What's The Hang Up With Drug Cost Transparency? Blame It On "Innovation"

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

A few months ago, a study came out examining the escalating costs of cancer treatments, which, no secret here, have left payers, patients, and lawmakers increasingly agitated and demanding answers. In its study, the National Bureau of Economic Research (NBER) found cancer drug launch prices rose by 10 percent from 1995 to 2013. According to The Wall Street Journal blog, for each additional year of life gained, the treatment’s price rose 120 percent, or $75,000. In 1995, patients were paying $54,100 for each year of life gained. Fast-forward to 2013, and patients were paying $207,000 for one more year of life.

So let’s jump from 2013 to last week. Headlines were ablaze with the news that MS drug prices are escalating to new, unthinkable heights as new treatments hit the market, and this escalation is occurring at a much faster rate than other drug prices overall. According to a new paper published in Neurology, the first MS drugs to hit the market in the 1990s were priced in the $8,000 to $12,000 range. However, as more companies became invested in the space and started churning out treatments, the increasing number of competitors on the market didn’t drive costs for existing treatments down; they sent them charging up instead.

List prices of the drugs on the market, including Avonex, Copaxone, Tysabri, and Gilenya, are now nestled in the realms of $50,000 to $65,000 a year — prices that are augmented by the fact that MS currently has no cure and patients can easily be stuck taking these meds for years. Authors of the Neurology study stated, “Our data suggest prices of existing [therapies] paradoxically rise, quickly matching prices set by the newest competitor.”

There are a number of reasons the prices for new cancer drugs on the market have been rising — including “generous” insurance coverage, doctors growing “habituated to rising prices,” and the 340B Drug Pricing Program, says The WSJ. However, for the MS treatment market, the reasons for these new price-heights are arguably more mysterious.

As Bloomberg notes, the market is currently unaffected by generic competition, which can help lower brand name prices. It will be interesting to see what happens when Momenta and Sandoz’s Glatopa, the recently-approved first generic for Teva’s Copaxone, is finally released into the market. However, should Glatopa remain the only generic for Copaxone on the U.S. market, its sole competition would be Copaxone itself. In fact, the generic could be priced just shy of the $60,000 and still be a viable competitor, Boston Business Journal suggests.

But it seems, judging from the responses pharma gives to questions about pricing transparency, that a great amount of this pricing mystery comes down to a very broad, unquantifiable reason: “innovation.” In response to a question about pricing that arose during an interview on 60 Minutes, a spokesman for Novartis stated, “When setting the prices of our medicines we consider…the benefits they bring to patients… the price of existing treatments, and the investments needed to continue to innovate.”

There it is — innovation. How do you begin to put a price tag on something that is a culmination of thousands of man-hours (both solo efforts by one company and strategic partnership endeavors) in preliminary research, testing, candidate development, pre-clinical, clinical, and manufacturing — each process itself being made up of thousands of people, parts, and processes?

The increasing demand from payers and legislators for the specifics behind the numbers on each drug’s price tag is likely becoming a bore for the industry to hear about. But the news from last week about MS drug pricing continues to emphasize that this issue is not going anywhere. Those outside of the industry are “paying attention to the man behind the curtain,” and, in this case, want to know what happens behind the scenes in drug development.

As you’ve mostly likely heard in the past few weeks, some states have gone so far as to propose bills that would require drug makers to reveal the costs of developing their pricy new treatments. Some of these efforts — specifically California and Oregon’s bills — recently faced voting delays, brought on by industry resistance.

In a statement released in March, PhRMA outlined its opposition to California’s Assembly Bill 463. Its concerns include the amount of time and resources these “burdensome reporting requirements” would take away from drug development, as well as concerns over how easily these “guarded, proprietary numbers” could end up in competitor hands.

However, PhRMA also voiced its concern over the impossibility of determining the total R&D costs “because the cost of developing one drug cannot be separated from the cost of a similar product that failed in the clinical trial process. Indeed, some research costs may be in a 20-year research stream.”

In any field, innovation is built upon a foundation of failures which supplied the lessons, best practices, and knowledge that led to success. It’s a comparison I’ve made before, but I can’t help but gravitate to the art realm when thinking about pricing. When you buy a piece of art or hire a musician, you are paying for the years of training that led to the development of the “final” product. As a musician, I’m sympathetic to PhRMA’s concerns in this particular aspect.

But, at least in terms of this particular concern, I’m also struggling to accept that figuring out a new way of quantifying the work that has gone into making a drug would not be a welcome — and hopefully revealing — struggle on a company-wide level.   

In a recent blog, I addressed the benefits of pursuing breakthrough therapy designation, which requires a company to go through an often-uncomfortably accelerated development process. But one expert praised the process because it kept the company on its toes in terms of streamlining operations and helped the company identify where it could improve to meet future challenges.  

This brings me back to PhRMA’s list of concerns, in which it poses several incredibly important questions: if they give out this information about their processes and costs, then what? What actionable information can exist from knowing how much one company spends developing a cancer medicine, versus what another company spent on a rare disease candidate? And who is to benefit from this information?

Unfortunately, I can’t answer the first two questions. But the process of delving into and compiling the information requested for cost transparency — in essence, determining how to quantify innovation on the company level — seems to me to be a golden opportunity for pharma to better understand its own processes, and perhaps in turn, to bolster its own efficiency.

So when asking who could benefit from pricing transparency, is it too simple to say pharma companies themselves?