Malignant Pharmacoeconomics: Innovation and Sustainability


Nathan Cherny: So I'm going to veer a little bit away from what I've been looking at before and I want to look at cancer pharmacoeconomics. And I've actually retitled it, deciding to ask the question. “Is it a rip off or is it fair play?” So I just said just to set the scene, this is a logarithmic graph of the price of the monthly median cost of cancer drugs approved by the FDA. This tracks between 1970 and 2016 and the most recent figures from last year and what you see that for drugs approved last year 69% of them cost more than $100,000 per year. 32% of them cost between $200,000 to $500,000 a year or so. This is the scope of the problem, and you can see also just how dramatically this has changed over the last 20 years.

So the question is, is this fair game? Is this just reward for an innovation that needs to be respected? Or is this a rip-off? Is this exploitative profiteering that needs to redress? And this is the underlying question that hopefully you'll be able to formulate your own opinions about with some of the data that I'm going to share with you.

This appeared about 6 months ago. The Eli Lilly and AbbVie have pulled out of the price agreements, and they said that the Europe’s focus on spending cuts was detrimental to its ability to attract research and development, clinical trial and manufacturing investments. And Bayer said it's going to shift its focus on a pharmaceutical business to the US accusing Europe of being very innovation unfriendly.

So, my agenda today is to talk about innovation and its motives. I'm going to talk about what I described as the “perfect storm” in the United States, which I think is really led to a lot of this acceleration in the cost of prices. We're going to follow the money trail in pharmacoeconomics, look at issues of strange sustainability, and we will look at the concept of just all fair pricing. And finally, we'll conclude with some of the ethical issues and advocacy issues.

So innovation is about the development of new approaches and for purposes of this discussion. We're focusing on, innovation in anti-cancer therapies with some related issues of biomarkers and imaging modalities.

When one considers the motives for innovation, one can look at the most desirable (motives for innovation) would be to improve patient outcomes, or to advance the understanding of science and to improve cost efficiency. And, the least desirable motivations would be academic and scientific credit or personal gain, or potential for profit. But the reality is the converse. And the reality is the biggest motivation is the potential for profits. And we'll see that the issue of improving patient outcomes is there, but that it's not necessarily a driving factor.

When we have innovations in cancer care, we're looking for what we want to achieve. We want to either help patients to live longer, to live better, or reduce costs. By living better, we're looking at an impact of either improving quality of life or delaying the deterioration and quality of life. And another aspect of living better is reducing the burden of treatment. So reduce treatment intensity, reduce adverse effects, or improve convenience. And so this is the basket of really what constitutes an innovation.

New innovations are very heterogeneous in their deliveries. Some will be vastly superior to the standard of care, some will be minor improvements, some will be trivial improvements, and some will have really an unclear magnitude of benefits.

Ideally, what are the things we want to see incentivized? We would like to see proven, high clinical benefit things. I suppose more important in a curative setting where people are eradicated the disease in a non-curative setting. And we want to see that there's really direct evidence of benefit: people living longer or living better and not just improvement in surrogates, which have a variable degree of predictive reliability for true clinical benefits.

Another issue that needs to be incentivized is unmet need. Uncommon cancers where there are a few therapeutic options are going to be more important than common cancers that have already lots of options. And early treatments that make a big difference in terms of patient well-being, rather than another lifeline option that may offer as a benefit a small number of months of transient benefit.

Innovations all have a cost. And the issue from a financial point of view is important is this issue of the total budget impact. And the total budget impact is derived from the cost of the medication of relevant diagnostics of administration and the cost of managing side effects, how long the patients are on treatment and how privileged the disease is. And all of these things they get a factor in on the total budget impact of any innovation.

Okay, so what then is this perfect storm? The perfect storm in the United States starts in 2003 with the U.S.A. Modernization Act in 2003, which included what's called a non-interference clause. And this non-interference clause essentially meant that any new drug which is approved by the FDA must be provided by Medicare, which covers 37% of the American market (it's the largest single care provider) at the manufacturers list price without price negotiation. This is a total suspension of market forces.

The next thing is, it is the word, cancer, and the Cancer Moonshot and this encourages innovation, but the way they've done this is to lower the thresholds for benefits to get to get market approval. So there's more inclusivity of approval, so anything that has a possibility of benefit is getting approved with less discernment so there's a little less firm evidence of benefits. So this, step incentivized to the development of low value medicines that did not have any proof that they're making people live longer or clearly live better. And this incentivization of the development of low value medicines and the suspension of market forces meant that even if you had a low value drug, you could give it whatever price you want, which is what happens, and this has led to the spiral prices and profits and a disconnect between value and costs.

