KEY TAKEAWAY: Wells Fargo analysts, in a new report, discovered that the average sale, rebate and allowance (SRA) offered to payers has jumped from 28% to 41% since 2012. But even with the discount(s) list prices remain high. According to Memorial Sloan-Kettering’s Center for Health Policy and Outcomes, the average cost of new cancer drugs approved by the FDA in 2016 was $172,000.
Among large-cap pharma companies, Eli Lilly has seen the largest increase in the average rebates and discounts over the last five years, from 19% to 39%, according to Wells Fargo. But Merck & Co. wasn’t far behind, with its discounts jumping from 22% to 41%. Some specialty pharma companies also hiked their discounts over that time period, including Horizon (from 18% to 70%) and Valeant (19% to 41%).
In March of last year, Lilly revealed that it raised list prices by 14% on average in 2016, but that because of SRAs it granted to payers, its net increase has been just 2.4%.
Of course, this isn’t going to quiet skeptics who point to high drug prices as the primary villain in high health care costs. A good example is the high cost of cancer drugs. The average price for cancer drugs was less than $10,000 per year before 2000. By 2015, that had increased to $140,000 per year. According to Memorial Sloan-Kettering’s Center for Health Policy and Outcomes, the average cost of new cancer drugs approved by the FDA in 2016 was $172,000.
The pharma industry tries to defend these higher prices because of the need for investment in research and development, but that is not necessarily true because today most R&D has been replaced by mergers and acquisitions. Even those in the industry are starting to sound the alarm around the myth of R&D spending.
A new study has shown it costs only a fraction of the $2.6 billion pharma claims to bring a new drug to market. The CEO of the pharmaceutical company GlaxoSmithKline, Andrew Witty, said that Big Pharma’s claim of drug development costs is exaggerated and “one of the great myths of the industry.”
The pharmaceutical industry has one of the highest profit margins of any industry. And these profits, the industry claims, are supposed to be fueling innovation but the reality is that most of the profits have been returned to their executives and shareholders.”
If you drink the Kool-Aid that higher prices are justified because cancer drugs lead to cures and survival you had better add some scotch to that drink. A 2014 study showed that the 72 cancer drugs approved by the FDA between 2002 and 2014 gave patients only two more months of life compared with older drugs. A 2015 study found no correlation between the cost of new cancer drugs and their effectiveness.
Take the cost of the life-saving drug Gleevec for chronic myeloid leukemia. A 2016 study showed that a third of patients with chronic myeloid leukemia were unable to fill their prescriptions for Gleevec or its two generic versions . The cost of Gleevec and its generics in the U.S. are $146,000 and $140,000 per year.
Many Americans have become fed up with the exorbitant prices of cancer drugs, and they want something done. It has real consequences. In a 2013 study of cancer patients, a quarter avoided filling all their drug prescriptions because of costs, and an additional 20 percent only partially filled their prescriptions.
The CEO of the American Society of Clinical Oncology (ASCO), Clifford A. Hudis, said: “In what, undoubtedly, is one of the most difficult times in their lives, individuals with cancer should be focused on getting the best care possible, not worrying about financial strain on their families.” However, it seems that pharma’s master is, and will continue to be, Wall Street and stock price.