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The Cost of Cancer Drugs: How High Is Too High?

TOP - February 2013 VOL 6, NO 1 published on March 4, 2013

First, it has been awhile since my last column and I want to apologize for the hiatus. So, you are then probably wondering what possibly could have coaxed me back into writing another column? Well, the mother lode of all controversial topics has risen to the top of the gossip and Internet chatter lists: a too expensive cancer drug!

All the commotion is over a drug named Zaltrap (ziv-aflibercept), which was recently approved by the US Food and Drug Adminstration (FDA) for second-line treatment of metastatic colon cancer, at an average monthly cost of just over $11,000.

As an economics guy, this truly is in my “sweet spot.” How can I resist making some comments concerning the prices and pricing of cancer drugs. Again, not to get anyone else in trouble, the comments I make are mine alone (we live in a world of disclaimers!). With that being said, let’s dig into the price and pricing of drugs, specifically, cancer drugs, which also fit into the category called specialty drugs.

First, let’s put drug cost into perspective from a macroeconomic standpoint, then look at what are the “really” expensive drugs, then look at cancer drugs specifically, and finally address Zaltrap and all the hoopla. In the United States, we spend roughly $300 billion (with a B) per year on prescription drugs! According to a report by Barclays Capital, the prices for the top 130 brand drugs rose 6.9% in 2010.While that may hold true for the “average” prescription drug, Novartis AG’s Gleevec rose 20.9%. Express Scripts PBM noted in 2012 that prescription drugs shot up 13%; they also noted that specialty drugs (includes our cancer drugs) rose 16% in 2011. Others have noted that specialty drugs rose by 23% in 2012. The Pharmaceutical Research and Manufacturers of America says that the big rise in prescription drugs is “skewed by a handful of high-priced specialty drugs.” Specialty drugs currently make up 17% of all prescription drugs but are expected to make up 40% of drugs by 2020. So, that doesn’t sound promising for the future of drug price increases!

So, are cancer drugs REALLY expensive? I guess the answer would be a resounding YES as a collective group, but there are individual drugs that are in a category by themselves. If you google “most expensive prescription drugs,” which I did, you will see various lists presented. Depending on which list you used, the most expensive drug in the US is either Soliris (eculizumab) at $409,500 per year for hemoglobinuria, which affects roughly 8000 individuals, or Elaprase (idursulfase), which treats a rare metabolic disorder (500 people) called Hunter syndrome and costs either $375,000 or $657,000 per year, depending on dose. Following those 2 are Naglazyme (galsulfase) at $365,000 per year, for a connective tissue disorder that affects a population in the thousands; Cinryze (C1 esterase inhibitor) at $350,000 per year for hereditary angioedema, which affects several thousand (6000 in the US); and finally the cancer agent Folotyn (pralatrexate) at $300,000+ per year, for peripheral T-cell lymphoma. Not to be outdone, H.P. Acthar Gel (repository corticotropin injection), a natural formulation of adrenocorticotropic hormone or ACTH, goes for $23,000 a vial, at a cost of $115,000 per month (6-7 vials). So, as you can see, there are a select few other therapies besides cancer drugs that can hit that 6-figure cost yearly.

What do all these really expensive drugs have in common? The answer is, “it’s the math, stupid!” All these drugs have a limited number of treated individuals to spread the cost over, and this holds true especially for most cancers, which affect patients only in the thousands each year, with only a few cancers affecting 100,000 or more people. Compare that with hypertension, diabetes, or other more common maladies, whose patients generally number in the millions, if not tens of millions, making it easier to spread the cost across a larger number of patients to generate the expected revenue. For drugs to generate hundreds of millions or even billions of dollars in revenue, X number of dollars must be charged per product unit to generate that amount of money. So, it really comes down to just math and what the market will bear (more on that later).

