The costs of new treatments for cancer: the economics of reality


As regular readers will be aware, The “New” Prostate Cancer InfoLink regularly notes that the continuing rise in the prices of new drugs for the treatment of prostate cancer (and many other conditions too) is unsustainable. And what we need to do about it is hard to work out.

Just the other day, the National Institute for Health Care Excellence (NICE) decided it could not endorse the use of abiraterone acetate in the treatment of men with chemotherapy-naive, metastatic, castration-resistant prostate cancer because the available data didn’t justify the price that the manufacturer wanted to charge the National Health Service (NHS) for use of the drug in this indication. There were howls of frustration and rage from many prostate cancer advocates and patients in the UK, but the NHS has a fixed budget each year, and it can only pay for what it can actually afford. NICE was put in place to bring some logic to the making of such decisions about what the NHS could actually afford. One may not like some of its individual decisions, but they are often understandable on economic grounds given the available clinical data.

Now there comes an opinion piece in this week’s issue of Forbes, by Dr. Peter Bach of the Center for Health Policy and Outcomes at Memorial Sloan-Kettering Cancer Center (MSKCC), about the pricing of new cancer drugs. Dr. Bach is no neophyte when it comes to the discussion of the pricing of cancer drugs. Just a couple of years ago he was a key mover in the decision by MSKCC not to put a drug called ziv-aflibercept (Zaltrap) on the center’s formulary for the treatment of advanced forms of colon cancer. Why? Because it was decided that the cost of the drug wasn’t justified by the available data compared to the cost and data available on an earlier drug with the same indication. That decision was (deliberately) made very public.

In his new piece, Dr. Bach argues that, yet again — based on the data available — the price being charged for a new drug (ceritinib/Zykadia) for the treatment of ALK-positive non-small cell lung cancer is utterly unjustified compared to the price of an earlier drug (crizotinib/Xalkori). However, this time Dr. Bach goes further, and argues that the available data offers no possible justification for an increased price for the new drug based on the biopharmaceutical industry’s historic arguments that the prices of new drugs simply reflect the costs of research and development and the business risks associated therewith. His article is certainly worth reading.

Dr. Bach’s argument needs to be addressed very seriously by the global biopharmaceutical industry. We all know that the continuing rise of drug prices (already well into the hundreds of thousands of dollars per annum for some forms of treatment) is unsustainable over time, and this may well mean that the historically high levels of profitability of successful biopharmaceutical companies may no longer be sustainable either. The implications of this are going to be hard to deal with. Developing new drugs is an expensive business and requires high levels of investment. But so does the development of new cars and new aeroplanes, and yet the profitability levels of automobile companies and aerospace businesses don’t usually come anywhere near to the profitability levels of successful biopharmaceutical companies.

5 Responses

  1. “By law, Medicare must cover every cancer drug the FDA approves. (A 2003 law, moreover, mandates payment at the price the manufacturers charge, plus a 6 percent cushion.) In most states private insurers are held to this same standard.”

    Wow. I can see requiring Medicare to cover FDA approved treatments, but the 2003 laws seems like an invitation for abuse by drug companies. In fact, it would seem to provide drug companies with an incentive to develop “me too” drugs, as described in the article. (Lower risk than new drug classes, with a very high payoff). I don’t know enough to say, but by way of speculation that law would seem to be a root of the problem.

  2. Doug:

    The problem is that, prior to the passage of that law, Medicare patients were unable to gain access to some drugs that very definitely benefited some patients who had specific cancers but who did not respond well to the drugs that they could have access to. It’s the “black or white” problem, yet again.

    We need a serious re-consideration of the entire premise of access to pharmaceuticals and biopharmaceuticals here in America, including how they are priced and paid for — but don’t think that this is going to be easy, ‘cos it most certainly ain’t!

  3. In the meantime, by coincidence, I did discover that there are two (and more) sides to every (or most, at least) story. This blogger refutes some of the facts in Peter Bach’s editorial. Notice, the blogger is not defending high drug prices. Just giving a bit more color to what looked like a black and white issue.

  4. “Developing new drugs is an expensive business and requires a high level of investment.” Is it true that the government (read taxpayers) funds some of the development of new drugs?

    I think the next PCIL article should be a comparative of drugs and their increases in cost … to the very same drugs sold in Canada.

    Big Pharma is an incredibly powerful lobby, as we seen in the last decade, and our Congress looks to be intimidated by them. Why is that?

  5. Dear Jim:

    I am not a health care economist, and I don’t have access to accurate and detailed information about the wholesale prices of drugs in places in Canada and England, so it is impossible for me to carry out any type of meaningful comparative analysis. Indeed the biopharmaceutical industry considers pricing information to be privileged and it is often extremely difficult to obtain accurate information about the actual prices being paid for anything (just as it is to obtain accurate price information for a radical prostatectomy at a specific institution by a specific surgeon).

    With regard to the idea that Congress “looks to be intimidated” by Big Pharma, … I don’t think it is that simple. There are many interest groups operating in this space. I don’t think Congress is “intimidated” by Big Pharma … but I do think the pharmaceutical industry spends a great deal of money on its lobbying activities, and is very good at it.

    With respect to the idea that “the government (read taxpayers) funds some of the development of new drugs” … The US government spends enormous amounts of money on healthcare research every year … and many would tell you that it isn’t anything like enough. Some of that money helps in the development of new drugs, but it is extraordinarily difficult to be able to work out in detail exactly how much taxpayer money went in to development of (say) a drug like enzalutamide by comparison with the money spend by Medivation and Astellas (to pick a recent example). Certainly there was some taxpayer money involved, but I doubt if anyone (Astellas and Medivation included) could give you a clear idea of how much. In all honesty I’d be surprised if it was anything like 10% of the total investment in development of the drug.

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