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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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February 16, 2006

What's It Worth to You?

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Posted by Derek

So now we come (again) to the topic of cancer drug pricing. The New York Times ran an article on this the other day which has gotten a lot of attention. In it, Alex Berenson points out that prescriptions for the antibody therapies like Avastin and Erbitux cost a huge amount of money.

This isn't news, unfortunately. See this 2004 article by Matthew Herper in Forbes, for example, or see my posts from around that time here and here. What the NYT article makes much of, though, is what it says is a new rationale for the costs:

"Until now, drug makers have typically defended high prices by noting the cost of developing new medicines. But executives at Genentech and its majority owner, Roche, are now using a separate argument — citing the inherent value of life-sustaining therapies.

If society wants the benefits, they say, it must be ready to spend more for treatments like Avastin and another of the company's cancer drugs, Herceptin, which sells for $40,000 a year. . ."

You won't catch me disagreeing about the value of pharmaceuticals. But this argument can only be taken so far, because (as those links from two years ago make clear) drugs like Avastin really only add a few months of life. That's nothing to make light of, but I fear that it's also not much of a basis for Genentech and Roche to talk about how society should be willing to pay for such outcomes. Can you fix a price for two extra months of life? We're going to have to.

The NYT article has an excellent example of someone who's done the calculation for himself:

"Ellis Minrath, who has pancreatic cancer, said he had chosen not to take Tarceva, a drug from Genentech that is approved for lung cancer and has shown promise in pancreatic cancer. He did so after learning that it would cost him about $1,000 a month in co-payments, even though he is covered by Medicare.

"If anybody came out and said, 'By God, this is the stuff. You want to get well, find a way to buy it,' that would be one thing," said Mr. Minrath, who is 87. "But that isn't the case. The forecast of how much it's going to do is not that wonderful. . .

I agree with Mr. Minrath's decision, and I strongly endorse his right to make it. As an 87-year-old with pancreatic cancer, he seems to have studied his situation objectively and realized the odds he faces. He is very, very likely to die within the next few months, and (although we've never met) I'll be sorry to see him go, because he sounds extremely sensible. Personally - and I hope I never have to work this decision out for real - I would lean toward a similar "leave more for my heirs" position. Other patients in different situations may well come to different conclusions, and that's up to them (and in the real world, up to their insurance companies) as well.

What we need, of course, is some cancer drugs that don't make us put prices on months. I'd rather be working out the value of whole years or decades. Therapies which can do that will be the place to make the "society should suck it up" argument, but making it for Avastin and the like seems rather premature. What will we do when we find something that's good?

Comments (29) + TrackBacks (1) | Category: Cancer | Drug Prices


COMMENTS

1. steveSC on February 16, 2006 10:20 PM writes...

Welcome to price discrimination. By pricing at $100K, Genentech can give a 'discount' of 30% to third party payers (making their buyers happy) while still making off with almost double the profit of Herceptin. And look for programs to help patients cover their co-pays, etc. for 'social responsibility' while tapping the insurance companies for all they can. And so what if Medicare and Medicaid demand a 50% discount? They still get 98% gross margins. Only in America, where patients are shielded from the financial consequences of their demands.

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2. Petros on February 17, 2006 3:02 AM writes...

Take a look at the prices of Celgene's newly approved Revlimid and Thalidomid. The former, a simple synthetic drug, has been priced at a level comparable to that of Herceptin a recombinant product, while the latter's prie has risen steeply. And as we all know thalidomide is a 40+ yeard old drug.

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3. Dr Snowboard on February 17, 2006 4:17 AM writes...

Herceptin pricing already causing a stir in the UK as patients go to
court">http://society.guardian.co.uk/health/story/0,,1703570,00.html">court to try and get prescribed it under our healthcare system. At the moment, it's still not approved for early stage so it's clearly a 'clinical decision' not to prescribe..

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4. JSinger on February 17, 2006 9:31 AM writes...

Can you fix a price for two extra months of life? We're going to have to.


Sure, but the companies shouldn't have to! That's what I found so infuriating about the NYT coverage -- it's as though they've never heard of market forces. The reality is that at some point people, either as individuals, insurers or a health system, need to make those unpleasant decisions about what an extra month or year of life is worth, and create a meaningful pricing structure. I see no reason why pharmas should be expected to make that decision for them.

