Sky-high prices and secretive price-setting practices by cancer drug manufacturers limit how many patients can access effective treatments around the world, according to the authors of a World Health Organization report.1 Greater transparency is urgently needed surrounding R&D costs, discounts/rebates, and price differences across countries, the authors argued.
Cancer drug prices are “unaffordable and unsustainable” for health care systems around the world, they concluded. “At current prices, universal coverage of cancer medicines (alone) will greatly exceed 5% of total expenditure on health care,” they wrote.1
The WHO report comes as the pharmaceutical industry faces increased scrutiny about its drug pricing practices. It also comes at a time when industry executives are being called on by Congress to explain why prices for medications have become unsustainable.
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Part of the problem is that cancer drug manufacturers are setting their prices in the context of “imperfect” market competition in a “differentiated oligopoly,” with drugmakers seeking to differentiate clinically similar agents.1
“Pharmaceutical companies may pursue what is called differentiated oligopoly, by occupying a particular segment of the market even though the medicines may be considered interchangeable therapeutically,” the authors explained. “For example, nivolumab and pembrolizumab are two monoclonal antibodies targeting programmed death (PD-1) for the treatment of metastatic non-small cell lung cancer with comparable therapeutic effects. However, the regulatory approved use of pembrolizumab requires confirmation of PD-L1 expression based on [an] approved test, while the use of nivolumab does not require such confirmation even though PD-L1 expression has prognostic value for both treatments.”
Individual companies are holding de facto monopolies over some types of cancer-treating agents, the report authors argued.
In a marketplace with healthy, robust competition, the prices of first-generation agents would theoretically decline as second- and third-generation alternatives were approved for marketing, noted Lowell Schnipper, MD, chair of the American Society of Clinical Oncology (ASCO) Value of Cancer Care Task Force. Dr Schnipper is the cancer center’s clinical director and chief of the hematology-oncology division, emeritus, at the Beth Israel Deaconess Medical Center, and the Theodore and Evelyn Berenson Professor of Medicine at Harvard Medical School, in Boston, Massachusetts.
But drug prices aren’t declining in this manner, Dr Schnipper told Cancer Therapy Advisor.
“If market forces were really operating, the cost of Gleevec [imatinib] would have dropped,” Dr Schnipper said. “But it hasn’t. Its price has gone up. [The price is] approaching $90,000 per year, now.”
That leads some patients to manage out-of-pocket expenses by rationing their doses — which potentially reduces the efficacy of treatment, he said.
“The bottom line is that middle-class Americans with employer-provided insurance or individual-market insurance have significant-enough copays that they’re paying $7000 or $8000 out of pocket for cancer drugs,” he said. “It’s taxing many families. A cancer diagnosis might be the most [frequently cited] health-related cause of bankruptcy.”
“Some who need Gleevec to survive will take it once every third day to extend their prescription from 1 to 3 months,” Dr Schnipper explained. “We know that compliance has an important relationship to outcome. It’s a significant problem; an enormous problem worldwide.”
Industry frequently objects to proposed price controls by pointing to the importance of returns on R&D costs, arguing that price controls will ultimately reduce innovation. But in the absence of strong market competition, companies are free to set cancer drug prices that have “little or no relationship” to R&D or manufacturing costs, the WHO report concluded.
“I think industry’s claim about R&D is overstated,” Dr Schnipper said. “I do think careful consideration about how to modify our system has to pay a lot of attention to rewarding innovation.”
There need to be strong incentives for meaningful innovation and genuinely new agents, he said: “There ought to be a reward for a first-in-class agent that is quite different from rewards for a me-too drug or minor modification.”
“Companies with market dominance are called ‘price makers’ because they are able to set higher prices while maintaining market share,” the WHO report states.
The WHO report’s authors analyzed R&D investments and returns for 99 FDA-approved cancer medications and concluded that on average, for every $1 invested in R&D, drug companies earn $14.50 — even after accounting for costs associated with other drugs that did not ultimately achieve regulatory approval. Collectively, these drugs earned drugmakers nearly $107 billion.
“That ratio is striking,” Dr Schnipper said. “It certainly does not seem implausible just based on the price structure of some of the drugs. I don’t pretend to understand all of what goes into their cost structure. That’s the hardest for us to understand because there is no transparency. You hear all kinds of dollar numbers for R&D. There’s no doubt about it being costly for industry, but is it in the range they’re saying? I’m skeptical about that, honestly.”
The WHO report’s authors suggested that the market-distorting returns flowing from high prices — those divorced from R&D costs — might actually hinder innovation.