Now this is in the United States, how does this affect the rest of the world? Well, these prices in the United States, maximize US profits, but they had other impacts as well. And that's because in most of the rest of the world, they use international reference pricing and price negotiation, international reference pricing and price negotiation for managed market entry. But the beginning of the negotiation starts with the United States process, which is where the negotiations are pegged.

Then furthermore, the terms of the agreements from these reference pricing and negotiated market entry are concealed in nondisclosure contracts. So we have a lack of transparency and then that lack of transparency precludes truly informed international reference pricing because you don't really know what other countries are paying. So starting with this US price business, adding these concerns about lack of transparency, the whole reference processing issue becomes ineffectual.  And, and as a consequence the prices in the rest of the world are lower than in the United States, but they're still, they're still very, very high.

The perfect storm is also impacted on development. We have seen an explosion of new FDA approvals. Between 2012 to in 2014, we had an average number of 5 new approvals a year. And since 2017, since the beginning of the Moonshot, we now have an average of 32 new anti-cancer drugs approved each year. Now, we've looked at those approvals over the past 5 years using the ESMO magnitude of clinical benefit scale to look at how much of these are high benefit drugs and how many are low benefit drugs. And what you could see here is about a third of them are low benefit drugs. So, when we look at the evidence that was led to the approvals, in only 32% of the approvals was there evidence of patients living longer, was there evidence of an overall survival gain, and the average gain was only 4.6 months.

For 28%, the approvals were based on progression free survival which is a best a weak surrogate of either living longer or living better. And the biggest number of approvals, 40%, were based on single-arm studies using overall response rate and duration of response as a surrogate indicator of benefit. And that is an extremely weak indicator of, or surrogate for improved survival or improved quality of life. Interestingly, the median overall response rate was 40%, and there was no difference in the response rates between the drugs that were given accelerated approval or regular approval.

So these FDA policies or the endorsement of drugs with relatively low efficacy, plus the issue of non-negotiable costs, has incentivized the development or promotion of many low benefit agents. When a drug is endorsed by the FDA, this puts indirect pressure on physicians to prescribe and for patients to consider using low benefit medicines because it's got the stamp of approval of the FDA. Many of these drugs are accessible only with very substantial co-payments, And, and this was a, of high levels of financial toxicity and low levels of patient benefit. 

Okay, so let's now follow the money trial a little bit. This is a really interesting graph. This is a graph looking at the cumulative profits generated by recently approved anti-cancer drugs in the last 20 years. The upper dotted lines and the lower dotted lines are the upper and lower estimates of what it costs, the R&D costs of developing a new drug, which vary between $600,000 to $2.3 billion, and there is debate about the estimates. What you can see on this logarithmic scale is, number one on a logarithmic scale, most of these drugs very rapidly exceed the threshold of the R&D costs. And on average, the return was $15 for every $1 spent in R&D. So you know, this is massive, massive profitability that far exceeds any estimate of R&D costs.

Interestingly, if you look at the launch price and the relationship to clinical benefit, there's 0 relationship between the cost of the drug and its clinical value, evaluated either by the ASCO value framework or by the ESMO-MCBS scores.

Globally, the expenditure on anti-cancer drugs is about 218 billion dollars. In another 4 years, it is estimated to get to 337 billion dollars globally. Now,  the pharmaceutical sector is one of many, sectors in the S and P 500. But and this is an important point, if you look at the average profits from every other sector, most of them are substantially lower than the pharmaceutical sector. So the pharmaceutical sector has become the most profitable sector in the industrial world and on average it's about twice as profitable as any other sector, such as materials or energy.

Relationships between R&D spending and sales, R&D far exceeds their own expenditures. But it's important to point out that the R&D expenditures are not just from pharma companies, a very substantial part of the R&D funding actually comes from government sources and then the company subsequently buy licenses to the further develop drugs. So much of the R&D cost has actually been paid out by government along the way.

Another important and interesting fact which is often under-appreciated is that in terms of pharmaceutical industry costs, on average, they spend twice as much on marketing, that's the red bar, for what they do for R&D. Almost every company has a much bigger sales and marketing budget than they do have an R&D budget.

Now, we talked about this massive profitability of the pharmaceutical industry. The other key issue is that it is predominantly driven by oncology sales. You know this is really the milking cow. And you look at across the different pharmaceutical sectors, this is the profitability of the oncology sector compared to all the other sectors and between 2018 and 2024, this is the growth. So there is unprecedented growth generated by the profitability of these new agents That is really driving the massive profits of the pharmaceutical industry.