When prices need to be "defended" there's something wrong.

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5. Mike on February 17, 2006 9:42 AM writes...

Derek, I've been reading for about a year. You are the man, can I come work for you?

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6. Martin on February 17, 2006 9:42 AM writes...

Aslo Tarceva provides only a modest benefit in pancreatic cancer. As I recall it was a 6% increase in median survival, which is roughly 12 days.... It seems hard to justify spending so much money for 12 additional days of life when you still spend those 12 days and the previous six months on gemcitabine also.

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7. rob Cyran on February 17, 2006 10:28 AM writes...

Derek-

Good points. Erbitux costs on the lines of $150k per patient year and I don't believe it has yet shown a survival advantage.

But society misallocates resources all the time. Just look at how much we spend on preventing airplane hijacking vs deaths from car accidents. Better yet, what do we spend on keeping super-premature babies alive vs preventative care for poor children.

Here's an interesting essay on the matter:

Economic Sickness - By Edward Hadas
The US is supposed to have one of the most productive economies in the world. But to judge from the healthcare system, the accomplishment is overstated. The sector accounted for almost one-third of US GDP growth between 2000 and 2004. As a proportion of GDP, it increased from 14% to 16%. But deconstructed, this growth is not much for the US to be proud of.

If spending more money on healthcare always made people healthier, then the US would be in the best shape in the world. The next-biggest healthcare spenders, Switzerland and Germany, dedicate a relatively modest 11% of GDP to health. Japan gets by with 9%.

But the US gets a very poor return on this spending. In 1980, an American 65-year-old man had a six-month-shorter life expectancy than his Japanese counterpart. That gap has increased to 16 months. At the other end of life, the US ranking in infant mortality has steadily declined since 1960, from 11th to 28th best in the world.

The contrast between massive input and disappointing output is disconcerting. But it fits all too well with two other facts about the US economy. First, the US grows better where there is little international competition. Medical care has boomed along with housing and other non-tradable services. Second, the US is excellent at generating jobs, even when they add little real value. To judge by the results, many of the new jobs in healthcare actually do little to improve health.

In macroeconomic statistics, the inefficiency of the US healthcare system is turned into a positive - it creates both growth and jobs. But surely real growth should produce better health. By that standard, the US is falling short.


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8. MedChem on February 17, 2006 11:42 AM writes...

What an unwise argument to use! Like the public doesn't hate us enough already. This is exactly what we need--more ammunition for the media to demonize our profession. Unbelievable.

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9. John Thacker on February 17, 2006 3:16 PM writes...

"But the US gets a very poor return on this spending. In 1980, an American 65-year-old man had a six-month-shorter life expectancy than his Japanese counterpart. That gap has increased to 16 months. At the other end of life, the US ranking in infant mortality has steadily declined since 1960, from 11th to 28th best in the world."

Adjusted for the dramatic differences in immigration between the countries? I think not. In any case, that demonstrates not at all that the US gets a very poor return on spending. The essay makes the critical assumption that all else is equal. It is not. Not only immigration, but behavioral factors (drug use, teen pregnancy, other lifestyle choices) make an enormous difference.

It is entirely possible that if the US had the exact same medical care as Japan that the health outcomes would be even worse, due to differences in the population.

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10. Still Scared of Dinosaurs on February 17, 2006 3:36 PM writes...

The main reason the survival increases for these drugs are so small is that the patients are so sick.
It's a harsh fact, but the only way you can show a survival benefit is to have a lot of the patients in your trial die, and the faster they die the fewer of them you need and the shorter you have to study them. The easiest way to get them onto the trial is when they have no alternative, and so we end up with survival increases of a few months.
Avastin took people from 6 months to 11, how much better could they have done?
After approval these companies try to expand the market into earlier stage patients and more competitive diseases, but unless you can step the endpoint down to progression or response you gotta start these trials at the same time as for the end-stage patients because they'll take so much longer to run.
>>Can you fix a price for two extra months of life?
Just a hypothetical, but what about a millionaire who hates taxes so much he wants to extend his life as long as possible so he can distribute $12K to all his relatives and friends free of gift or estate taxes.
He knows how much each additional year is worth to him, but of course the costs wouldn't keep him off treatment in the first place.
I heard one MD who said that the most important influence on the decision to undergo moderately effective but highly toxic therapy was the age(s) of any kids the patients had. Those without kids or whose kids were well into adulthood were more likely to decline aggressive therapy, whereas those who had younger kids were generally desperate to stay around as long as possible whatever the downside.
This is the tough one to put a $ value on.

