most certainly a good question. A summary of his points includes that the pharmaceutical industry is essentially a monopoly, in that only one company will make any given patented product. In the US, it exerts far too much political pressure, and as an example, he claimed Congress denied the Medicare program the right to negotiate drug prices. He claims there is a price monopoly, for even when generic drugs can be made, the pharmaceutical companies buy up the companies. He claims patent lives are extended with phoney variations. But in my mind, even worse, drug companies test their own products, but do not have to release the data for analysis by neutral observers. The companies hype the benefits and minimize disclosure of any risks.

He then cites some data from a Dr Prasad. Some of his findings include, the price of Gleevac rose from $30,000 in 2001 to $70,000 today, despite the fact the cost to make it is $200 (for a year’s course). However, at least Gleevac actually works. According to Dr Prasad, the median improvement in survival for 71 drugs for solid tumours produced in the last decade is 2.1 months. That may well be an overestimate because only 36% of those over 65 yrs old were in the trial, but that age group represents 60% of the patients in the wider community. Another interesting question is, given that many of these drugs have very severe consequences to the patient, is that 2.1 months worth it?

So, how do the companies do? Seemingly, remarkably well, with returns of between 10 – 42%. I saw a recent article that stated one product that had been sold for $20 per prescription had it raised to $1,000. When asked why, a spokesman said they wanted to make more money. Well, yes, I suppose they do. Don’t we all? The products are grossly overpriced, and only too often it appears they don’t really work all that well. There is the argument that research costs a lot. Yes, it does, but despite this, these companies are hugely profitable. In my view, this is simply price gouging, and it shows the ugly side of capitalism. A further interesting question would be, how much tax do they pay on these profits? Given that some large companies pay very little, one suspects the answer is, not much.

Usually, economic theory works on the basis that if there is a bad product, people will not buy it. However, with cancer drugs, that theory goes out the window. The average person has no hope whatsoever of deciding whether the product is any good, and you find out it is not when you die, or come close to it. Earlier this year, my wife died of cancer, so I know the pressure on the relations. Who can tell someone dying that product B is a waste of money, and it will bring penury to the remaining family members? And no, this situation did not arise for me. Claire was diagnosed in November, some simple treatment was provided as a holding measure while various things were done, and proper treatment was to start after Christmas. As it happened, her funeral was on the day scheduled for the start of treatment. Nevertheless, when someone you love is dying, you cannot really think rationally. There is a temptation to grasp at straws, but think what the grasping is like if you hear promising things from the drug companies? The very least we could ask for is a fair and open discussion of the prospects, and the basis for saying that. And we should expect that where there is little to substantiate the claims, at the very least the straw to be grasped should involve only reasonable expenses. Price gouging for performance is, in my view, not justifiable, but price gouging for what may be little better than snake oil is in my view criminal.