Why Do Cancer Drugs Cost So Much?

Last year spending on cancer-related drugs reached $125 billion. It could

go to $200 billion by 2020. What is it about the drug development, marketing and distribution process that forces people to pay so much? The basic reason: demand. Not supply and demand, as in not enough pills for too many people. Just demand.

When family members are faced with the death threat of a cancer diagnosis, their instinct is to spend whatever it takes to fight the disease - whichever of the many cancers that might be. So, they pound on their doctors, their health care provider, the insurance company, whoever they can reach to approve drug treatments that are scientific marvels but often offer little prolongation of life. And who can blame them? This is it, as serious as it gets; the ultimate battle.

The problem is that there is no governor on the drug development and pricing process. The Federal Drug Administration (FDA) has some regulatory control, but faces tremendous pressure from politicians who are besieged by desperate families on the one hand and lobbyed - hard - by pharmaceutical companies on the other.

In the current political environment it is a non-starter to recommend tighter regulation. Conservatives reflexively vote against any attempts to benefit consumers over corporations and will not fund the regulatory agencies effectively even in those cases -such as the financial crisis - when their hand is forced. Global competition may have some impact because countries like India and Brazil have effectively said they place their citizens' health (and their nascent generic drug companies' development) above the legal rights of the pharma companies. Ultimately, the companies will continue to charge what they can get away with. That is what businesses do. Until national will or some other countervailing force emerges. JL

The Economist reports:

CANCER is not one disease. It is many. Yet oncologists have long used the same blunt weapons to fight different types of cancer: cut the tumour out, zap it with radiation or blast it with chemotherapy that kills good cells as well as bad ones.

New cancer drugs are changing this. Scientists are now attacking specific mutations that drive specific forms of cancer. A breakthrough came more than a decade ago when Genentech, a Californian biotech firm, launched a drug that attacks breast-cancer cells with too much of a certain protein, HER2. In 2001 Novartis, a Swiss drugmaker, won approval for Gleevec, which treats chronic myeloid leukaemia by attacking another abnormal protein. Other drugs take different tacks. Avastin, introduced in America in 2004 by Genentech, starves tumours by striking the blood vessels that feed them. (Roche, another Swiss drug giant, bought Genentech and its busy cancer pipeline in 2009.)

These new drugs sell well. Last year Gleevec grossed $4.3 billion. Roche’s Herceptin (the HER2 drug) and Avastin did even better: $6 billion and $7.4 billion respectively. Cancer drugs could rescue big drugmakers from a tricky situation: more than $50 billion-worth of wares will lose patent protection in the next three years.
This month Pfizer, an American company, announced that America’s Food and Drug Administration (FDA) would speed up its review of a cancer drug called crizotinib. Roche submitted an FDA application for a new medicine, vemurafenib. The industry is pouring money into clinical trials for cancer drugs.

This is part of a shift in how big drug firms do business. For years they have relied on blockbusters that treat many people. Now they are investing in more personalised medicine: biotech drugs that treat small groups of patients more effectively.

Last year the FDA approved Provenge, developed by Dendreon of Seattle to train the immune system to fight prostate cancer. In March the FDA approved Yervoy, Bristol-Myers Squibb’s drug to treat melanoma. And there are promising drugs in the pipeline. Pfizer’s crizotinib attacks a protein encoded by a gene found in fewer than 5% of patients with non-small-cell lung cancer. Roche’s vemurafenib attacks advanced melanoma by blocking the mutated form of a gene, B-RAF. Both Pfizer and Roche are developing tests to help doctors identify suitable patients for their drugs.

The snag, from society’s point of view, is that all these drugs are horribly expensive. Last year biotech drugs accounted for 70% of the increase in pharmaceutical costs in America, according to Medco, a drug-plan manager. This trend will continue as drug firms develop new ways to treat, for example, multiple sclerosis and rheumatoid arthritis.

Cancer plays a huge role in raising costs. America’s National Institutes of Health predict that spending on all cancer treatment will rise from $125 billion last year to at least $158 billion in 2020. If drugs become pricier, as seems likely, that bill could rise to $207 billion.

Not all these new drugs work. In December the FDA said that Avastin’s side effects outweighed its meagre impact on breast cancer. (Genentech will argue otherwise in a hearing in June.) More generally, some people reckon that new cancer drugs offer small benefits at an exorbitant price. Provenge costs $93,000 for a course of treatment and extends life by an average of four months. Yervoy costs $120,000 for three-and-a-half months. Some patients live much longer, which fuels demand for the drugs. But others spend a lot and get little. Otis Brawley, chief medical officer for the American Cancer Society, calls the new treatments “the next frontier”, but adds: “We are not buying a lot of life prolongation with these drugs.”

Britain’s National Institute for Health and Clinical Excellence, a public body that judges whether medicine is cost-effective (ie, what Sarah Palin would call a “death panel”), has rejected several new cancer drugs. That so upset patients and tabloid editors that the British government back-tracked and created a separate fund to pay for expensive oncology drugs. The government now plans to introduce “value-based pricing” by 2014, with a system to price drugs not just for their efficacy but also for their “wider societal benefits”.

America does things differently. The government health programme for the elderly is barred from considering price at all when it decides whether to cover injected drugs under something called Medicare Part B. Under Part B’s loopy reimbursement system, the more a drug costs, the more the oncologist who prescribes it is paid. Patients have little reason to demand cheaper drugs. Part B usually covers 80% of a drug’s price, and most patients have additional insurance to cover the remainder. Americans hate to be denied any kind of treatment: a delay in Provenge’s approval prompted furious talk of rationing.

Private insurers have started to make patients pay a larger share of their drug bills. But drug companies often help to pay the patient’s share, which stops the public from getting angry about soaring costs. Even when prices are high, demand for cancer drugs is largely inelastic, says Tomas Philipson of the University of Chicago. Dying patients understandably place a high value on life, so they are willing to pay more for treatment. All this means that firms can charge steep prices. “At some point it’s just corporate chutzpah,” says Peter Bach of the Memorial Sloan-Kettering Cancer Centre in New York. “There’s no check in the system.”

America’s propensity to pay has one important benefit: it encourages investment in research. Drugmakers recoup their investments in America; other countries take a free ride. New research may yield better treatments. And today’s cancer drugs may prove more effective when tested in combination with others, predicts Todd Golub, director of the cancer programme at the Broad Institute, a genetics research laboratory.

Who will reform this unsustainable system? Private insurers may haggle harder. Patients may grow restive—a recent study found that 10% of cancer patients (not covered by Part B) fail to take prescribed drugs, largely because of the cost. Barack Obama’s reforms are supposed to cajole all health-care providers into becoming more cost-effective, but that will require political bravery to enforce, and few politicians are brave enough to do anything that sounds like rationing grandma’s cancer drugs. Congress recently authorised more than $1 billion to compare the efficacy of drugs—while explicitly ignoring their cost.