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11. jim on February 17, 2006 5:54 PM writes...

"Adjusted for the dramatic differences in immigration between the countries? I think not. In any case, that demonstrates not at all that the US gets a very poor return on spending. The essay makes the critical assumption that all else is equal. It is not. Not only immigration, but behavioral factors (drug use, teen pregnancy, other lifestyle choices) make an enormous difference."
An example of something I mostly agree w/ on its face, though I'm suspicious of the poster's implications. It seems that the reason immigration could be such a big factor is because a disproportionate number of immigrants are uninsured, and thus likely to first see care in the emergency room. So it's an extreme example of our failure to properly emphasize preventative medicine/"lifestyle choices"--particularly of the diet and exercise variety, but certainly also affected by issues like drug addiction(the japanese are more serious smokers than americans, so for that particular example it can't be the difference). But doesn't this point to a systematic emphasis on later-stage, costlier (more profitable) treatments as at least one aspect of this problem? (not a purely rhetorical question mark)

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12. Jack Friday on February 17, 2006 6:29 PM writes...

"The approval of new drugs that offer no substantial advantages puts further burdens on national health services, insurers, and patients.

The costs of the new preparations are several times—sometimes an order of magnitude—higher than those of existing drugs. This increase is difficult to justify, considering that the newer drugs are usually largely equivalent to the standard treatments in efficacy and safety.

The lack of differences in activity makes any pharmacoeconomic evaluation virtually useless: it is difficult to explain why toremifene should cost more than twice as much as tamoxifen.

Similarly, one temozolomide cycle costs about 350 times as much as a cycle of procarbazine, although there are serious doubts about the real efficacy of either treatment. In ovarian cancer, one cycle of topotecan costs over 10 times more than a cycle of cisplatin. The new drugs for advanced breast cancer cost 3-13 times as much as doxorubicin.

Just to complicate matters further, pharmacoeconomic assessments of new anticancer drugs tend to be biased in their favour."

From:
http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1123779

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13. Ab on February 17, 2006 7:10 PM writes...

I think the true benefit of therapies like Avastin will be realized if we can figure out the optimal regimens i.e. 1.disease stage to use in
2. the optimal combination with chemo/radiation and 3. appropriate dosing interval/schedule.
If anyone is interested you should look up work by Robert Kerbel who advocates "metronomic" therapy (sustained, low dose chemo) and Rakesh Jain's work on vessel normalization after treatment with antiangiogenics
The way the clinical trials are designed its very hard to answer these questions and resultantly the drugs such as Avastin are not being utilized to their best potential, but this should change over the next 5-6 years and then the survival advantage/economic impact should be more favourable

Like Petros observed it is intriguing to note the pricing of thalidomide and even sutent

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14. qetzal on February 17, 2006 7:22 PM writes...

@Jack Friday -

Most or all of those claims may well be true. However, the reference you cite strikes me as extremely shoddy, and doesn't come close to proving those points (IMO).

Besides, why complain about price if the new drugs don't work better than the old ones? If it's clear they provide no efficacy, safety, or QOL benefit, there's no reason to pay the those prices. Nationalized health systems in the EU, and Medicare/Medicaid and the insurance companies in the US can justifiably refuse to cover them.

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15. xpharm2b on February 17, 2006 10:34 PM writes...

It is ironic that our newest and latest drugs, the result of the genome revolution and huge investments on the part of pharma, provide such a modest benefit to patients yet are hyped to the extreme and sold to society at obscene profit margins. Yes, those profit margins do serve to reward us with wealth that few of us could have imagined in graduate school, but is it worth it? My soul is telling me it is time to leave this business behind and do something that will really benefit society (of course, being set financially makes this decision a little easier).

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16. Jack Friday on February 18, 2006 1:44 AM writes...

@ quetzal

Many thanks.

I'll pass on your "shoddy" comment to the Editor of the British Medical Journal.

