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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: Twitter: Dereklowe

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« Bert Vogelstein on Cancer Drugs and Cancer Screening | Main | Synthetic Chemistry: The Rise of the Algorithms »

July 30, 2012

Cancer Drugs: Value for the Money?

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Posted by Derek

And while we're talking oncology, here's a piece from Luke Timmerman at Xconomy that brings up a lot of tough questions. We've talked about some of these before around here, but everyone who works in oncology drug discovery is going to hear them again: How much should a new cancer therapy cost? Who's going to pay for it? Are patients (and their insurance companies) getting value for their money?

I wouldn’t go so far as to say we need a draconian system to discourage drug developers from creating new products. Drug prices are rising fast, but there are a lot of other factors contributing to increased healthcare spending. Drug companies can, and should, be able to recoup the investments they make in the form of high drug prices. But if you’re going to charge a high price for a drug, I think a company needs to have a much stronger value proposition than “Hey, we shrank tumors in half for 20 percent of patients. Now hand over your $100,000.” It needs to be more like, “Hey, my drug has an 80 percent chance of helping people with this genetic profile, and those people can expect to live an extra year, with high quality of life.” Now you’re starting to really talk about $100,000 of value.

Sadly, drug companies tend to be more interested in satisfying the short-term profit desires of their investors than they are in truly delivering cost-effective care to patients. . .

Well, it's like this: we realize that people want inexpensive drugs that work great. But we have an awful time delivering anything like that. As I've said before here, we keep swinging for those fences and missing. That's why these drugs come out, the ones that only extend life span for a limited amount of time: every one of those are drugs that people had higher hopes for, but that's how they performed in the real world, so out they come onto the market to do as best they can. And if they're only going into a small patient population, then the pricing gets set accordingly.

So we have two trend lines that are trying to intersect: the amount of money one can hope to recoup from a new cancer medication, and the amount of money that it takes to find one. They haven't quite crossed, not yet, but they're on course to. If it were less costly to develop these things, or if they delivered more value in the end, we could push them back apart. Will either of those be realized in time to help?

Comments (31) + TrackBacks (0) | Category: Cancer | Drug Prices


1. okemist on July 30, 2012 11:11 AM writes...

I am currently working on a cheap cancer drug, cost of good is about 150.00 a kilo. But I have been working on it for 5 years. it's in phase II, III now and doing very well in the clinic. I would assume another 2 years of trials to go before approval. lets say 1 gram a day for 30 days; 5$ worth of chemicals, but 10 years of development. What is this treatment worth?

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2. ethics on July 30, 2012 11:32 AM writes...

Why limit the discussion to cancer drugs? Society in general, and the US in specific, finds it hard to count the cost when $100,000 + is spent on drugs (all those protein therapeutics that pharma is focusing on are costly) and other medical therapies for a single person. At the same time relatively little is spent on preventative care. Who wants to limit access to healthcare because of cost? No one, but someone has to. Pharma certainly wants to make a profit, but the focus seems to be on high price/low patient numbers instead of low price/high numbers. This is probably a natural consequence of better diagnostics to segment the patient population. Can you imagine what the cost of the drug would be with truly personalized medicine?

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3. Hap on July 30, 2012 12:23 PM writes...

1) If companies can't sell cancer drugs now for what they cost, they may not be around to discover ones that are better.

2) The prices of cancer drugs (> $100K for drugs that add 2-4 months of no disease progression) might be used to set price points for drugs that actually give substantial value - thus the argument won't really end, but only get worse, when better drugs come out, because they will cost far more and have the same questions.

3) The costs of drugs are the biggest parts of health care, but they are the easiest to encapsulate, and thus seem like ready-made targets.

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4. Biotechtranslated on July 30, 2012 12:28 PM writes...

Of course, getting data like "quality of life" and "efficacy in genotype subgroups" doesn't magically come out of thin air either, those trials cost a lot of money too.


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5. Toad on July 30, 2012 12:34 PM writes...

The costs of drugs are NOT the biggest parts of health care costs. They have been reported to be between 5% and 10% of the total cost in the US over the last few decades.

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6. barry on July 30, 2012 12:51 PM writes...

thanks, Toad! The fraction of the total health costs attributable to drugs is rising, but is still small. The cost of a cancer drug will eventually depend on how many diseases cancer is. If we can identify a small number of driving signals, we might have a small number of blockbuster drugs, whose cost will eventually rival that of ibuprofen. If in the nightmare scenario cancer is a large number of rare diseases, then it's all pesonalized medicine and it will always be inaccessibly expensive for most people. There's real basic biology still lacking in the field. And that's real research that's not getting done while tens of thousands of researchers are getting laid off.

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7. Student on July 30, 2012 12:53 PM writes...

And a big cost issue is how much the US subsidizes (both government and private) for the entire world. US tax payer dollars go to basic research which is used by those all over the world. US private drugs are also now increasing being distributed all around the world with minimum or zero profits (compulsory licensing). So MOST of the cost must be recouped from US citizens. When you are paying taxes, you are funding research for the entire world. When you buy a drug, you are really buying it for several other individuals in different counties.

