In my recent trip to India, during my discussion with
physicians about the various drugs that are used for HIV and tuberculosis, I
was informed that many times patients (lower and mid economic strata) do not
complete their medication course in spite of the low drug prices. This is due to
family has to make a choice between food for the family and medicines for an
individual. I had to explore.
I was able to get the average prices of some of the drugs in
India.
Comparing the price of the same drugs in US was a shock. Yes compared to India the
prices of the selected drugs are higher by multiples of 2 or 3 or more.
All this begs a question why we have multiple magnitude differences
when many of the active ingredients are coming from India
and China.
There has to be a rationale for the drug pricing in different countries. My
conjecture is that the drugs are priced based on local country economics rather
than on competition. Since humans want to extend their life, the drug prices
are set at their highest level the customer can afford. Even with the prices being
set at levels so that the customers can afford the drugs to treat their
illness, many at times have to make choice between drugs and food needs. Such situations
exist across the world. A question needs to be asked and it is: how and what
can be done to make drugs more affordable while the companies retain their
profits.
Based on economic principles competition drives to lower
prices and best of the technologies drive to retain profits. However, it seems
that the drivers that work in every business do not work in pharmaceuticals. Best
of the manufacturing technology is not needed to deliver profits. Pricing delivers
profits.
Since I have not seen many articles published about setting
drug prices, one would assume that there is minimal to no discussion in the
public domain. Arguments have been put for prices being high due to monies
needed for new product development and need to meet different regulatory and
pharmacopeia standards. If so the prices should equalize across the board in
every country but that is not the case.
There are ways to lower costs. If we have one global
pharmacopeia standard instead of multiple standards, as we currently have, better
manufacturing technologies through higher production volume will bring the
production costs down. Global politics, disagreements and having controls of
standards have prevented a single global standard.
Other factors that have prevented lower drug prices are lack
of “economies of scale” and less than optimum technologies to manufacture the
active pharmaceutical ingredients and their formulations. This is due to low
volume of products being made at many sites. Some would disagree with my hypothesis
but we all know as the production volume per site increases, manufacturing
technologies improve and costs come down.
Since the pharmaceutical dosage is in milligrams, the total
volume of the active pharmaceutical ingredient needed to serve customer needs
is low. Volume per site is further reduced when many different companies
manufacture the API. Depending on the selling price, a billion dollar drug sale
per year administered at 0.5 milligram level can have total API demand of less
than 2,000 pounds per year. If this API is manufactured at multiple sites,
economies of scale will not exist. Most likely the manufacturing process will
be inefficient and asset utilization will be less than desirable. Due to these
factors regulatory compliance needs pose additional challenges. Improving on these
is not part of the pharmaceutical business model as the companies are able to
pass inefficiency costs to the customer and are able to satisfy their
stakeholders by meeting their profit objectives.
Some might argue that my views do not hold water. I would
illustrate my point using a fluoroquinolone, (Levofloxacin), an antiretroviral
(Tenofovir) and Isoniazid used for tuberculosis.
Levofloxacin is used to treat a number of infections including:
respiratory tract infections, tuberculosis, cellulitis, urinary tract infections,
prostatitis, anthrax, endocarditis, meningitis, pelvic inflammatory disease,
and traveler's diarrhea (1).
Levofloxacin (750 mg) tablet can be purchased in India for about
Rs. 10 per tablet (about $0.22 at Rs. 45 per dollar exchange rate) whereas the
average wholesale price for the same dose tablet in US can range between $22-24.00
per tablet. At a local drug store an uninsured person would pay about $1343.00 for
30 tablets i.e. about $45.00 per tablet.
There are about 20 companies (12 are in India) on the
Drug Master File that can manufacture levofloxacin. If the global sales were
about $ 2.0 billion per year, the total API demand would be less than 200,000
pounds per year. If all of the 20 companies were manufacturing the API, there
is a minimum possibility of taking advantage of economies of scale. Processes will
be inefficient at best.
If the selling price of the levofloxacin API were about
$100.00 per kilo then at 80% formulation efficiency the cost of API in each 750
milligram tablet would be about 9.5 cents. If the factory cost of the formulated
and packaged shelf ready tablet were to be another 9.5 cents per tablet, the
factory cost of the formulator would be about $0.19 cents per tablet. Considering
the sale price of about 22 cents per tablet in India suggests that my API price
assumption is high. It also suggests that huge profits are being made in the by
the companies who are producing and selling Levaquin in US, the brand name for
Levofloxacin.
Another fluoroquinolone API meeting US Pharmacopeia
standards is sold at about $50.00 per kilo. Same API meeting Indian pharmacopeia
is sold at about $30.00 per kilo. This suggests that we need a global
pharmacopeia standard to remove price differential and gain on economies of
scale.
In a recent paper the process yield of Tenofovir, a HIV
drug, was increased to 24% from about 13%. This is significant improvement but
the yield is still low. With this yield costs associated with waste treatment
and process inefficiency are being passed to consumers. If Tenofovir were a
specialty chemical, at the 24% yield, it would never be a commercial product.
However, since it is a profitable drug, costs become irrelevant. Prices have
come down by four folds (2). Clinton and Gates Foundations have helped to lower
costs and distribute these drugs. If the yield could be improved from 24% to
65% or more and can capitalize on economies of scale and the costs would reduce
drastically. However, there is no interest in reducing costs further as making
drugs more affordable could possibly eliminate foundation funding.
In India
Isoniazid 300 mg tablet (for tuberculosis) wholesales for about 2.0 cents per
tablet. Same drug in US wholesales for about 7.6 cents per tablet. Even at the
low price many in India
have to choose between food and medicine.
To retain profits companies are raising prices. Governments
are slowly moving towards new drug and price controls (3). If this were to
happen across the board, companies would be forced to change their business
model. Since generics have come to play also, the new landscape will be
interesting.
Everyone would agree that competition improves quality and
lowers costs. I wonder would a “subsidy-less” world bring real competition and
innovation to the pharmaceutical world. Would the drug prices be lowered? I
fully recognize that the healthcare programs are necessary for the masses but
does that mean we have to live in the topsy-turvy world of drug price
differentials and the drug prices could stay at their highest levels.
We have to recognize that the health insurance programs subsidize
medicine prices for the consumers. Thus in the countries that have such
programs an average consumer does not know or understand much about price of
medicines. Even the physicians do not know the sale price of the medicines they
prescribe. If there were no insurance programs, we all will have to pay for the
medicines from our pockets. This could force many to choose between food and medicines.
Should we accept the scenario of having to choose between food for the whole family
and medicine for an individual? If this were to happen it would be a challenge
and the ensuing debate would be of a kind that we have never imagined.
1.http://www.drugs.com/monograph/levofloxacin.html
2 http://utw.msfaccess.org/drugs/tenofovir-disoproxil-fumarate
3 http://www.businessweek.com/magazine/content/11_24/b4232025180703.htm
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