The genomics revolution is here. We are accumulating new information almost daily about how our genes cause various diseases. More importantly, the door is opening to new treatments. As we fine tune our diagnostic capabilities, we are discovering small groups of individuals who can be effectively treated, but at a very high cost. In that model, the cost is high because the development cost is high, as it is for all pharmaceuticals. But for these small groups, the cost cannot be spread out among millions of patients. “Specialty pharmaceutical companies” are racing to create and distribute these high priced treatments.

Here are a couple of examples. Pompe disease is a genetic disorder associated with an enzyme deficiency, resulting in progressive muscle weakening and early death. The good news is that Genzyme manufactures a treatment called Myozyme. Myozyme has been shown to improve ventilator-free survival in patients with infantile-onset Pompe disease compared to untreated historical controls. For an infant the yearly cost is estimated at $30,000. In an adult, more medication is needed, and, unless discounted, the cost could jump to over  $400,000 per year. The disorder is estimated to have an incidence of 1 in 40,000.

Next, paroxysmal nocturnal hemoglubinuria (“PNH”) is a condition associated with fracturing of red blood cells, anemia, pain, and assorted other side symptoms. Alexion produces a treatment, Soliris,  which is estimated to cost between $100,000 to $389,000 a year. It is unknown what the incidence of PNH is, but it is rare.

A mere decade ago, health insurers were exposed only tangentially to these risks and costs. The medications, if available, were expensive, but, few people were taking them. But, as the cohort of candidates for specialty compounds increases, the costs are starting to explode.


How have insurers responded? Some have tightened the criteria for eligibility. If the compound is FDA approved for a particular indication, the carrier will generally pay. But, it does not take much to pre-empt qualifying. For example, Pompe disease has been FDA approved for infants for years. Some carriers adopted the position that Myozyme was not approved for the adult variety. Several years later, the FDA granted its blessing for treating adults. But, insurers saved a bundle during that window.


This trend of expensive compounds to target well defined conditions will increase. And insurance carriers will need to determine if and how the cost can be passed on.


Insurance companies can limit their downside in a number of ways. The easiest way is to tighten criteria for eligibility.


Take, for instance, medicines that can cure hepatitis C.


Treatment with new drugs Sovaldi and Harvoni, the first reliable cures for hepatitis C, costs more than $94,000 per patient. The high price of Sovaldi drove Illinois Medicaid’s hepatitis C spending to $22 million for the fiscal year ending June 30, 2014, up from $6.7 million the previous year, according to the Illinois Department of Healthcare and Family Services.

Facing higher costs, Medicaid officials stopped paying for any but the sickest patients to get the new drugs, drawing criticism from some liver doctors who have said the state is preventing them from properly treating their patients.


The company that manufacturers Sovaldi justified its price by stating it’s much less expensive than a liver transplant. True enough. Statins are also less expensive than treating a heart attack, But statins are not priced similar to a one week stay in an ICU. And, we don’t reserve their use to people weeks away from a heart attack.


If specialty compounds are life saving, there will naturally be tremendous demand. Most individuals cannot afford annual six figure/year expenses. Hence, they have to qualify under an insurance plan, or beseech the specialty pharmaceutical company for mercy- provide the compound at low or no cost.


Here is the emerging conundrum for specialty pharmaceutical companies. If the insurance carrier will not pay, and the specialty pharmaceutical company turns its nose on price forgiveness, what is the rational sick person to do? Well, he might look for pharmaceutical analogues of “medical tourism.” Today, many do not think twice about having their hips replaced or heart valves replaced in India and Thailand, all at significantly discounted rates.


If the real cost to manufacture the life saving compounds pales in comparison to the U.S. retail rate, what would stop an “entrepreneur” in another country from setting up a manufacturing facility and selling Myozyme or Soliris for $20,000 a year? Typically, intellectual property law will protect the compounds. Well, that depends upon the country. If a poor country can build a reputation on pharmaceutical tourism, intellectual property protection might be a luxury they can discard. The next counterargument notes such compounds are hard to make and they are not bioequivalent to those produced in the US. But, if the compounds can be approximated, so what? The alternative is between a near-match and no-match. The global marketplace will determine if the drugs are effective. If not, the pharmaceutical tourism economy will dry up.


Of course the counterarguments continue…Surgical tourism is ordinarily a one-time event; whereas the specialty compounds need to be administered weekly or even daily. Most people would prefer to live in the U.S. rather than relocate to a third world country for treatment. Right? What if the patient makes his purchase abroad and then brings it back to the US. Isn’t that smuggling? Patients are typically allowed to bring back medications for personal use, but only if those drugs are not available in the US. The FDA frowns on bringing in medications that are available in the US, but less expensive overseas.


For someone who is ill, the stakes are high, and the value of the compound per gram is significantly higher than the traditional list price of illicit drugs- which seems to fin d a way into the US. And, are we really going to start arresting sick people because they smuggled in compounds to save their own life? I doubt it.


If there are enough sick people – priced out of saving their skin- there will be powerful incentives for pharmaceutical tourism or smuggling. This is the unintended consequence of quarter-million dollar compounds.