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17. Jack Friday on February 18, 2006 6:10 AM writes...

And while I'm all fired up, here's another quote:

Speaking on the drug value issue, Roy Vagelos, former CEO of Merck, had this to say: "Most drugs on the market have tremendous value and are priced right. We have outliers, however, that are going to kill us," warned Vagelos. He mentioned cancer drugs that are sold for $50,000 that deliver only 4 months of added lifespan on average. "I think that is very damaging," Vagelos said, "and does not follow the value line."

From John Mack at:
http://pharmamkting.blogspot.com/

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18. qetzal on February 18, 2006 9:31 AM writes...

Like I said, if a new drug provides little or no benefit, but costs much more, why is anyone paying for it?

To the extent that happens, don't you think it points to problems that go way beyond the pharma companies themselves? Do you think Toyota could sell Camries for 3x the price of an Accord, if they just spent a lot more on marketing?

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19. PS on February 18, 2006 11:45 AM writes...

'To the extent that happens, don't you think it points to problems that go way beyond the pharma companies themselves? Do you think Toyota could sell Camries for 3x the price of an Accord, if they just spent a lot more on marketing


Probably yes, if an insurance company was paying for it instead of the consumer.

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20. bmorse on February 18, 2006 12:03 PM writes...

The cold hard truth here is that many of these drugs cost a fortune because of the high failure rates alluded to in some of the earlier posts. A big risk requires big payoff. I doubt many of us would be willing to invest in something that is >95% likely to fail without the potential of a pretty big payoff. Is the high cost worth it? It's hard to make the call unless you are the one with the disease. One important advantage for some of the drugs referred to earlier (Avastin, e.g.) is that the side effects are minimal.

Anyhow, it may be a little early to render a judgment at this point. We need to remember that these drugs showed effects in diseases at stages where everything else failed. As these are approved for treatments earlier stages, and alternative dosing regimens are explored (see Ab's comments), there is at least some reasonable hope for improvement.

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21. qetzal on February 18, 2006 12:51 PM writes...

"Probably yes, if an insurance company was paying for it instead of the consumer."

Exactly. In other words, it's not simply a matter of pharma charging 'unfair' prices. As others have previously noted.

"As these are approved for treatments earlier stages, and alternative dosing regimens are explored (see Ab's comments), there is at least some reasonable hope for improvement."

I hope so. At the same time, we should recognize that it's not always in pharma's interest to run definitive trials in early stage disease, or with different regimens. As SSoD points out, such trials will often be very long and require very large numbers of patients.

This is a real problem, I think.

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22. PS on February 18, 2006 3:20 PM writes...

The cold hard truth here is that many of these drugs cost a fortune because of the high failure rates alluded to in some of the earlier posts. A big risk requires big payoff. I doubt many of us would be willing to invest in something that is >95% likely to fail without the potential of a pretty big payoff.

Compare with

Rishton bashes the productivity of pharmaceutical R&D as being "unsustainable". Do you guys agree with this? I just took a quick look at Wyeth's SEC filings and observed the following:

Net Revenue (2003) - 16 billion

Cost of goods sold - 4.6 billion

Sales and administrative - 5.5 billion

R&D - 2.1 billion.

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23. biff on February 18, 2006 6:23 PM writes...

@ Jack Friday

I'll pass on your "shoddy" comment to the Editor of the British Medical Journal.

You wouldn't be the first one to do so... :-)

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24. Derek Lowe on February 18, 2006 10:21 PM writes...

Yep, the BMJ has always seemd to suffer from the need to show that they're more cutting-edge than The Lancet, so that you really, really should read them, too.

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25. Still Scared of Dinosaurs on February 19, 2006 4:57 PM writes...

Many of the difficulties with comparative trials boil down to statistical power that you have to ask what would happen if Avastin beat Erbitux 11 months to 9 months head to head with a p-value of 0.13, with comparable safety.
You'd hear a lot of yapping from the Erb side and a lot of caveats from everyon else, but this would still be a very important result and a big win for DNA. But if i worked for DNA and absolutely believed this would result I still wouldn't want to run the trial because of the risks.
Disinterested sponsors wouldn't be so wary, which is why when active comparisons come up I always advocate having them run by people who don't have an interest in an outcome, and even most non-industry leads have some point they're trying to prove. Add up Medicaid, Medicare, the VA, the military, prisons, (did I forget anybody?), and the feds are spending a lot of money. When there is truly no concensus why not have programs to randomize patients to various alternatives and report the results? The savings in the long run would certainly cover the costs, and the programs would be designed to end when the patient group in question reaches a best choice.
Even if participation was strictly voluntary you would have plenty of people willing to sign up, but in cases where one or more alternatives are off formulary this may be the patients only chance to get the new meds.

