PI Perspective #26

December 1998     View PDF     En español

Opportunistic Pricing:
A New Scourge, A New Call for Action

The introduction of Highly Active Antiretroviral Therapy (HAART) has greatly diminished the incidence of opportunistic infections (OIs) which threaten the health of HIV-infected people. However, it has also brought a new scourge threatening the viability of health care and treatment access for people with HIV.

This new scourge might best be called opportunistic pricing. Opportunistic pricing is a practice wherein some companies set prices for new drugs not based on any relationship to development and manufacturing costs, as in most industries, but rather based on ever escalating perceptions of “what the market will bear.” In other words, some companies have begun to charge whatever they think they can get away with.

In the short-term, such pricing practices threaten the ability of State AIDS Drug Assistance Programs (ADAPs), whose budgets are fixed by federal and state contributions, to deliver treatments to those who need them. If the practice becomes widespread, it will eventually lead to an escalation in the total federal expenditures for AIDS treatment by its impact on the prices paid for drugs by Medicaid and the Veterans Administration.

Even though new drugs have reduced the cost of hospitalization and treatment for opportunistic infections, there is only so much reduction possible. There is little limitation, however, on how high the price for drugs can go. Over the longer-term, such unchecked increases further threaten to feed Congressional and public concerns over what some perceive as “too much spending on AIDS.”

A Little History
Some might say that the practice of opportunistic pricing began with first drug approved for AIDS when AZT (zidovudine, Retrovir) came to market at a disturbingly high price. At the time, the sponsor—then known as Burroughs Wellcome—tried to justify its price on the hotly disputed grounds that the company had spent huge sums on developing the drug. More importantly, they claimed they expected only a relatively small number of people to use the drug since it was initially recommended only for people with CD4+ cell counts below 200.

Perhaps the most realistic explanation for the initial price of AZT is that some form of treatment was so desperately needed that the company knew it could charge almost anything and get away with it. To its credit, as the market unfortunately expanded, the company engaged in two major price reductions.

These, of course, were prompted by the loud public outcry against the price by patient advocates, health care workers, and people within government itself. Scientists at the National Cancer Institute argued that they—not Burroughs Wellcome—did most of the basic research on AZT and only licensed the drug to the company. They managed to drag the company into Congressional hearings to explain the price on what they felt amounted to a “government drug.”

In more recent years, the new generation of drugs known as protease inhibitors pushed the pricing threshold skyward. The new drugs, while enthusiastically received, were priced at up to three times the cost of the older generation of anti-HIV drugs. Also the new drugs had to be used in combination with two of the older drugs.

Overnight, the annual price of basic therapy for HIV disease leapt from around $3,000 per person (for single drug therapy) to $10,000 to $12,000 (for three-drug combination therapy), depending on which protease inhibitor was used. Manufacturers asserted, with some justification, that development and production costs were far higher than with previous drugs.

For example, Merck, the manufacturer of indinavir (Crixivan), asserted that making their new drug required a huge investment in factory refitting costs and a production process that require more than 20 separate steps. Indinavir’s price, though still high, was still substantially lower than the other protease inhibitors, whose manufacturers made no claims about development costs.

Perhaps more than anything else, the price escalation for protease inhibitors was accepted because the affected public was too weary from years of memorial services and burials to put up much of a fight. No one could dispute that the drugs brought about an immediate and dramatic reduction in death and suffering. Despite these justifications, a dangerous precedent was set in letting the high prices stand without challenge.

Perhaps due to the pressure of competition, and perhaps a bit of good citizenship, the next new generation of drugs, represented by the “non-nucleosides” nevirapine (Viramune) and delavirdine (Rescriptor), came to market at prices that were pleasantly more like those of the old nucleoside analogues such as ddI (Videx) and d4T (Zerit). In some cases, these were even less expensive than their less powerful and older competitors. This act of good civic behavior, however, was never heralded by the public and was perhaps the last act of its kind.

Today’s crisis in drug pricing has been triggered by the price set for the newest drug of the non-nucleoside class, efavirenz (Sustiva) from Dupont Pharma. Development, manufacturing, and distribution costs apparently played little or no role in setting the price. Instead, the manufacturer has waged a powerful public relations campaign claiming the drug is superior to others of its type, or even to protease inhibitors, and thus it “deserves” its premium pricing.

Despite the public relations campaign, there is little or no evidence as yet to support any claim of superiority on behalf of efavirenz. All three drugs in the non-nucleoside class are considered highly potent, easy-to-use agents which are hampered primarily by cross resistance between themselves and the tendency to develop resistance relatively easily.

Despite these fundamental similarities, the cost of efavirenz was set nearly 60% higher than nevirapine and nearly 70% above delavirdine. Apparently, the public relations campaign has run up a large bill that must be paid.

