The cost of medicines in SA – particularly of cutting-edge, potentially life-saving medicines – has been in the news. In one of several articles featured in this FOCUS, Katharine Child of Financial Mail reports that SA needs a scientific approach to determine when a medicine is priced excessively and is therefore unaffordable.
In The Conversation, Natalie Schellack of Sefako Makgatho Health Sciences University, focusing on cancer drugs, argues that the SA Competition Commission’s investigation into excessive pricing by three major pharmaceutical companies is vital as cancer treatment is unaffordable for most South Africans.
Also in the Financial Mail last week, Guilietta Talevi interviewed Stephen Saad, head of Aspen Pharmacare – which is being probed for high medicines prices in SA and abroad – who contended that his company was being unfairly cast as a villain. Indeed, wrote Talevi in another article, while much anger is directed at Big Pharma for high prices, the cost of developing ‘blockbuster medicines’ is fraught with risk and colossally expensive.
And in an interesting opinion piece in the Financial Mail in late May, economist Jasson Urbach argues that the public should be focusing attention on barriers that hamper access to medicines and pressuring governments to improve regulatory environments
The price of life
Brooklyn Rex had had 2,000 injections by the time she turned four. The little girl had spent two months in isolation in the Red Cross Children’s hospital while doctors tried to find out what was wrong, wrote Katharine Child in Financial Mail on 22 June.
Her ailment: juvenile arthritis, a painful condition which causes high fever and is resistant to medication. She was then struck by Macrophage activation syndrome, a debilitating rheumatic disease. It took more than a year to diagnose her rare illnesses, despite the fact she started developing rashes at eight months, with fevers regularly over 40°C.
But, writes Child, “the drug she needed is unavailable in SA. So her family borrowed money and flew to America for treatment to save her life. As South Africans, they are not allowed to work in the US so the Rex family survives on donations and crowdfunding.
“But most South Africans needing rare, expensive or unregistered drugs can’t move abroad as they did. Instead, patients will fight medical aids or, like activist Tobeka Daki, who couldn’t afford the R500,000 breast-cancer drug Herceptin, die without knowing if she could have lived.
“Most medicines in SA are off-patent and cheap. Their average cost in the private sector is R148, according to the 2016 Mediscor Medicines Review. Only 16% of medical aid spend goes to pharmaceuticals; most of it is used to pay hospitals.
“But a growing number of new treatments for rare diseases or for once-deadly cancers is pushing up spending on medicines. New drugs typically cost R69,845 a year. Medical aids struggle to pay for them.
“It took an announcement about a cancer drug price probe by competition commissioner Tembinkosi Bonakele to shine the spotlight on the R500,000 a year cancer drug Herceptin, made by Roche. It prevents cancer returning in about 40% of patients with HER2-positive breast cancer, a deadly and aggressive form.
“But a state-run pilot programme is paying R211,190 ayear for Herceptin – less than half the private-sector price.
“Roche (charged with exclusionary conduct by the commission) and the department of health are said to be weeks away from a deal in which state patients – about 300 a year – with early-stage breast cancer get a year’s course of Herceptin. Roche confirmed negotiations were at “an advanced stage” and that the price offered to the state is similar to that offered in India — around R110,000.
“It’s unclear if the competition probe will jeopardise the deal, as the commission had not contacted the health department.
“At least Herceptin is registered in SA. Kelly du Plessis, founder of NGO Rare Diseases, says there are 14 treatments for pulmonary hypertension but only one is available in SA. And it works better with another treatment (not available in SA) in dual therapy. So the one available often fails.
“About 300 members of Rare Diseases use section 21 permits to import rare medicines available only overseas. They need to reapply for the permits every six months, sometimes facing delays, and medical aids don’t pay for section 21 medication.
“The problem is drug companies don’t always want to register rare-disease medicines here, given the long process and tiny market. “The process is so laborious. Nobody wants to do it,” says Du Plessis.
“Joey Gouws, registrar of the Medicines Control Council, which has just been reconstituted as the SA Health Products Regulatory Authority, recently said there was a backlog of 7,900 medicines awaiting registration.
“Du Plessis says medical aids often fight against paying for new medicines. First, they argue that if the drug is not available in state hospitals, it isn’t necessary to pay for it –a strange but legal basis for deciding what is good enough for private care. Second, they say new drugs are too expensive or the data on rare-disease drugs is too sparse.
“In the US, medical aids or patients only have to pay for a high-cost drug if it works. If it doesn’t, the drug company must bear the cost. SA law prevents this,” Child continues.
Medicine Access scientist João Carapinha says: “In oncology few medicines are 100% effective. However, medical schemes and the department of health are currently paying for treatment failure. We need a better way to pay for medicines that perform well.”
