The title of this post is one of the many questions that came to mind when I read yesterday’s New York Times story, Cutting Dosage of Costly Drug Spurs a Debate. The article describes the cost of Cerezyme, a drug made by Genzyme (GENZ). As the Times reports:

“The drug in question, Cerezyme, is used to treat a rare inherited enzyme deficiency called Gaucher disease. Some experts say that for most patients, as little as one-fourth the standard top dose would work, saving the health care system more than $200,000 a year per Gaucher patient.”

This raises many questions related to how we pay for very expensive drugs, particularly for rare diseases. Of course, one question is how much should a drug like Cerezyme cost? On the one hand, it’s understandable that a drug that is used by a very small group of patients is going to cost more. But at what point does “costing more” become “exploiting patients who have no other options?”

“With Cerezyme, which is made by Genzyme, the profits are sizable. Gaucher disease, which can have complications like ruined joints, is rare; only about 1,500 people in the United States are on the drug and about 5,000 worldwide. Sales of Cerezyme totaled $1.1 billion last year, making it a blockbuster by industry standards.”

Blockbuster drugs are typically taken by hundreds of thousands, and often millions of people. For a blockbuster drug to have a patient pool of just 1,500 people is incredible.

So how much should Cerezyme cost? Genentech says:

“The company says it needs the high price to make a sustainable business of serving such a small number of patients and to pay for research on new products. Genzyme also says it provides the drug free, if necessary, so that no one goes without the product because of its cost.”

Drug companies often try to play the “research & development card,” arguing that high prices are justified because it supports research into new drugs. But a recent study showed that drug companies still spend twice as much on marketing and administration as they do on researching and developing new drugs (“The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States,” PLoS Medicine, 1/3/2008).

Obviously, the amounts vary by company, and the study was of the industry as a whole, not particular companies. So it’s likely that Genzyme doesn’t spend twice as much on marketing as on R&D. Even so, the “R&D card” is a notoriously self-justifying but impossible-to-measure reason for high drug prices. How much is it fair to increase a drug’s price for alleged future R&D? At what point does a drug company sacrifice the financial well-being (and ability to afford the medication) of current patients on the altar of some uncertain and unknown set of future patients?

Then there’s the most interesting question:

What is the public entitled to when our tax dollars helped a drug get developed in the first place?

The article says:

“But critics say the company’s development costs were minimal, because the early work on the treatment was done by the National Institutes of Health, which gave Genzyme a contract to manufacture it. And analysts estimate the current cost of manufacturing the drug to be only about 10 percent of its price.”

There’s a federal law that’s at the heart of this question: The Bayh-Dole Act. This Act allows recipients of government research funding to retain the title to, and file a patent on, an invention that was discovered or created with that government funding. The Act was passed because it was felt that government-financed innovations that would benefit the public were sitting on the shelves at universities and research institutes, because the inventors could not patent and market those inventions.

But there’s a never-used provision of the Bayh-Dole Act that seeks to protect the public’s investment in such inventions, including drugs: The so-called “March-in Rights” (35 USC 203). This allows the government agency that gave the funding (in this case, the National Institutes of Health) the right to “march-in,” ignore the patent, and license the invention to, say, a generic drug maker, if doing so is “necessary to alleviate health or safety needs which are not reasonably satisfied” by the holder of the patent and if the patent holder is not making the invention “available to the public on reasonable terms” [35 USC 201(f)].

Does charging $300,000 a year for Cerezyme qualify? Or, for that matter, does anything? A consumer group, Essential Inventions, submitted two petitions to the NIH in 2004, asking them to “march in” and permit generic versions of two drugs, Xalatan (for glaucoma) and Norvir (an HIV/AIDS) drug, because the price being charged for those drugs was so high. The NIH denied both petitions, saying that “available to the public on reasonable terms” doesn’t mean at a price that the public can afford.

(In the case of Norvir, the manufacturer. Abbott Laboratories (ABT), had unilaterally quadrupled the price of the drug in December 2003. Members of Prescription Access Litigation sued Abbott over the price increase, alleging that it violated antitrust law. The lawsuit survived a motion to dismiss, was certified as a national class action, and is pending in the U.S. District Court for the District of Northern California. More info on that lawsuit is here.)

So the question remains, for a drug like Cerezyme, how high a price is too high? More importantly, if the price is too high, is there anything that we, the public, can do, especially when our taxes help discover the drug in the first place?

Readers of this blog have previously read about a lawsuit brought by PAL member Service Employees International Union (SEIU) Health and Welfare Fund against Abbott Laboratories (NYSE:ABT), charging that Abbott’s unconscionable 400+% price increase of the vital anti-HIV/AIDS drug Norvir violated antitrust laws.

That lawsuit has withstood various attempts by Abbott to have it dismissed– defeating a motion to dismiss, defeating a motion for summary judgment, being certified as a national class action, and then surviving an Abbott challenge to that class action status. The trial is scheduled to begin next summer.

Now the chain supermarkets are joining in. The Wall Street Journal reported yesterday that Safeway Inc., Walgreen Co., Kroger Co., Supervalu Inc.’s New Albertson’s Inc. and American Sales Co. have filed a similar lawsuit. It’s not clear from the WSJ article what exactly the supermarkets are claiming, or how they allege they have been damaged. If a copy of the complaint comes our way, we’ll update this entry.

Abbott announced the price increase back in December 2003. What took these supermarkets so long? It’s almost 3 years later. The filing of the suit now may have been motivated by the fact that various states have 3 year statutes of limitations (the amount of time you can file a lawsuit after an alleged “wrong” has occurred) for various kinds of claims concerning alleged fraud. Three years would be up in this instance in about a month. These supermarkets may also have seen the progress of the SEIU suit and concluded that they have a viable case as well.

Merrill Goozner, of GoozNews, (and author of the $800 Million Pill, which contains a chronicling of the development of Norvir), dryly noted “If we had a government (and a Justice Department) that cared about consumer protection, it would join in these suits by invoking the government’s right to ensure that the drug is made available on reasonable terms.”

The last phrase in that quotation refers to the fact that Norvir was developed in part with public funds. Under the Bayh-Dole Act, inventions developed with government funds must be made available to the public on reasonable terms. In 2004, the consumer group Essential Inventions petitioned the FDA and NIH to force the licensing of a generic (a move provided for by the Bayh-Dole Act) because Abbott was not making Norvir available on reasonable terms. In a move notable for its lack of surprise, the FDA and NIH declined.