In addition to its dubious claims of product superiority, Dupont Pharma argues that efavirenz lowers the cost of therapy since they recommend using it instead of a protease inhibitor for initial therapy. Whether this is the wisest use of the drug remains to be seen, but it takes only a short memory to recall that nearly every one of the drugs approved in recent years has tried to position itself as the “right” drug to use in initial therapy.

The company, like others, also argues that they need higher prices to be able to afford research and development costs for other new drugs for AIDS. This argument rings hollow since there is little evidence in the current market that high prices lead to any increase in the development of new and better drugs for HIV. They also cite the cost of expanded access programs in which the drug is given away free for many months prior to FDA approval.

Critics point out that such programs are really a relatively inexpensive way to build market share (i.e. get more people taking their drug) and interest before the drug is launched, as well as collect additional information on their drug that is supplied to the FDA to support approval.

In the view of most advocates, all these rationalizations lack substance. Consider Dupont’s claim that its drug is superior. Every company believes its drug is superior to its competitors.

Dupont Pharma hopes to convince people that efavirenz is superior to nevirapine and delavirdine, yet it has not conducted a single study directly comparing the drugs. They rest their case on one study in which the drug was paired successfully with AZT and 3TC in people just beginning therapy, thus acting as a substitute for a protease inhibitor in a typical three-drug combination.

Although the data from that study seem impressive to the casual viewer, they have raised many unanswered questions, discussed in the article entitled Strategies: Protease-Sparing Regimens. Both nevirapine and delavirdine have also shown good performance when paired with AZT and 3TC and given to people just beginning therapy.

All three drugs have also shown reasonably good performance in previously treated patients and all three may play an important role in “salvage” therapy. None of the three, however, has demonstrated long-term effectiveness comparable to protease inhibitors, probably due to the ease with which they develop resistance. No study has attempted to determine what, if any, differences there are between the three drugs in terms of efficacy or durability of response. Since the drugs differ widely in side effects and cost, a direct comparison could provide critically needed information.

Dupont Pharma has brought efavirenz to market with a flurry of confusing, some say obfuscating, claims about pricing. Different prices have been repeatedly quoted by the company, some being the “retail price,” others the “average wholesale price” or the federal “ADAP” price or the “Average Manufacturers Price.”

Even competing pharmaceutical companies say they have had a very hard time figuring out the actual price of efavirenz. One point has been consistent in all manifestations of the price: it remains 55–60% higher than the equivalent price for nevirapine, 65% to 70% higher than delavirdine, and nearly as high as the price of a protease inhibitor.

Despite the company’s hope that everyone will “use their drug first” a fairly typical use of the drug will be to add it to a new protease inhibitor when patients have experienced failure with their first major combination regimen. In such use, it will add another $3,500 to $5,000 per year onto the current $10,000 to $12,000 cost of combination therapy. Bottom line: the cost of HIV therapy is creeping nearer and nearer to the $20,000 per year mark.

Company	Drug(s)	Good Citizenship Awards	Troubling Actions	Special Concerns
Abbott Labs	Ritonavir (Norvir), ABT-378	No price increases, yet.	Highest priced protease inhibitor.	Price of new ritonavir and ABT-378?
Agouron	Nelfinavir (Viracept)		* High initial prices; plus recent price increases, despite high sales.	* New price of nelfinavir was unexpected and will cause serious trouble in 1999.
Boehringer Ingelheim	Nevirapine (Viramune)	Relatively modest initial pricing; no increases; large study program.	Limited interest in AIDS research.	Will Dupont’s actions trigger a price increase?
Bristol-Myers Squibb	ddI (Videx), d4T (Zerit)	Relatively modest initial prices.	Recent prices increases.	How will they price new anti-HIV drugs in development?
Dupont Pharma	Efavirenz (Sustiva)	Large expanded access program; large study program.	* Initial prices 60% above others in this class; over promotion of early data.	* “Used car” sales tactics by top management; unwilling to negotiate; no concern for cost to government.
Glaxo Wellcome	AZT, 3TC, (Combivir)	Lowered AZT price twice.	High initial prices. Recent price increases.	* Will prices rise?
	Abacavir (Ziagen)	Ideal expanded access design; many studies; fair final price.
	Amprenavir (Agenerase)	Ideal expanded access design.		High or low end of protease-inhibitor pricing scale?
Hoffman LaRoche	ddC (Hivid) Saquinavir (Invirase, Fortovase)		High prices for all versions of saquinavir; 2-year promotion of a defective formulation (Invirase).	Are they planning an increase in the price of saquinavir?
Merck	Indinavir (Crixivan)	Lowest priced PI by a large margin; responded to community input on pricing; highly ethical.	Watching others, weighing possible price increase.	Management may argue it was not rewarded for setting low prices, so why hold the line?
Pharmacia & Upjohn	Delavirdine (Rescriptor)	Lowest price in class; continuing study program.	Slow in clarifying benefits of the drug.	Will they hold the line on pricing in light of efavirenz price?
* items demand immediate action

What is a Fair Price?
It is virtually impossible to know what a truly fair price is in the pharmaceutical industry. In most other industries, production, materials, research and development, labor and overhead costs drive basic pricing decisions. Some additional price padding is based on market opportunities, prestige and brand position.