The department’s medicine pricing policy is woefully out of date, lagging behind payment innovations in other markets. For example, bulk buying of high-cost drugs by a group of medical aids (to wrangle better discounts) is also banned.
In the UK, government uses an equation to work out if a drug is too expensive, measuring the cost of a life saved or lengthened and its economic benefit.
Says Carapinha: “What’s lacking in SA is a scientific approach based on international standards to determine when a medicine is priced excessively and is therefore unaffordable. The department of health has a lot of work to do to get to this stage.”
While policy-makers dither, people like Brooklyn Rex and Tobeka Daki, and many others, are the casualties.
Why competition is key to cutting the cost of cancer drugs in SA
The SA Competition Commission has launched an investigation into excessive pricing by three major pharmaceutical companies that have the sole rights to distribute cancer drugs in the country.
The commission’s job is to protect ordinary South Africans from abuse by dominant players, writes Natalie Schellack, associate professor and course leader of postgraduate programmes in clinical pharmacy in the department of pharmacy at Sefako Makgatho Health Sciences University, in The Conversation.
It has powers to investigate and evaluate restrictive business practices, abuse of dominant positions and mergers.
The investigation into the drug companies is vital as cancer treatment is unaffordable for most South Africans. Many medical schemes – which offer medical cover to 16% of the population or 7m people – refuse to pay for the medication because of the cost.
Schellack writes: “In South Africa all drug prices are approved and signed off by the medicines pricing committee in the National Department of Health. But our hope is that the commission’s investigation could still drive competition among suppliers, and in turn more affordable prices for cancer treatment. This should result in better access to affordable drugs, particularly for poor people.
“Three companies are being probed: Swiss-based Roche, US-based Pfizer and South African company Aspen Pharmacare.
“The cancer drugs in the spotlight are used mainly to treat lung and breast cancer but they can also be used in the treatment for other types of cancers.
One of the drugs is trastuzumab which is supplied by Roche and recommended by the World Health Organisation to treat breast cancer and can be used in combination with other drugs for some types of stomach cancer. Roche’s branded versions of the medication is Herceptin. This is the only trastuzumab product currently available in South Africa.
“Pfizer provides the only crizotinib product to South Africa for the treatment of lung cancer. Its product, Xalkori, is not yet registered in South Africa, and is only accessed through a special application process under the Medicines Act which enables clinicians to prescribe and use medicines not yet registered by the Medicines Control Council (MCC) to treat patients.
“Aspen is being investigated for three of the oncology drugs it supplies: Chlorambucil (Leukeran), Melphalan (Alkeran) and Busulfan (Myleran). All are generic drugs but Aspen is the only pharmaceutical company in the country that’s registered with the MCC to sell the drugs in South Africa.
“Competition authorities in a number of European countries, including the EU, are also investigating Aspen for alleged excessive pricing on these and other products.’
Looking at why the drugs are so expensive, Schellack writes that the cost is related to the drug’s development. “Before a cancer drug reaches the market there is a complex clinical research process and an expensive administrative process that requires millions of dollars of investment. This includes regulatory studies and three phases of clinical trials.
“In the pharmaceutical industry, the initial patent holder is usually the pharmaceutical company that researched and developed a drug. Although the patent life from the date that it is filed is 20 years, the average time to bring a cancer drug from the start of clinical testing to regulatory approval is between eight and 12 years.
“This means that the actual patent life of a drug from the time of initial marketing can be limited – often less than 10 years. In addition, only 16% to 19% of cancer drugs that enter clinical trials successfully make it to market.
“There’s an added challenge in cancer treatments. Even with the arrival of ‘new and improved’ versions of a previously approved drug, the older (and by now generic) drug tends to be viewed as substandard treatment. This perpetuates the situation.
“And in the last 59 years the health sector has increased its knowledge of cancer and treatment immensely. But it’s not yet at a curative phase. Faced with the seriousness of the diagnosis, patients, family and physicians are often willing to pay the high price of treatment even for marginal improvements in someone’s health.
“Drug companies also have to go through a lengthy process before they can start selling a drug. Once a drug is approved by a regulatory authority it needs to be registered with a country’s medical control council before it can be prescribed by oncologists. This registration process can take a long time.
“The biggest problem with the price of cancer drugs is that there is no competition among truly effective cancer drugs to lower their cost. Healthy competition between different drugs would drive lower prices and keep prices reasonable for the consumer.
