Andrew Sullivan directs our attention to an article by Malcolm Gladwell in The New Yorker on prescription drug costs. The essay, which is ostensibly a book review, actually does an excellent job of explaining how prices get set and what factors influence them.
Most people tend to believe that pharmaceutical companies bear the entire responsibility for high prices, but, in fact, according to Gladwell there are plenty of guilty parties. Not just manufacturers but the FDA, insurance companies, doctors, and even consumers all share much of the responsibility for driving prices up.
Nexium provides us with an example of how the pharmaceutical manufacturers manage to boost the price and increase their profits. The story is fascinating so we'll copy a portion of it here:
Ten years ago, the multinational pharmaceutical company AstraZeneca launched what was known inside the company as the Shark Fin Project. The team for the project was composed of lawyers, marketers, and scientists, and its focus was a prescription drug known as Prilosec, a heartburn medication that, in one five-year stretch of its extraordinary history, earned AstraZeneca twenty-six billion dollars. The patent on the drug was due to expire in April of 2001. The name Shark Fin was a reference to what Prilosec sales-and AstraZeneca's profits-would look like if nothing was done to fend off the ensuing low-priced generic competition.
The Shark Fin team drew up a list of fifty options. One idea was to devise a Prilosec 2.0-a version that worked faster or longer, or was more effective. Another idea was to combine it with a different heartburn remedy, or to change the formulation, so that it came in a liquid gel or in an extended-release form. In the end, AstraZeneca decided on a subtle piece of chemical re�ngineering. Prilosec, like many drugs, is composed of two "isomers"-a left-hand and a right-hand version of the molecule. In some cases, removing one of the isomers can reduce side effects or make a drug work a little bit better, and in all cases the Patent Office recognizes something with one isomer as a separate invention from something with two. So AstraZeneca cut Prilosec in half.
AstraZeneca then had to prove that the single-isomer version of the drug was better than regular Prilosec. It chose as its target something called erosive esophagitis, a condition in which stomach acid begins to bubble up and harm the lining of the esophagus. In one study, half the patients took Prilosec, and half took Son of Prilosec. After one month, the two drugs were dead even. But after two months, to the delight of the Shark Fin team, the single-isomer version edged ahead-with a ninety-per-cent healing rate versus Prilosec's eighty-seven per cent. The new drug was called Nexium. A patent was filed, the F.D.A. gave its blessing, and, in March of 2001, Nexium hit the pharmacy shelves priced at a hundred and twenty dollars for a month's worth of pills. To keep cheaper generics at bay, and persuade patients and doctors to think of Nexium as state of the art, AstraZeneca spent half a billion dollars in marketing and advertising in the year following the launch. It is now one of the half-dozen top-selling drugs in America.
In the political uproar over prescription-drug costs, Nexium has become a symbol of everything that is wrong with the pharmaceutical industry. The big drug companies justify the high prices they charge-and the extraordinary profits they enjoy-by arguing that the search for innovative, life-saving medicines is risky and expensive. But Nexium is little more than a repackaged version of an old medicine. And the hundred and twenty dollars a month that AstraZeneca charges isn't to recoup the costs of risky research and development; the costs were for a series of clinical trials that told us nothing we needed to know, and a half-billion-dollar marketing campaign selling the solution to a problem we'd already solved. "The Prilosec pattern, repeated across the pharmaceutical industry, goes a long way to explain why the nation's prescription drug bill is rising an estimated 17 % a year even as general inflation is quiescent," the Wall Street Journal concluded, in a front-page article that first revealed the Shark Fin Project.
Gladwell goes on to explain how consumers almost always have cheaper options but often doctors don't inform them of those choices. The over-the-counter Prilosec is almost identical to prescription Nexium and virtually as effective, and it only costs twenty dollars a month, one sixth the cost of Nexium.
There is much else of interest in this article. Gladwell points out, for instance, that it is a myth that the U.S. has the highest drug costs in the world. In fact, our overall costs are just about the cheapest if one excludes name brands and calculates costs on the basis of generic equivalents. Moreover, patents on many widely-used name brands are scheduled to soon expire, which will open the market to generics and cause overall costs to drop even more. Good news, indeed.