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Source: StockMonkeys.com via Flickr.

Whether you're prepared for it or not, prescription drug prices remain on the rise within the United States.

Overall medical cost inflation may be at a multi-decade low in the U.S., but that doesn't seem to matter too much to middle-class families who are paying more than ever out of their pockets for medical care. According to the Organisation for Economic Co-operation and Development's 2013 per capita spending figures, people in the U.S. spend nearly $1,000 per year in pharmaceutical costs, which is close to 40% higher than the second-highest country on the list, Canada, and is roughly double the 34-nation OECD average.

Prescription drug costs: Up, up, and away!
Why are branded drug prices so darn high? Really it's a combination of factors working together. To begin with, demand for pharmaceutical products is higher in the U.S. than in any other country, as are the legal costs of defending innovative drugs against generic competition. Other major factors include the need to recoup research and development costs, high marketing costs, the fact that insurers willingly accept high drug pricing with little pushback, and recently a move by select pharmaceutical companies to focus on rare disease drugs in order to enhance their exclusivity and drive up drug prices. 

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Source: Flickr user Ano Lobb.

This last point is a key reason we've witnessed an explosion in the number of pharmaceutical products hitting a five- and six-digit annual price point. If an innovative drug is geared toward an orphan or ultra-orphan disease, it remains well-protected from generic competition, and since there are no competitors, it makes it difficult for insurers or the public to suggest that the price being charged for the product isn't justified.

Of course, that doesn't mean everyone is satisfied with these prices, even if the drugs work wonders. Last year, a group of more than 120 cancer researchers and doctors published a research paper in Blood, a medical journal published by the American Society of Hematology, and argued that the costs to develop and produce potentially life-saving cancer drugs didn't remotely or accurately reflect the true costs of these drugs. 

The five most expensive drugs in the world
Yet, these complaints haven't swayed the pricing of the world's five most expensive drugs, which clock in at an annual cost to patients and insurers of a minimum of $205,000. Based on research provided by FiercePharma, let's take a closer look at the five most expensive drugs in the world.

No. 5: Acthar Gel, $205,681 annual cost per patient
If there is a drug on this list that's drawn more ire from the public and regulators than any other it's Mallinckrodt (NYSE:MNK) Acthar Gel, which was acquired when the company purchased Questcor Pharmaceuticals for just shy of $6 billion.

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Source: Flickr user Amanda Hatfield.

Acthar Gel has a bounty of indications (19 to be exact), so its pricing does reflect the diversity of treatment options it's labeled for, including infantile spasms, multiple sclerosis relapses, and a number of rheumatic disorders such as ankylosing spondylitis.

However, the problem regulators and consumers have with Achtar Gel is that it was approved by the Food and Drug Administration decades ago, and per FiercePharma has seen more than 1,000 price increases in less than 15 years. For instance, when Questcor purchased the Acthar Gel franchise from Sanofi in 2001, the drug was $40 per vial. By 2007, it was costing Medicare Part D patients close to $42,000 per prescription! Considering this dramatic hike in price, it's likely we haven't seen the end of regulatory investigations into its pricing. For now, though, Mallinckrodt continues to reap huge margins from its versatile orphan disease drug.

No. 4: Cinryze, $230,826 annual cost per patient
Acquired by Shire (NASDAQ:SHPG) when it purchased ViroPharma, Cinryze treats a rare condition known as hereditary angioedema, or HAE, which is a genetic disease that can cause swelling of the face and airways, as well as cause abdominal cramping.

Shire actually has both aspects of HAE covered, with Cinryze given to HAE patients to prevent acute attacks and swelling, while Firazyr, which was approved in 2011, given to HAE patients to prevent swelling following an attack. As Shire pointed out in its second-quarter report, Cinryze sales improved 37% year over year to $129.9 million thanks to more patients taking the drug, but also because of a substantial price increase in the U.S.  

No. 3: Kalydeco, $299,592 annual cost per patient
What do you get when you combine a first-in-class treatment that addresses the underlying causes of cystic fibrosis rather than addressing only its symptoms and some 30,000 patients in the U.S. eager for a cure? A high price tag of nearly $300,000, apparently.

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Source: Vertex Pharmaceuticals.

Though Vertex Pharmaceuticals' (NASDAQ:VRTX) Kalydeco is admittedly expensive, it's also a considerable step forward over prior treatments, and thus partially justifiable in its price tag. When the drug was approved in January 2012, it was targeted at the G551D mutation, which covers about 4% of all forms of cystic fibrosis. Vertex is in the process of attempting to expand the label for Kalydeco to a handful of additional mutations. On the bright side, Vertex has set up financial assistance for eligible patients to help offset the exorbitant costs of its drug. 

No. 2: Naglazyme, $485,747 annual cost per patient
Developed by BioMarin Pharmaceuticals (NASDAQ:BMRN), a company specializing in rare-disease research, Naglazyme costs close to a half-million dollars annually and treats mucopolysaccharidosis type VI, which is better known as Maroteaux-Lamy syndrome, a progressive condition that causes a person's organs to enlarge and often presents with skeletal abnormalities. According to data from EvaluatePharma, just 64 people in the U.S. were prescribed Naglazyme last year.

Next year, it's likely Vimizim will also work its way onto this list with an annual price tag of $380,000. Vimizim treats Morquio syndrome, another rare inherited disease where the body lacks or is missing a substance needed to break down long-chain sugar molecules, and was approved in February. While BioMarin isn't profitable at the moment, it also has no concerns about generic competition considering the rare diseases it's focused on.

No. 1: Soliris, $536,629 annual cost per patient

Soliris

Source: Alexion Pharmaceuticals.

Taking the top spot once again is Alexion Pharmaceuticals' (NASDAQ:ALXN) lone approved drug Soliris, which treats a rare blood disorder known as paroxysmal nocturnal hemoglobinuria, a condition where a patients' red blood cells die prematurely. Soliris is also approved to treat atypical hemolytic uremic syndrome, another rare and chronic blood disease that can lead to renal failure.

Don't get me wrong; this isn't to say Soliris isn't amazing. When it was approved in 2007 to treat PNH, it became the first complement inhibitor approved in the U.S. to treat any disease. It also gave PNH patients, who often lived about 10-15 years following their diagnosis, the prospect of a longer life. But from a business standpoint, it also gives Alexion a viable reason to sell its half-million-dollar-plus drug to PNH patients for a decade or longer.

A battle could be brewing
With drug prices soaring and more pharmaceutical companies focusing on these higher-margin, higher-priced drugs, it's quite possible a battle could wind up brewing between pharmaceutical companies on one end and insurers and pharmacy-benefit managers on the other.

The danger with pricing pharmaceutical products high, of course, is that insurers may simply choose to leave a drug off of their approved purchase list, which would be bad news for the manufacturing company as well as for patients if the drug is superior to what's already on the market. Though we haven't witnessed much in the way of pushback from insurers and PBMs in recent years, I would expect their tune to change if more and more drugs continue to work their way into the six-digit annual cost category.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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