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Cost Shifting And Cheaper Drugs For Seniors

The drug makers have agreed to cover part of the costs of brand name drugs in the donut hole, that no man’s land of Medicare Part D where patients must pay for their own drugs.

As reported:

Obama said that drug companies have pledged to spend $80 billion over the next decade to help reduce the cost of drugs for seniors and pay for a portion of Obama’s health care legislation. The agreement with the pharmaceutical industry would help close a gap in prescription drug coverage under Medicare.

I see one problem with the assertion that drug companies will be “spending” $80 billion dollars to reduce the cost of drugs for seniors. Drug companies and by default, their board of directors have allegiance to their shareholders, not the the US government or the seniors of this country. I can assure you, this deal may look good on paper (for seniors) and it may benefit seniors a great deal (FREE=MORE) but it is also one step further to the promised land of the senior vote. And it will worsen access to drugs for everyone else. There is no free lunch in this world.

It may save seniors money, but it will not be revenue neutral. It will not save $80 billion dollars over 10 years or reduce overall costs of care. Somehow, someway, the costs will be shifted. It may mean higher drug costs for those privately insured or the uninsured. It may mean decreased access to compassion programs. It may mean higher costs to hospitals. Whatever the agreement means, it will not mean $80 billion dollars saved in the next decade.

Drug companies are not in the business of sacrificing their shareholders or bond holders for patriotic means. They are in the business of making money. And that means they have selfish interests to maximize their ROI for any agreement they make with the government.

The question isn’t really how wonderful this is for seniors. The question is how will buying off seniors affect the rest of America. And I’m telling you here, right now, you will see higher costs for everyone not lucky enough to bathe in a sea of FREE=MORE known as the Medicare National Bank.

*This blog post was originally published at A Happy Hospitalist*

Generic Biologic Drugs: What Are They And Will They Save Billions Of Dollars?

Much has been made of the recent pressure on the FDA to create a pathway for follow-on biologics. On June 9, 2009, Rep. Henry Waxman, chair of the Energy and Commerce committee, sent a letter to President Obama imploring him to approve a pathway for generic biologics: “I urge the administration to consider what steps can be taken under existing authority to prepare and even begin to use a pathway for generic biologics.”

Six days later, President Obama, in his June 15, 2009 speech to the AMA, followed Waxman’s lead, asking the FDA and industry “to introduce generic biologic drugs into the marketplace.” He continued: “These are drugs used to treat illnesses like anemia. But right now, there is no pathway at the FDA for approving generic versions of these drugs. Creating such a pathway will save us billions of dollars.”

Is this true? Are follow-on biologics, biosimilars, or generic biologics (all names for the same concept) truly the path to healthcare savings? And what are they, anyway? To clear up the confusion, this post aims to explain what biologics are, what generics are, and what the challenges are in the creation of an approval pathway for generic biologics.

What are biologics? How do they differ from traditional small-molecule therapies?

When you think of a drug, you probably think of a pill like Tylenol or Lipitor. You may not be as familiar with biologics, which are attracting a great deal of attention from policymakers and media. Biologics represent a different set of drugs, distinguished by their size, their informational and manufacturing complexity, and their therapeutic advantages.

If you were to look at most drugs under a microsope, you would find that they are actually rather small relative to a typical biologic. Acetaminophen, which is the active ingredient in Tylenol, weighs 150 daltons (a dalton is a unit of atomic mass). Enbrel, on the other hand, which is a top-selling biologic indicated for several autoimmune diseases, weighs 150,000 daltons. To put that thousand-fold difference in visual terms, if Tylenol weighed as much as your mountain bike, then Enbrel would weigh as much as an unfueled 12-passenger private jet. Hence you will often hear people in the pharmaceutical industry refer to “small molecule” drugs and “large molecule” drugs — because these are two truly distinct classes.

Biologics are often designed to closely mimic the body’s own specific natural processes. Because of this higher specificity, biologics tend to bind to drug targets in the body more precisely than do traditional drugs, which may bind to other unintended targets in the body, placing the patient at greater risk of side effects.

