[Ip-health] How Pfizer Set the Cost of Its New Drug at $9, 850 a Month

Claire Cassedy claire.cassedy at keionline.org
Wed Dec 9 07:01:19 PST 2015


How Pfizer Set the Cost of Its New Drug at $9,850 a Month

Process of setting the price for breast-cancer treatment shows arcane art
behind rising U.S. drug prices

Updated Dec. 9, 2015 12:01 a.m. ET

Days before Pfizer Inc. was to set the price for a new breast-cancer drug
called Ibrance, it got a surprise: A competitor raised the monthly cost of
a rival treatment by nearly a thousand dollars.

Three years of market research—a stretch that started almost as soon as the
new treatment showed promise in the laboratory—was suddenly in doubt. After
carefully calibrating the price to be close to rivals and to keep doctors
and insurers happy, Pfizer was left wondering if its list price of $9,850 a
month for the pills was too low.

“What do you think if we take that up?” asked Albert Bourla, Pfizer’s
executive overseeing cancer drugs, speaking to his colleagues at the final
price-setting meeting last January.

It was a tricky issue. Drug companies have been reaching for new heights of
pricing. They routinely raise the cost of older medicines and then peg new
ones to these levels.

Yet Pfizer knew setting a price too high for Ibrance might backfire. It
could antagonize doctors and prompt health insurers to make prescribing the
pills a cumbersome process with extra paperwork that doctors dislike.

A look at Pfizer’s long journey to set Ibrance’s price—a process normally
hidden from view—illuminates the arcane art behind rising U.S. drug prices
that are arousing criticism from doctors, employers, members of Congress
and the public. A Senate committee is holding a drug-price hearing on
Wednesday, focusing on sudden large increases imposed by companies that
purchased the rights to drugs developed by others.

Pricey options
The average cost of a branded cancer drug in the U.S. is around $10,000 a
month, double the level a decade ago, according to data firm IMS Health.
Cancer doctors say high costs are unavoidable because all of the options
are pricey.

“I think that says something about where we all are in terms of drug costs:
We’ve gotten used to something that is pretty outrageous,” says Eric Winer,
who heads the women’s cancers division at Dana-Farber Cancer Institute in

Pfizer’s multistep pricing process shows drugmakers don’t just pick a lofty
figure out of the air. At the same time, its process yielded a price that
bore little relation to the drug industry’s oft-cited justification for its
prices, the cost of research and development.

Instead, the price that emerged was largely based on a complex analysis of
the need for a new drug with this one’s particular set of benefits and
risks, potential competing drugs, the sentiments of cancer doctors and a
shrewd assessment of how health plans were likely to treat the product.

In the end, “we went to the right point where patients get the maximum
access, payers will be OK and Pfizer will get the [returns] for a
breakthrough product,” Dr. Bourla said.

The process began in November 2011 when Mace Rothenberg, a scientist who
oversees Pfizer’s development of cancer drugs, flew to California to review
early clinical-trial data on a laboratory compound.

Then called simply PD-0332991, it grew out of work on proteins that help
regulate how cells form and divide. In cancer, some of these can shift into
overdrive. The research on this won a Nobel Prize. It also set off a hunt
by drugmakers for a way to put the brakes on the overactive proteins,
called cyclin-dependent kinases.

Visiting Pfizer labs in La Jolla, Dr. Rothenberg saw a slide with two
curves veering far apart. It showed that the length of time before
breast-cancer patients’ disease progressed was twice as long for those who
took Pfizer’s compound in addition to an existing drug versus patients
getting just the older drug.

“I think we have something special,” Dr. Rothenberg told the scientists
leading the research.

When he got back to New York, he began talking up the compound to win the
internal investment needed to develop it, as well as to involve others who
would eventually set a price. Pfizer wasn’t going to fund further clinical
testing and other development costs if it couldn’t anticipate good
financial returns from a resulting drug.

