A Drug for Itchy Dogs Costs $1,200. Why Is the Human Equivalent $43,000?
What a shot that treats pet eczema reveals about how pharma companies actually price their drugs.
If your eczema is making you itchy, your doctor might prescribe Dupixent, a Sanofi monoclonal antibody therapy with a U.S. list price of around $43,000 a year. If your dog Fritz’s eczema is making him itchy, the veterinarian might suggest Cytopoint, also a monoclonal antibody therapy, this one from animal health company Zoetis.
If your eczema is making you itchy, your doctor might prescribe Dupixent, a Sanofi monoclonal antibody therapy with a U.S. list price of around $43,000 a year. If your dog Fritz’s eczema is making him itchy, the veterinarian might suggest Cytopoint, also a monoclonal antibody therapy, this one from animal health company Zoetis.
But don’t panic—this won’t be a $43,000 vet bill: Cytopoint will run you closer to $1,200 to $2,400 a year, depending on whether your pup is Yorkie-size or Lab-size, and how often he needs a dose.
Cytopoint and Dupixent are manufactured the same way, in steel tanks known as bioreactors using cells from a cell line that originated in the ovaries of a Chinese hamster. On a biological level, there’s little difference between them: Dupixent targets proteins in the human immune system called interleukin-4 and interleukin- 13, while Cytopoint targets a protein in the dog immune system called interleukin-31.
The regulatory frameworks governing the drugs are roughly the same, too. While Cytopoint was licensed by the U.S. Department of Agriculture, Zoetis’ (ticker: ZTS) other two monoclonal antibodies were approved by the Food and Drug Administration. The newest, Librela, which treats osteoarthritis pain in dogs, received FDA approval in May.
So why does one drug cost more than 35 times as much as the other?
The obvious answer is, of course, who can afford to drop $43,000 a year to keep their dog itch-free?
But while (most) people do have a higher threshold for what they’ll pay for human versus pet health, it isn’t a frivolous question. The forces that elevate the price of a human drug like Dupixent have major real-world implications. More than 8% of U.S. adults say they have skipped prescribed medicines over the past year because of the cost, according to the Centers for Disease Control and Prevention. The average net price that Medicare’s prescription drug benefit paid for brand-name prescription drugs more than doubled from 2009 to 2018. And Dupixent itself isn’t even particularly expensive, as human monoclonal antibodies go: AbbVie’s (ABBV) megablockbuster Humira, which treats similar conditions, has a list price of $80,000 a year.
Politicians from both parties say drug prices are too high, but that has yet to translate to substantial reform. A new law intended to reduce the federal government’s spending on drugs could change that starting in 2026—if it isn’t derailed by the waves of lawsuits now being filed by drugmakers.
A decade or so ago, if you had asked a pharmaceutical executive why their medicine cost more than a dog medicine, they likely would have pointed to the vastly higher cost of developing a human drug. A host of factors contribute to those totals, including higher failure rates and additional testing requirements. It costs an average $1.3 billion to develop and test a new human medicine to market, according to one recent study. Meanwhile, Zoetis Chief Financial Officer Wetteny Joseph puts the research-and-development cost for an animal medicine in the tens of millions of dollars.
But using development costs to justify drug prices has never really held water. Academic research has shown no connection between the amount of R&D investment in a particular drug and its launch price.
For pharma execs, the approach definitively burned out during the 2014 debate over the $84,000 price tag Gilead Sciences (GILD) slapped on a breakthrough hepatitis C antiviral. Gilead had bought the drug as part of an $11 billion acquisition that closed in 2012, and simple math showed that it didn’t need to charge so much to recoup its investment: Gilead sold $12.4 billion worth of the medicine in 2014 alone.
Today, drugmakers talk about pricing in the context of “value,” by which they mean the money a drug saves the healthcare system by avoiding the need for care, or, more abstractly, the benefit it offers to patients in terms of longer lives or better quality of life.
“The first principle has to be based on the value, and not the cost of production,” Novartis CEO Vas Narasimhan tells Barron’s.
