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Editorial: The unaffordable cost of M&A-driven drug prices

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Last week, Pfizer announced the $14 billion acquisition of Medivation, whose innovative prostate cancer treatment Xtandi (generic name enzalutamide) generated $2.2 billion in sales last year. The drug retails for $129,000 a year.Not much has changed since my 2004 book on the sources of pharmaceutical and biotechnology innovation. Its conclusion—now over a decade old—was that most of the drug and other medical breakthroughs of the last quarter of the 20th century traced their scientific and medical roots to government-funded research.The science and development of enzalutamide took place at UCLA on National Institutes of Health grants. According to the Los Angeles Times, the university patented the molecule in 2005 and later licensed it to Medivation.

UCLA this year sold its stake in the drug for $520 million, generating about $60 million a year for the university over the next decade. That’s great for UCLA, its research faculty and some students.

But it isn’t so great for government and employer payers or the cancer patients who will be hit with exorbitantly high copays. Indeed, the price will probably rise sharply to pay off the financial engineering behind Medivation’s $14 billion stock valuation—21% above its pre-acquisition closing price.

The Bayh-Dole Act of 1980 allows grantees such as UCLA to patent and sell licenses to government-funded inventions. But there’s a catch: The patent must include a clause specifying the government retains “certain rights” to the invention.

In June, several public interest groups angry about the high price of enzalutamide demanded the government use that clause to take back the patent and license it to a generic manufacturer. The government refused to act, paving the way for the takeover war for Medivation.

This is not an isolated event. As noted in our May 2014 editorial “Why Sovaldi shouldn’t cost $84,000,” that hepatitis C drug, a real breakthrough like enzalutamide, began its life in the government-funded labs at Emory University. Its primary researcher started a firm—Pharmasset—that was later sold to Gilead Sciences for $11 billion. The academic entrepreneur walked away with about $400 million.

The moral of both stories is that there still is no connection between the price of new drugs and the cost of discovering and developing them. Over many years, the pharmaceutical industry has argued that such a link was the primary justification for high prices.

Three leading physician-lawyers writing in this week’s JAMA drew the same conclusion. Reviewing the medical literature between 2005 and 2016, they concluded “there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.”

High prices aren’t only a problem for new drugs. Generic medicines are also being priced to whatever the market will bear—witness last week’s renewed outrage over the pricing of EpiPens, which are must-haves for families of children with severe food and other allergies.

The JAMA article by Drs. Aaron Kesselheim and Jerry Avorn and attorney Ameet Sarpatwari, all of Harvard Medical School, recommended policies for reining in skyrocketing drug prices. It called for government payers to negotiate prices, which has been raised by political candidates from both parties.

In addition, they called for restrictions on patents and patent extensions; aggressive use of government rights clauses; banning “pay for delay” deals between brand name and generic manufacturers; and making it easier for generic biologics to enter the market.

They also noted the need for more and better comparative effectiveness research, which when done right can empower formulary writers and payers to adopt substitution and copayment policies that will give physicians and patients incentives to choose the least costly drug when results are comparable.

It’s way past time for payers, hospitals, physicians and patients to get serious about mounting a full-court press to rein in the skyrocketing price of drugs. The latest news from Wall Street suggests the drug companies still don’t see a political threat to their “whatever the market will bear” business model.

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