Canada is trying to cut the price of a $525,000-a-year drug, and is getting sued for it

At more than half a million dollars for a year’s treatment, the medicine Soliris is one of the most expensive drugs in the world—and it costs even more in Canada. It treats rare blood diseases, and many patients must take it for a lifetime, meaning the cost can be truly astronomical.

Canada’s universal health care system does not cover prescriptions, but the government has been trying to push down the cost of the drug through its Patented Medicine Prices Review Board, saying it is excessive and prevents access to the treatment.

The company that makes the drug, Alexion, has responded by suing the government in Toronto, challenging Canada’s right to actively manage drug prices. And it’s no wonder Alexion is fighting so hard. Soliris, which was approved for sale in 2007, is currently the company’s only approved drug, and the source of its considerable profits—the company did more than $2 billion in sales last year.

Since the drug treats a relatively small number of patients, every market counts.

Canada has just as much at stake here, beyond its desire to ensure access to the medicine for its residents. The country generally has far lower drug prices than the United States, in large part because its review board can curb prices it deems excessive. (These sort of price controls are common throughout the world, with the US as a notable exception.)

Alexion’s suit fundamentally challenges Canada’s right to compel companies to lower the prices on patented drugs. If it succeeds, prices could rise dramatically in the country.

This drug’s pricing is particularly high, but the overall situation is representative of a broader trend in the drug industry. More and more companies are focusing on so-called “orphan drugs” that they can sell at a premium. Even though there are very small patient populations, the high pricing means they can still reap a healthy profit. There are generally few or no competitors.

More and more of these drugs are being developed ever year, with part of the increase coming from the ability to sequence the human genome at a far quicker rate, particularly useful for targeting rare, monogenic diseases. There’s also a law (the Orphan Drug Act of 1983) in the United States that grants an accelerated approval process and a longer period of patent exclusivity for approved orphan drugs.

So it’s no wonder companies like Alexion have built their business around them:

Regardless of the suit in Canada, Alexion and companies like it may not be reaping the same kind of profits in the long run. Drug pricing has come under increasing scrutiny in the US market in the aftermath of an uproar over Turing Pharmaceutical’s massive price increase for a drug called Daraprim.

The scrutiny has proved to be unpleasant for the industry. Another pharmaceutical company, Valeant, which follows a similar model of acquiring drugs, spending little on research and hiking the price may be subpoenaed by Congress over its pricing policies. That sent the company’s shares plummeting, and has spurred on the ongoing selloff of biotech stocks.

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