Now, if you ask pharma, and this is in the words of the professional organization, their role is to develop medicines that enable patients to live longer and more productive lives. But when they are tasked with making decisions on how to spend their profits, executives repeatedly prioritized shareholders payouts over drug research and making the drugs more affordable. There was a congressional report looking into this, they spent more money on stock buy backs and investment dividends than on the top 14 drug companies spent 577 billion dollars in stock buy backs and the annual executive compensation went up by 14% during this period. These are the sorts of figures that you see for compensation, for a CEO, 135 million dollars annual compensation, 48 million dollars annual compensation.

So to summarize, why are drugs so expensive? Well, we know there are these issues of cost of development, manufacture, marketing and distribution, but the big issue is profit. The statutory suspension of market forces in the United States, the international reference pricing, which is picked by the US price and hampered by a lack of transparency, and policy is really unrestrained profiteering.

You know, this clearly has long trivial consequences. And the non-trivial consequences really are issues of sustainability. The economic resources that we allocate to health care a finite. Cancer is just really one of multiple competing needs. Cancers are highly prevalent, and the therapeutics are increasingly expensive. The global costs are now a 185 billion dollars a year and rising, and most of it is spent on non-curative therapies and more is spent vastly more spent than on any other condition, and this is just not a sustainable framework.

The WHO has been addressing this through their fair pricing forum. This is a global initiative to try to improve the affordability and value of drugs, and to simultaneously preserve and promote adequate incentives for capital investment and for research and development. They acknowledge that this is an increasingly challenging aim. And, in the 2021 reports, they say they acknowledge the difficulty in even defining what is a fair price and they've established a working group to address the issue. We’ll come back to this issue of what is a fair price later on.

They did have a couple of concrete suggestions. One is to promote price setting that is performance-linked. And this can be facilitated by having robust, a health technology assessment processes to incentivize high benefit treatments against low benefit treatments, to promote transparency, so that would enable really true international reference pricing. And to encourage managed market entry into all markets. Manage market entry means, if when you've got a new drug to say, look, you know, at that price, we're not going to let you into the market, but if you lower the price down, then if it's at a level that we can that we feel is reasonable and appropriate to the magnitude of clinical benefit, then we will reimburse it and cover it. And their final recommendation was to reform this Medicare Part D issue to allow for price negotiation because this is a root problem, but I mean this is a root problem which, which is strongly resisted by well-funded and organized resistance from the pharmaceutical industry and from the financial sector, which has become addicted to the profits being generated by the pharmaceutical sector and, you know, we're going come back to who owns Big Pharma. 

So, market access agreements work and when you look at the process of drugs in the United States compared to countries that have robust HTA processes like Australia, United Kingdom and Israel, they achieve prices that are, substantially less to countries without manage market, managed market agreements.

The United States has taken a first step, but it is a baby step, and this is called this was the Inflation Reduction Act of August 2020 and this gives the power to the US Secretary of Health and Human Services to negotiate prices for a limited number of drugs. This is a very limited act; it's only 9 years after a drug has been approved. So initially the drugs, the price is going to be very high, limited to 10 drugs a year in 2026 and increasing to 20 drugs by 2029. So by giving 9 years of maintaining this system of whatever price you choose, is what's going to be paid for, this really doesn't address the root of the problem and it's not likely to have a substantial impact.

This is a story, you know, why have governments been so reluctant to take this issue on? And the issue is that who owns the drug companies? We do! A third of the stock in big farmer is retirement and pension funds. And the pension funds have become addicted also to the profitability of the pharmaceutical industry. So, you know, this is part of the reason why the issue on a global scale is really so, so complex.

Okay. So what constitutes a fair price for a drug? And I'm very grateful to Hagop Kantarjian the, hematologist at MD Anderson, who's really been an incredible champion pushing this issue within the medical world. “Just pricing” or fair pricing as opposed to unjust pricing, proposes a price structure that reflects the magnitude of patient benefits, the value, that ensures a reasonable profitability, and maintains adequate incentives for research and development. The big accusation that comes out of pharama all the time is if you cut your profits we won't have It's incentives to create new drugs.

There've been various proposals that have been made, but they have commonalities. They all take into consideration research and development costs. They all take into consideration sales and marketing costs, but you're trying to encourage reducing marketing costs. They all have a target level of profit. And they all take into consideration the type of population. And yes, as it is, these are just these, these are hypothetical models that are being proposed and there's really no concrete suggestion on the table.