What’s more, drug companies note that insurers and government entities that pay for the drugs generally get big discounts, and insured patients pay only a fraction of list prices out of pocket.
Academic experts counter that the companies charge massive amounts not because the drugs warrant them, but simply because they can.
“In the United States, we allow drug companies to set prices for their drugs at whatever level they want,” says Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School, who studies drug pricing in the U.S.
That isn’t normal, in a global context. The United Kingdom, Canada, Germany, Japan, and other developed nations all regulate the prices of prescription drugs in various ways. The U.S. hasn’t, although last year’s Inflation Reduction Act will introduce some new price controls on a handful of branded drugs. One reason the American government has remained hands off is likely the political muscle of the pharmaceutical industry, which spent $4.7 billion lobbying the federal government between 1999 and 2018, according to one study.
The Cytopoint versus Dupixent comparison sheds some light on how the complexity and lack of transparency in the U.S. healthcare system blunts the impact of normal market forces that might otherwise help curb drug pricing.
For the dog drug, the market works in a straightforward way: Zoetis sells Cytopoint to veterinarians to offer to pet owners, few of whom have health insurance for their pets. Vets set a price and inform pet owners, who then decide whether or not to pay it.
That isn’t how it works for Dupixent, or any other branded human medicine. The patent system, in conjunction with FDA exclusivity rules, awards temporary monopolies to developers of new medicines. Patients and their doctors are insulated from drugmakers by multiple levels of mediation: insurers, employers, pharmacy-benefit managers, drug distributors, pharmacists. Prices are inconsistent, depending on who is paying, and there is little to no transparency around how much actually is paid.
Pharma industry critics argue that this system gives companies massive pricing power, limited only by competition from similar drugs and concerns that price gouging could invite regulation.
Drugmakers characterize the situation differently. “It’s true that we have the authority to set our prices however we want to,” says Adam Gluck, head of U.S. and specialty care corporate affairs for the French drugmaker Sanofi (SNY). “We know that if we don’t price responsibly, it will negatively impact the system, it will negatively impact patients, and it will ultimately result in [the medicine] not being utilized in a way that can best support and meet the patient’s needs.”
Companies also note that there are players in the system with the power to push back on prices. Pharmacy-benefit managers, for one, can refuse to put drugs on the formularies that determine patient access, or place limits on coverage.
“It’s kind of a soft science,” says Gluck of Sanofi’s pricing. “We don’t have a formula where we plug in hard data numbers and it spits out a price and that’s the price.” Instead, he says the company speaks to payers, doctors, patients, and patient advocates as they work toward a U.S. price. “We spend a lot of time leading up to setting the price of a medicine to really understand all of the dynamics at play, especially the payer perspective…and the patient perspective.”
A Pfizer executive declined to detail the company’s pricing strategy, but agreed with Sanofi that value is its primary driver of price.
Drugmakers may talk about value, but they don’t share the way they calculate it. One way to approach that tricky task is demonstrated by the Institute for Clinical and Economic Review, or ICER, an influential nonprofit that publishes recommendations on drug pricing. It calculates a drug price based on how much time a medicine might add to a patient’s life, expected quality of life, drug efficacy compared with other treatment options, and other factors. ICER’s models tend to spit out a range of possible prices—in part because of the difficulty of valuing a year of human life. In most cases, ICER publishes two versions of its model, one valuing a population-level, quality-adjusted year of life at $100,000, and one at $150,000.
ICER’s conclusions don’t always line up with the prices set by drugmakers. In one recent instance, the group estimated that Biogen (BIIB) and Eisai’s (ESAIY) new Alzheimer’s disease therapy, the monoclonal antibody Leqembi, should cost between $8,900 and $21,500 a year; the companies have set the drug’s list price at $26,500.
Any model includes a range of assumptions and projections, says ICER president Dr. Steven Pearson: “There are always going to be some assumptions in your model that, if you’re a company doing it, you just are going to be more likely to pick an assumption that’s going to shine favorably upon your drug.”