“In fact, evidence suggests that linking R&D costs to the prices of medicines, after accounting for public contributions towards drug discovery, would see a sizeable reduction in the prices of many cancer medicines,” the authors wrote. “Secondly, at present, the financial returns from cancer medicines are high, to the extent that the returns could distort investment and stifle innovation. At this point in time and for cancer medicines, lowering current prices might in fact be conducive to long-term innovation. Further incentives through an alternative financing scheme might be helpful but not be instrumental in stimulating innovation in the sector.”
R&D investments are already incentivized through direct government investments in drug development and tax credits for R&D expenditures, the WHO report noted.1
Furthermore, industry is not responsible for most drug-discovery innovation. Drug discovery and development by industry “would not be possible without the concurrent contributions from governments, and by extension tax-payers,” the WHO report noted.1 Government and university researchers play an often-underappreciated role in drug development; fewer than half of scientifically novel cancer drugs, and fewer than one-third of orphan medicines, were produced by pharmaceutical companies.1
A litany of barriers to competition identified in the report include complex and expensive quality assurance processes, varying regulatory landscapes from country to country, and patent disputes or lawsuits that serve to discourage efforts to manufacture generic or biosimilar versions of a drug after a patent-protection period has lapsed. Such barriers prevent new competitors from readily entering the market, particularly for biosimilars. That’s significant because approximately 40% of cancer drugs are biologics.1
Drug rebates and discounts also hinder price transparency, the authors noted.1
“[T]he terms and conditions of these agreements are often confidential,” the authors noted.1 “The confidential terms include nondisclosure of the discounts and rebates, rendering the net transaction prices of medicines between the sellers (eg, manufacturers, service providers) and the payers (governments, consumers) opaque.”
“It is unknown if confidential agreements have achieved lower medicine prices and faster access than would be otherwise achieved,” the WHO report’s authors acknowledged. “It is also unknown if improving price transparency would lead to better price and expenditure outcomes.”
Drugmakers also convinced Congress not to address drug pricing in the Patient Protection and Affordable Care Act, Dr Schnipper noted. Congress instead stipulated that Medicare would not be allowed to negotiate prices with industry. Hobbling the US government’s ability to push for better prices allowed unfettered price inflation by industry over the past decade, he said.
“There hasn’t been much in the way of US national policy impact,” Dr Schnipper said. “So, whatever has happened has been modulated by payer plans, plan by plan, instead of in any organized way. I think the new Congress would like to change that, but I doubt any major change will happen.
Not surprisingly, drugmakers are critical of the WHO report, citing insufficient consultation of industry, among other concerns.
“The report is wrong on the facts and deeply flawed,” asserted Pharmaceutical Research and Manufacturers of America (PhRMA) spokeswoman Megan Van Etten.
“Unfortunately, the WHO developed this report without adequately consulting a broad set of stakeholders, including patients and private sector experts,” she told Cancer Therapy Advisor. “The report’s narrow scope fails to properly account for the value that cancer medicines provide to patients, health care systems, and societies.”
Data from the report are “unsubstantiated and even contradicted by other studies,” Van Etten said. A recent study by Deloitte, for example, found declining average returns on R&D investments for a dozen large drugmakers, from an estimated 10% in 2010 to 1.9% in 2018.2
But Dr Schnipper suspects that the WHO report may actually underestimate the impact of cancer drug prices on patients in some parts of the world.
“In some low-resource countries, cancer drugs are unavailable, period,” he said. “I’m working in Zimbabwe, and there, unless you can pay for drugs out of pocket – and most cannot – then you don’t get treatment for cancer.”
That said, the WHO report “made some strong and cogent arguments about the disproportionately great costs attached to cancer drugs with regard to R&D costs,” Dr Schnipper said.
Transparency is “essential” to curbing drug price inflation, Dr Schnipper said. But it is unclear how policymakers could best ensure that pharma would adhere to the pricing transparency tenets called for by the report authors, he cautioned. The development of value algorithms reflecting both clinical efficacy and cost is an important first step toward an objective basis for cancer drug pricing, he said.
“I can’t imagine a downside to more transparency, but I’m skeptical that [industry] would permit an absolute, detailed look at their cost structures,” he said. “It would be great if it were doable. But I wonder who would enforce that.”
References
1. World Health Organization. Technical report: Pricing of cancer medicines and its impacts. 2018. ISBN 978-92-4-151511-5.
2. Deloitte Centre for Health Solutions. Embracing the future of work to unlock R&D productivity: Measuring the return from pharmaceutical innovation 2018. Accessed March 8, 2019.
This article originally appeared on Cancer Therapy Advisor
