The soaring cost of cancer drugs

When Jean Allen-Yannotti was diagnosed with a type of leukaemia in November 2015, it was the latest blow in a long fight that had already seen her defeat breast and lip cancer. Her doctors prescribed a cocktail of drugs that could keep her alive for another 15 years, but now she lies awake at night worrying whether she can afford the medicine, which costs $14,000 a month.

With Republicans in Congress trying to roll back the recent expansion in Medicaid, the state-funded programme for people with low incomes, Ms Allen-Yannotti fears she might have to stop taking the drug. As a part-time college administrator in Rhode Island, she earns $16,500 a year, so she would not be able to pay for the medicine or an insurance plan that would cover it.

“I try not to worry, but it’s really scary,” she says. “If I don’t have this medicine, then I’m going to die.”

Among the drugs that Ms Allen-Yannotti takes is a pill called Sprycel, which generated more than $1.8bn in sales last year for its maker, Bristol-Myers Squibb. The price of a 30-count bottle of 100mg tablets was hiked to more than $12,000 in January, the latest in a string of annual increases that has seen the price appreciate by almost 60 per cent since 2010.

Ms Allen-Yannotti now finds herself at the centre of one of the most contentious and sensitive disputes in the US healthcare sector, which has profound implications for the pharmaceuticals industry.

As the debate over the soaring cost of medicines has raged in the US, drugmakers have insisted that insurers, employers and the government do not pay the headline or “sticker” price for drugs. Instead, they use pharmacy benefit managers (PBMs) to extract large discounts in the form of rebates.

Drugmakers say the real problem is that insurers and PBMs are keeping these rebates for themselves, rather than passing them on to patients. Pharmaceutical Research and Manufacturers of America (PhRMA), the lobby group for drugmakers, is running an advertising campaign in the US under the banner “Share the Savings”, which poses the question: “Your insurer doesn’t pay full price for medicines, so why do you?”

However, a Financial Times investigation has revealed that one class of drugs is practically immune from heavy discounting — cancer pills like Sprycel. Even as other medicines are sold with rebates that typically cut their cost by a third, these life-saving medicines are still commanding a price tag near or at the sticker price.

The final amount paid for drugs is a black box, known only to the PBMs and drugmakers, which both argue that the secrecy helps keep costs low. However, two people with access to ultimate prices told the FT that most cancer pills, including Sprycel, are being sold with little or no discount in commercial and some government markets.

In a statement, Bristol-Myers said the list price for Sprycel “does not necessarily reflect the discounts that the company makes available to certain . . . customers”. It declined to say what level of discounts it offers, but said the amount depended on “a number of factors, including volume and market dynamics”. The company also said it offered “certain services for patients battling cancer who need information about how to access our medicines”.

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Critics say rising costs pose a problem not only for sick patients, but also for investors in pharmaceutical companies. Although price increases are good for shareholders today, some in the industry believe they are not viable in the long term given the public outcry over the cost of medicines. If US President Donald Trump were to launch some kind of crackdown on price rises, as he has promised, then industry earnings could fall substantially.

“Companies are saying that nobody pays list price, but here the narrative doesn’t pertain, and they are driving revenues through price hikes,” says Peter Bach, an expert in drug pricing at Memorial Sloan Kettering Cancer Center in New York.

“It is an interesting question for Wall Street,” adds Dr Bach. “Is this really a good business model, where you take old products and put in price hikes? Does this really constitute innovation? Is it sustainable?”

In the fierce battle over drug prices in the US, cancer is a special case. Drugmakers can charge such high prices for cancer pills because insurers find it hard to refuse medicines for patients suffering from such an emotionally charged disease, according to Ronny Gal, analyst at Bernstein. “They can’t really do much about cancer drugs, they can’t really say ‘no’, so the companies raise prices at will,” he says.

The phenomenon has resulted in sharply higher prices for Americans compared with those living elsewhere in the world, with one study putting the median monthly price for patented cancer medicines at $8,694 in the US compared with $2,587 in the UK and $2,741 in Australia.

The price hikes also affect Medicare, the government-funded scheme for retirees, which accounts for 65 to 70 per cent of all spending on cancer medicines. While the Medicare system has rules that dampen price inflation, these apply only to cancer medicines that are infused into the blood. Oral drugs are not subject to the same pressures. As one of the few remaining areas where the drugmakers enjoy complete pricing power, it is perhaps unsurprising that prices have risen so dramatically.