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8. barry on July 30, 2012 1:03 PM writes...

@student: Compulsory licensing is still a pretty rare maneuver, but Big Pharma clearly finds it threatening. It's very hard to commit to a 10yr research/development program without knowing how to recoup those costs even if you do (improbably) get through to a licensed drug.

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9. Hap on July 30, 2012 1:25 PM writes...

5: Sorry - I meant aren't, and didn't proofread enough.

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10. LeeH on July 30, 2012 1:28 PM writes...

@barry and @student

With India and China clearly going towards a compulsory licensing model (not to mention the threat of the availability of mail order generic sources for those drugs in the US), pharma will have and increasingly hard time recouping costs. A double whammy. The removal of emerging market revenues, plus competition from (illegal) generics.

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11. Anonymous on July 30, 2012 1:41 PM writes...

@Barry - even without compulsory licensing, many countries regulate the amount that they will allow pharmaceutical companies to charge for their drugs. These prices aren't enough to compensate for the development of the drugs, and the much higher costs charged to US customers helps to subsidize the markets in other countries.

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12. barry on July 30, 2012 1:47 PM writes...

China and India are building up their own Pharma industries. Compulsory Licensing would eventually cut into their own revenue stream. We can no more conclude that "India and China [are] clearly going toward a compulsory licensing model" than we can conclude that the U.S. was "clearly going towards war with the U.S.S.R." Yeah, we wasted trillions of dollars to sustain the bluff, but it was all a bluff.

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13. metaphysician on July 30, 2012 2:13 PM writes...

12- Bad example, since it was only a bluff because the other guy ultimately blinked. I'd say trillions of dollars to prevent nuclear armageddon or global war is cheap at twice the price.

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14. NoDrugsNoJobs on July 30, 2012 2:15 PM writes...

When we look at the cost of a drug, we need to consider thats high cost is largely over the first 10-12 years while it is still propeitary to its developer. However, its benefit actually runs long, long beyond the period when it is a propietary drug. That 100k cancer treatment will be generic - its cost will come down 90% but its benefit will not. Your kids, their kids and their kid's kids will all benefit. In a sense, its like coming up with an improved crop or farm anilmal and expecting to recoup the cost in one season rather than realizing that the benefit is permanent whereas the high costs are temporary.

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15. TJMC on July 30, 2012 3:38 PM writes...

#14 - I agree that the benefits to society last far beyond the initial exclusivity marketing period. Given the thinking of multi-action combinations, I wonder why this this would not also benefit cost/effectiveness in a similar way:

If a $100K drug has a 10% recurrence rate that a second (or third) conbined off-patent drug can reduce by another 40-50% (hopefuly more), that incremental cost is NOT 2x100K. But the benefits might exhibit that step-function up.

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16. John Schilling on July 30, 2012 6:11 PM writes...

"And if they're only going into a small patient population, then the pricing gets set accordingly"

I think there's a sunk-cost fallacy in there, obscured by the perversity of American health-care market. If the drug provides only a small benefit (a few months of extra lifespan and that with greatly diminished quality of life), it sells in any rational market at a small cost. If it is suitable for only a small group of patients, then the total revenues will be very small.

That it cost a billion dollars to develop, is irrelevant. That money was spent when you thought it was going to be a blockbuster, and you were wrong. What you have now ought to be considered a drug that costs nothing (further) to develop and that can be sold for a very small ammount.

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17. dvizard on July 30, 2012 6:58 PM writes...

@14: No, I don't think so... 12 years later the new cutting-edge therapy will be another, more recently approved drug for $100k. And your current $100k drug is only slightly better than the old $100k drug which would soon become generic...

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18. investor on July 30, 2012 7:33 PM writes...

"Sadly, drug companies tend to be more interested in satisfying the short-term profit desires of their investors"

That goes for pretty much any publicly traded company these days, not just drug companies. One could argue it's one of the reasons for the trouble our economy is in right now. The pressures of frantic boomers seeking unrealistic gains from their retirement plans is what drives it all.

The recent acquisition of ridiculous companies and ideas by big pharma is just another example of their flailing attempts to convince investors they have a fighting chance.

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19. NoDrugsNoJobs on July 30, 2012 9:58 PM writes...

#17 -Really? I wish it were true - To my knowledge, taxol, etoposide, tamoxifen, gem-citabine, anastrazole, letrozole, etc are all generic and are the most commonly prescribed cancer drugs so I'd be interested to see your source. I've heard that the insurance companies push hard for generics because they control the spending and like to preserve their profits. Over 75% of prescriptions in the US are for generic drugs and the most commonly prescribed drugs are all generics. Believe me, insurance companies work hard to not spend their profits on drug company research.

For example,

According to Forbes (2010) analysis of IMS data, 14 of the top 15 most prescribed drugs were generic (its now 15/15 because lipitor is off patent):

"Forbes' list of the 15 most popular drugs comes from IMS Health ( RX - news - people ), a company that tracks sales at the pharmacy level for drug companies. The list shows how medicine makers are rapidly losing their grip on the average consumer. Only one drug in the top 15, Pfizer's ( PFE - news - people ) Lipitor, is a big-selling brand-name medication. The rest are cheap generic versions of one-time big sellers that have lost their patent protection and become commodities.

