The Real Devil of the Pharmaceutical Industry is in the Details

Mo

Bernie Sanders hates the pharmaceutical industry. Or, at least, he sure sounds like he does. Hardly a week goes by that Sanders isn’t tweeting about how awful, deceitful, and downright criminal the industry is. He has called the industry “the biggest bunch of crooks in this country.”  He has also said, several times, that “The business of the pharmaceutical industry is fraud.” (At the risk of stating the obvious, it isn’t. Their business model is developing life-saving and life-bettering drug therapies.)  

​Sanders is almost the very definition of the old man who shakes his fist at clouds. Except he’s a sitting U.S. Senator. And, from his perch there, he can do a lot of damage. Several months ago, in fact, he did. In October 2016, Sanders tweeted the following about Ariad Pharmaceuticals, which raised the price on a drug called Iclusig by about 27% over a year:

Drug corporations' greed is unbelievable. Ariad has raised the price of a leukemia drug to almost $199,000 a year. https://t.co/EB4nEPxP2G

— Bernie Sanders (@SenSanders) October 14, 2016

This tweet caused Ariad’s stock price to fall by $387 million, a 15% drop in value.

While demonizing Ariad for its “greed,” Sanders didn’t bother explaining why or how Ariad was able to raise its price by 27%. Simply put, there’s no competition. And, there’s no competition because Ariad followed the laws put in place to spur development of drugs like Iclusig.

Iclusig is approved to treat two extraordinarily rare forms of leukemia that appear in only 1,000 to 2,000 patients a year. It’s considered an “orphan drug,” which refers to drugs that are approved for rare diseases and which are awarded a 7-year period of exclusivity under a law called the “Orphan Drug Act.” What this means is, the FDA cannot approve any competing drug products for seven years after the drug is approved.

The reason for Orphan Drug Exclusivity is simple: some diseases are so rare that there’s no financial incentive to develop drugs to treat them. By getting a period in which they’re guaranteed no competition, drug companies can recoup the costs for developing the drug and, yes, turn a profit. In other words, the purpose of Orphan Drug Exclusivity is to allow drug companies to charge what they want without any competition to bring the price down, so that drug companies will want to make these life-saving drugs.

Sanders pulled the same stunt a week or so ago with Marathon Pharmaceuticals and its orphan drug, Deflazacort, which is used to treat a genetic muscle deterioration disorder affecting about 15,000 Americans.

Marathon’s apparent abuse of exclusivity periods and incentives to sell a critical drug for $89k is unconscionable. https://t.co/JuurrPMYME

— Bernie Sanders (@SenSanders) February 13, 2017

Sometimes, the lack of competition isn’t due to orphan drug exclusivity, but due to patents covering the drug product, for example, the demonization of Mylan for raising Epipen prices and the demonization of Valeo for raising prices on its opioid overdose injector. In each of these cases, the drugs themselves are old and are available from other manufacturers, but the companies have patents that give them the right to exclude competitors from using their injection devices. Patents, like Orphan Drug Exclusivity, exist for a reason—to promote innovation by giving companies a right to exclude competition in exchange for their work.

In each of these cases, the company is doing what it’s permitted by law to do and, in fact, has been encouraged by the law to do. If Sanders doesn’t like it, he can try to actually DO something about it, like change the law on Orphan Drug Exclusivity or change patent laws to make patents harder to get and easier to invalidate. (I have argued for that here.) But doing things like drafting, arguing for, and passing legislation is hard work and, as we all know, Sanders has a strong aversion to doing work, given that he was kicked out of a commune for slacking. So, instead, he sits on his perch and points the finger of death at any drug company that is attempting to turn a profit, accusing them of fraud and thievery.

​There are ways of introducing competition into the pharmaceutical industry that don’t require the government squeezing the innovative life out of it. Sanders will never dare go there, which tells you all you need to know about him.