In this case, the opportunity was clear. Pfizer’s novel compound targeted
advanced breast cancer fueled by estrogen—a disease for which existing
therapies, a decade or more old, offered only a modest extension of life. A
drug that could do better would fill an unmet need and could be priced
accordingly. So in 2012, while scientists continued their work, Pfizer
employees on the commercial side started on the market analysis that would
eventually lead to a pricing decision.

More clinical results arriving in December 2012 supported the compound’s
promise, but also showed it was associated with lower counts of
infection-fighting blood cells. The studies weren’t long enough to answer a
key question: whether the compound helped people live longer.

They were encouraging enough to keep the Pfizer pricing team going, though.
The team began interviewing cancer doctors, seeking to gauge interest in a
possible drug with this one’s profile of benefits and risks.

Importantly, Pfizer wanted to know what the oncologists would consider
comparable treatments.

Among the doctors consulted was Debu Tripathy, then co-leader of the
Women’s Cancer Program at the University of Southern California. Dr.
Tripathy, now at University of Texas MD Anderson Cancer Center in Houston,
says he was excited about the prospective drug described, though he would
have liked to see evidence it extended lives.

For a drug comparison, he says he pointed the company to a widely used
breast-cancer drug called Herceptin.

Pfizer’s compound “looks about as good as Herceptin. Maybe you should price
it like that,” Dr. Tripathy recalls telling Pfizer.

Herceptin was much cheaper than most other branded breast-cancer drugs, he
knew. It cost about $4,775 a month in late 2013, according to its maker,
Roche Holding AG, and data firm Truven Health Analytics.

Dr. Tripathy says Pfizer staffers told him it would be better to compare
their compound to newer drugs. These are much costlier than Herceptin.

Pfizer says Herceptin wouldn’t have been a good benchmark because it wasn’t
one of the newest drugs in use and because of differences in how it is
taken, the kind of cancer it treats and the length of time it stalls tumor

In 2013, Pfizer hired outside firms to conduct hourlong interviews with
more than 125 cancer doctors in six cities, while commercial staffers
observed. Doctors said they were impressed, and many said that despite
having to monitor patients for infections, they would prescribe “Product X”
if the price was reasonable.

Most of the doctors, according to two Pfizer staff members, pointed to
three drugs the company should consider as pricing benchmarks: Kadcyla and
Perjeta from Roche and Afinitor from Novartis AG.

Like Herceptin, two of these differed from Pfizer’s drug in the kind of
breast cancer treated and in how they were administered. Only Afinitor
closely paralleled Pfizer’s compound by attacking the same type of breast
cancer and being in pill form.

For all three, the cost of treating a patient for a month was between
$9,000 and $12,000, including any other drugs that had to be taken with
them. These are list prices, from which health plans and insurers negotiate
discounts of 20% or so.

“We’re going to be somewhere in this ballpark,” a Pfizer staffer involved
in the pricing research recalls thinking.

Competing factors
The company wanted a price that would maximize its revenue without
deterring health plans or keeping the drug from getting to patients it
could help. Dr. Bourla recalls telling staff members in late 2014 that the
company had “a moral obligation”: The patients had a deadly disease that
this drug could help, and “it is our responsibility to get it to them.”

It was time to talk to insurers.

Pfizer hired firms that surveyed more than 80 health-plan officials such as
medical directors and pharmacists. They were asked what restrictions, if
any, they might place on a drug with this one’s profile, at various monthly
prices from $9,000 to $12,000.

Pfizer executive Albert Bourla gave final approval last January to a price
for the company's new breast-cancer drug Ibrance, following a years-long
process by other Pfizer officials that included testing the views of
oncologists and health-plan officials.

Pfizer executive Albert Bourla gave final approval last January to a price
for the company's new breast-cancer drug Ibrance, following a years-long
process by other Pfizer officials that included testing the views of
oncologists and health-plan officials.