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20. hibob on July 30, 2012 10:12 PM writes...

Derek, I thought it had been long accepted that the price of any drug is predetermined no matter what the sunk costs were: the price is always the highest the market will bear. I.e., the price that yields the highest net profit. If Okemist Inc. (see the first comment) developed their $150 per kilo cancer drug while Genentech developed the next kilatumorimab for $150K per kilo and it turned out both drugs had exactly the same patient profile, same dosage, same market, and same etc., they'd both end up marketed at the same price. The only difference is that Genentech would buy Okemist and ditch their own drug.

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21. Morten G on July 31, 2012 2:13 AM writes...

"the price [of any drug] is always the highest the market will bear"
For what products is this not the case?

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22. newnickname on July 31, 2012 4:32 AM writes...

@1: $150 / kilo? Arsenic trioxide (Teva; Trisenox)? Hydrazine sulfate? Cesium chloride?

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23. scriptsRfrugal on July 31, 2012 6:45 AM writes...

@#3, #5 Toad is exactly right. This is a zombie lie that won't die. The ROI from a healthcare delivery perspective is actually pretty high:

Hospital care and physician and clinical services are by far the largest components of U.S. health care spending. Hospital care accounted for 31 percent and physician and clinical services accounted for 21 percent of overall health care spending in 2006. Prescription drugs accounted for only 10 percent of overall spending, although that is 40 percent higher than its share in 1970.

Source: Centers for Medicare & Medicaid Services

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24. BAM on July 31, 2012 7:21 AM writes...

One thing that we don't often consider, however, is hospital markups. I've seen family members getting $15,000 bills for a single antibody fusion for Crohn's, when I can buy these off the shelf for $1500-2500 for use in my research (I've been in R&D developing biologics for >10 years).

I'm all for a debate on this issue, but it seems to me that it quickly becomes misleading and, in fact, dishonest if we don't distinguish between drug costs and treatment costs. If a hospital marks up the cost of a drug 5x, 50x, or even 100x (and these types of markups have been documented ad nauseum) perhaps the starting point of the discussion shouldn't be what the drug manufacturers charge. Under these conditions the drugs could be given away for free and it would barely decrease the treatment cost by 25%.

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25. petros on July 31, 2012 9:05 AM writes...

The price differential between the recombinant proteins and the new synthetic anticancers is much smaller than most people seem to recognise. It can be as little as 2-fold per single dose.

e.g. Revlimid's US prices are around $400-450 per tablet

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26. Hap on July 31, 2012 11:11 AM writes...

23: I was trying to say the opposite (see 9) - I knew that drug costs aren't the major driver of health care costs, but only a small- to medium-sized piece. I just mistyped.

They are, however, a large target because their costs are generally large per use and because they are readily encapsulated - their development and production depended on a lot of skill, but their use does not so much. In addition, lots of money for a small average (or unpredictably large) benefit is always going to be hard for users to swallow. Anything with a big and growing price tag (even when it's worth it) is going to attract unwanted attention.

I hadn't considered hospital markups (24), though with large price-tag drugs, I don't know how long insurance companies will be willing to pay large percentages on large costs. Probably not long.

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27. barry on July 31, 2012 12:50 PM writes...

there are three great bargains in healthcare: potable water, sanitary sewers, and vaccines. Fourth would come pharmaceuticals. After that (hospitalization, surgery...) things get really expensive really fast.
If we had a national healthcare policy (instead of a patchwork designed by and for the Insurance Companies) we would put our finite resources where they do the most good. Until then, our fee-for-service structure means that doctors will admit more patients to hospital beds and will stick in more tubes. Because they're paid to stick in more tubes.

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28. Dave2 on August 1, 2012 9:23 AM writes...

The dramatic increase in the # of anticancer drugs in development is interesting: In 2002, ~400 were in development, but by 2011 the number was ~900 (according to PhRMA). Considering that each has a low probability of success, this dramatic increase is all the more surprising.

Thanks to newnickname: I didn't realize arsenic trioxide had been approved as a drug. Fascinating.

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29. Anon on August 2, 2012 1:07 AM writes...

@27 barry
"our fee-for-service structure means that doctors will admit more patients to hospital beds and will stick in more tubes. Because they're paid to stick in more tubes."

It still makes no sense to me the level of compensation for physicians performing known procedures...Many of which could easily be accomplished by nurses.

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30. Frugal Innovation on August 5, 2012 2:23 PM writes...

The genie has been out of the bottle since 1999 when NICE was created in the UK.
There is no real debate: cost-effectiveness hurdles are here to stay and will only rise.

I think what has wrong-footed many though, is the speed at which the Developing World is embracing the concept.

The only choice left for pharma is how can it do what it does a lot (at least a log unit) cheaper.

Any ideas?

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31. cancer drugs on August 6, 2012 3:17 AM writes...

Trends similar to those in developed countries are slowly beginning to emerge. Even though cervical cancer is still the leading cause of cancer deaths in both rural and urban areas, numbers of cervical cancer are dropping in urban areas.

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