[Ip-health] FT on the unhealthily high price of cancer drugs

Jamie Love james.love at keionline.org
Thu Jun 4 05:13:27 PDT 2015

>From John Gapper's reporting:

* One remedy is for a monopsony purchaser to limit patients’ access to
expensive drugs and to force down prices by becoming the biggest negotiator
in the room. This approach is taken to its extreme by Nice in the UK, and
it also operates to varying degrees in countries outside the US.

* It has its flaws, though, especially if you are the patient denied
treatment because your own quality-adjusted life is not deemed worth the
ticket. Nor does it provide a clear reward to a company that is genuinely
innovative, rather than producing a marginal advance. Other countries gain
from US patients paying high prices for  drugs, which allows them to strike
a better deal.

My comment on the article: with delinkage, you can eliminate the access
barriers, focus incentives to products that improve outcomes (rather than
match outcomes), much more easily manage cross border issues while sharing
costs among countries with different incomes, and avoid being ripped off,
while create the level of incentives as high as countries like.    Jamie


Management Personal Finance Life & Arts
June 3, 2015 7:20 pm
The unhealthily high price of cancer drugs
John Gapper

Companies take advantage of inflexible patient demand to try to recoup
research costs

If the worst happens, there is one comfort: this is the best time in
history to contract cancer.

You stand a better chance than ever before of being cured or of living a
longer life after less unpleasant treatment. There is a possible
side-effect to consider, though: financial ruin.

A flow of encouraging medical news emerged this week from an annual
gathering of US oncology researchers and doctors: not only is a new
generation of drugs working but they are attacking a broad range of
tumours. Immunotherapy — using the body’s immune system to destroy cancer —
is showing signs of improving the life expectancy of many patients.

The problem is the high price of drugs such as Bristol-Myers Squibb’s
Opdivo and Merck’s Keytruda, each of which costs $150,000 for a full course
of treatment in the US. Even if a patient qualifies for Medicare, the US
health system for over-65s, he or she could be charged $30,000 in
co-payments for a few months more life. Some drugs work better together,
multiplying the bill.

Rebellion is breaking out among oncology doctors in the US, led by a small
group at Memorial Sloan Kettering hospital in New York. “The last step of
the innovation cycle — getting the drugs to patients — is completely
broken,” says Peter Bach, director of the centre for health policy at the
hospital, which refused to prescribe one cancer drug because of the price.

The UK’s National Health Service is taking a harder stance. The National
Institute for Health and Care Excellence (Nice) has rejected olaparib, an
ovarian cancer treatment produced by AstraZeneca. The £4,200 monthly
treatment price fails Nice’s guideline that no drug should cost more than
£30,000 per additional year of a patient’s life, adjusted for quality.

It is clear that companies cannot continue to ratchet up prices of new
drugs, or health systems will be crippled as every patient with advanced
cancer demands treatment. The science is too effective; drugs that looked
as if they would work only on rare tumours, keeping the bill down, are
starting to have an impact on common conditions.

It is far less clear how the prices are being set in the first place. Drug
companies tacitly admit that they are taking advantage of highly inflexible
consumer demand, whereby they can raise prices and people still buy the
product, to try to recoup as much as they can of research and development
costs — and the billions they pay to buy bio­pharmaceutical companies with
one or two wonder drugs. Cancer drug pricing is one big unscientific trial.

This is becoming a highly leveraged version of the pricing controversies of
a decade ago, when pharmaceutical companies squeezed as much as possible
out of blockbusters before patents expired and the market was flooded by
generics. The price of drugs such as Pfizer’s Lipitor statin seemed high
but it was little compared with those of cancer drugs.

There was at least a pricing framework for blockbusters, even if it could
be gamed. Research was rewarded by patent protection, followed by fierce
competition that reduced prices. There is no equivalent for this generation
of biologically based cancer drugs, all of which are bespoke, and all
subtly different. They cannot be copied as simply as the previous pills.

This market, if you can call it such, works strangely. Instead of prices
tending to fall as a new drug is authorised, they rise. Each new product —
even if it improves on others only slightly, and even if is prescribed only
when another has failed to work — is more expensive. One study by Dr Bach
and others found that cancer drug prices rose by 12 per cent a year between
1995 and 2013.