On top of it all, there is currently no defined pathway at the FDA for companies to develop generic versions of biologics, so biologic manufacturers retain data exclusivity over their products. Not surprisingly, the therapeutic and market advantages of biologics have caused pharmaceutical companies to focus their efforts on developing or acquiring biologics over small-molecule drugs. In fact, according to a recent forecast, by 2014, seven of the top ten drugs in America will be biologics, including every single one of the top six.

Unfortunately, while biologic therapies provide a great deal of therapeutic benefits, they are also extremely challenging for biopharmaceutical companies to develop and manufacture, because they are composed of entire proteins, carefully grown through recombinant DNA methods which are newer and less practiced than traditional drug chemistry methodologies. A traditional drug is usually derived through a set of chemical reactions. It’s a lot like following a recipe. Synthesizing a biologic, however, is a bit more like cloning a cat. In order to synthesize a biologic, host mammalian cells, usually Chinese hamster ovary cells, must be implanted with a gene that codes for the desired drug. The host cells are maintained in a special bioreactor that is designed to keep the cells alive as they translate, synthesize and excrete the drug. The broth of cells must then be harvested from the cells, modified, purified, and tested. The solution is finally packaged into vials or pre-filled syringes for distribution.

This manufacturing process is unusually challenging to reproduce consistently, even within a company. For example, Johnson & Johnson manufactures epoetin alfa, an anemia therapy, under the name EPREX in Europe. In the late 1990s, J&J changed its manufacturing process for EPREX at the request of the EMEA (the European version of the FDA). The process change caused some patients to develop pure red blood cell aplasia, a serious adverse reaction. Rather than receiving the benefit of the anemia therapy, these patients actually lost their ability to make red blood cells because they produced an antibody (triggered by the faulty EPREX) that inactivated both the EPREX and the body’s natural protein that is essential for red blood cell production. J&J eventually determined the cause of the adverse reaction and corrected it, but only after a lengthy and expensive investigation.

Because of the intense development and manufacturing process, biologics are also significantly more expensive than traditional therapies. Herceptin, an effective treatment for some forms of breast cancer, can cost as much as $48,000 for one year’s worth of treatment. It’s important to keep in mind, however, that virtually every drug company provides programs to help underinsured or uninsured patients get financial assistance in the form of co-pay cards, co-pay grants, or free drug programs. Simply contact the drug manufacturer.

Why have biologics gotten so much attention from healthcare reformers such as Rep. Waxman and President Obama?

The high cost of biologic therapies has attracted attention from both private payers, such as Aetna and UnitedHealthcare, and public payers, such as Medicare, Medicaid, and state health insurance programs. While payers agree that the therapeutic benefits of these treatments are important, they are still anxious to limit their exposure to the high price tags. Most insurers require several other therapeutic steps before allowing a physician to prescribe a biologic therapy.

Wait, what exactly is a generic? And what’s all this talk of bioequivalence?

The Hatch-Waxman Act of 1984 established a pathway for generic versions of small-molecule drugs to be offered to the public. Once the patent ends on a drug, generic drug makers may manufacture and sell the same drug without repeating the research, expensive clinical trials, or marketing efforts conducted by the original patent holder. These savings allow generic manufacturers to sell their versions for a lot less.

In order to gain approval, the maker of the generic must still show bioequivalence to the original drug, called the “reference listed drug” in the generic drug maker’s application. In a bioequivalence study, the reference listed drug is administered to one group of healthy volunteers, and the generic is administered to a second group. The blood concentrations of the active ingredients are measured over time and graphed. If the generic drug’s graph lies between 80% and 125% of the graph of the reference listed drug, then the two are deemed bioequivalent, and the generic drug is approved. Once approved for the market, it may be sold and independently substituted by a pharmacist for the branded medication without telling the physician, assuming the doctor has not expressly forbidden generic substitution. This last permission is referred to as the “interchangeability” of the drug.

Why can’t Congress just duplicate the same approval process used for generic small-molecule drugs?

In theory, Congress could. In practice, however, there are several technical hurdles that remain to be cleared. As discussed above, the processes used to create biologic therapies are extremely sensitive to manufacturing changes, as in the EPREX case. If a generic biologic manufacturer develops its own process, there is a good chance that the quality of the product would differ from that of the reference listed drug. Furthermore, no one has yet confidently measured bioequivalence for a biologic.