Now, back to cancer drugs. First, for a little history, do you know which cancer drug (and when) was the first to break the 4-digit cost barrier per dose? The answer is Taxol (paclitaxel), which was approved by the FDA at the end of 1992 and ended up costing just over $1000 a dose, a new high! Realize that this was just 20 years ago! We now have cancer drugs that can reach 5 to 6 figures per dose. So, for intravenous (IV) cancer drugs that are generally given once or twice monthly, per-dose costs are usually higher than many of our more recent oral cancer drugs, which seem to fit into a range of $5000 to $8000 per month. Because these drugs are generally taken daily, the per-dose costs are less, but the monthly cost often gets close to the monthly cost of IV cancer drugs, which have tended to stay in that same $5000 to $8000 per-month range, up through 2010 (with only a few exceptions).

From 2011 to now, however, the bar seems to have been raised significantly, to the point where the monthly or total costs of a few of the exceptions mentioned above became the new normal in pricing equivalence, with monthly costs commonly exceeding $10,000, some monthly costs of $30,000 popping up, and yearly costs of $100,000 now being seen. With several new drugs having been introduced in the past 24 months, the price escalation is readily apparent. Also remember that many of the newer agents go after second- or third-line indications, thus limiting the population size, which again puts pressure on the per-dose price. Let’s take a look (these are my rough calculations, so don’t throw a fit if your numbers are a little different):

  • Provenge (sipuleucel-T): $31,000/dose × 3 doses ≈ $93,000/year
  • Caprelsa (vandetanib): ≈ $10,500/month
  • Yervoy (ipilimumab): $30,000/dose × 4 doses ≈ $120,000/year
  • Zelboraf (vemurafenib): $9400/month × 6 doses ≈ $56,400/year
  • Halaven (eribulin mesylate): ≈ $75,000/year
  • Adcetris (brentuximab vedotin): $13,500/dose × 7-9 doses ≈ $94,500-$121,500/year
  • Xalkori (crizotinib): $9600/dose × 12 doses ≈ $115,000/year
  • Zaltrap (ziv-aflibercept): $11,063/dose

Yes, cancer drugs per treatment or per year are expensive, but are they worth that expense? Are these reasonable prices to pay? If the public is willing to pay $X for a product, then it is viewed as worth that cost (this is a market-driven principle). In healthcare, because individuals do not generally pay for the complete cost of their drugs except for, potentially, a copay (rather, insurance or government pays), the issue of worth (what a person would pay) becomes extremely distorted. How many patients would actually pay $10,000 to $30,000 for a treatment if they had to pay for it out of their own pockets? If individuals actually had to pay for their own medicines, drugs costing more than a couple hundred dollars a month would be problematic. The market would not bear it, because the average income would not support it—but healthcare does not follow individual market rules.

If society—that is, insurance companies and/or taxpayers—is being asked to pay for these drugs, is there another way to determine what is “worth the cost” or what is fair? Yes: it can be determined by what the payers are willing to pay for a product. This concept goes back many years, when it was determined that the government paid for a significant portion of dialysis (ie, $50,000 per life-year [LY] gained); thus, if they were willing to pay for dialysis, they must also be willing to pay for other treatments that would also be deemed cost-effective (ie, $50,000/LY)—it’s only fair! This was the start of using economics (cost per LY or quality-adjusted life-year [QALY]) in determining what would be paid for and what would be seen as too much. We can argue what that current cost-per-LY value is, but most would agree it is somewhere in the $100,000/year range. With that being said, for many if not most of the newer cancer drugs that extend overall survival by only weeks to a few months and yet cost what they do, the cost-per-LY gained generally exceeds several hundreds of thousands of dollars (example: Provenge extends survival by 4 months at a cost of $93,000-$279,000/LY gained). So, you can do your own math for the rest of the agents listed above. These, by definition, would not be viewed as cost-effective.

