How ‘Big Pharma’ stifles pharmaceutical innovation

Conservatives correctly understand that political problems are often really engineering problems — solved by individual ingenuity and vision far more easily than government planning. This is certainly the root of conservative affection for the free market, which is simply the most effective engine for creating this kind of resolution. 

This is why industries that fear being out-innovated go to such lengths to undermine new approaches. The classic example is the war taxi companies have waged against Uber. Even more pressing for everyday Americans is the pharmaceutical industry’s increasingly desperate attempts to maintain its death grip on drug markets.

{mosads}Unfortunately for Big Pharma, the strategy has given rise to a nagging political problem:  unsustainably high drug prices. There are political solutions for this. For example, the 340B drug pricing program, which requires pharmaceutical companies that sell to the Medicaid and Medicare Part B drug markets to offer their medicines at lower prices to hospitals that serve vulnerable populations (children’s hospitals, for example). As in the case of 340B, not all such political solutions need necessarily impede market forces, but there is little doubt that in the wrong hands, they often do.

The drug pricing issue is ripe for the kind of engineering solution that the market is best equipped to provide. President Trump and Republicans like Sens. Mike Lee (R-Utah) and Ted Cruz (R-Texas) intuitively understand. Cruz recently backed a bill to permit drug importation (a policy that drags down prices by forcing pharma to consistently price its products around the globe), and Lee is set to shortly introduce the CREATES Act, a piece of legislation that makes it substantially easier for generic drug manufacturers to obtain the formulae for off-patent drugs from brand name companies, or even just to purchase the drugs themselves.

While Lee’s bill will be heard in the Senate, the same topic was recently taken up by the House Oversight Subcommittee on Health Care, Benefits, and Administrative Rules. Specifically, the subcommittee examined how pharma abuses any number of regulatory mechanisms to keep generic companies from buying samples needed to test their new products for FDA approval.

These include the Risk Evaluation and Mitigation Services (REMS) process at the FDA, as well as any number of other self-imposed, non-flammable “safety protocols,” some of which have no discernible purpose beyond blocking competition. Those who testified to the committee included Dr. David Mitchell, the founder of Patients for Affordable Drugs.

The testimony laid some alarming facts bare. Mitchell said that despite taking “Reylimid,” a drug that is about to go off-patent, he was unable to purchase generic versions simply because the manufacturer – Celgene Pharmaceuticals – was slow-walking the REMS process to avoid selling samples to generic manufacturers. The result? Even with employer-provided insurance, Mitchell’s out-of-pocket costs for the drug quintupled. Celgene Pharmaceuticals, meanwhile, made $1.6 billion in profits the same year, of which 63 percent came from Revlimid alone. It also happens to be the most expensive drug offered under Medicare.

And in case you think there was some sort of safety issue that only the brand manufacturers could address, let me quote from Mitchell’s testimony directly. “Each month I received counseling on the risks of the drug …The counseling under the program consisted of a nurse reading a list of cautions to me. The survey was an automated phone call—press one for yes and two for no. The whole process took 5-10 minutes. It could have been easily duplicated by any generic manufacturer.”

Simply put, a pharmaceutical company abused a process meant to facilitate fair competition for a drug over which it no longer had any intellectual property rights, effectively quintupling the price of that medicine for patients. Celgene was rewarded with nearly $2 billion in profits for the effort.

And the lengths some brands will go to prop up their profits, keeping taxpayers, patients and other purchasers paying the monopolistic prices, appears to be unending. Manipulating markets and laws is not enough. Some of the biggest abusers are leveraging their political clout to prevent competition. As Mitchell testified, the CEO of Celgene pocketed $100 million while blocking generic companies who want to produce a generic version of Revlimid. And just a few weeks ago, the politically connected CEO of Celgene planted himself right next to Trump when the big PhRMA CEOs went calling on the White House – seemingly to deflect the conversation about high drug prices away from their doorstep.

The scandal here is not the size of the profit. Many pharmaceutical companies richly deserve the money they make for the manufacture of lifesaving drugs. The issue is how it was obtained. A single dollar earned by stiffing consumers and innovators through abuse of the regulatory process is too much.

Mytheos Holt (@MytheosHolt) is a senior fellow at the Institute for Liberty. He previously worked as a speechwriter for Sen. John Barrasso (R-Wyo.), and as a writer for publications including The Federalist.

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