Patients and doctors see new drugs not as competitors but as additions to a
battery of treatments for seriously ill cancer sufferers. One person may be
given three drugs, all at high prices. The looming threat of death makes
them willing to pay a lot if they are charged. If they are heavily insured,
or the government pays, they have no reason to care.

Nobody, not even the drugs companies, believes this is sustainable so what
is to be done? One remedy is for a monopsony purchaser to limit patients’
access to expensive drugs and to force down prices by becoming the biggest
negotiator in the room. This approach is taken to its extreme by Nice in
the UK, and it also operates to varying degrees in countries outside the US.

It has its flaws, though, especially if you are the patient denied
treatment because your own quality-adjusted life is not deemed worth the
ticket. Nor does it provide a clear reward to a company that is genuinely
innovative, rather than producing a marginal advance. Other countries gain
from US patients paying high prices for  drugs, which allows them to strike
a better deal.

In the US Dr Bach argues that prices should relate directly to the value of
drugs to patients rather than being fixed artificially at just above the
level of earlier rivals. And, rather than a single immunotherapy drug
costing the same whether prescribed for rare skin melanomas or common lung
cancers, they should also vary according to the condition that the drug is
used to treat.

This sounds more like the way a market ought to work, as long as such
flexibility also lowers the average cost of cancer drugs. The new
generation of remedies is a scientific marvel and the bill for innovation
is bound to be high. But if the patient was bankrupted, the treatment was
not a success.

End of Article


Scientist 2 hours ago
I believe the world spends £1,000,000,000 per day on the Man Made Global
Warming fraudulent scare - cancer treatment and research is one area this
money is not spent on.

Gordons alive! 3 hours ago
The US population spends more on dog grooming than on research into fusion,
which would instantly solve the planets energy problem.

Just one example where relying on the private sector to save our lives is a
pathetic, whimpering sort of behaviour in the face of huge problems.

Almost nothing can be solved by the private sector. The continual weighing
up of life vs profit will keep us all in the dark ages.

Only the socialisation of risk for massive undertakings like the
development of drugs that could save us all, or solving our energy needs
for good will work properly.

rzb 3 hours ago
"This sounds more like the way a market ought to work, as long as such
flexibility also lowers the average cost of cancer drugs"

Totally agree this is just a market working inefficiently at present, as
other's see the margins they can make from this market they will enter it,
and it will get more efficient..... prices will drop.

Witty at GSK has a different approach get into a different market before
this one crashes.

The new generation of drugs is a scientific marvel though, well said Mr
Gapper, lets have more a lot more.

The Annon 4 hours ago
There is no doubt that Pharma companies use the pressure they build  using
desperate patients, their consultants - many have pecuniary relationship
receiving research funding -to on the vote hunting politicians.

Faced with mounting clamour from the media who are only too happy to find
an easy "cause" to fill in their column inches and broadcasting time the
politicians cave in playing master bountiful.  The public are no better
either.  Hard stories elicit reation from tham that " It is only money,
give it to them"

Little do any one in this circus except the Pharma companies have the eye
on the ball- that of getting money flowing into their coffers.

While Pharma companies and those on its pay role are manipulating the rest
of us the Politicians, health professional and the public are only too
willing to be manipulated, becoming very complicit in the whole process.

The solution lies in every one learning two things:

1) Value for money considerations do matter and money spent on good cause A
will be unavailable for other good causes B to Z.

2)  We cannot -and it i foolish to believe that we can-  put off the end of
life for ever.  Sooner or later all of us are subject to this law of nature.

bluebell 5 hours ago
Cancer patients hoping to receive exorbitantly costily treatments need to
be educated about the often meagre benefits of a treatment.  Clinical
trials involving thousands of patients can come up with statistically
significant differences but the actual difference can be very small.  A
study designed with sufficient statistical power (i.e. enough patients) to
detect a 3 month improvement in life expectancy may find that difference
but is it worth undergoing the treatment?  OK, some will die in a shorter
time and others survive far longer but that's true of untreated cancer.

All drug trials have the same caveat: despite statistically significant
improvement, which drug companies trumpet, one needs to balance this
against the actual size of the improvement and whether it is of clinical
importance.  For eample, there are trials of drugs to treat obesity that
report statistically significant reductions in bodyweight, but when one
looks at the data it's often a very few kilos over a year from people
weighing over 200kg: a negligible health benefit.

