The public uproar about high drug prices has focused on outlandish cases such as single pills jacked up in price by 5,000%, miracle cures marketed for tens of thousands of dollars per treatment.
But how will people feel when they're confronted with treatments that are even more astronomically expensive?
That's certain to become a growing concern at California's incubator of some of the most advanced and potentially costly medical therapies under development. Biotech companies have launched late-stage clinical trials that could lead to federal approval of two marketable treatments backed by CIRM, the state's $6-billion stem cell program.
If successful, they'll be firsts for the program, which is formally known as the California Institute for Regenerative Medicine. But they may also put CIRM smack in the middle of a burgeoning debate over how to ensure access for all patients to life-enhancing or life-saving cures.
"If Californians don't have ready access to CIRM-produced stem cell therapies, to me that's a problem," says Paul Knoepfler, a cell biologist at UC Davis and a CIRM grantee. "At some point, someone's going to have to raise their hand and ask, how much is this going to be priced for the average person?"
The evidence is already mounting that stem cell and other advanced biologic treatments will be among the most expensive therapies in the medical arsenal. For example, a full treatment with Prochymal, a stem cell-based drug approved in Canada to alleviate pediatric rejection of bone-marrow transplants, is estimated to cost as much as $200,000.
Provenge, a cell-based vaccine for prostate cancer, was marketed at $93,000 for a treatment that extended patients' lives by four months, on average, over those who received a placebo.
The record so far seems to be set by Glybera, a gene therapy for a rare blood condition, which was approved in Germany this year at a cost of at least $1 million per treatment.
CIRM's governing board hasn't pondered the issue of pricing lately, in part because until recently none of its funded projects had come close to government approval. "We have to get something across the finish line before we know if pricing will become a barrier and an issue," says board member Jeff Sheehy, an advocate for HIV patients.
But for the stem cell program and its partners in the biotech industry the issue could become especially acute. Proposition 71, the 2004 ballot initiative that created CIRM and funded it with a bond issue, was pitched to the voting public as an economic bounty waiting to be reaped.
Its backers predicted that therapies for stroke, heart attacks, diabetes, Parkinson's, spinal cord injuries and Alzheimer's disease would yield direct healthcare cost savings to the state government of as much as $6.9 billion, and up to $18.4 billion in savings for private insurers and other payers. Such savings haven't materialized.
CIRM President C. Randal Mills — the former chief executive of Osiris Therapeutics, which originally developed Prochymal — argues that CIRM's duty is to nurture therapies that can't be developed under conventional pharmaceutical business models and therefore may not yield profits like conventional drugs.
"If there was a risk-reward profile that was so attractive" for such products, he says, "CIRM wouldn't have to exist." The public should have "an expectation of some return, but not of some great return," he says.
Public sensitivity over private corporations profiting from government investment has a long history. It erupted in 1980, during debate over the Bayh-Dole Act, which set standards for ownership of intellectual property created with federal funding. The measure initially incorporated provisions for "recoupment" of a percentage of profits from such inventions, but those were patently designed to mollify taxpayers. Those provisions were removed from Bayh-Dole's final version, supplanted by the notion that private companies should be able to turn profits from publicly funded R&D because society at large will reap benefits through better drugs and life-saving treatments.
The idea of recoupment from stem cell patents, royalties and licenses remained part of Proposition 71, however. As a result, CIRM's recoupment and drug pricing rules for researchers and companies receiving its patronage are among the most demanding of any public agency in the country. (Though the board has resisted efforts by the state Legislature to make the terms more stringent.)
Grantees, commercial partners and exclusive licensees must submit a plan to provide access to their drugs for low-income Californians and those without adequate insurance coverage. The access plan is subject to a public hearing. Typically, the drug also must be sold to California public agencies such as Medi-Cal at the best price received by Medicaid or Medicare.
CIRM also requires companies to share their income from drugs developed with the program's backing on a sliding scale based in part on the magnitude of the profits.
But there are loopholes in the access and pricing rules.
They can be waived by the CIRM board if it feels they might hamper the development and distribution of a drug. The required discounts apply only to the drug itself, not to the cost of administering the drug, which could involve hospital stays rather than just prescribing pills for a patient to take at home. And because the rules apply only to low-income or uncovered patients, they could impose higher prices on insurers, who might try to save money by limiting the drugs' availability to their customers — leaving millions of other Californians without access to therapies they've backed with their taxes.
"There's a big buried trade-off in looking after the less well-off, if you're giving a license to developers of these products to charge a much higher premium to the middle and lower-middle classes than is affordable," says Matthew Herder, an expert in health law at Canada's Dalhousie University who has studied CIRM's rules.
Mills argues that the public's concerns about drug pricing often may be misplaced, especially for treatments that reduce or eliminate lifelong treatment of chronic diseases. "In general, cell therapy may be more expensive to deliver," he says. "But if it's curative, that almost doesn't matter."
He also cautions against allowing the political debate over drug pricing to distract from CIRM's "primary mission, which has been to bring cures to patients suffering from unmet medical needs." That explains the CIRM board's past resistance to the imposition of more stringent price regulation or higher revenue-sharing requirements. "We should be funding those things that, without our funding, wouldn't exist."
Still, public outrage over high drug prices isn't likely to ebb any time soon, and may only intensify as cutting-edge therapies reach the market at stratospheric prices. The burden will be on the biotech industry and its backers, including CIRM, to show taxpayers and patients that the price of treatment corresponds to the cost of research and development, rather than reflecting merely what the market will bear.
"Those issues will be coming to a head with any cell-based therapies," Herder says. "Their cost-effectiveness will test any kind of precedent we have."
Michael Hiltzik's column appears every Sunday. His new book is "Big Science: Ernest Lawrence and the Invention That Launched the Military-Industrial Complex." Read his blog, the Economy Hub, every day at latimes.com/business/hiltzik, reach him at firstname.lastname@example.org, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.