One way that competition has been achieved for other pharmaceutical drugs has been through the generic route. Once the patent expires, manufacturers of generic versions can produce more cost-effective versions. This is happening for some cancer drugs. But there are two limitations: one is that it takes a long time to develop cancer treatments. And generic versions of cancer drugs are much higher than those used to treat non-malignant (non-cancerous) diseases.”
Schellack writes that there are three options to alleviated the situation: encourage oncologists to prescribe drug treatment that isn’t as expensive, where possible; reduce prices by introducing a form of generic price control, where predetermined pricing limits are prescribed; and promote a non-profit generics model, where certain designated generics would be made available at cost, as opposed to be sold at a profit.
The competition case in SA is also an important part of the campaign to make sure that cancer drugs are more affordable. As incidence of cancer continue to rise, massive resources are being poured into cutting-edge research and biotechnology to successfully treat this dread disease. But these benefits aren’t being felt by the vast majority of people in the world.
What it costs to make a drug
It’s tempting to view Big Pharma as Dr Evil in the medical value chain, but the resources that are ploughed into developing “blockbuster medicines”, without certainty of success, are colossal, writes Giuletta Talevi for Financial Mail.
According to PhRMA, which represents pharmaceutical research companies in the US, it takes on average 10 years and US$2.6bn to develop a new medicine, with only 12% of candidates in clinical testing ever making it to the market.
PhRMA says in the past 16 years “there were more than 120 unsuccessful attempts to develop medicines to treat Alzheimer’s disease, 96 for melanoma and 167 for lung cancer. Only four were approved to treat Alzheimer’s, seven for melanoma and 10 for lung cancer”.
Of course, if your firm does successfully develop a cure for the conditions that are increasingly set to befall ageing high-income nations, then you are in the pound seats. Lipitor, the anticholesterol wonder drug, for example, raked in sales of over $9bn/year for parent Pfizer before going off patent, Talevi continues.
Pfizer, incidentally, spent $7.87bn on research and development (R&D) expenses in the 2016 financial year – almost three times Aspen’s annual revenue at recent exchange rates.
Ascendis Health CEO Karsten Wellner says the development cost of a single new chemical entity can be as much as $850m. For “biosimilars” — officially approved versions of original products, also known as “follow-on biologics” — Wellner says the cost is about $100m, while a commodity generic can be as low as $1m.
Investopedia lists 10 steps to producing a new drug, including developing the compound, clinical trials, initial US Food & Drug Administration application, review, inspection and, finally, approval — or rejection.
Clearly, none of this is cheap, but Health Affairs Blog, a health policy site that has been used in US congressional testimony, says R&D costs do not explain high US drug prices in particular. Its research found there are “billions of dollars left over even after worldwide research budgets are covered”.
“To put the excess revenue in perspective, lowering the magnitude of the US premium to a level where it matches global R&D expenditures across the 15 companies we assessed would have saved US patients, businesses and taxpayers approximately $40bn in 2015.”
Consumer and health journalist Patricia Sidley commented on the article:
It’s a pity the journalist didn’t call the organisations who have specialised in trying find out the true cost of making a drug and found it very difficult. Some of these organisations are large and well known and are in the USA but there is enough expert knowledge here to reflect the problems that are well-documented with Pharma’s view of its costs. Just for one thing – the industry never separates the cost of marketing from the cost of actually making the drug. And there is a dirty mess hidden in the middle
Ripping people off is not in our DNA, says Aspen
Stephen Saad’s frustration at Aspen being branded a “price gouger” that drove up the cost of life-saving medicine for profit is palpable. In an interview with the Financial Mail, published on 22 June, the 53-year-old says Aspen Pharmacare has been the victim of a “perfect storm” that has led to his company being unfairly cast as a villain, writes Guilietta Talevi.
Saad has had perhaps his toughest two months since he and Gus Attridge founded Aspen 20 years ago in a small house in Greyville, Durban, and became the dazzling success story of SA entrepreneurship in the new millennium.
In April, accusations of price gouging in Europe rocked Aspen, as The Times of London splashed the story “Drug giant’s secret plan to destroy cancer medicine” across its pages. The Times said the cost of busulfan, used by leukaemia patients, spiked from £5.20 to £65.22 in 2013, while chlorambucil, a chemotherapy medication, rose from £8.36 to £40.51 a pack.
Then, last week, the competition commission of SA decided to launch its own probe into three oncology drugs, which Aspen bought in 2009 from pharmaceutical giant GlaxoSmithKline (GSK).
But Saad is adamant Aspen has done nothing wrong.
All the drama has weighed on Aspen’s share price, which is down 1.3% since the revelations first broke – a loss of R1.7bn in market value – and compounding its slide over the past year, down 22.9%.
