All opinions are my own.

Friday, May 1, 2015

May Day May Day: Can Someone Help and Lower Drug Prices?

Answer to the distress call is YES! However, it needs effort. I am presenting my perspective about the effort.

A recent article (1) tells us a story, some call it bogus (2), but everyone is clamoring about high drug prices. Not much is being done by the movers and shakers to address the price issue. They also are not doing much to address the shortage and quality lapses.

With respect to brand drug pricing, not much can be done as the world’s patients are at the mercy of very select band of people whose focus is, by charging the highest drug price possible, delivering the ROI to the investors even if the drug is for less than 100,000 people worldwide. We cannot fault them as they are meeting their objectives and keeping the financial analysts happy. We are in way judging their motives and goals. It is our hope that in their efforts they might do some good by stumbling on new drugs/therapies that might benefit millions. Global need and want for lower drug prices remains.

What is needed to lower drug prices?

Generic drugs constitute more than 50% of the global market. They present the highest opportunity to lower pharma costs through manufacturing technology and the total business process innovation. Everyone and that includes regulators, legislatures, patients, PBMs (Pharma Benefits Managers), various health organizations and foundations (WHO, CHAI, Gates Foundation, Médecins Sans Frontières etc.) would like to see lower prices. There are many things standing in the way to get to the goals. They are:

  1. Current business model

  2. Fragmented and multitude suppliers

  3. Lack of economies of scale

  4. Inefficiencies of the manufacturing processes

  5. Inefficient use of corporate (equipment, infrastructure) assets

  6. Quality control practices

  7. Regulations

Generic pharma companies have not done much to lower drug prices as they do not see any need. Why? They capitalize on the need to extend life. PBMs and national healthcare agencies worldwide have not made any moves to convince the generic pharmaceutical companies to step up and use the best manufacturing technologies, business practices and systems to alleviate shortage, quality lapses and lower drug prices.

In the current business model generic pharma companies have an argument against doing anything for better technologies and practices. Regulatory re-approval would be needed for the incorporation of innovations. Intent of drug efficacy and quality will have to be re-assured. Under the current regulatory environment, re-approval cost is unknown, could be expensive and time consuming. Any effort is going to take away from the focus of generic pharma to supply the needed drugs as it could lower their profits. Since there are many suppliers of the same drug, there are no economies of scale. Re-approval will also burden the regulatory bodies.

Thus we have a “chicken and egg” quandary. However, there is a potential solution. It has been practiced worldwide but not much in pharma. Most of us know them as “TENDER (3)”bidding.

If every organization mentioned above asks for the supply bids from the companies worldwide, for drugs they dispense, we would have competitive bidding. It would allow them to compare and negotiate drug prices based on their manufacturing technologies, business practices, quality methods and any other measure they think will assist them. We will have an interesting business environment and as we know competition would be best for all involved.

PBM companies, foundations, global healthcare organizations can use “reverse calculation method (4)” to determine what would be the costs if the companies were using the best possible technologies and methods at different supply levels (economies of scale). Information thus generated could be used for their pricing negotiations. It is very possible that such an effort “could be called foul” by many in the pharma industry, their lobbyists and even legislatures but this is one way to rationalize economies of scale, technologies and best business practices which will lower drug prices, improve profits and include many patients who cannot afford drugs. Change has never hurt anyone but made all involved strong. It is pharma’s time.

Such an effort will take time on part of PBM companies, foundations and global healthcare organizations. If they move forward, the process could give the best of the suppliers time to showcase their chemistries, manufacturing practices, asset utilization capabilities and how they can produce quality products from the onset using better batch or even continuous processes for API manufacture and their formulations. Tender bidding could also alleviate drug shortages.  

Pharma is a unique business where the industry improves the health of its patient base besides making profits. Yes it is tight rope, between profits, greed and compassion, to walk but someone has to walk it.

Please suggest if anyone has better ideas. We need to address the May Day call.

Girish Malhotra, PE

EPCOT International

  1. Small Number of Drugs Drives Big Medicare Bill, Spending Data Show http://www.wsj.com/articles/medicare-releases-detailed-look-at-prescription-drug-spending-1430426438 Accessed May 1, 2015
  2. Herper, Matthew, Why Medicare's List Of Costly Drugs Is Kind Of Bogus http://www.forbes.com/sites/matthewherper/2015/05/01/why-medicares-list-of-costly-drugs-is-kind-of-bogus/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20150501 Accessed May 1, 2015
  3. Tender http://www.investopedia.com/terms/t/tender.asp Accessed May 1, 2015
  4. Malhotra, Girish A Blueprint for Improved Pharma Competitiveness http://www.contractpharma.com/issues/2014-09-01/view_features/a-blueprint-for-improved-pharma-competitiveness/ Accessed May 1, 2015