Financial markets have sent another signal that the coming era of precision or personalized medicine could wind up making cancer care unaffordable for millions of people.
AbbVie announced last week that it will purchase a little-known biotechnology firm called Pharmacyclics for the stunning sum of $21 billion. To put that into perspective, Gilead Sciences in 2011 bought Pharmasset, the maker of Sovaldi, for half that price.
Somebody is going to have to pay the return on that $21 billion investment. Like Pharmasset, Silicon Valley-based Pharmacyclics has a single drug on the market. Imbruvica (generic name ibrutinib), recently approved by the Food and Drug Administration, treats a rare form of leukemia that strikes mostly elderly patients. It sells for $9,000 a month.
Last year, the company had only $548 million in sales. But since the drug has marginally superior performance to the next-best drug for the disease (90% of patients were still alive after one year, compared with 81% on the comparator drug), the company expects sales this year to top $1 billion. Some stock analysts predict sales of up to $3 billion a year, probably because the company plans to test ibrutinib in patients with lung cancer, the most common form of cancer.
There appear to be no limits now on the prices drug companies can set and that insurers and patients must pay for new life-extending therapies. Last year, when overall healthcare spending rose at a relatively modest 5.6% pace, drug spending rose 13%. That was almost entirely the result of higher prices for specialty drugs, a class that includes most cancer drugs.
Why are prices for specialty drugs rising so quickly? In most cases, it's not because they offer significant improvements over previous therapies. A new study in the Journal of Economic Perspectives, which looked at the price and health benefits of 58 anti-cancer drugs approved between 1995 and 2013, found “gains in survival time associated with recently approved anti-cancer drugs are typically measured in months, not years.”
What has gone up significantly is the cost of each month of life gained through the new treatments. The inflation-adjusted price for new anti-cancer drugs rose 10% a year over those 18 years, according to the study. In 1995, patients and insurers paid $54,100 (in 2013 dollars) for a year of extra life. By 2005, that had gone up to $139,100 a year, and by 2013 it was $207,000.
The study authors, being good economists as well as practicing oncologists, dismissed the drug industry's claims that the high cost of risky research and expensive clinical trials justify the higher prices. “Research and development costs are sunk at the time of product launch, so they ought not to factor into the pricing decisions of a profit-maximizing firm once the product has been developed,” the authors noted. “The direction of causation runs from prices to research and development costs. As prices increase, manufacturers are willing to spend more to discover new drugs.”
The enablers, they insist, can be found in the reimbursement system. Hospitals and oncologists in community practice, while sensitive to the burdens high copays put on their patients, earn a markup on the price of the drugs they administer. The pricier the drug, the higher the markup.
Providers' concerns for patients are blunted because the well-insured, which include many Medicare patients with supplemental plans, have caps on out-of-pocket expenses and copays. That insulates many patients from even knowing about the outlandish prices paid by public and private insurers.
The government by law has no leverage to counter the trend. The 2003 law that established the Medicare Part D drug benefit program prohibits the CMS from negotiating drug prices. The 340B program, which allows hospitals to buy drugs at a discount to serve needy populations, gives manufacturers an incentive to set ever-higher launch prices to offset the discounts.
Something needs to be done and soon. The odds of contracting cancer rise with age. Medicare is already facing growing financial pressure from the baby boom generation now entering the program.
In an era when political divisions seem universal, Congress and the White House found common ground in their support for the new era of precision medicine. What's needed now is a frank discussion about how the healthcare system will be able to afford its products.