The Senate is after drug maker Gilead to explain its high price for hepatitis drug Solvadi. The request came from Ron Wyden and Chuck Grassley and asked about differences in U.S. and foreign pricing. Solvadi is expensive at about $80,000 for a course of treatment. I think these senators are asking what they already know. New drugs with a limited market must price the drug to recover their costs and make a fair return on their total R&D costs.
They must charge more in the U.S. because most foreign markets have price controls. This is a recurring discussion about why U.S. consumers are charged more than French or Canadian consumers for the same drug. The answer is the same. U.S. consumers are charged more because the drug company needs to make back its investment and we have a free market here for drug prices. It is unfair that Americans subsidize the cost of European consumers. If the U.S. imposed drug price controls, then drug companies would have less incentive to develop R&D intensive new category drugs like Solvadi.
The solution is to have a world price for a drug that charges more in Europe and Canada and less in the United States. That is not going to happen because no other country will willingly pay more. So we are stuck with the American consumer paying more. No one has to like it but that is our reality. We can pay less for drugs by imposing price controls, but then Solvadi and other breakthrough drugs will not exist.
The American consumer will benefit should there ever be a drug shortage because I guarantee drug companies will sell any limited supply at the highest price they can get. That is not a good answer to Americans who question the basic fairness of paying more than other developed countries pay for drugs. They rightly get angry when politicians tell them they are getting screwed by drug companies.
I am afraid the explanation for the price disparity is never going to satisfy drug company critics. They cannot have newer innovative drugs like Solvadi and make it hard for drug companies to generate profits. With all the nasty bacteria and viruses looming, we should be happy to pay the price premium to keep drug companies incented to search for cures. I think Wyden and Grassley know why drugs cost more here but they score political points being outraged at “greedy” drug companies.
There are many who argue that drug discovery is too important to be done by private companies. They would rather see academics and government scientists develop drugs. While they do produce valuable research the real commercialization is done best by profit making companies. In the movies, the government scientist always finds the cure to a runaway virus or a way to kill alien invaders or vampires. I guess screenwriters hate to make a Pfizer scientist the hero. They like Brad Pitt to be a UN scientist not a profit making drug company employee. The reality would make liberal screenwriters sick.
Solvadi is expensive but cures a disease that, untreated, will lead to costly disease and death. It is doing well because it is cost effective to cure Hep C before it destroys the liver. Successful drugs always invite other drug companies to develop their own versions. That eventually lowers prices through competition. It has happened in every major drug category. Eventually those brands go generic. Without profit making drug companies we would be relying on old drugs to do the job. We need constant innovation to stay ahead of antibiotic resistant bacteria and ever evolving viruses. As I write this we see Ebola spreading in Africa. So next time a critic says how profit hungry drug companies gouge consumers, ask them who will save their lives in the next pandemic: Brad Pitt from the UN or Merck?
Bob Ehrlich, CEO, DTC Perspectives