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26. Jim Hu on February 20, 2006 12:40 PM writes...

I'm wondering about the author's POV in this NYT article. How much is objectionable in the actual quotes from the Genentech and Roche people vs. the spin Berenson puts on it. Here are the quotes:

"As we look at Avastin and Herceptin pricing, right now the health economics hold up, and therefore I don't see any reason to be touching them," said William M. Burns, the chief executive of Roche's pharmaceutical division and a member of Genentech's board. "The pressure on society to use strong and good products is there."

Dr. Susan Desmond-Hellmann, the president of product development of Genentech, which is based in South San Francisco, Calif., said that Genentech had set Avastin's price based on "the value of innovation, and the value of new therapies."

Not sympathetic to be sure, but these strike me as more defensible than "citing the inherent value of life-sustaining therapies". As I note in the trackback I sent last night, Berenson was writing about Avastin prices last summer too, but didn't manage to stimulate the current level of outrage...perhaps because he noted that Genentech has a lot of sunk costs in Avastin.

Not being an industry insider, I don't know this from first-hand sources, but it's my sense that monoclonal antibody therapies in general are relatively expensive to make. It seems unlikely to me that with current production technology the price per dose will ever approach small molecule drugs. This does not mean that Genentech isn't taking a healthy profit on its monoclonals. Their website basically says that this class is the lion's share of their total sales. But how cheaply can one make a gram or two (my guesstimate of a monthly dose) of pharma-grade mAb? Does anyone here know? How does the markup compare to typical drugs?

Disclaimer: Genentech is in my portfolio.

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27. robert cyran on February 21, 2006 8:48 AM writes...

In response to comments about whether US is getting bang for its buck -

The US spends about 15% of its GDP on healthcare. Germany spends about 10%. US is also richer.

Both have similar amounts of immigrants with 10% of the population born overseas. Yet life expectancy is worse in US (77.7 vs 78.6 ) and infant mortality is worse too (6 deaths per 1,000 vs 4). So it's probably not immigration that explans difference. Not drug prices either, because drugs represent less than 15% of all healthcare spending in the US.

Seems to me that the US just spends inefficiently - too many tests, too much on people who are going to die anyway, not enough on preventative care.

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28. Jim Hu on February 21, 2006 11:50 AM writes...

Re: #27

a) The difference in life expectancy seems to be well within the error to me. The infant mortality is more troubling, but I'd like to know how much that reflects poor people losing babies at term vs. rich people losing very early premies.

b) The absence of a difference when we spend more doesn't suggest to me that we spend more inefficiently in general. It's consistent with there being diminishing returns on health spending. I think people say that we spend a large fraction of our health budget on the last few months of terminal disease (as in the subject of this post; I don't have time to find a link). We may be more inefficient then...but I'm not convinced that efficiency is the right thing to measure here.

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29. For Urbano on February 21, 2006 10:24 PM writes...

Based on this article and the comments posted it appears that none of you have had to deal with this personally and most of you are focused on the cost of care rather than the value of a moment of life. I probably would have felt the same way 3 or 4 years ago until it happened to me. My dad and best friend passed away two years ago from pancreatic cancer. He fought for over 16 months on various chemotherapies until the end when he was granted compassionate use for a trial drug which I believe had he been given this drug earlier when his immune system was still strong he may have survived much longer. I agree the costs are astronomical and the problem does need to be addressed but you can not put a price on an extra day of life. I would have given thousands to have had him with me an extra day. All the money that you leave behind will NEVER fill the empty space that is left in your loved ones.

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The price of life from blogs for industry
Nick Anthis and Derek Lowe comment on this NYT story about the pricing on new anticancer drugs from Genentech [Disclaimer: I have some Genentech Stock and I know some people who have worked there in the past]. Doctors are excited about the prospect o... [Read More]

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