It’s pretty easy to complain about the price of drugs. Drug companies typically spend billions of dollars to develop a drug, and often spend billions of dollars to develop drugs that never get approved. But a surprising critic of the U.S. system of pricing drugs is Leonard Schleifer.
It’s pretty easy to complain about the price of drugs. Drug companies typically spend billions of dollars to develop a drug, and often spend billions of dollars to develop drugs that never get approved. They then pass those prices on to insurers and customers. Critics often ignore the expense or claim that a big part of that expense is marketing—as if marketing isn’t a legitimate business expense. Often ignored is the fact that many biotech companies spent years and years developing products and spending millions or billions of dollars before ever getting one to market.
Which is not necessarily to defend the industry on drug pricing. There are plenty of egregious examples of what looks like price gouging. And what makes the pharmaceutical industry different from, say, car manufacturers, is that its health care that’s being sold, which people generally view as a right, rather than a commodity. But a surprising critic of the U.S. system of pricing drugs is Leonard Schleifer, the co-founder of Regeneron Pharmaceuticals, profiled in a recent Forbes article.
And it’s not as if Regeneron’s products are exactly cheap. It’s eye drug Eylea runs $11,000 per year per eye. Its cholesterol drug, Praluent, runs $14,000 per year. And its newer drug, Dupixent, to treat dermatological conditions, can go as high as $37,000 per year. On the other hand, by the standards of newer biologics, those are pretty affordable, relatively speaking.
Forbes provides a succinct description of U.S. drug pricing, writing, “In a complicated ritual, a drug developer sets a steep list price on a novel treatment, then cuts rebate deals with the middlemen called pharmacy benefit managers. The rebates, which go back to insurance companies or the employers that pay insurance companies, mean insurance plans favor one medicine over another for financial reasons. Schleifer says the whole system ‘needs a reboot.’ But in the meantime, he has to play the game.”
One thing that Regeneron does in terms of pricing that seems a little unusual, is to submit its pricing scheme to the Institute for Clinical & Economic Review, a nonprofit that typically argues drugs are too expensive. Regeneron submitted Dupixent to the Institute for their review. “This is really a great example of how it should work,” said Steven Miller, the chief medical officer at Express Scripts, at the time.
Maybe, although Schleifer clearly isn’t a fan of how the pharmacy benefit managers fit into the pricing system. Forbes notes, “The difference between a $10,000 drug with a $4,000 rebate and a drug simply priced at $6,000 is that the former lets the benefits manager crow about the savings it delivers and passes money back to the company buying the health plan. ‘I would like to see the rebate system go away,’ Schleifer says.”
And if that makes observers uneasy, that the rebate system feels an awful lot like kickbacks, there’s probably a reason for that. It’s a fine line being cut in the industry.
Although Regeneron has some interesting drugs, the sales haven’t been what investors hope for. It’s probably at least partially related to Schleifer’s “lower” drug prices, who notes, “It’s not simply about just growing your earnings per share by raising your price. So, yes, I’m glad I’ve been outspoken, because I think that I am trying to prevent what is still at risk of happening: If the industry does not behave properly, the government is going to step in.”
More details about the company’s sales figures will be available on August 2, when it reports its second-quarter financials.
Regeneron recently cut a deal with Express Scripts for its cholesterol drug Praluent that went into effect this month. Regeneron released data in May showing that the drug reduced death rates compared to the far more inexpensive statins in patients at high risk of a heart attack. In the deal, the drug will cost only $5,000 to $8,000. “The difference from the $14,000 list price will be given to Express Scripts and its customers as a rebate. Regeneron hopes that the deal, which takes effect in July, will finally allow Praluent sales to build.”
Maybe. Amgen’s Repatha (evolocumab) is similar to Praluent, and it has had difficulties gaining traction in the market as well. At least part of the problem is that for most people with routine high cholesterol, statins work fine, and run about $60 per month. For a subset of the population with very high cholesterol that can’t be controlled by statins, Repatha or Praluent looks like a solution, but compared to statins, a very expensive one, even with rebates in place.
