60 Minutes slaps the drug industry

screenshot_19POST SUMMARY: The current model of the way cancer drugs are prices is unsustaianable and innovation is needed both to develop new drugs and price them in a way that ensures the drug is priced on “the value” it brings to patients.

60 Minutes story, on the cost of new cancer drugs, took aim squarely at big pharma and the pharma industry didn’t come across well at all.  Here is a summary of key points:

(1) Sanofi (Zaltrap) and Novartis (Gleevec) were highlighted in the story.  Sanofi for their lack of a pricing strategy on Zaltrap and Novartis for increasing the price of Gleevec twofold.  Sanofi declined 60 Minutes request for an interview, but said in an email that they lowered the price of Zaltrap after listening “to early feedback from the oncology community and To ensure affordable choices for patients…”  One has to wonder why they didn’t do this before setting the price of the drug.

(2) The term “financial toxity” is being applied to new cancer treatments.  Gleevec is the top selling drug for industry giant Novartis, bringing in more than $4 billion a year in sales. $35 billion since the drug came to market. There are now several other drugs like it. So, you’d think with the competition, the price of Gleevec would have come down. And yet, the price of the drug tripled from $28,000 a year in 2001 to $92,000 a year in 2012.

(3) Medicare has to pay exactly what the drug company charges. Whatever that number is.  The single biggest source of income for private practice oncologists is the commission they make from cancer drugs. They’re the ones who buy them wholesale from the pharmaceutical companies, and sell them retail to their patients.

(4) It all starts with the drug companies setting the price. We have a pricing system for drugs which is completely dictated by the people who are making the drugs. It’s corporate chutzpah.

(5) John Castellani is president and CEO of PhRMA, the drug industry’s trade and lobbying group in Washington came across as a typical lobbyist with zero credibility and did not represent the drug industry well at all.

Because of medical insurance, co-pay reductions, and expanded access programs for the uninsured, relatively few Americans pay more than a few thousand dollars per year for even the most expensive drugs. The primary customers in the United States are not patients or even individual physicians, although physicians can drive demand for a drug; rather, the customers are the government (through Medicare and Medicaid) and private insurance companies. And since the insurer or government is picking up the check, companies can and do set prices that few individuals could pay. In the jargon of economics, the demand for therapeutic drugs is “price inelastic”: increasing the price doesn’t reduce how much the drugs are used. Prices are set and raised according to what the market will bear, and the parties who actually pay the drug companies will meet whatever price is charged for an effective drug to which there is no alternative. And so in determining the price for a drug, companies ask themselves questions that have next to nothing to do with the drugs’ costs. “It is not a science,” the veteran drug maker and former Genzyme CEO Henri Termeer told me. “It is a feel.”

 

My two cents…

How much longer can the drug industry use models that are no longer valid in the way they develop and price drugs?  What was not mentioned in the story was the number of drugs that pharma companies develop that don’t make it to market (they did talk about the billion dollar cost of drug development).

Your pricing and reimbursement people are as much a part of your company’s brand as your product and senior managers have to look beyond spreadsheets and break even analysis; they have to look at the value versus the cost.

What was left out of the story last night was a patients perspective.  Would they, for example, want a drug that cost hundreds of thousands of dollars if it did not significantly add to both the quality and duration of their lives?