Frank Torti, Chief Scientist of the FDA, summarized these issues very well in a September 2008 response to a Congressional inquiry about follow-on biologics:

Because of the variability and complexity of protein molecules, current limitations of analytical methods, and the difficulties in manufacturing a consistent product, it is unlikely that, for most proteins, a manufacturer of a follow-on protein product could demonstrate that its product is identical to an already approved product. Technology is not yet sufficiently advanced to allow this type of comparison for more complex protein products.

All is not lost, though. The FDA could still create a pathway for generic biologic manufacturers to develop “biosimilars,” which are products that are intended to be close to a reference listed drug but cannot be shown to be the same. Because they are not the same, biosimilar manufacturers would likely have to conduct clinical trials to show that their version is safe and effective for human use, and can be manufactured consistently.

What are the realistic cost savings?

Because of the added cost of clinical development, testing, and marketing of a biosimilar product on top of the difficult manufacturing process, and competition, generic biologic pricing is more likely to resemble brand-to-brand biologic competition than the generic-to-brand competition seen in the small-molecule drug marketplace. Therefore, it’s not yet clear how much more affordable a FOB would be for health insurers. Without being able to show that the products are truly identical and therefore interchangeable, physicians are also likely to be reluctant to try what is essentially a “new” drug that does not truly share the established track record of the original drug. Payers and patients may be excited about the lower cost but skeptical of potential safety issues. As a result of these factors, generic biologic manufacturers may ultimately fail to capture enough business to make up for the upfront expenses of clinical testing, as well as the ongoing manufacturing and marketing expenses.

The Federal Trade Commission recently published a report that studied and called out these limitations. The consequences of the market dynamics imply that only two or three companies with large biologics manufacturing capabilities will even bother to get involved in this field, because only those companies will already have the plants and people to compete effectively. Ironically, the FOB manufacturer for a given reference drug will probably be other biologics innovators who already have the manufacturing capabilities but don’t normally compete in that particular market.

What would be some of the other implementation challenges for the government?

For one, CMS would need to decide how to bill and code for the new products, a subtle referendum on how identical the biosimilars will really be. If they give the generic versions the same codes as the originals, interchangeability is easier and the cost savings are more likely to materialize. On the other hand, it’s important for both the FDA and CMS to track adverse events with these new products (an activity known as “pharmacovigilance”), which is easier to do if the codes are different.

Where does the policy debate stand? What are the Eshoo and Waxman proposals?

The current Waxman bill is remarkably similar to the Hatch-Waxman Act of 1984, which was originally designed for small-molecule drugs. It would not require any new clinical trials for generic biologics provided that the generic had a “highly similar molecular structures,” and allows a case-by-case determination on whether or not safety and efficacy data would be required before pharmacies could substitute generics for reference biologics without telling the physician, but the default would be to allow substitution on approval. The Waxman bill allows for five to nine years of data exclusivity for the original patent holder.

The current Eshoo bill would require clinical trials comparing the generic biologic to the reference biologic, unless the FDA waived them. Rather than automatically granting interchangeability upon approval, the FDA would have to publish guidance with data that describe the criteria required for interchangeability. The bill also recognizes the greater challenge in developing biologics by allowing for twelve to fourteen years of data exclusivity.

Can the healthcare system really save billions of dollars with biosimilars?

President Obama’s speech to the AMA suggested that billions of dollars would be saved by the creation of a biosimilars approval pathway. Several others to study the issue have cited fairly conservative numbers. Avalere Health put the federal savings at $3.6 billion over a ten-year period, while the Congressional Budget Office says $6.6 billion. Avalere’s model assumes moderate discounting, several entrants, slow uptake of biosimilars, and a ten-year data exclusivity period. The CBO report scores a bill that resembles the Eshoo option described above, but doesn’t account for some of the market dynamics discussed above and in the FTC report.

Finally, to keep pharmaceutical costs in perspective, policymakers should remember that prescription drugs currently make up only 10% of healthcare costs, while physician services make up 21% and hospital care makes up 31%. The CBO estimate also predicts that follow-on biologics would save $25 billion on national biologics expenditures over ten years. Even if correct, those savings still make up one-half of one percent of all national spending on prescription drugs, which is itself one-tenth of all healthcare spending in the United States.

