Pharmaceutical companies are developing new drugs in only two therapeutic areas these days -- cancer and rare diseases. Why? These are the only therapeutic areas where exorbitant pricing is tolerated by payers.
How exorbitant are we talking about? Most new drugs for cancer and rare diseases are being priced above $400,000 a year per patient. Some drugs are being priced at $1 million per treatment. And prices continue to soar.
Who loses from this pricing practice? You might think the patients with cancer or with rare diseases are most likely to suffer. But that isn't true.
To cover these exorbitant costs for even a small number of people, payers slash their expenditures in other therapeutic areas, and these cuts affect millions of people. For example, instead of agreeing to pay for the best treatment for diabetes for $1,500, payers approve the use of a second-rate treatment for $75. Physicians are not good at challenging payers, so most patients will get the second-rate treatment.
So the patients who lose the most are typically those who do not have cancer or rare diseases. Actually, nearly everyone else loses when a company prices a novel drug at extreme levels.
Last week, things took a turn for the worse.
According to an article by Tae Kim on CNBC, Goldman Sachs issued a report (by Salveen Richter) that suggested that drug developers might want to think twice about making drugs that were too effective. Richter's report, entitled "The Genome Revolution," was issued on April 10 and says:
"The potential to deliver 'one shot cures' is one of the most attractive aspects of gene therapy, genetically-engineered cell therapy and gene editing. However, such treatments offer a very different outlook with regard to recurring revenue versus chronic therapies.... While this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow."
The translation: if you develop a new drug that cures people rapidly, then patients will not need to take the drug on an ongoing basis, and that limits the amount of money a company can make.