The 8000% price premium to Lucentis over Avastin

The Healthcare Channel previously exposed a 1000% price increase on a generic drug made by Actavis and how it was a case example for healthcare reform.

The United States spends approximately $300 Billion or more annually on prescription drugs. Branded drugs have high prices that translate into 85% gross profit margins in many cases. The pricing for drugs is established by the pharmaceutical companies with little control from Medicare or private insurance. Moreover, drug companies raise prices 10% or more annually, far exceeding inflation.

The various healthcare reform bills in the House and Senate have all met with resistance due to their trillion-dollar estimated costs. As a result, congress is now exploring ways to fund the bill resorting to once taboo methods, such as allowing The HHS to negotiate drug prices. Being a large purchaser of drugs, The HHS or Medicare would be able to demand steep price cuts. The drug industry is adamantly opposed to this option.

How much fat could be trimmed from drug expenditures by cutting prices? In addition to our Actavis example, an expensive eye medication sold by Roche, Lucentis, is another example of a huge price premium on a drug, 8000% in this case, compared to alternative treatments.

The HCC interviewed Philip Rosenfeld, MD, PhD, Professor of ophthalmology at the University of Miami, to discuss how he innovated an alternative therapy to Lucentis that he estimates has saved $6 Billion in drug costs globally since 2005.

The drug industry argues that high prices on drugs in the United States are necessary because of the cost involved in developing drugs and the high failure rate in clinical trials. The HCC estimates that drug prices could be trimmed by as much as 50% and the companies would still be profitable. Using Wall Street sell-side models, the average gross profit margin (revenue minus the cost of manufacturing the drug) exceeds 80%. After deducting the clinical development costs, marketing costs, and research costs, the companies still post operating profit margins of 40%. If an industry-wide 10% cut in drug prices were instituted, more than $30 Billion would be saved in the U.S. alone. This is based on global drug revenues of more than $700 Billion (source IMS) and half of that derived from the U.S. markets.

Senate committees are considering drug price cuts as an option to fund healthcare reform, according to the Pink Sheet and our own sources. At this point, it is unlikely that any measure would survive to the final bill. However, the situation is very dynamic.

The Dr. Rosenfeld interview can be viewed here.