Which option makes more sense?

Overall, the Eshoo bill appears to do the best job of reflecting the current technical challenges particular to biologic therapies. The need for clinical trials to insure the safety, efficacy and quality of FOBs ought to be non-negotiable. However, given the high cost of becoming a FOB manufacturer, and the small number of likely entrants, the optimal length of data exclusivity is a good open question. Henry Grabowski of Duke University studied the issue and concluded that an ideal breakeven point is 12.9 and 16.2 years, also suggesting that the Eshoo option is the most likely to drive economic growth. The European Union currently allows for biosimilars and permits ten to eleven years of data exclusivity. Let’s hope that policymakers work hard to thoughtfully strike the right balance that maintains both a stream of innovative therapies from scientific pioneers and a structure that wisely manages costs for payors.

Author’s bio:
Jonathan Sheffi is a summer intern in the FDA Office of Biotechnology Products. Before the FDA, Jonathan worked for Amgen, first as a marketing analyst and then as a biopharmaceutical sales rep. He will start at Harvard Business School in the fall of 2009, and is seeking an internship opportunity for the summer of 2010. Follow Jonathan’s blog at and on Twitter at @sheffi.

Thank you to Val Jones (Better Health), Niko Karvounis (The Century Foundation), and Kimberly Barr (UnitedHealthcare) for their comments and suggestions.

All included information has been derived only from publicly available sources. This blog post reflects the author’s personal opinions and do not represent the opinion of any other organization or individual.

Counterfeit Drugs: A Growing Global Health Crisis

A resistant strain of bacteria –created by partially effective counterfeit antibiotics – doesn’t need a VISA and passport to get to the U.S.

–    Paul Orhii, National Agency for Food and Drug Administration and Control, Nigeria

I attended a conference in DC yesterday called, “The Global Impact of Fake Medicine.” Although I had initially wondered if homeopathy and the supplement industry would be the subjects of discussion, I quickly realized that there was another world of medical fraud that I hadn’t previously considered: counterfeit pharmaceuticals.

Just as designer goods have low-cost knock-offs, so too do pharmaceuticals and medical devices. Unfortunately, counterfeit medical products are a higher risk proposition – perhaps causing the death of hundreds of thousands of people worldwide each year.

It is difficult to quantify the international morbidity and mortality toll of counterfeit drugs – there have been no comprehensive global studies to determine the prevalence and collateral damage of the problem.  But I found these data points of interest (they were in the slide decks presented at the conference):

–    Pfizer Global Security raids resulted in seizure of 11.1 million counterfeit tablets, capsules and vials in 42 countries in 2008. Pfizer seizure of counterfeit drugs in 2008 were up 28.9% over 2007.

–    Within a 7 day period, 250 different Internet-based Viagra purchases were seized in a single mail center. After chemical testing, it was determined that 100% of the tablets were counterfeit.

–    Anti-malarial counterfeit tablets are common in East Asia and Africa, threatening to derail the US goal of decreasing malaria mortality by 50% in 15 countries. Chemical testing in Africa revealed that 20-67% of chloroquine failed content quality checks, and 75-100% of sulfadoxine-pyrimethamine tablets (for pregnant women) was not absorbable. Tests conducted in Cambodia in 2003 demonstrated that 27% of anti-malarials were counterfeit with quinine being 77% counterfeit and tetracycline 20% counterfeit.

–    Some “Canadian” mail order pharmaceutical prescriptions have very circuitous routes of manufacture, packaging, and delivery. One batch was manufactured in China transported to Dubai, then to London, then filled in Bahamas, sent to the UK, and then mailed to the US.

–    Counterfeit drugs are estimated to make up 30% of Kenya’s total pharmaceutical products, 20% of India’s, 10% of Russia’s, and <1% of US.

–    Most counterfeit medications found in the US supply chain seem to be introduced through Internet purchases.

