August 05, 2016
The Washington Post had a good column on the soaring prices of orphan drugs. Orphan drugs are drugs to treat conditions that affect less than 200,000 people. To encourage drug companies to research these drugs, the government picks up the half the cost of the clinical testing, pays the fees to bring it through the FDA approval process and then gives the drug companies seven years of marketing exclusivity.
The piece reported on how drug companies are increasingly getting orphan status for their drugs, even for drugs that have long been on the market (new uses), and how the prices for these drugs is going through the roof. According to the piece, the average annual cost for newly approved orphan drugs is $112,000.
Remarkably, the piece never mentioned one obvious solution to this problem: the government could also pay for the other half of the cost of the clinical tests. In this case, the drug would be available at generic prices, which would likely be less than one percent of the cost of the average new orphan drugs. The marketing monopolies now given to drug companies create equivalent distortions and incentives for corruption as 10,000 percent tariffs. (The market doesn’t care whether the price is raised due to a tariff or a patent monopoly, the impact is the same.)
It is difficult to believe that the piece never mentioned the public funding option. The tests could still be performed by private companies, the difference is that all the results would be in the public domain for other researchers and doctors to see, and that the drug would likely sell for hundreds of dollars rather than more than a hundred thousand dollars. (It is probably worth mentioning in this context that the Washington Post gets considerable revenue from drug company ads.)
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