Another idea which has been floated is, indication based pricing. And that's to say that with many drugs they used across many different indications, but in some indications the delivery of a very high level of clinical benefit. In other situations, developing a very marginal level of benefit. And why should we pay the same price to the drug in situations where we are really providing very little? And there been 3 different approaches to this. One is to have individual indication pricing. So with a drug, you know, when it's being used in a high benefit indication will have a high price and will have a lower price when it's being used in a low benefit indication. A second model is a complex calculation of a weighted price which may rise or fall. We do the development of either high or low benefit new indications. And the third model and this was all this is a model which was trialed in Italy had a fixed price but, there would be individual indication refunds. So in an indication where only a small proportion of patients were benefiting, the company would pay back for all the patients that didn't benefit. This logistically, this was overwhelmingly challenging and did not work.

Okay, so, where does that leave us? I am a big fan of Daniel Kahneman, the behavioural economist. And he had an old paper on fairness as a constraint on profit seeking. And he argues that pricing can be influenced by appeals to fairness and justice. And then in the case of medicines, moral force and an appeal to justice can be applied highlighting concerns of exploitation and highlighting concerns of the social responsibility for fair pricing. 10 years ago I had the privilege of having a sabbatical year and I worked in the department of bioethics at the NIH. With the late Alan Wertheimer. Alan was a was a philosopher and he was the world expert on the issues of exploitation. And based on his work and applying it to this situation, you can see the extravagant pricing and the profiteering cancer drug markets actually meets all of the criteria for exploitation. Those criteria are that the relationship between the patent holder and the purchaser is asymmetrical, the subordinate party, which is the government of the consumer, needs the medicine to get optimal benefit in relation to duration of survival and quality of life. The subordinate party, the government of consumer, depends on a particular provider because of patent predictions, the provider has discretionary control over the availability of the need of medication, the price is disproportionate to the gains, and the price paid causes harm to subordinate partner in the transaction. So these, are all are applying the cost of drugs to the classic criteria for what is described as exploitation.

As physicians we primarily think of our duties towards the patient about reduced relationship. I responsible, individual patient to get them the best of care and not to harm them. However, physician duties expand beyond that and we have public health responsibilities as well. To sustainability and to the just use of limited resources. And then this has been clearly described by the physicians charter of the American Board of Internal Medicine, where they say that the medical profession must promote justice and healthcare system, including the fair distribution of healthcare resources.

So, I ask you to reflect on this I'm a dataset. To see you know, is this fair game? This is just rewards for innovation that needs to be respected? Or is it an exploitative rip off that, that needs to be redressed? My personal inclination If it's with the latter, but I understand that there are others of all different opinions.

My 5 concluding thoughts are: that the issue of balancing incentives and sustainability is challenging, that currently there's a profound imbalance, that industry is prioritizing the financial interests of its shareholders over patients and sustainability,  and the rising costs of cancer medicines cannot be justified by upstream R&D costs, it's just this big lie. Physicians and their representative bodies have a duty to promote sustainability, and this includes one the responsible to discern between high and low value treatments and to discourage the use of expensive low value treatments and secondly, to take on an advocacy role for social justice against exploitative pricing policies. Any presentation that we have from industry of a new drug, at the end of the meeting, there will always be the question of how much does this drug cost? Why is it so unreasonably expensive? And I know that these people don't answer the question, but the questions need to be heard and echoed back up the line of command. So I thank you very much for hearing me out and I would really look forward to hearing your feedback questions and discussion. So, I’ll hand things back to you guys.

Leeza Osipenko:  And we do have a few, questions and comments in the chat, but, let's start with David, please go ahead.

David Colquhoun: I just wondered whether in your price comparison you didn't have the another well known, exploitative business which is scientific publishing. How do the profits compare with scientific publishing?

Nathan Cherny: I don't know, I mean, I didn't have data on the profitability of the publishing sector, but it is it is not a major sector on the S and P 500.

Leeza Osipenko: Peter, great to see you on camera. Please go ahead, with the question. 

Peter Whitehouse: I'm a geriatric neurologist, so I've worked in the Alzheimer's field for 50 years. And I organized the first national pharmacoeconomics conference on Alzheimer's in which I attempted to expose ahead of time, the likely behaviorrs not to any great success. Because that field has been, has been specifically modeling cancer, all the way through. And that's a, that's a larger market because it basically involves everybody who's getting older. So comments about how do we treat these metastases into the field I've devoted by life to.

Nathan Cherny: The Alzheimer's situation actually has another similar issue insofar as the level of the evidence being derived for benefit is all surrogate evidence with a low degree of predictive reliability. So, there certainly is a commonality there and certainly the pricing for the newly licensed therapeutic options has also been extravagant. I just see the cynical side of the market is a rich business opportunity. And again, so we're also approving low benefit drugs, giving them a high price creating, and you're in the United States, so even people, even people with insurance in the United States want to try these are going to have on average a 20% co-payment. So there’s the financial toxicity in the United States which does not have a strong, national reimbursement system is much greater than it's going to be in other in other countries.