–    The global active pharmaceutical ingredient production was estimated at $70 billion in 2008. China and India account for 60% of production

–    70% of all generic medications are manufactured in India. It is estimated that the Indian global generic business will grow to >$70 billion by 2009. India and China have much less stringent safety and regulatory standards, which provides fertile soil for counterfeiters.

–    25 years ago, most counterfeit medications were placebos. Today’s counterfeits have some active ingredients because sophisticated counterfeiters are looking for repeat business.

This conference provided a sobering account of the counterfeit pharmaceutical industry, tracking its exponential growth over the past two decades. That growth appears to be fueled by the outsourcing of pharmaceutical manufacturing plants to countries with limited regulatory oversight, and the sale of medications via the Internet.  So far, poor quality and contaminated prescription drugs are rarely found in US pharmacies – but that could certainly change. The FDA, US Department of Commerce, and US Agency for International Development are calling for an international public-private partnership to stem the tide of counterfeit drug manufacturing. But with little to lose (fines for counterfeit drug manufacturing are notoriously light) and much to gain (a slice of a multi-billion dollar industry), it’s unlikely that the counterfeiters are going anywhere anytime soon.


*This blog post was originally published at Science-Based Medicine*

ADHD Drugs Abused By College Students

This week’s episode of CBS DOC DOT COM took me to a college campus where I got schooled by two students about the widespread use of ADHD (Attention Deficit Hyperactivity Disorder) meds – by kids without a diagnosis of the condition – to study, stay attentive, and sometimes just to feel good.  A 2005 Web survey found that 5% of US undergraduates reported having used stimulants over the previous year for non-medical reasons.  But the real number may be much higher, especially if you listen to the students I interviewed with Dr. William Fisher, a psychiatrist at Columbia University Medical Center.

Features of ADHD include inattention, hyperactivity, and impulsiveness.  A national survey in 2003 reported that about 4.4 million children in the US have been diagnosed with ADHD and 56 percent take medication to treat it. It’s estimated that about one to two thirds of the children with ADHD continue to have symptoms in adult life.

ADHD medication was in the news last week with a report that medication use in elementary school children improved math and reading scores.  The gains – equal to about a fifth of a school year in math and a third of a school year in reading – still left the treated children lagging behind kids without the disorder. The study fans an ongoing debate on who should receive medications such as Adderall and Ritalin.  These medications – along with behavioral/psychological therapy and educational interventions – help patients with ADHD; but they’re also being used by students and adults who have not been diagnosed with the disorder.

These drugs have potentially serious side-effects such as high blood pressure, irregular heart beat, and dependency.  Doctors prescribing them for patients with ADHD should be carefully weighing the risks and benefits.  People taking them on their own are rolling the dice with their health.  No matter what you may feel philosophically about using these stimulants, the risk-benefit of their use in patients without ADHD has simply not been established.

I feel strongly that ADHD medications should only be used under the guidance of a physician. But that’s apparently often not the case.  In today’s segment, we explore this issue further. Why do people without ADHD take stimulants? How do they start? How does it make them feel? Is society’s metronome pulsing so much faster today that people feel pressured to take drugs just to keep up?  Click here for a fascinating related article which appeared recently in The New Yorker.

Click here to see a video on this topic.

Preserving Pharmaceutical Progress, Part 2

Recently, DrRich offered for your consideration a brilliant proposal that would assure at least some continued advances in pharmaceutical therapy, while at the same time providing for drug price controls.

DrRich was gratified to find that the majority of comments and e-mails he received regarding this proposal were quite complimentary. Sure, there were the obligatory cavils that the drug companies deserve what they’re getting (the essential evil nature of drug companies was, of course, a point that DrRich cheerfully conceded from the outset), and that certain interest groups (breast cancer, AIDS, etc.) even with government price controls would continue funding research aimed at treating certain specific illnesses (a prospect which ignores that translating the kind of basic research done by, say, the NIH into actual useful products requires specific companies to risk hundreds of millions of dollars in product development; see here), but on average the response to DrRich’s proposal was most favorable.

