[Ip-health] $6,195 a Month for Celgene's Cancer Drug: Is There a Better Way to Reward Successful Drug Development?

[James Love]

http://www.huffingtonpost.com/james-love/6195-a-month-for-
celgen_b_24293.html

July 3, 2006 The Huffington Post
DELIVERING NEWS AND OPINION SINCE MAY 9, 2005

$6,195 a Month for Celgene's Cancer Drug: Is There a Better Way to
Reward Successful Drug Development?
James Love

Geeta Anand's July 1 report in the WSJ regarding Celgene's $74
thousand dollar per year drug Revlimid is just the latest to ask the
question -- how high can drug prices go?

 From Geeta Anand's story:

##-------------
     Every time a drug is priced, it's higher," said Sapna
Srivastava, a biotechnology analyst at Morgan Stanley who covers the
company.
     "Right now it's sustainable, but it's not sustainable in the
future." . . .

     Morgan Stanley estimates Celgene stands to make a 97% gross
margin -- the profit excluding marketing and corporate costs -- on
Revlimid, Ms. Srivastava said. Unlike some expensive cancer drugs,
which are injectable proteins and expensive to manufacture, Revlimid
is a pill taken orally and relatively inexpensive to produce, she said.
-------------##

Like other companies selling super-expensive drugs, Celgene says it
will offer contributions to charities that offer the drug at discount
prices. In a note posted to a pharmaceutical drug discussion group,
cancer treatment advocate Joanne Ramos observed:

##-----------
     The reality is that much of the time, these programs are a sham.
What we are hearing from across the country is that many patients,---
including those on Medicare Part D whose plans either do not cover [a
drug] or who have now entered the "donut hole" of no rx coverage--
are being turned down by the Patient Assistance Program for reasons
like having income or assets too high ( i.e. greater than the Federal
poverty level), or simply for being eligible for Medicare Part D,
regardless if they have enrolled. ( it's voluntary). Insured patients
are likewise finding that the co-pay assistance programs that the
pharmas set up in the wake of Part D are now refusing to take new
applications, saying that they are out of funds. Patient advocates
are hearing from more & more desperate patients on a weekly basis,
and there is no recourse for them.
-----------##

Even if Medicaid Part D and the patient assistance programs were
improved, there still is the unanswered question: how much freedom
should companies have to price medicines? Under our current system of
giving monopolies to patented medical inventions, the investors who
control the patent are free to announce any price they want -- and
the patients and third parties that pay for drugs only have the
unpleasant option of saying no. As prices are more aggressive, access
to the latest or best medicines for cancer and other illnesses is
increasingly restricted, in order to control health care outlays.

A much different approach has been proposed by Bernie Sanders, in HR
417, the Medical Innovation Prize Fund. Rep. Sanders (likely to be
elected the next Senator from Vermont) has proposed the elimination
of marketing monopolies for all prescription drugs, so competition
will lead to generic prices. The marketing monopoly would be replaced
with a different system -- "prize fund" payments rewarding inventions
that improve health care outcomes.

Under the prize fund approach a product like Revlimid would be sold
by the competitive generics sector at cheap prices. But Celgene would
cash-in on rewards tied to the impact of the product on health care
outcomes.

Under the prize fund system, Celgene would not control who could sell
the drug, and it would compete against other drug developers for a
share of the "prize" fund. The reward for better health care outcomes
(perhaps measured by Quality Adjusted Life Years QALYs or other
metrics now used by governments and insurance companies) would be
determined by supply and demand.

Demand would be determined by the size of the prize fund. The larger
the prize fund, the greater the incentive to invest in drug
development. Sanders proposes .5 percent of GDP.

The supply of medical innovations would depend, as they do today, on
the actions of firms undertaking R&D in expectation of economic
rewards. But rather than chase the opportunity to charge high prices,
firms would compete for rewards that were directly linked to health
care outcomes.

Once a year for 10 years, Celgene would provide evidence that
Revlimid improved the life of cancer patients to the Medical
Innovation Prize Fund. The prize fund payments would be divided among
all of the companies making such claims --- so the payment per QALY
(or other metric) would be determined by competition* -- rather than
the unilateral action of company marketing officials.

