When a breakthrough cystic fibrosis drug with a sticker price of more than $300,000 per year hit the market two years ago, the cost raised familiar questions about the sustainability of ever-climbing drug prices in the United States.
Now, a private foundation that invested in the drug early has sold it royalty rights for $3.3 billion, and new questions are surfacing about the ethical implications of non-profits acting as venture capitalists.
A prayer answered
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Cystic fibrosis is a genetic disorder that causes thick mucus to build up in the lungs and pancreas. That mucus leads to digestive problems, lung infections, difficulty breathing and a shortened life expectancy of around 40 years.
The drug Kalydeco was approved by the FDA in 2012 and is the first to treat the root cause of the disease instead of just its symptoms, delaying the deterioration of lung function.
For patient Sean O'Malley, a 27-year-old from Mechanicsburg, Pa., the drug was literally an answer to his prayers.
"Growing up with this disease, it was something that was always talked about -- a cure or even just a drug like this that would come along and really help people with cystic fibrosis, " O'Malley said.
"So when it did come out it was revolutionary...life-changing."
O'Malley is one of about 1,100 people in the United States on the drug, which targets rare genetic mutations that about 4 percent of cystic fibrosis patients carry. Since he started taking Kalydeco about two years ago, O'Malley said he gained around 15 pounds, stayed out of the hospital, and has been able to breathe easier than ever before.
"Going up a large flight of stairs or jogging to catch the bus, anything like that could have left me winded and holding all my friends back," O'Malley said. "That's something that's gone by the wayside ever since starting this drug."
'Shocking' sticker price
The drug's $311,000 per year sticker price was a shock to O'Malley, but with insurance from his employer, and the drug company Vertex Pharmaceuticals picking up the tab for his annual deductible, his out-of-pocket cost is only a $15 per month co-pay.
To make the drug affordable for patients, Vertex has an assistance program that covers co-pays and co-insurance over $15 per month for patients with private insurance. It also provides the drug for free to uninsured people with annual incomes of less than $150,000 per year.
The brunt of the costs for the drug are thus born by insurance companies, both public and private, which means anyone who pays insurance premiums or taxes that go toward Medicaid is picking up a share of the tab.
The drug's high price is raising eyebrows, despite the patient assistance program. Last month some of that attention moved to the Cystic Fibrosis Foundation when it sold its royalty rights to Kalydeco and future drugs for $3.3 billion after investing early in Vertex.
The Cystic Fibrosis Foundation is not the only one practicing "venture philanthropy," providing early seed money to spur drug research and potentially reaping rewards later on. But the size of this payout is thought to be unique.
"The big windfall they're getting is not a direct result of the successful drug, it's a direct result of the successful drug priced at a very high price," said University of Pennsylvania ethicist Dr. Zeke Emanuel. "And that high price is a direct impact on many, many cystic fibrosis families, including some that helped contribute (to the foundation)."
Emanuel said because the funding model is relatively new, it is not entirely clear what the ethical obligations are of the foundation to its members and donors when smart investments pay off.
"To be honest, we're not 100 percent sure, this is uncharted territory and thinking through exactly what we think the obligations are and what the responsibilities are is brand new," Emanuel said.
A spokesman for Vertex defended the drug's price, saying it has a "broad benefit for patients" and took fourteen years to bring to market.
Cystic Fibrosis Foundation president Bob Beall said he, too, has concerns about the drug's cost, which neither he nor the foundation had any say in pricing. But he stresses the foundation sold its royalty rights when it did to put the funds toward research for a cure and to "significantly expand programs and services for people with CF."
"No one's profiting here, we're going to make the investment back to the patients," Beall said. "The only conflict of interest (would be if) we not make these kinds of investments."
Last month's pay-out is a return on a $150 million investment in Vertex over two funding rounds. The foundation used the money to get the company to start researching cystic fibrosis, which only affects about 30,000 patients in the United States and about 70,000 worldwide.
"(Vertex) will tell you today that these drugs would not have been available had we not de-risked them," Beall said, speaking of the foundation's early investment.
New treatments, and soaring costs, on the horizon
Kalydeco itself is only approved for about 1,150 Americans with cystic fibrosis. Last month, Vertex submitted a second drug for FDA approval that would target a different mutation and could treat up to 8,500 Americans in combination with Kalydeco. That would bring relief to more people but also cost insurance companies and Medicaid programs billions.
Matt Salo, executive director of the National Association of Medicaid Directors, said recent high-cost specialty drugs have pushed his members to more closely scrutinize new treatments:
"It has fundamentally changed the conversation, and now everything that comes out of the pipeline is going to be looked at to say, you know, not just is this a great breakthrough," Salo said, "but has this been priced in such a way that has made it unsustainable in the real world."
Salo said the high price of Hepatitis C cure Solvadi meant the Medicaid program in one state had to drop its dental coverage for adults.
Part of the problem, Salo argues, is that drug companies and other industry players assume figuring out how to pay for their treatments is someone else's job.
"I think that is, unfortunately, not a very helpful attitude, because we are all paying for this," Salo said. "(Medicaid) is a program that is funded entirely by state and federal taxpayer dollars, and there is a vested interest in all of us in making sure that the program is going to continue to be around for the people who are going to need it."
Foundation faces a 'dilemma'
As for the Cystic Fibrosis Foundation, ethicist Zeke Emanuel argues it will have to tread lightly to bring new therapies to market without overly burdening patients financially.
"The experience with that kind of dilemma has made drug companies persona non grata, people look at them very suspiciously," Emanuel said. "If the foundation is not going to tarnish its image, it's probably going to have to figure out how to reconcile those two ethical imperatives, and so far I don't think they have."
Others disagree. The foundation has sponsored many of the major medical breakthroughs in the field since it was founded in Philadelphia in the 1950s, greatly increasing the life expectancy for a patient with cystic fibrosis over the years. The foundation commands incredible trust from doctors and patients.
Sean O'Malley, who has helped organize fundraisers for the foundation, believes their promise to reinvest the $3.3 billion to find a cure.
"I like to think, in my heart of hearts, they made that move financially to hopefully reinvest that money into solutions for the rest of the population with cystic fibrosis," O'Malley said. "In my experience with the foundation, that seems to be their first and utmost priority."
Vertex has applied for priority review for its new combination drug treatment. Pending FDA approval, the company hopes to start marketing it in mid-2015.
The Cystic Fibrosis Foundation said it will not provide financial assistance to patients to pay for either Kalydeco or any future drugs, arguing its funds are more effectively used in research for new and better treatments.