That proposal can be summarized as follows. Each American would formally elect to participate or not in a voluntary plan of price controls. Those who elected to participate would be entitled to receive any legal prescription drug at low prices set by a sympathetic government board, as long as the drug had been on the market for some fixed amount of time. (DrRich arbitrarily suggested five years, but that number could just as easily be set at 10 years, or any other value.) Those who choose not to participate in the price control plan would have to pay whatever the drug companies wished to charge them for all their prescription drugs – but they would be eligible to receive new prescription drugs immediately upon FDA approval (that is, the five- or 10-year waiting period would not apply to them). Finally, individuals would be able to change their status (from participant to non-participant, and vice-versa) only every two years.

Just as is the case with the drug price controls currently under consideration by the Obama administration, DrRich’s plan would achieve low drug prices for anyone who elected to participate. But DrRich’s plan offers, in addition and in distinction, a mechanism by which pharmaceutical progress could continue, albeit at a slower pace than we see today. That is, it provides a population of individuals willing to pay full price for new drugs, thanks to whom the drug companies will be induced to continue spending on drug development.

As a result, even those who choose to participate in DrRich’s price control plan would be able to count on a pipeline of new drugs, which would become available to them at very low prices after the mandated five- or 10-year delay. This is a very useful feature that would not be available under Mr. Obama’s price controls. Indeed, participants in DrRich’s plan would be placing themselves in a situation reminiscent of that experienced by Canadians today. (Canadians, of course, can rely on a steady stream of new, cheap drugs which come to them, with some delay, thanks to a population of individuals south of their border who are paying full freight for those same drugs.)

All we need now is to launch a grassroots movement to convince our legislators that this proposal offers all the benefits of the drug price controls now under consideration by the Obama administration, without its major drawback (i.e., a complete stifling of pharmaceutical progress).  Then, having done that, we will simply need to set up the federal bureaucracy to establish and administer the participation status of every American, and a government board that will set the official prices of all prescription drugs.  With the kind of streamlining in federal processes and procedures promised by the Obama administration, we should be able to implement DrRich’s plan in a matter of just a few years.

The Punch Line

There is, of course, a punch line.

Now that you have had ample time to digest the favorable implications of DrRich’s proposal, and can plainly see the wisdom behind it, you will be delighted to know that you don’t actually have to wait for federal legislation and the establishment of a vast new price-control bureaucracy in order to participate. You can participate today, right now, with nobody’s acquiescence but your own.

Here’s how. Simply declare to yourself that DrRich’s system is already in place, and that you are a participant, and that the only drugs available to you are the ones that have already been on the market five or 10 years or longer. (You can choose your own personal waiting period.) When you see your doctor, insist – demand – that he/she prescribe only older drugs. The price of most of these drugs will be set not by a government panel, but by WalMart (which for many common generic drugs has set a co-pay of $4).  By declaring yourself as boycotting the brand new drugs that are being sold (unfairly, of course) at the highest premium, your personal drug costs will be remarkably reduced – just as if federal price controls were really in place.

Furthermore, since currently there really aren’t federally-mandated price controls, drug companies are not yet constrained from investing in new drugs. As long as this situation continues, there will be a steady stream of new drugs exiting that magic five- or 10-year boycott period you have set for yourself, and thus becoming available to you under your personal, voluntary price control plan.

And best of all, if you were suddenly to develop a medical condition that clearly calls for one of the brand new drugs, one that wouldn’t be available to you, either temporarily under DrRich’s Voluntary Price Control System, or ever under a government-mandated price control system (because under the government plan the drug never would have been developed in the first place), you won’t need to wait five or 10 years (or forever) to get that drug. Since you are really only “pretending” there are drug price controls, the moment you decide that a system of price controls is no longer accruing to your own personal benefit, you can simply ask your doctor to write you a prescription.

So: those clamoring for government price controls on drugs can have them today – this very afternoon. They can experience every aspect of price controls (both low prices and the unavailability of new drugs) in a way that places them in no worse a position (indeed, in a far better position) than if government price controls were actually in place, and without reducing the options for everyone else.

Indeed, considering the above, the only way it would make sense to continue demanding mandatory price controls would be if something other than reducing drug prices were the chief motivating aim.

DrRich leaves it as an exercise for his regular readers to determine what that motivating aim could possibly be.

**This blog post was originally published at Dr. Rich’s Covert Rationing Blog.**

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