The most expensive medicine in this group is Revlimid, made by biotech group Celgene, which has raised the price of the drug by more than 50 per cent since 2012 so that a single 10mg tablet costs roughly $600. One pharmaceuticals analyst told the FT the company informed him it does not offer rebates to PBMs for Revlimid.

Critics of Celgene say the case of Revlimid is particularly egregious because they claim there is so little innovation behind the medicine — a derivative of thalidomide, which was withdrawn in 1962 following a scandal that saw thousands of babies born with defects.

Kyle Bass, the hedge fund manager, last year fought successfully to have some of the intellectual property protecting the drug invalidated, alleging that Celgene took an old drug and “made minor changes that have nothing to do with efficacy”.

Despite Mr Bass’s victory, Celgene has other patents protecting Revlimid, which will probably allow it to stave off full generic competition until 2026.

“All they did was move around a molecule and gave it a new name,” says David Mitchell, a multiple myeloma sufferer who has taken Revlimid, and who now runs a charity campaigning against high drug prices. “This wasn’t a new drug, and they didn’t invest a ton of money in it.”

Cancer sufferers are hit not once, but twice by the sharp price hikes. First, because their insurance company passes on the increased cost in the form of higher premiums. Second, because the amount they must pay out of their own pocket is worked out as a percentage of list prices that keep on increasing.

The median out-of-pocket cost for a Medicare patient on Revlimid was $11,500 a year, according to the Kaiser Family Foundation, whereas the median annual income was $26,200.

“It is a direct income transfer from Medicare beneficiaries to Robert Hugin,” says Mr Mitchell, referencing the executive chairman of Celgene, who earned $16.5m in 2016.

A spokesperson for Celgene pointed to research showing that the drug had helped reduce the cost of caring for people with multiple myeloma, that it was more cost-effective than rival medicines, and that some patients can reduce their out-of-pocket payments to less than $100 a month. The spokesperson also took issue with the argument that Revlimid was not an innovative drug, describing it as a “unique molecule from thalidomide . . . supported by more than a decade of clinical data”.

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Ever since the introduction of potent cancer-killing drugs in the 1940s, oncologists have tried to manage the toxic side effects. Now they say they must contend with a new safety risk — “financial toxicity”.

Around a quarter of cancer sufferers in the US struggle to afford their care, according to a study presented at last year’s meeting of the American Society of Clinical Oncologists. Of those, 18 per cent say they do not comply with their prescription medication.

“There is an increasing recognition that financial toxicity is a major issue in cancer care,” says Greg Knight, who led the Asco study. “Those of us doing the research think it’s a major factor in mortality.”

However, Dr Knight says that high costs are a fact of cancer care, and so it is up to doctors to identify the patients most at risk and to plan their treatment regimens accordingly, he says.

“I’m a big advocate of screening patients at the outset, because people will disclose financial issues at that stage, but no one really wants to say they can’t afford their medicine,” he says. “These are the types of people who will miss appointments and get lost in the system. We often see them months later, and maybe that’s the stage at which they’ve gone from curable to incurable.”

Whereas doctors once picked the cocktail of drugs deemed to be most effective, now they are increasingly taking on the role of financial planner.

If the ideal regime is unaffordable, they might pick a different set of medicines based on the availability of financial assistance offered by charities and drug manufacturers. Depending on whether the applications for support are successful, they might have to go back to the drawing board several times before deciding a course of treatment the patient can afford. “This is the reality for all of us now,” says Dr Knight.

Drugmakers argue the problem is not high prices, but a US insurance system that is ill-equipped to pay for illnesses like cancer. In recent years, insurers have asked patients to pay more out of their own pocket so that they shoulder a greater financial burden.

The tactic was tacitly supported by the Obama administration and some Republicans, who believed consumers would shop around for cheaper alternatives and forego pointless medicines if they were spending their own money, thus exerting a deflationary influence on healthcare costs.

“In the US, they are trying to apply the same recipe for sneezing to a catastrophic disease like cancer,” says Hervé Hoppenot, chief executive of Incyte, which makes a blood cancer pill priced at more than $11,500 a month. “But people can pay $15 for their own Zyrtec if they wish; for cancer it is utterly stupid.”

Michael Rea, chief executive of Rx Savings Solutions, which helps patients cut their drug costs, says people like Ms Allen-Yannotti will not care much whether it is drugmakers, insurers or PBMs that are responsible.

“It is the patients like this that are left exposed while some in the industry are busy pointing fingers at who is at fault for causing dramatically high drug prices,” he says. “These patients are the most vulnerable and, in a time of extreme need, they need to know about solutions, not who is to blame.”

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