This begs the question, is it reasonable to pay up to 6 figures for only a month or so of additional life? The easy answer is, it depends on whose perspective. According to that definition of an acceptable societal cost and a reasonable value, one could argue that many of today’s cancer drugs are not worth the cost. Unlike in many countries where government pays for healthcare and can set societal rules regarding what is paid for and what is not (many using a calculation of cost-effectiveness, eg, the United Kingdom’s National Institute for Health and Clinical Excellence, or NICE, Guidelines), where the cost-effective cut points eliminate many of the agents that are available in the US. That is because the rules in the US are different. First off, once the FDA approves a drug (and by law, they cannot take the cost of the product into consideration, only efficacy and toxicity), Medicare, by law, must pay for it; then other payers fall into line and also pay. This truly distorts pricing and allows industry to price their products against other products currently being paid for (using the logic that, if you are paying for other products already, and the market will bear it, then you will also pay for ours…). Before the pharmaceutical industry goes ballistic and adamantly defends their prices because of the cost of doing research and other industry-related issues and inherent risks, etc (of which there are many), I will be the first to admit that a good portion of their pricing may in fact be justified. One can argue indefinitely as to what the true cost is of bringing a drug to market, and it can be substantial, but that discussion is for another time.

With all that being said, and I have said plenty, it’s time to return to Zaltrap and its $11,063/dose cost, and to address all the commotion. Is its cost really out of line with that of some of the other outliers? Some would say yes and some would say no, but it appears the market—and in this case I mean Memorial Sloan-Kettering Cancer Center (MSKCC), one of the largest cancer centers in the United States—put its foot down and said, enough is enough; this price is just too high, and if payers cannot say no and must pay, we do not have to prescribe! On October 14, 2012, the New York Times published an op-ed piece by 3 physicians from MSKCC, who stated that they would not use Zaltrap in second-line colon cancer treatment because its $11,063 average monthly cost was twice that of a similar medicine (Avastin) and its efficacy was no better (both increase survival by 1.4 months); they also stated that “[i]gnoring the cost of care…is no longer tenable,” and that they are obligated to consider the financial strains that result. This single action has now elevated the discussion of cost and value to mainstream oncology practice. If oncologists throughout the US start to include the cost and the value of treatment in their decision process, it could be a game changer. Sanofi has admitted that they “pegged” the price of Zaltrap at the 10-mg/kg dose of Avastin (bevacizumab), seemingly confirming that matching pricing to what similar products cost, or what the market is already bearing, appears to have driven the price. However, data have shown that the 5-mg/kg dose of Avastin in colon cancer is equivalent to the 10-mg/kg dose, and general oncology practice has basically accepted this. Please note that this does not let Avastin off the hook as being a good value and cost effective; in second-line colon cancer treatment, the cost-per-QALY gained is still $300,000, so it is no bargain either. The action by MSKCC no doubt set off an explosion (nuclear) at Sanofi central. Within 1 week, Sanofi came out and defended their price, saying it was the right price, a responsible price, and priced competitively. Nevertheless, Sanofi went on to say that there was “some market resistance” to the perceived price (ie, value) of Zaltrap, and the company would thus cut the price. However, please realize that Sanofi did not cut the price, but instead simply offered a 50% rebate to physicians, which many publications erroneously reported as a price decrease. This 50% rebate can, in fact, be argued to actually encourage drug use due to the margin generated to physicians and institutions, though, at least for some time, it will not change patients’ copay or what payers pay (we can thank Medicare’s ASP [average sale price] reimbursement process for that).

The actions taken by MSKCC may have actually been perfectly timed, because the American Society of Clinical Oncology (ASCO) is currently putting value and cost-effective cancer care on the front burner as a key initiative. ASCO, which already has its Quality Oncology Practice Initiative, or QOPI, program, is now moving forward to develop criteria for defining the benefit of cancer treatment—including such metrics as survival, toxicity, cost, and quality—in an attempt to establish and define value in cancer care. It appears that the cancer community will finally start to include cost in the equation for drug use, and do it seriously.

My take on this whole thing is that cancer care may be entering a whole new paradigm in establishing which treatments are given to patients. It’s certainly a start, but we have a long way to go before this is mainstream practice.

I can now imagine that every company that comes out with a new cancer drug in the future will absolutely think twice before pricing their product, and that’s a good thing….

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Last modified: July 22, 2021