[Ip-health] John Gapper (Opinion) in the FT: Keytruda shows the high price of curing cancer

Thiru Balasubramaniam thiru at keionline.org
Tue Feb 12 23:59:36 PST 2019


Opinion Pharmaceuticals sector
Keytruda shows the high price of curing cancer
Rapid medical innovation is prompting drug company mergers and making
treatment costly


John Gapper 3 HOURS AGO

A decade ago, the US pharmaceuticals company Merck paid $41bn to acquire
Schering-Plough, consolidating and cutting thousands of jobs amid an
industry crisis of innovation and confidence. The companies touted their
cholesterol and HIV treatments, briefly noting a “promising pipeline” in

Hidden in that pipeline was Keytruda, an antibody that enables the body’s
immune system to attack cancers. It was an accidental acquisition,
initially ignored by Merck and almost discarded but now its main
blockbuster, with sales expected by JPMorgan to hit $16bn a year by the
mid-2020s. It extends patients’ lives longer than chemotherapy alone,
albeit expensively.

Rapid innovation in oncology drugs such as Keytruda and genetic medicine
has prompted another merger wave. Bristol-Myers Squibb agreed to acquire
Celgene for $90bn in January, GlaxoSmithKline agreed to buy the US biotech
Tesaro for $5.1bn in December, and Eli Lilly said last month it was
acquiring Loxo Oncology for $8bn.

It is an exciting time for an industry that for many years struggled to
make research and development produce results. It is also a welcome shift
away from the mass marketing of primary care pills towards medicines for
the gravely ill. This week, Keytruda was found to improve health of
patients with kidney cancer and with glioblastoma, an aggressive brain

But it begs questions about the future of pharma companies. One is whether
they are more innovative than before, despite this activity. The second is
how long the buzz about cutting-edge oncology can convince insurers and
healthcare systems to pay bills that are already high and may rise higher.

Keytruda illustrates how the industry now works — it was discovered by a
Dutch pharma company that Schering-Plough bought in 2007, rather than in
one of either group’s research laboratories. Merck’s role, when it finally
realised what it was sitting on (thanks to seeing Bristol-Myers nurturing a
rival drug called Opdivo) was to put Keytruda through trials and develop it.

Keytruda and Opdivo are enormously important drugs in the developing field
of cancer immunotherapy. They are “checkpoint inhibitors” that prevent the
body blocking an immune response to cancer cells. Since Keytruda’s first
approval in the US in 2014, it has been used to treat an expanding range of
cancers, sometimes alone but often combined with other drugs.

This success has pushed other pharma companies to acquire biotechs, or to
form partnerships to develop similar drugs, and others that can be used
with them. A lot of drug discovery is done in biotech start-ups — the
consultancy McKinsey estimates that 69 per cent of the portfolios of
high-growth pharma companies came from acquisitions or licensing in 2015.

That avoids the risk of working for years on a drug that fails, but it
creates other challenges. A pharma group that in effect outsources early
stage research can suffer from a brain drain — it may lack scientists who
can assess properly which deals to strike with biotechs. It can also
struggle to make the most of the drugs it acquires from others by widening
their applications.

This way of running the industry inflates prices. Biotech drug discovery is
a risky endeavour, so investors (and research scientists who leave safe
jobs) want to be rewarded richly for success. The wave of oncology
innovations encourages the fear of missing out among drugmakers — recent
deals show how high a price they will pay to secure their future.

In the end, the patient pays. In November, Keytruda was approved for use in
the UK’s National Health Service. The list price for each three-weekly
infusion is £5,260, and the average cost for a course of treatment is
£84,000, although the NHS gets a discount. The official price for Kymriah,
a personalised leukaemia drug from Novartis, is £282,000 per treatment.

Innovative drugs are not only expensive to develop but difficult to spurn.
An oncologist may have one chance to save a patient’s life and will pick
the medicine with the best shot. That curbs the pressure to cut prices, in
contrast with pills with generic competition or, for example, a hepatitis C
drug with a rival that might also be effective.

In some ways, the market is working — such is the ferment of innovation
stimulated by these rewards that rivals for drugs such as Keytruda are
popping up faster than before. If cancer were less complex, one could
expect prices to start falling; US President Donald Trump’s campaign
against “the injustice of high drug prices” paid by Medicare would produce

But we are decades away from anything like a “cure for cancer” and one
medicine is rarely enough — many pharma groups are working on drugs for use
in combination with Keytruda or Opdivo. Not only will this make splitting
the rewards difficult but the overall price will rise rather than fall. It
is hard to deny any patient an extra year of life but the bill will be

For now, the industry is enjoying a burst of profitability and dealmaking,
with high prices justified by life-saving innovation. It knows one thing
from history: the halo will fade.

john.gapper at ft.com

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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