The FDA recently approved a revolutionary drug that could restore sight to 2,000 nearly blind Americans.
Under the procedure, doctors inject the personalized gene therapy, called Luxturna, directly into patients' eyes. The drug overrides a rare genetic mutation that causes severe vision problems and ultimately leads to total blindness. In clinical trials, the treatment not only halted vision loss but also significantly improved many patients' sight.
However, the one-time therapy carries an eye-popping price tag: $850,000. The price has sparked renewed debate about supposedly predatory pricing in the drug industry.
With very few exceptions, drug prices aren't predatory—or even arbitrary. They reflect the value of the innovation, which came at colossal risk and expense inherent to pharmaceutical innovation. Attempts to impose price controls would stifle research and prevent the creation of medical miracles.
Creating these miracles is time-consuming and expensive. For instance, it took nearly six years and $400 million to develop Luxturna, one of just a few success stories. Barely 1 in 10 drugs that enter human trials ever make it to market.
Gene therapy is in its infancy, so it's riskier to pursue this research than it is to engage in research for run-of-the-mill medications. But drug companies are diving in, and they're developing therapies to treat high-need diseases like hemophilia and leukemia. It's very exciting.
Because of this immense risk, drugmakers have to be able to charge prices that provide a reasonable shot at recouping their huge expenses. Doing so is the only way to encourage researchers to investigate and develop brand-new pharmaceuticals that target rare diseases.
If we don't give researchers the chance to recoup their investments, they might stop pursuing this new, risky research.
Fortunately, high prices don't last forever. Once a drug's patent expires, generic drug manufacturers can introduce cheap alternatives. About 90% of drugs dispensed in the United States are low-cost generics. Over the next five years, roughly $100 billion in brand-name sales will start facing generic competition, forcing brand-name manufacturers to cut their prices to remain competitive.
Such competition also occurs when multiple companies introduce unique medicines to treat the same disease.
Consider Sovaldi, a breakthrough hepatitis C cure that cost $1,000 per pill when first introduced a few years ago. That price prompted a firestorm of condemnation. But it plummeted by half after competitor drugs hit the market—and it's still falling.
Unfortunately, many politicians and pundits ignore how competition drives down prices over time. They instead fixate on the initial prices of drugs and have started calling for the government to regulate prices.
Such price controls would be hugely counterproductive. Price caps would shrink or eliminate companies' projected returns on drug development projects. As a result, drugmakers would stop investing in risky research. Many of the 7,000 medicines currently in development, over 500 of which are for rare diseases, would never reach pharmacy shelves—or patients' medicine cabinets.
It would be a tragedy to deprive patients of such transformative treatments.
Consider how Luxturna has changed patients' lives. As part of the approval process, federal officials heard testimony from dozens of patients who had their vision restored by the drug. One woman, at 38 years old, was able to take a job for the first time in her life. Others spoke movingly of finally seeing snowflakes, fireworks and the moon.
Price controls would rob people of such joys.
Drugmakers need to be able to sell breakthrough drugs at market prices to earn back their huge development costs and fund future research. Heavy-handed government interventions would drive away research capital and stomp out the next generation of new treatments.
Sandip Shah is the founder and president of the Market Access Solutions, a consulting firm based in New Jersey.