Humira, a money-making machine, rolls on

IT IS WELL ESTABLISHED that US healthcare expenditures are dramatically higher than any other developed country by all measures. The total amount spent, the per capita cost, and the percentage of GDP consumed by healthcare are the highest here even though health outcomes are average and access is far from universal. The reasons for this disparity arise in part from the differing ways that system participants define their purpose. Many healthcare providers are nonprofits with a mission to serve patients. Others are investor owned and sometimes the opportunity to benefit patients conflicts with the chance to create a financial edge. An example of this occurred in September when two large pharmaceutical companies entered into an agreement calculated to exploit patients, payors, and government for the enhancement of their own profitability.

The lead culprit is AbbVie, a large publicly traded biotech company based near Chicago. In 2016, the company reported annual revenue of $25.6 billion, with the majority of sales driven by a single product, the anti-inflammatory drug Humira. Humira is used to treat rheumatoid arthritis and other auto-immune diseases.

Humira is the world’s best selling biologic pharmaceutical and is one of the most expensive drugs sold in the United States. In its most recent quarterly filing with the Securities and Exchange Commission, AbbVie reported revenue of $6.9 billion, of which $4.7 billion derived from Humira. Profit overall was $1.9 billion, with sales of the drug in the US increasing 18 percent year over year. The out-of-pocket expense of Humira to individual patients can vary depending on their insurance and other factors, but the all-in cost is approximately $50,000 per year.

Humira was approved by the Food and Drug Administration in 2002 and, because some of the key patents are expiring, observers expected AbbVie’s monopoly to erode and costs to diminish with the introduction of generic versions, which are called “biosimilars” in this context. In September 2016, the Food and Drug Administration approved a biosimilar proposed by Amgen, another large publicly traded biotech company. AbbVie responded by launching attempts to delay Amgen’s biosimilar through complex patent litigation.

On September 28, the two companies announced that they had reached an agreement to end their dispute about Humira and its biosimilar alternative. Despite the FDA’s approval, Amgen agreed not to begin selling its Humira competitor in the United States until 2023, thereby significantly extending AbbVie’s US monopoly and its associated pricing power. The agreement is highly positive to AbbVie’s bottom line, but comes at the expense of the healthcare system. A group of regulatory experts estimates that the extended monopoly will cost the federal government at least $1.5 billion in costs for Medicaid and Medicare recipients. This is in addition to the cost to health insurers, employers, and individual patients.

The financial terms of the settlement were not disclosed, but the companies agreed that Amgen will begin selling its biosimilar in Europe in 2018. European patients will have the benefit of price competition five years before their American counterparts. Humira is already dramatically less expensive in Europe than it is in the United States. In the United Kingdom, for example, the price is approximately half what it is in the US. In Switzerland, it’s about one third of the US price. It is likely that the pricing disparity between the US and Europe will grow in the next few years.

AbbVie acted in the interest of its shareholders and executives. The company made a clear strategic judgement that the inefficient US healthcare system is subject to exploitation in a way that the European systems are not. They not only made that judgement, they announced it to the world. The portion of the world relevant to them, investors, rewarded their judgement by increasing the stock price in the wake of the announcement. In addition, several Wall Street analysts recommended that AbbVie shares are a good investment going forward because of the extended US monopoly over Humira.

This is a reminder that unbounded profit-driven decisions do not always serve the best interest of patients. Other countries have created healthcare systems that permit investors to obtain reasonable returns but discourage profiteering. The US system will not become more efficient until we find a way to do the same.