There is no way to determine how much money is really spent directly on developing, testing and marketing any individual drug since almost anything can be construed as part of the “cost.” Thus, manufacturers look to their competitor’s prices and ask how much threat their new drug poses and how much the market might possibly bear. Consequently, prices move only in one direction: up.

But if manufacturers are so inclined to look to competitor’s prices as their frame of reference, so too must the public. Such a look cannot help but find a 60% increase relative to competitors to be anything but unfair.

All of this comes at a time in the AIDS epidemic when it has actually become possible to drop the price of drugs without endangering company profits or ongoing research. Today’s anti-HIV drugs are used by far more people, and now for vastly longer periods of time, than were drugs in the early years of the epidemic.

In the 1980’s and most of the 1990’s, only a modest percentage of HIV-infected people actually took advantage of therapy. Far more were concerned about potential side effects than were convinced about the potential for long-term benefits.

Moreover, a lack of support programs made it hard for many people to have access to the drugs. Even when the drugs were readily available, people were likely to use them only later in the disease process, and then for only a relatively short time period before death or progression.

Today, the benefits of therapy are much better understood and people who use treatments are likely to go on doing so for many years, if not an entire lifetime. Under these uses, the development costs of new drugs are quickly recovered and many long years of easy profitability set in.

Were this any other industry, these conditions would lead to annual price reductions to keep older drugs competitive as newer ones come to market. A company truly interested in fairness, good citizenship and a reduction in suffering could easily set lower prices and still make healthy profits.

Why Does Pricing Matter?
Even though few individuals pay for drugs out of their pockets, the costs still affect everyone. Regardless of whether the prices are buried through Medicare, Medicaid, and the AIDS Drug Assistance Program (ADAP), in the taxes we pay, or through insurance premiums, we are all affected by drug pricing.

Like the drugs themselves, unfair pricing produces long-term, cumulative side effects. Over time, those side effects begin to affect an ever-greater number of people and ultimately threaten a complete collapse of the hard-won system of health care and treatment access programs for people with HIV. A few ways in which this happens:

When one company pushes its price of a drug far beyond the accepted limits of its price class, other manufacturers watch closely. Today, one of the most critical factors influencing the price Glaxo Wellcome sets for abacavir (Ziagen) and its upcoming protease inhibitor amprenavir (Agenerase) is the price Dupont Pharma sets for efavirenz. Glaxo Wellcome senior management and their peers at other companies will carefully study the public reaction to Dupont’s pricing action.

If there is generally easy acceptance of Dupont’s price by insurance companies, government programs, and other payers, and if AIDS activists fail to stir up a public outcry, the next drugs that come along will almost certainly be priced at the higher end of the range envisioned by management. If instead Dupont Pharma meets a wall of public and private criticism, forces will arise in other companies arguing for more modest pricing when their new drugs reach the market.

When one company sets an unexpectedly high price for a new drug, as was done with efavirenz, ADAPs have an increasingly difficult time delivering treatment to those who need it. For 1999, a national coalition of HIV/AIDS advocates, with considerable help from the pharmaceutical industry, sketched out the most accurate budget yet to cover the cost of the AIDS Drug Assistance Program for the coming year.

People were able to go to Congress with what they thought was a clear picture of how much money would be needed for 1999. No one anticipated how much a high price for efavirenz might affect the upcoming price for abacavir. If pricing trends continue some ADAPs will continue to have to close programs or limit access in other unacceptable ways.

Continual, unchecked price increases allow industry to think of federal support programs as a form of entitlement, a belief that will surely need to be challenged politically. The pharmaceutical industry has struggled to form a coalition with AIDS advocates over securing money for programs like ADAP, but this effort is more than a little self-serving on industry’s part. While this gave important political power to the ADAP effort—Congress listens well to big business—companies have come to assume that government will cough up the money no matter what they charge for their drugs.

Not surprisingly, a federal backlash is very possible. Government does not set up special programs to pay for the drugs needed to treat every serious or life-threatening disease. It has done so for AIDS and for some other diseases because of the dramatic human need, the high cost of therapy, and the compassion of a small groups of highly committed people in and outside of government who fought for the programs. But if industry takes advantage of these support programs by reckless opportunistic pricing, even the most caring people in Congress will have difficulty guaranteeing adequate future funding.

