Monday, March 13, 2006

For an orphan drug, yet more buck for the bang

Not to be outdone by Genentech, the small pharmaceutical company Ovation has upped the price of its orphan drug Mustargen nearly tenfold. The zinger? Mustargen's patent expired decades ago.

Mustargen, known generically as nitrogen mustard, is an old chemotherapy agent now used mainly as a topical therapy for cutaneous lymphoma. The appellation 'generic' is a bit of a misnomer, however: because of Mustargen's relatively small market (it grossed only $546,000 nationally in 2004), no other drug company finds it profitable to produce a generic competitor. Hence, Ovation can charge whatever it likes for the drug.

For those who sense predation in Ovation's change of heart, fear not. The increase in costs, according to a company executive, is necessary to invest in manufacturing facilities for the drug. (Ovation, in a stroke of entrepreneurial genius, recently acquired the rights to the drug from Merck, who, in the meantime, is providing the company with a steady supply.)

Yet again, price gouging is justified on the basis of phantom production costs. The hidden argument, of course, is one that is becoming more explicit day by day: drugs ought to be priced on the basis of their intrinsic value as life-sustaining therapies -- not on their research, development, or even marketing costs.

The argument is troubling. Its language implies universality; any reasonable person ought to realize the "intrinsic value" of drugs. (And there is arguably a price which everyone, or nearly everyone, might be willing to pay for the continued existence of life-sustaining therapies.) Unfortunately, "intrinsic value" here is determined based on price optimization in the marketplace, which is contrary to universal access. If consumers are desperate enough -- and in the special case of cancer patients, arguably they are -- price optimization may occur at a point where most consumers are priced out of the marketplace.

If drug companies were selling lemonade, that might be legitimate. But many of us, soft-hearted folk, treat life-sustaining health care as a special case: a social benefit to which even the poor and elderly are entitled. If not, wherefore Medicare and Medicaid?

This situation is also a reminder of the cozy regulatory situation drug companies find themselves in. Medicare, for example, is forbidden from taking into account a drug's price in determining coverage. While this protects healthcare consumers from the (fictional) possibility of cheap drugs being substituted for good ones, it also prevents Medicare from using its enormous purchasing power as leverage in favor of reduced prices. Until the inferiority myth about generics is debunked (see Marcia Angell's excellent book on the subject), Medicare will continue to operate with one regulatory hand tied behind its back.

As for Ovation, may they continue to, in their own words, "satisfy unmet medical needs." We're rooting for you.


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