Peter W 5 hours ago
The above article by Mr. Gapper implies that the large pharmaceutical
companies are abusing their monopoly positions during the patent protection
period to overcharge for cancer drugs developed.

Some numbers for the companies mentioned.

Astrazeneca - annual return for shareholders over 10 years - 10.8%
Return on Capital 5.89%
Return on Equity   6.66%
Operating Margin   8.68% (source: Stockopedia)

Merck - annual return for shareholders over 10 years - 10% p.a

Bristol-Myers Squibb - annual return for shareholders over 10 years - 12.4%

Hmmm, not sure there is much evidence of them ripping the skin off
everyone, as implied by the article.

Why has the FT ignored this and gone for dramatics rather than perspective,
the curse of modern journalism that completely denigrates its value to the

The real greybeard 5 hours ago
@Peter W You make a fair point. However, there is little point in
developing a new drug if it is not going to be used to maximum extent
because you overpriced it.  The price is not related to the manufacturing
cost as everybody admits, therefore the price is a strategic choice.

The pharma companies are losing on two counts with this pricing strategy.
First the adoption of new treatments is slowed down dramatically.  Second
the PR knock-on negative effects are dramatic too and affect every part of
the day to day business, from the willingness to allow them to deliver
end-to-end solutions, to the willingness to allow any brand value for drugs
that are off-patent.

Peter W 4 hours ago
@The real greybeard @Peter W

I agree real greybeard (great name!), their pricing strategy might not be
ideal but I just don't know.

The real greybeard 1 hour ago
@Peter W @The real greybeard The companies know this too but they don't
know how to fix it.  Internally they are handicapped by their organisation
into category profit centres.  Externally they have poisonous relationships
with the payers, established over decades of mistrust and abusive marketing.

Someone has to be big enough to hit Reset.  This actually could be UK NHS
but they show no signs of being able to negotiate such a long term game

Public rider 5 hours ago
Big questions: we have Big Pharma, Big Tobacco, Big Alcohol, Big Banks. Why
doesn't small government work?

CoffeeMug 5 hours ago
According to new research presented just this week, using statins can halve
the risk of dying from some cancers. As the patents for statins have long
expired, they cost only pennies, and would seem to offer much more than a
few months to patients.

I'd paste a link here, but I saw the story in a competing newspaper.. you
can do a search for "statins cancer survival Wang" to find it.

Brian in Jack 6 hours ago
So the U.S. subsidizes defense and medicine for Europeans. Europeans should
probably remember these sorts of things as they practically trip over
themselves to be be China's little pets.

Rocket 6 hours ago
There are plenty of examples of products which increase in cost over time.
Pharmaceuticals are like luxury goods - luxury cars, fashion etc. You want
the latest thing? - you pay - until copies come along and the price
crashes. And when it does crash, it crashes for ever. But people forget
that this new cancer drug will be available for humanity in perpetuity.
Let's not forget the Pharma might be profitable but Tobacco is 10 times
more profitable. That's a funny way to run a society - those that save life
get price control. Those that kill it - cash and more cash.

Voice of Truth 8 hours ago
The beginning of "death panels." If you don't the cash, you die. It ain't
rocket science in today's calloused, narcissistic and "selfie" driven

Deuce 10 hours ago
Specialty drugs are out of sight in the U.S. The bulk of prescriptive drugs
are sold in the U.S. The U.S. cannot negotiate with Big Pharma. Other
countries can and thus can regulate the cost of drugs. Big Pharma sells its
drugs abroad for less than it does in the U.S. Global Pharma makes the bulk
of its profits in the U.S. Specialty drug costs (the $1000 per pill cancer
fighting type) account for more than 1/4 of drug spending in the U.S.
Question: Must the U.S.A. (5 per cent of the world population) fund
innovation and research for the world? Everyone has to work together to
limit the price of specialty drugs. Put a cap on specialty drugs or limit
Pharma's ROI to something several points above what they could get if they
invested in bonds. At the moment their ROI is well over 20 per cent.
Another option: Let Pharma keep the profitable business of developing and
selling common drugs, i.e for infections, pain, depression... Make
governments the majority partner in the cancer drug trade absorbing
development. Give the drugs free to the sick and let taxpayers pump $100
billion plus per year into the program hoping it will stay on the rails.