In the current efavirenz situation, Dupont Pharma was shocked when it learned that the biggest state ADAP programs would delay putting its new drug on their formularies. They had bragged to analysts that state and federal program support was a given. Not so. And this is only the tip of the iceberg of what will happen in future years if pricing is not moderated. Unfortunately, no matter how the pricing fight is conducted, the danger is that patients in need will someday be hurt by it.

Pricing concerns are not limited to government programs, such as ADAP, Medicaid, and the Veterans Administration. Private insurers are being charged high prices for drugs, often even higher than government programs. The kind of price increases seen in AIDS are also happening in other diseases, threatening to wipe out cost savings that may have been gained in the health care system through more widespread use of managed care.

The increasing costs of health care, of which drug pricing is but one piece, have become a major political and economic issue. While it is true that drug prices are not the only cause of rising health care costs, they undoubtedly contribute to the problem. At a time when everyone else is struggling to contain the cost of health care, drug industry profits are setting new record highs.

The United States is one of the only countries left that does not exercise price control over the pharmaceutical industry. As the industry becomes increasingly globalized, CEOs may look to the U.S. for the immediate profits they may not be able to reap in other countries.

One example of the results of opportunist pricing is seen when senior citizens are forced to organize drug-purchasing collectives to purchase drugs at lower prices in Canada rather than in the U.S. Like HIV patients who organized similar collectives in the earliest days of the AIDS epidemic, the seniors do their purchasing over the border and take advantage of FDA rules which permit importation of “personal” quantities of medicine.

Surely, the prices the companies are charging in Canada still permit a reasonable profit. Otherwise, the companies would simply stop selling there (as they have done in some countries where price controls are too strict for their tastes).

Cost and price problems are not limited to new drugs. Within days of Dupont Pharma’s announcement of its prices for efavirenz, Agouron announced a range of price increases for its existing protease inhibitor nelfinavir (Viracept). Nelfinavir was already at the high range of prices for protease inhibitors.

This in turn puts pressure on management at Merck, which currently offers the lowest and most fairly priced protease inhibitor. As one Merck spokesperson said to Project Inform, “How do we convince our management to hold the line on prices in this marketplace? They ask why should we be left behind?”

Perhaps most importantly of all, U.S. pricing matters because it sets the stage for the prices that will be charged worldwide. By setting high initial U.S. prices, manufacturers in effect make a statement that the drug is simply “too expensive” to ever be given away or sold at a marginal price in developing nations. Consequently, as far as treatment goes, it is still 1980 in those places of the world where 90% of HIV-infected people live.

For Africa, Asia, and parts of South and Central America, there simply is no feasible treatment for HIV disease. And as long as new drugs continue to come to market at the multi-thousand dollar per year cost level, there cannot even be a serious discussion of how to make treatment available to developing nations.

What Can YOU Do About It?
Make no mistake about it—AIDS activists alone cannot solve this problem. Only widescale public pressure, exerted directly and perhaps through the Congress, can influence these matters. Unfortunately, it is far too easy for most HIV infected people in the United States to be content with having their own access to the drugs. But if we hope to exert meaningful pressure, we must join together locally as well as internationally and say these prices are unacceptable.

One thing that could have an enormous and proven impact on this problem would be for every person—or even one in every ten persons—reading this article were to write a short but heartfelt letter expressing concern. Such letters must go to the President, Chairman of the Board, or CEO of the companies who are pushing the boundaries of pricing.

Letters need not be threatening—ordinary pleas to their humanity will do. Individuals within these companies are not monsters. In fact, many of them feel the same way we do about the need for lower prices. A massive letter-writing campaign would give great strength to those factions in the companies who want to see prices come down. Issues that need immediate action in the form of letters, in their order of importance, are as follows:

• Letters to the Chief Executive Officer of Dupont Pharma protesting the company’s pricing of efavirenz and the company’s unwillingness to negotiate with either the community or the government about it.
• Letters to the CEO of Glaxo Wellcome urging the company to hold the line on pricing with amprenavir, and to resist the temptation to set new, higher pricing thresholds.
• Letters to the President of Agouron Pharmaceuticals protesting the company’s recent price increases.

Please take this request seriously. The future, long-term availability of government drug support programs, and the viability of managed health will at least partially depend on our ability to win this issue.

Important Names and Addresses
Charles O. Holiday
“President and CEO”
E. I. Dupont deNemours
10007 Market Street
Wilmington, DE 19898

Mr. Nicholas L. Teti
President
DuPont Pharmaceuticals Company
Life Sciences Enterprise
Chestnut Run Plaza, WR 2142
PO Box 80722
Wilmington, DE 19880-0722

Mr. Peter Johnson
President and CEO
Agouron Pharmaceuticals, Inc.
10350 North Torrey Pines Road
La Jolla, CA 92037-1020

Mr. Robert Ingram
Chief Executive Officer
Glaxo Wellcome, Inc.
5 Moore Drive
Research Triangle, NC 27709

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