At $11,000 a month, one official said the plan “would definitely require
physicians to document medical necessity for Product X,” according to a
person familiar with the surveys. It was the kind of paperwork obstacle
Pfizer wanted to avoid.

Staff members put together a chart estimating the revenue and prescription
numbers at various prices similar to those of the three drugs Pfizer had
decided to use as benchmarks.

The chart showed a 25% drop in doctors’ willingness to prescribe the new
drug if it cost more than $10,000 a month. This indicated Pfizer might
collect higher returns by charging toward the lower end of its range.

Pfizer also had been talking with the Food and Drug Administration. The
agency agreed in late 2014 to a speedy review, without waiting for results
from an elaborate “Phase 3” clinical trial, so that patients with
life-threatening conditions could get the drug earlier. This sped up the
time to market by about two years.

Pfizer took steps to put the drug in patients’ hands as fast as possible
after FDA approval. Oral cancer medicines aren’t dispensed at local
drugstores but at specialty pharmacies that help patients gain insurance
approvals, remind them to take pills and assist with side effects. Pfizer
lined up 24 of these to supply the drug once approved.

Hoping to smooth the drug’s way onto health-plan lists of covered
medications, Pfizer economists created a dossier containing data on
clinical benefits and risks, plus—important to the plans—the likely effect
on their budgets.

The economists mined electronic health records, drug-prescription tallies
and health-insurance claims to estimate the number of prescriptions, costs
of treating side effects and monitoring patients for infections, and
spending that might be avoided if the drug kept cancer at bay longer.

The economists cited a 2012 report showing that a typical million-member
commercial health plan spent $320 per member a month, of which the spending
on cancer drugs came to just $4.20. Scenarios they ran indicated the new
drug, if priced below $10,000 a month, would increase that spending no more
than six cents.

Pfizer set the price of Ibrance, a new breast-cancer drug, at $9,850 a

Pfizer staff members staged two mock reviews by health-plan officials. The
officials, who were paid for their time, sat around a conference table and
simulated a day-long discussion of how to handle a drug such as this one.

Pfizer employees say the mock reviews supported a monthly price below
$10,000. If it was higher, insurers could start requiring doctors to fill
out paperwork justifying its use.

The staff felt they finally had it. When they met in November 2014 to nail
down a price, they picked a figure just below the cutoff: $9,850 a month.
This would be the list price, from which health insurers and
pharmacy-benefit managers would negotiate discounts and rebates with Pfizer.

The staffers just needed a green light from Dr. Bourla, the executive
overseeing cancer drugs.

The price they had picked was well below the cost of treatment involving
one of the three benchmark drugs Pfizer had identified. But it was close to
the price of the other two, and slightly above the price of the most direct
competitor, Novartis’s Afinitor.

Then, on Jan. 6, 2015, Novartis raised Afinitor’s price 9.9%. Novartis says
it adjusts prices to reflect “an evolving health-care and competitive
environment,” new evidence and the need to support R&D.

The new price for the close rival drug put its monthly price $687 above
what Pfizer was planning to charge.

Meeting in Dr. Bourla’s New York office three days later, Pfizer staff
members mentioned that price increase. Dr. Bourla asked if Pfizer, too,
should go higher.

“This may make some plans just not use it, and some will make things
difficult and that will frustrate patients,” he recalls being told.

Alternatively, Dr. Bourla asked, should Pfizer charge a lower price than it
was planning? Would doing so reach substantially more patients? He says
staffers told him that a price closer to $9,000 a month wouldn’t improve
health-plan coverage, and Pfizer would be leaving money on the table.

They were back to $9,850. “Let’s go with that,” Dr. Bourla said.

On Feb. 3, the FDA approved Ibrance. Within hours, pills were on their way
to pharmacies.

Sales are off to a strong start. The drug has been taken by about 18,000
breast-cancer patients so far.

Industry analysts expect Ibrance will eventually bring Pfizer billions of
dollars a year in revenue.

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