THe WSJ has an excellent expose today (I really do encourage you to read the whole thing -- this is what newspaper journalism should be) on "orphan" drugs, treatments for rare and specialized conditions that, in order to spur their development, are given absolute monopoly status once on the market. Here's how it works and what happens:
Henry Blair had been making an experimental enzymeunder government contracts while he was a researcher at TuftsUniversity School of Medicine. The enzyme was developed by scientistsat the National Institutes of Health as a treatment for Gaucherdisease, a rare, sometimes fatal, condition that causes certain organsto swell and bones to deteriorate.
In 1981, when Mr. Blair co-founded Genzyme, thegovernment transferred the contract to make the enzyme to his newcompany. At first, the experimental treatment didn't seem to have muchcommercial potential because of the small market. Before the OrphanDrug Act, investors' "eyes would roll back in their heads when I saidthere were, maybe, 4,000 patients" in the U.S. with Gaucher disease, hesays.
Genzyme hired Henri Termeer from a company that sold a$50,000-a-year product for hemophiliacs. Mr. Termeer envisioned an evenhigher price for the Gaucher drug. "I never dreamed we could chargethat much," says Mr. Blair, who remains on Genzyme's board and is chiefexecutive of another biotech firm developing an orphan drug.
In 1991, Genzyme brought the treatment to market, charging an average price of $200,000 a year per patient.
Genzyme explained the price by noting how difficult itwas to produce: Originally, it took enzyme from 22,000 human placentasto make enough medicine to treat one adult patient each year. Thecompany also gave the drug free to certain patients.
Still, the cost was so high that in 1992, the federalOffice of Technology Assessment, conducted an investigation into thedevelopment of the drug. The report estimated Genzyme spent $29.4million to develop the drug. It said much of the initial research wasdone by scientists at the NIH and paid for by the government.
The report said the company loses money on each unitgiven free but makes far more by charging insurers the full price.Genzyme may have experienced more "resistance to the pricing amongpatient advocates" if it weren't for the free drug program, the reportsaid. No major legislative change resulted after the report, and thecost of the drug remained the same.
So the taxpayers fund much of the devlopment, the pharmaceutical company brings a drug to market, and the law allows for an absolute monopoly that lets Pharma charge whatever they want. And, as the CEO admits a moment later, since insurance is paying anyway, what's the difference between $200,000 and $175,000?
Insurers, predictably, are rapidly dropping coverage for these treatments and patients, of course, can't afford them on their own. Soon, these orphan drugs really will be orphans, to everybody's detriment.
