We disagree with the blanket assertion that drug prices are too high across the board.
Certainly, there have been well-documented abuses when companies that produced a generic medicine, for which all the research and development costs had long since been recouped, did abuse their market positions. Mylan Laboratories hiking the price of a generic EpiPen (used to deliver emergency injections of epinephrine to counteract life-threatening allergic reactions) from $100 to $600 over just a few years, is a recent example of this.
However, for there to be adequate incentives for a company to assume the economic risk of developing a new drug, prices must be high enough. In the case of certain rare diseases, for which the patient population might number a few hundred thousand or less globally, prices often have to be very high to incent drug discovery. It takes many years and sometimes billions of dollars to produce an effective, marketable drug.
When it comes to drug pricing, we consider the United Kingdom’s National Health Service (NHS) a good reference point because it has one of the most sophisticated appraisals of cost-effectiveness in the world. NHS uses Britain’s National Institute for Health and Care Excellence (NICE) to assess the clinical and economic effectiveness of new medicines, and its spending per capita on drugs is among the lowest in the developed world.
This different approach to pricing yields some interesting differences between the United States and the U.K. In the U.K., a two-pack of generic EpiPens runs about £93, which is about $120, versus up to $600 in the U.S. NICE saw no additional value added from the EpiPen and thus saw no grounds for having patients pay more for it.
The World’s Most Expensive Drug: Worth the Price
In contrast, Alexion Pharmaceuticals’ Soliris, a medicine used to treat two rare and lethal blood disorders, costs more than $400,000 a year. It is the world’s most expensive drug. Yet, despite its high cost, Soliris is priced similarly in the United States and the U.K. The U.K authority NICE deemed it a good value, as the drug provides patients with a rare, deadly disease the ability to lead nearly normal lives.
While we are not investors in Alexion, we are investors in other companies in late-stage development of specialized treatments that address complex, unmet medical needs. One such company is BioMarin Pharmaceutical, which produces several expensive, specialized treatments for orphan diseases, so-called because they affect fewer than 200,000 people worldwide and historically did not attract much research from pharmaceutical companies. BioMarin drugs are also priced similarly in the U.K., the United States, and around the world. These treatments transform the lives of patients who have few or no other options for medical treatment.
The bottom line on drug prices is that there will continue to be controversy about the cost of some medicines. However, as is evident from the examples above, $600 may be a bad deal for one drug, while $400,000 may be a good one for another.
As of 3/31/17, Oppenheimer Global Fund had 0% invested in Mylan, 0% invested in Alexion Pharmaceuticals and 0.49% in BioMarin Pharmaceutical.
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These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.