But the reality is that it’s not just the past couple of months that have been rocky, writes Talevi. The stock has been on a steady decline ever since GSK – once regarded by some in the market as a potential suitor for the whole of Aspen – began selling its 19% stake in the company from 2015.
With hindsight, GSK got a good price, cashing in its last 6.2% tranche at R300/share in a slightly discounted bookbuild.
Regulators are the reason big pharma can charge what it likes
In an opinion article in the Financial Mail on 26 May Jasson Urbach, an economist and director of the Free Market Foundation, argued that pharmaceutical companies such as Aspen are buying built-in marketing rights, not just drugs, when they purchase other companies. Here is is commentary:
The drug pricing policies of pharmaceutical companies are once again in the cross-hairs. Aspen pharmaceuticals recently made headlines for failure to disclose a fine that Italian competition authorities imposed for “price gouging”.
In the media, Aspen has been portrayed as the villain and it appears the British and European competition authorities will launch their own investigation into the price-gouging allegations.
But critics and the public should know better.
In 2014, Turing Pharmaceuticals became the most hated company in America when it raised the price of an old, off-patent drug branded as Daraprim (pyrimethamine) from $13.50 (approximately R181) a tablet to $750 (approximately R10,028) — an increase of more than 5,000%. Pyrimethamine is a drug that, for decades, has been used to treat toxoplasmosis and, more recently, AIDS and cancer patients.
Similarly, Aspen dramatically increased the price of several cancer drugs, some by more than 1,000%.
People outraged at these increases, fail to recognise the underlying reasons drug companies can hike-up the price of old, off-patent drugs and simply ascribe the price increases to “greedy”, “price-gouging” pharmaceutical companies.
As part of a deal worth approximately R4.7bn, Aspen bought the marketing rights to a portfolio of cancer drugs from GlaxoSmithKine in 2009, and Turing paid approximately R723m for the marketing rights for Daraprim.
But why would pharmaceutical companies pay millions for drugs already (or soon to be) in the public domain which can be freely copied by generic drug manufacturers?
What they both effectively paid millions for was the marketing approval from drug regulatory authorities. In other words, they were purchasing the marketing rights, along with access to a supply of the drug, which meant they could by-pass the regulatory hurdles required to market the medicine.
If other companies wanted to compete in the respective “markets” and sell the same medicines, they would need to apply for a new generic drug approval from the relevant drug regulatory authority.
In the case of the US, a would-be competitor would have to submit an “abbreviated new drug application” to the US Food and Drug Administration (FDA). According to the FDA commissioner, Dr Scott Gottlieb, “Filing [an abbreviated new drug application] with the FDA used to cost as little as $1m; today it can run as high as $20m, sometimes more”.
Entering the US drug market is not only costly; the FDA has a backlog of thousands of generic drug applications that, on average, take 50 months to approve. This means that some old, off-patent drugs may not be facing competition from other generic entrants, which creates an opening for companies to extract extraordinarily high profits by driving-up the prices of drugs such as Daraprim.
To be clear, if no barriers put up by the FDA and other drug regulatory authorities existed, the high price of drugs would be the signal for other pharmaceutical companies to step into the market and produce a good quality drug at a lower price.
Companies such as Turing (Aspen) that buy the marketing rights from others can charge relatively high prices only because they are, inadvertently, being protected by the drug regulators. In a competitive free market, there would be many more drug producers making and marketing these products.
To make matters worse, instead of addressing the underlying problems that hamper competition, the typical response has been to double-down on bad regulation, conduct further investigations and introduce (or impose) stricter price controls.
The perverse effect is that governments which arbitrarily define markets by insisting on imposing price controls and other bureaucratic hurdles, force out producers over time and thus lessen competition in the domestic market.
The public ought to be focusing its attention on the real barriers that hamper access to medicines and pressuring governments to improve regulatory environments.
For example, in SA, bureaucratic bungling and an inefficient drug registration system unnecessarily delay the entry of drugs (both generic and originator) into the South African market, sometimes by up to five years.
Drug prices set by government pricing committees are fixed for protracted periods that fail to accommodate subtle nuances in the market including, but not limited to, a wildly fluctuating local currency.
The South African government continues to charge VAT on pharmaceutical drugs even though taxing the sickest and most vulnerable members of society is clearly counter-intuitive.
These are some, but certainly not all, of the obstacles that result in shortages and hamper access to medicines in SA. If enough pressure is exerted by the public and through the media, these government-created obstacles could be removed with one stroke of the statutory pen.
The price of life
The Conversation report
What it costs to make a drug
Ripping people off is not in our DNA, says Aspen
Watchdog probes Aspen for cancer drug pricing
Regulators are the reason big pharma can charge what it likes