The US Biotech Drug Pricing Challenge

In the midst of the hue and cry last week over the public release of individual Medicare payments to physicians, I was surprised to read that one of Medicare’s most costly medical services is - ophthalmology.  According to the New York Times:

“One of the most heavily reimbursed procedures - costing a total of $1 billion for 143,000 patients - is for a single treatment for an eye disorder common in the elderly.”

The drug driving all that Medicare spending?  It’s Lucentis (ranibizumab injection), the very successful biotech product marketed by Genentech in the US.  The drug is designed to treat “wet” macular degeneration and according to the Times:

“About 3,300 ophthalmologist…were paid a total of $3.3 billion from Medicare…Much of the spending was the result of an expensive and frequent treatment (Lucentis) for a kind of age-related macular degeneration, the leading cause of severe vision loss in the elderly…”

The real issue here, of course, is the cost of Lucentis to Medicare.  According to the American Macular Degeneration Foundation (AMDF), each time a patient receives an injected dose of Lucentis, it costs about $2,000.  The recommended treatment for a patient is two years of monthly injections, or $48,000 for the course of the therapy.

There are other approaches to treating this eye condition, as noted by the AMDF.  But the ‘pricey’ Lucentis is preferred by ophthalmologists.  Why?  Because it is FDA approved for the treatment of “wet” macular degeneration and, most importantly, it works.

Specifically, in 95% of the cases where Lucentis is administered the drug has been shown to be effective in stabilizing macular degeneration, and in 40% of the cases the product actually improves a patient’s eye sight.  This is versus the previous best macular degeneration treatment, Macugen, which the AMDF reports stabilized patients in only 65% of cases, and improved eye sight in just 6%.

There is no doubt that Lucentis is a major therapeutic advance in the area of “wet” macular degeneration.  And there is also no doubt that it is well positioned in today’s marketplace.  With millions of US baby boomers rapidly reaching the age where “wet” macular degeneration is becoming an issue, the need for a drug that performs beautifully in this therapeutic area will only increase.

Interestingly, this spike in interest in Lucentis’s pricing follows close on the heels of that being experienced in the Sovaldi case. In that situation, Gilead’s new biotech product that reportedly cures Hepatitis C in twelve weeks continues to be pummeled by the media and Congress.  The issue?  Charging $84,000 for a course of therapy.

Currently, the biotech industry is anxiously awaiting Congress’ response to the submission that Gilead made to the House Energy and Commerce Committee answering

about Sovaldi’s pricing.  This very public Congressional review of Sovaldi’s price has many in the biotech finance community more than a little bit concerned; the biotech sector is down about 6% since late March, a decline Acorda Therapeutics CEO Ron Cohen attributed, in part, to scrutiny over Sovaldi’s price tag. (Cohen, speaking on Fox Business last Tuesday, also said biotech stocks were trending back toward a mean after big increases last year.)

Add to these two recent public biotech pricing ‘dings’ the apparent ‘holy war’ against biotech specialty drug pricing that is being prosecuted by a major PBM, Express Scripts.  In particular, ES has heavily criticized Sovaldi’s pricing as a leading example of egregious biotech pricing.

As evidence of this trend, ES released a study that offers this summary on biotech drug costs in America:

“US spending on specialty prescription (biotech) drugs– those used to treat chronic, complex diseases such as cancer, multiple sclerosis and rheumatoid arthritis – is projected to increase 67% by the end of 2015.”

The ES finding is based on the following analysis:

Courtesy of Express Scripts

Express Scripts goes on to assert that this spending situation (re: biotech Rx’s) in the US, primarily due to the aging population, is about to increase even more dramatically over the next ten years.

However, ES also points out that if the use of biosimilars were efficiently brought into the mainstream of American pharmaceutical care, “more than $250 billion” could be saved between 2015 and 2024 versus the anticipated spending that will be sustained due to the cost of current biotech drugs and the introduction of new bio products in the future.

In short, it is ES’s contention that the US is about to be engulfed in a storm of specialty drug (biotech) price increases that will essentially overwhelm the medical system.  Never mind that these findings are obviously self-serving in terms of the business interests of ES.  What I see as important here is the broader thematic:  “Biotech drugs are too expensive.”

Another more nuanced look at this biotech pricing question is found in a recent article published by The Economist. Focused on the results of the biotech “boom” that Express Scripts and others are criticizing, the article notes that IPOs for biotech firms are surging.  A big part of the reason that this is occurring is credited to the substantial price-per-regimen that the biotech firms are getting paid for their newly marketed products.  In particular the article points out that it’s not only Sovaldi’s $84,000 per treatment cost that is impressing investors; it’s also the many other “high priced” biotech products, like Vertex’s cystic fibrosis treatment, Kalydeco, which costs about $300,000 per treatment, that have caught the attention of biotech investors.

Nonetheless, The Economist also does soberly acknowledge that maintaining the current pricing for biotech Rx products is not a given.

“Despite all these reasons for optimism, there is no guarantee that the current [biotech] boom will last. In these sunny times, it is tempting to forget the dark days that [biotech] companies have endured. “Twenty-five years later,” quips Leonard Schleifer of Regeneron, “I’m an overnight success.”

Without going into the standard, twenty-year-old industry defense (page 32) of the costs and risks associated with bringing new biotech Rx’s to market today, I think even the most jaded industry cheerleader will have to acknowledge that it’s time to stop and think seriously about what is going on.  In short, the US drug industry needs to carefully consider how to best manage this growing perception that biotech drugs are “overpriced.”

In mulling this over, what can be done to counter this concern over pricing? Should industry simply cave to public, governmental and PBM/insurance pressures every time a howl goes up over the cost of a breakthrough biotech drug?  Or following every successful launch of the US biotech product, should biotech manufacturers immediately offer biosimilar products at dramatically reduced prices to “those in need” around the world?  Or maybe the American Rx industry should simply go “Android” and give away its new biotech products, hoping that global goodwill and future government support will somehow pay the bills.

No, none of these options make a lot of sense for the long term viability of the US biotech drug business, and I can say with some certainty that none of these will be actively pursued by any Rx manufacturer.

However, industry does need to appreciate the building pressure behind these early 2014 developments.  It is only April and already several separate, very public moments have occurred-all of which drill down forcefully on this question of biotech drug pricing.

Most concerning of all is the fact that the future hope of the US drug industry – biotechnology – is at the heart of all of this.  That the entire episode is focused on the “overpriced” fruits of 20 years of biotech development is more than unsettling.  Suddenly Rx biotechnology is the bad guy.  This is something entirely new for the US drug industry.

As always, there are no easy answers here.  But I suggest the industry would be foolish to disregard what the ‘tea leaves’ seem to be telling us here, i.e., that a full-fledged review of U.S. biotech drug pricing practices appears to be in the offing, courtesy of both the private and public sectors.

Tom Norton is principal at NHD Smart Communications. He can be reached at tnorton@nhdcomm.com.