jcrw 5 hours ago
@Deuce  There could be a way to reduce the cost of new drugs where national
health administrations exist. The health maintenance system, however
funded, pays a share (say half) of the R&D costs for successful approved
drugs treating specified diseases. This reduces the major capital risk to
the developer, leaving it with only the commercial and operational risks.
It will also gain guaranteed sales to the co-funder of its research. This
process appears to be showing promise for the Gates Foundation as they pay
for successes in meeting their specified goals for anti-malarial drugs. The
pharma companies still compete on the research and marketing to other
customers, so will be kept honest. The risk of investing $1b in a NCE (New
Chemical Entity) only to have it commercially shot down by NICE would also
be reduced as NICE's owner would effectively be a co-investor in and
customer for the product. Major defence system suppliers rarely develop
products fully without a pre-contracted government client; their
shareholders would never allow it. Big Pharma does it all the time.

Centre Right Brit 10 hours ago
One easy fix for reducing R&D costs (and, therefore, prices) would be for
the FDA and the EMA to harmonise their requirements for approval. The FDA
requires clinical trials that compare the new drug against placebos,
whereas the EMA requires trials with the new drug being compared with the
prevailing standard of care. Hundreds of millions of pounds and years are
spent (/wasted) conducting additional phase 3 trials purely to address
these different requirements. Of course, neither the FDA nor the EMA wants
to give up control of its own turf and the individuals at the regulators
don't want to put themselves out of a job.

Astrophysicist111 13 hours ago
To pay over $40,000 pounds or euros or whatever for 3 extra months of life
is simply not worth it. It is irrational to grab a 3-month extension and
leave one's family in financial ruin - responsible for paying off the debts
incurred. And no, I wouldn't do it. For an extra 5 years of life - maybe -
if I could afford it- but not 3 months then being bankrupted. Citizens in
the West need to learn to accept death as an outcome and medical personnel
need to bring hospice care more into their radar.

Raconteur 13 hours ago
This article completely glosses over the fact that despite tens of billions
of dollars spent in drug discovery research, until recently, cancer
treatment has remained substantially unchanged since the 1950's. Survival
rates for some common cancers (e.g. lung cancer) are just as poor now as
they were then. There is a good reason for this. Fighting cancer is hard
and expensive. To incentivise drug companies to continue their research,
the potential rewards therefore need to be disproportionately high.
Introducing price controls as the author suggests would inject a huge
amount of additional commercial risk (into what is already a very
speculative process) for the drug companies. The end result would
inevitably be less research and less drugs coming to market which would be
a tragedy given the justifiable sense of excitement surrounding
immunotherapy. Personally, I would rather be bankrupt than dead.

Hectorius 14 hours ago
Is the author really suggesting that companies should not seek to recover
research costs? if such costs cannot be recovered, who will pay for the

Axel 11 4 hours ago
@Hectorius it is alluded to but I think the message might be more like
"they want minimize risk by aggressive pricing that leads to quick cash to
recoup expenses (at the expense of the patients' financial situation)" or
"they are unfairly taking advantage of the aggressive pricing to cover by a
multiple the costs spent on R&D"

the line of what he meant is blurred though.

from a microeconomic point of view, marginal profit should be abused as
much as possible (without compromosing long term elasticity) walking just
to get by the imposed legal line and I understand the companies making
leaps of faith when buying single-companies-drugs spending billions at lvl
2 with no guarantee of success as well as their abusing the market

as much as I'd like to argue for the ethical thesis (patients either get
broke or they die: which is more or less what happens in the US) the world
doesn't seem to go along my view.

WR 17 hours ago
The UK can afford these drugs and the NHS should be providing them.

Ian Watts 15 hours ago

No, I can afford these drugs, but I don't see why I should pay for them for

Dave Pollard 15 hours ago
@Ian Watts Hello Gordon Gekko. Still up to your old tricks then?

Judyw 17 hours ago
There need to be price control on these drugs - even if it means keeping
the patents on drugs for a longer period. The price needs to come down, but
a longer life for the patent should also be given to the companies. We
don't want to stifle research.

Centre Right Brit 10 hours ago
@Judyw Perhaps it should be the other way around. Shorten the patent life,
suffer a shorter interim period of high pricing, and then on patent expiry
the advances in healthcare can be equitably shared among a far wider range
of people. Pros and cons for each. Of course, as Mr Gapper mentions, we
need to see how the biosimilars market (i.e. generics for the complex,
biologics) shakes out before we can really get our heads around patent

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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