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Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 05-17-2004

Transplant Drug Cuts Onset of Cancer
Wall Street Journal, 5-17-04

Newer drugs save lives. The push by some advocates and policymakers to keep patients on older or generic medications in place of newer, more expensive drugs, stems from the intuition that if an older, cheaper medication is as effective as a newer one it ought to be used first. But this flies into the face of much research showing that many new drugs are, in fact, more effective than older medications and have fewer side effects. The benefits of new medications in existing classes of treatments are illustrated in this article on a new immunosuppressive therapy given to transplant patients to ward off organ rejection.

Although immunosuppressive drugs save lives in organ transplant patients, they also increase cancer risk by impairing normal operation of the patient's immune system. In this study, however, a new class of immune inhibitors, mTOR inhibitors, has been shown to produce half the cancer rates of traditional immunosuppressive treatments, called calcineurim inhibitors. While more research still needs to be done, evidence supporting the efficacy of new medications abounds - supporting the thesis that when it comes to medical innovation, new and improved is not an oxymoron.

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State pharmacists fight back against imported drugs with own Web site
Associated Press Newswires, 5-20-04

"Some prescription drugs, believe it or not, aren't cheaper in Canada. according to a new Web site sponsored by Minnesota pharmacists and retailers." This isn't terribly surprising to anyone who closely follows the real economic issues involved in drug importation, but some pharmacists in Minnesota are on a crusade to remind consumers that drug prices in the U.S. are not, in many instances, wildly different than drug prices in Canada, taking into account shipping costs and the fact that the U.S. has a larger generic drug market than any other country in the world. In fact, a study by Patricia Danzon, from the Wharton School at the University of Pennsylvania, found that once differing exchange rates were taken into account drug prices in Canada were only, on average, about 15% less expensive than in the U.S. Of course, drug importation is an issue that won't go away in an election year - but neither will the problems associated with drug importation. Arbitrage - capturing profits by importing a product from a lower priced market (Canada) into a higher priced one (America) - is a well known economic phenomenon, with well known drawbacks - especially for prescription drugs. Europe has drug price controls in all its major markets, but, thanks to widely differing economies, can import cheaper drugs from less developed economies into more developed ones. However, the reality is that there is only a small number of medications where the price spread between the importing nation and the exporter justifies arbitrage - and the importers consume a significant portion of that savings in their own profits. As such, a study by IHS Health shows that only a tiny fraction of the total EU budget is saved through drug reimportation, and a similar effect can be expected if the U.S. was to create a national drug importation plan - to say nothing of the enormous regulatory costs that the FDA would incur to keep counterfeit drugs out of the market. Widespread importation would also have the effect of increasing prices for Canadians, who would suddenly be competing with Americans for their medications. This is, in the long run, a lose-lose situation for everyone - except that is, the import firms, who would reap windfall profits by adding yet another layer of bureaucracy between themselves and consumers. Rushing North of the border to import cheap prescription drugs for even a significant minority of Americans may be an alluring mirage, but it is likely to remain just that - a mirage.

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Shifting Drug Prices Muddy Medicare Card Choice
Washington Post, 5-21-04

The Medicare discount drug card program available to seniors until Medicare drug coverage takes effect in 2006 represents one the most ambitious experiments in market dynamics ever conducted in American health care. Articles like this one grasp the basic extension of market forces into the prescription drug market, but largely bemoan the sudden influx of information into a market long shrouded in secrecy - seniors, it is thought, cannot possible cope with all of the options now available to them. However, information is critical to the proper functioning of any market, no less for prescription drugs than any other commodity. Indeed, Americans have long been accustomed to navigating complex pricing arrangements for home mortgages, life insurance, and automobile financing, both through bricks and mortars suppliers and via the internet - with, by and large, great success. As more information on drug pricing becomes publicly available markets have started to work as expected: some prices rise, other prices fall - sometimes in rapid succession. Nonetheless, all competitors have powerful incentives to lower prices to encourage seniors to choose their card over their competitors and grab market share. Consumer choice and market competition fuel success in all other American markets, and there is no reason to expect that the market for prescription drugs will be any different.

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Abbott AIDS drug pricing leads to review of patent
Chicago Tribune, 5-21-04

No one accepts the premise that government provision of roads and other public infrastructure should enable the government to set prices for automobiles, or any other commodity transported across public highways, even though everyone who uses those highways is, in effect, the beneficiary of a public subsidy. The reason is a basically accepted premise of economics: price controls lowers the supply goods and services, as investment shifts to other, more remunerative, sectors of the economy. This well-known premise is being tested again, this time in the market for AIDS drugs. Abbott labs has substantially increased the price of its AIDS drug Norvir, and AIDS activists and other critics are now arguing that the government should use a little known provision of the Bayh-Dole Act of 1980 to grant a compulsory license to generic manufacturers to copy Norvir before its patent runs out. The reason is that, like many drugs, some federal funding was used in Norvir's development - although the lion's share of the development and marketing of the drug was conducted with private, not public, funds. The problem here is that if manufacturers of AIDS drugs think that the government will, under political pressure, circumvent patents in order to control prices, they will simply cut back on research for AIDS drugs. Governments must resist the temptation to tinker with prices in all markets, but most especially in pharmaceutical markets, where R&D is a critical component of drug development and is especially sensitive to price controls. Today's prices contribute to the funding and development of tomorrow's drugs - and if there is no return today there will be no better drugs tomorrow.

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Genesis of a copycat generation: Despite big investment in biogeneric drugs, doubts remain about the profitability of the new industry
Financial Times, 5-21-04

As patents on the first generation of blockbuster biotech drugs expire, a host of generic companies are considering entering the market for biogenerics - copycats of biotech drugs. Nonetheless, uncertainty in the biogeneric market is high because the manufacturing of biotech drugs is considerably more expensive and complicated than traditional pharmaceutical molecules, and even minor flaws in the manufacturing process can produce serious side effects in patients. While critics of the pharmaceutical and biotech industry complain about the high prices of their products, it is instructive to look at how generic companies are approaching biogenerics, since the complexity of these products (both from a R&D and regulatory perspective) more closely mirrors the process that the primary manufacturers endure. Of course, biotechs don't have the option of cherry picking their compounds the way generic manufacturers do, leaving biotechs them with all of the development risk and generics with all of the profits once patents expire. Whatever course generic companies chart in the market for biogenerics, industry critics should remember that without innovative, risk-taking companies at the front-line of drug and bitotech development, generic companies would have nothing to copycat.

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