Leeza Osipenko: Thank you. Nathan. Schmuel, thank you very much for raising your hand. Please go ahead with your question.

Schmuel Yerushalmi: Yeah, of course. I personally agree with the majority of the things you spoke about in your lecture, but I want to ask you, what according to your opinion needs to be the alternative, among others, what do you feel about the idea to eliminate a private pharma industry and nationalize private pharma companies?

Nathan Cherny: I think that's a political philosophy decision. And I think that, I do believe in private industry, but I think that there is degree of failure of industry regulation.  And you know, to the notion of nationalizing all drug development, I'll bring it under government control, I don't foresee that as a plausible option it really anywhere outside of autocratic regimes.

Leeza Osipenko: Thank you. Indeed, very difficult question with impossible solution. Nathan, I have a question for you. I've been struggling with this at NICE for a long time, but obviously it's not just NICE. Keeping confidential pricing is one of the solutions to manage to use this tool for, regulating prices in Europe or lowering prices down. And I've always been very against it. Understanding the need for this. So, and I always was trying to find the way forward to try to get rid of this confidentiality and make this transparency because actually NICE does publish prices and I remember we had one case where their list prices and we did have one situation some years ago when Brazil phoned to say oh, hold on, we thought those are real prices and we, that our discount based on that while it turned out that the UK price was half the price, which Brazil negotiated and considering the GDP per capita of course that was very misleading. So the argument that heard back from people who actually very worried about the situation but they're not in pro transparency of pricing, is that if we make prices public this will be very, very detrimental for the third world. Where very significant discounts are being given in India and Indonesia and, they are kind of a level down from what Europe gets and will basically harm those markets. What do you think about that?

Nathan Cherny:  Okay, because I think the prices need to be related to the GDP of the purchasing countries. And countries that have a very low GDP, should have a different schedule of prices that is proportionate to their GDP. And you know, the challenge with that is how do you prevent the parallel export? Okay, you know if the drug is, and I mean, and this, this is, this was a reality. Herceptin was much cheaper in Romania than in many other European countries. And what was happening was hospitals and other users were purchasing their herceptin from Romania, which will be exported out, you know, so they're buying cheaper herceptin and then the drug wasn't available for the Romanians. This, this is a problem of parallel export. And so they need to be. Some sort of mechanism to protect against parallel export with the sort of export that is set up at a GDP rate.  

Leeza Osipenko: Thank you, Nathan. Difficult can some crack for the moment. John, please go ahead.

John Hickman: I just wondered if you'd looked into the future of the impact of a number of the drugs and how many I'm not sure becoming, off patent, and becoming generic.

Nathan Cherny: So what is happening is the price goes down, but not a lot for many of the drugs. So imatinib for, you know, Gleevec, it was very expensive. It's now with the development of genetics and the biosimilars, the price has gone down about 50% but not way down. This you see this more with biological trade drugs, you know, some of the chemotherapy drugs that were very expensive once there are generics their price goes on way down. But there is still massive, massive profit taking in that 10 years and then all sorts of manipulations to try to prolong the patent, so in the case of Herceptin, the patent is now being extended by making it as a subcutaneous injection. And it just changing the formulation.

Leeza Osipenko: Thank you. Any other questions for Nathan? In October we are going to have 2 events related to the subject not exactly on the subject but exploring side issues of the problem that Nathan has raised but Nathan I think one the conclusion from your talk is that the key players very very comfortable with the current system and this is one of the reasons this situation is getting worse for those who think that prices are high and access to medicines is not equal and this problem is this situation is getting better and better for those who are profitering from it and.

Nathan Cherny: But what we feel is that we are the people, we are profiteering from it.

Leeza Osipenko: Exactly, and this is a log circle, it's a catch 22 situation because of the shareholding and because of many people actually play in the stock market and end up buying pharmaceutical shares and that's in their interest to enrich themselves in this way. So it is a very, broken system. And maybe it requires some absolutely radical solution to fix it. But once again, the interested party needs to have a lot of power to, change it and I think interested parties are quite weak, at the moment.

Nathan Cherny: But in the meantime, we can call out those expensive drugs that also very low benefit and discourage their use. 

Leeza Osipenko: That's what you do through your asthma work and there are other publications looking at it. It's outside oncology, this is what Consilium is trying to do. So there are a lot of groups working on it and hopefully the, at least decision makers at the clinician level at the patient level will realize little things they can do to change the situation.