Positioning

When does a new drug become too expensive? When it's combined with another one...

The treatment of cancer looks set to continue as the battleground between drug companies and payers as new treatments test the limits of premium pricing.

Drugs utilising the immune system to fight tumours promise remarkable efficacy, but with a price to match. When those drugs, which can cost $100k per annum each, display astounding results in combination, then it is clear that manufacturers and alike will have to be open to fresh strategies.

Expensive combinations with long-lasting effects, such as checkpoint inhibitors like Keytruda (Merck) and Opdivo (BMS) in melanoma and lung cancer (which “release the brakes” on the immune system, allowing the body's defences to recognise and destroy cancer cells), are making huge demands on current budgets and dozens more combinations in solid tumours are scheduled for introduction after 2018.

To give an idea of the scale, if all US patients whose cancer has metastasised were treated with Opdivo and another BMS immunotherapy Yervoy, the annual cost for drug alone would be $174 billion (based on a combined list price of $295,000 for just under a year's treatment).

Looking wider, global cancer drug spending increased 10 percent in 2014 to $100 billion, up from $75 billion five years earlier, with oncology now accounting for 14.7 percent of total drug spending in Europe and 11.3 percent in the United States, according to IMS Health.

Time on therapy is an important, but rarely acknowledged factor here, as in addition to the cost of an individual dose increasing there has also been a 45 percent increase over the last 10 years in the time that patients are on therapy, pushing up overall costs even further.

Undertaking high-risk development and commercial programmes deserves high returns, but even senior figures in the drug industry are echoing payer concerns. 

"There's got to be a limit. One drug plus one drug can't equal the cost of two drugs," Novartis pharma head David Epstein told Reuters. "We recognise the need for oncology drug pricing to become more rational." Roche, which is the world's biggest cancer drug supplier and is working on more immunotherapy combination trials than any other company, agrees there is a problem."

"We need to keep the system sustainable," said Roche Chief Executive Severin Schwan. "That is also in our interest."

All sides therefore acknowledge the problem, but there appears to be less room for flex on the payer side, particularly in the United States where out-of-pocket costs can threaten to bankrupt some patients, as well as for pharmacy benefit managers, who negotiate drug prices for health plan members. So, does pharma have the desire and the ability to respond constructively?

Thankfully for patients, payers and tax-payers alike, the answer appears to be yes. 

Payments by results (pioneered in Sweden) is an accepted financial model and is increasing in importance, ensuring that payment is linked to increased quality and/or quantity of life.

In terms of absolute costs, Roche has already signed deals in parts of Europe to cap costs per patient for its two targeted breast cancer drugs Perjeta and Herceptin, and states that this will be repeated with new immunotherapy products. The beginnings of a single European healthcare market seen recently will surely increase the pressure.

Turning to the US, Gilead Sciences granted exclusive coverage by CVS Health for the premium priced hepatitis C drugs Harvoni (ledipasvir/sofosbuvir) and Sovaldi (sofosbuvir), and such deals are increasingly becoming the norm.

A fascinating approach is being pioneered by AstraZeneca (AZ) that has found that certain members of its pipeline optimally combine with Avastin (an anti-oncogenesis agent which starves tumours of their blood supply) which is manufactured, but much more importantly has its price set, by AZ’s rival Roche.

Avastin goes off patent towards the end of the decade and last month AZ signed a deal to develop its own biosimilar copy. To quote Mondher Mahjoubi, AstraZeneca's head of oncology:  "Having the ability to include biosimilar, Avastin will decrease the purchase price and give us a competitive advantage in terms of discounting.

"The name of the game is going to be combinations in immuno-oncology and the more internal assets we have, the more flexibility we will have in pricing."

Overall though, the best approach is the simplest – demonstrate that adopting a new approach will generate greater overall savings (however you define that!) than not doing so. And this is where companies are increasingly focusing, relying not on clinical metrics from studies but instead generating real-world, practical data on functional benefit, resource utilisation, caregiver/ societal burden, etc.

The Biotechnology Industry Organization recently boldly stated in a headline:

“Cost Savings from Innovative Drugs:

Newer drugs save seven times more in non-drug spending than they cost” and includes the following (US) metrics in support:

  • Savings from reduced hospital and nursing home admissions exceed cost of using newer drugs
  • Prescription drugs can reduce the need for expensive surgeries and hospital stays
  • Newer drugs save nine times their estimated cost in value of increased workforce participation
  • New drugs reduce lost work hours due to illness, hospitalization
  • Medicare ultimately saves $2.06 for every additional dollar it spends on drugs
  • Healthier 65+ population saves Medicare costs
  • Healthier seniors reduce annual pre-beneficiary Medicare costs
  • Health promotion and prevention strategies can pay off even more in the future
  • Future elderly will be able to work and live independently longer

Unless these and similar messages are built in to future value propositions, HTA submissions, etc., then pharma will have no answer to the growing pressure from payers of all shades.