The new paradigm for drug development separates the market for
innovation from the market for the product. This is the way forward.
Eliminate control over access to products -- but provide large and
sustainable rewards for firms that act actually deliever useful
innovations.

---------
*HR 417 also provide for set-asides for certain areas of public
interest, including treatments for diseases with small client
populations (orphan diseases) and global health priorities.
=========================================================
Reader Comments :
Actually competing to produce medical outcomes? What a radical,
revolutionary concept. Big pharm will never fall for it.
Sanders/Feingold '08

By: WmC on July 03, 2006 at 01:32pm
Flag: [abusive]
The proposal of the "prize fund" is one possibility that has been
advocated to reduce drug costs. There are a variety of problems with
this approach:

1) it will primarily limit development to the large drug companies
while eliminating smaller innovators. A large company can invest for
several years and have losers (as they do now) while wating for their
"winner". Small companies often have only one or two chances to be a
winner, before they lose out to economics. While this is somewhat
true today, smaller companies can develop less impactful drugs while
running small research projects to find their "winner". Once they get
a winner, they can significantly expand their success.

2) how do you judge a "winner". Is it just because it is
"popular" (breast implants) or because it relieves suffereing? Would
a drug developed for an "orphan disease" ever be a "winner" unless it
could be marketed with relatively high fees for the drug?

3) By declaring a "winner" you reduce innovation. the cancer drug
referenced becomes the "winner" and so no one else competes to find a
better drug. A drug that becomes a "winner" today, is often one that
identifies a connection between some body function and the disease.
Once the body function has been publicized, various companies compete
with drugs to "perfect" the treatment. Both (or all) charge high
prices and one eventually wins out (or sometimes two or three).

In the "prize" system, if you get a "winner" there is little
incentive for someone else to compete. Can there be two winners for
cancer? Or three? Do you all share in the "cancer" prize (each get a
third) or does cancer win all the prizes and HIV treatment gets
little attention because someone already has the accepted anser for
that? Do you try to perfect the drug if you have "won", or just keep
raking in the prize money when a better solution might be out there?
Under the current system, a company keeps trying to perfect the drug
so it can extend the patents. In the other system, as long as your is
the winner and still being used, there is no incentive to create
"prefect" drug therapies.

4) half the solution is almost as good as the full solution. How do
you reward drug therapies when one drug is not too effective, and a
second drug is only partially effective, but the combination is
wildly useful? What if a new drug replaces one of the older ones in
this arrangement, or a third one is added that improves the therapy?
In such a scenario, calculating who gets what becomes very sticky to
determine and is as much political as scientific.

5) Do you determine use rate by the number of pills, or the number of
dosages, or what? If it is number of pills, are you rewarded by
developing small dosages so the patients have to take more pills, or
are you rewarded because you have a vareity of dosages? Do you modify
therapies to maximize calculation of "prize money" (take a smaller
pill five times a day vice a larger pill two times a day)?

The problem with a "prize" systems is that you then get drug
companies to compete by gaming the system as opposed to developing
treatments and therapies. What gets you more "prizes", a good drug,
and a new therapy regimine? Do companies dilute their prize money by
combining with another company to join two drugs to produce a single
pill, or do they benefit more by each producing their own pill and
having patients take one from each comapny?

In theory, your proposal seems like it might be worthwhile. But like
many proposals, there all kinds of hidden "unintended consequences"
that will influence their efficacy.

In the end, we are probaly better off encouraging companies to
develop treatments and permitting them to profit, rather than
inventing gaming systems that distract companies from their
productive mission of creating treatments.

By: reallygone on July 03, 2006 at 01:38pm
Flag: [abusive]
Drug companies are doing their part to suck the life out of the
working classes and busting the bank of the federal gov't.

By: macungieman on July 03, 2006 at 01:38pm
Flag: [abusive]
Funny how you are looking to reward drug companies. You sure don't
seem like a consumer advocate. Are you a big pharma plant?

By: whistleblower2 on July 03, 2006 at 01:38pm
Flag: [abusive]
They have to charge this price for Revlimid because the people who
take it are going to die soon and they can't string them out for 20
years like they can with other drugs.

By: emmett on July 03, 2006 at 02:07pm



---------------------------------
James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040

"If everyone thinks the same: No one thinks."  Bill Walton