Profits and prescriptions
GlaxoSmithKline LLC recently joined a host of retailers and AIDS activists suing Abbott Laboratories for increasing the price of its HIV drug Norvir.
Challenges from the likes of Deerfield-based Walgreen Co. call into question how drug companies decide to price life-saving drugs.
Too much profit leads critics to allege gouging. Yet losses or slim profit margins hurt innovation and access, drug industry proponents counter.
Legislatures and courts have stepped into the mix abroad, but in the U.S. drug companies and market forces determine prices and access.
"They (drug companies) can jiggle the prices any way they want to," said Dr. Sidney Wolfe, a medical consultant for Public Citizen, a nonprofit consumer watch group based in Washington, D. C.
Wolfe, who advocates federal control of prices, said the U.S. system is vulnerable to abuses. Lower-income patients and the estimated 46 million uninsured in the U.S. suffer, he said.
Some activists maintain drug pricing is a moral issue.
"People should come before profits," said Jay Bhatt, past president of the American Medical Student Association, a Reston, Va.-based nonprofit group advocating medical reforms.
However, many economists insist gouging isn't in the best interest of drug companies, which use a complicated set of factors in pricing drugs they invent and patent.
"It's likely the pricing strategy at Abbott is to maximize profits," said Surrey Walton, associate professor at the University of Illinois at Chicago's department of pharmacy administration.
Crossing the line into gouging consumers, Walton said, only would reduce overall sales and revenues.
Still, the lack of transparency in drug pricing contributes to the protests of consumers and businesses alike when any change in price is made.
Safeway, Walgreen, Kroger, Supervalu's New Albertson's and American Sales each are suing Abbott for raising the price of its anti-retroviral drug Norvir by 400 percent in 2003.
Norvir went from $51.30 for 30 100-milligram capsules to $257.10, which amounts to $5,000 more a year.
Norvir, which is known generically as ritonavir, is a booster for other protease inhibitors, such as Bristol-Myers Squibb's Reyataz and Merck's Crixivan.
Earlier this year, the Wall Street Journal reported undisclosed documents and e-mails suggested Libertyville Township-based Abbott executives attempted to dampen the demand for Norvir by increasing its price in hopes of steering HIV-positive patients away from rival drugs and toward Abbott's other HIV drug, Kaletra, which contains Norvir.
Abbott spokeswoman Laureen Cassidy said Abbott did not increase the price of Norvir to promote Kaletra and that the increase did not affect other drug companies.
The price hike was intended to reflect Abbott's investment in the drug and to come in line with the pricing of similar drugs, Cassidy said.
"The costs include the costs of those that failed," Cassidy said. "The costs of developing these medicines take years of research -- sometimes decades."
Illinois Attorney General Lisa Madigan has been investigating whether the price hike violates the state's consumer fraud law.
Figuring out "fair" profit entails a calculus of market forces and social responsibility.
Drug companies market their drugs to health maintenance organizations, federal institutions, employer groups and individual consumers. In-house departments bring together a wide variety of factors to price a patented drug.
The costs of developing a drug have been estimated between $100 million and in excess of $1 billion. Last year U.S. drug makers spent an estimated $55 billion on medical research, according to IMS Health, a market research firm.
One in a thousand drugs tested makes it through stage three clinical testing, according to David Harrell, chief executive officer of Michigan-based OptimizeRX, an online consumer site listing special savings, free trials and support programs to defray consumer costs.
"Drug pricing is like the pricing of airplane seats," said Harrell, who once marketed drugs for GlaxoSmithKline. "You can be on the same plane but the person sitting next to you may have paid a much different price."
The main goal is to balance both access and compliance, drug industry advocates say.
One executive at a large pharmaceutical firm told Harrell its diabetes drug was meant to be taken for life but was routinely being dropped by patients after seven months. Keeping patients compliant has much to do with pricing, he said.
Harrell cites industry statistics suggesting as many as 75 percent of consumers will change their prescription brand if the drug is just $5 more expensive.
The average wholesale price also varies widely. Generics can undercut a branded cholesterol-lowering drug such as Zocor by as much as $100 per prescription of 30 tablets.
A recent study by the international agency Oxfam International suggested drug companies hurt themselves in poorer countries by overpricing their drugs.
"Investing For Life" surveyed the pricing strategies of 12 pharmaceutical firms, including Abbott.
Abbott's Kaletra at one time cost $2,200 per patient each year in low-middle-income countries such as Guatemala, where the average wage is $2,400, the report said.
After the government of Thailand challenged Abbott's pricing, the company reduced the price of Kaletra worldwide to $1,000 a patient per year, according to the Oxfam report.
By lowering prices, the report said, drug companies could gain access to the "85 percent of world consumers (who) are under served or have no access to medicines," said Jeremy Hobbs, executive director of Oxfam International, a confederation of 13 Christian organizations.
Consumer advocate and bargain hunter Jaci Rae said most companies, including Abbott and Deerfield-based Baxter International, have patient assistance programs consumers can use to defray costs.
Rae also acknowledges she, too, is perplexed by how drug companies arrive at a price of a patented drug.
"There is a difference between making money and greed," Rae said. "I don't know how they (set prices). I just try to pay as little as possible."