Sure, We'll (Eventually) Beat Cancer. But Can We Afford To?

May 17 2014, 8:01am CDT | by

Matt Herper’s tour de force article in the latest Forbes magazine suggests that companies and researchers are – perhaps – turning the tables on cancer using novel immunotherapies that are producing nearly unheard of outcomes even in late stage disease. The trillion dollar question: null

What is really remarkable about Herper’s article is how quickly the oncology field is changing.  The search for drugs over the last decade or so has focused on disrupting tumor biology through targeted therapies modeled after Novartis’ small-molecule blockbuster Gleevec for CML, or monoclonal antibodies like Herceptin for breast cancer.  This approach is reflected in the nearly 50% market share captured by targeted drugs in the world’s largest oncology markets.

When successful, this approach can work wonders, but most cancers are far more complex than CML, which has just a single mutant gene.  Inevitably, at least a fraction of patients treated with targeted drugs (assuming they respond at all) will develop drug resistance as tumor cells mutate to utilize other growth-promoting pathways.  Like our own, cancer’s biology is both resilient and deeply redundant.

Rather than trying to unravel the Gordian knot of tumor biology, new immunotherapies harness the body’s own immune system to attack and kill cancer cells.  In a nutshell, the latest cancer immune therapies strip away the “camouflage” cancer cells use to evade the body’s immune system.

As the editors of Science noted when they declared cancer immunotherapies the breakthrough of the year,

“The field hums with stories of lives extended: the woman with a grapefruit-size tumor in her lung from melanoma, alive and healthy 13 years later; the 6-year-old near death from leukemia, now in third grade and in remission; the man with metastatic kidney cancer whose disease continued fading away even after treatment stopped.”

The high cost of current cancer therapies is at least limited by the relatively small patient populations they treat.  Next generation immunotherapies, including CTLA-4, PD-1 (programmed cell death), and chimeric antigen receptor therapies (CARTs), appear to deliver much improved outcomes (in some cases including complete remissions) with limited side effects – and may also be used to treat many more cancer types and much larger patient populations than current therapies.  Given their inherent value to patients, they could easily command prices well in excess of $100,000 per course of treatment.

Researchers have known since the late 19 th century that the immune system could help fight cancer, after a surgeon at Memorial Hospital in New York noticed that some bone cancer patients had better outcomes when they developed bacterial infections after surgery.

null  The first drugs were vaccines, passed from arm to arm via scab scrapings that carried the cow pox virus across continents and oceans.  Vaccine pioneers basically learned how to harness our immune system – evolved over hundreds of thousands of years – to churn out defenders (anti-bodies) to wipe out smallpox, cholera, diphtheria, and dozens of other diseases that had ravaged human civilization since the first agricultural communities brought large numbers of humans together in close confines.

Indeed, one vaccinologist, Maurice Hilleman at Merck, is credited with saving more lives through the dozen or so vaccines he pioneered than any other scientist in history.

Modern cancer immunotherapies attack cancerous cells through a number of different applications, including monoclonal antibodies (which are already well characterized and widely used).  The newest drugs go a step further, including drugs that “take the brakes off” the body’s immune system (Yervoy, for melanoma) to ramp up the number of circulating tumor-killing cells, or genetically re-engineering a patient’s own T-cells to attack the disease (the subject of Herper’s excellent article and another in the Wall Street Journal).

While true cancer vaccines have yet to find broad success (Provenge has had limited success, both with patients and in the market) a number of companies are still hard at work in the field.

Immune therapies offer a tantalizing glimpse of cancer’s future.  While targeted and cytotoxic therapies will likely remain weapons in oncology’s arsenal for years or decades to come, they will be used alongside immune modulating therapies (and possibly even cancer vaccines) that can deliver lasting disease control.  Over time, oncologists will likely personalize cancer therapies based on tumor genome sequencing and blood tests (for circulating tumor cells) that will allow them to track disease response and recurrence, and deliver precision cancer therapies to prevent metastatic disease from becoming life threatening.

But the fact remains that as immune-based therapies for cancer are developed and marketed, they may be used alongside already expensive targeted drugs. And payers are already struggling to fund impressive advances against Hepatitis C, multiple sclerosis, and rheumatoid arthritis, to name just a few other expensive specialty drug indications.  In at least the short term, can society afford to win the war on cancer?

The Latest Crusade Against Drug Prices

Last year, MD Anderson oncologist Hagop Kantarjian launched a crusade against current cancer drug prices, decrying the $100,000+ price tag for more than a dozen therapies launched over the last two years that may come with minimal survival gains for the median patient – measured in months or even weeks.  Other physicians at Memorial Sloan Kettering, ASCO, and beyond have joined with long standing critics of the pharmaceutical industry to call for changes to the current cancer drug pricing system, if not  outright cancer drug price controls.

Before dealing with the issue of price, it’s worthwhile to put the debate in a somewhat longer term perspective.

Cancer is largely a disease of aging, and Medicare pays for most cancer drug costs in the U.S.  What may be surprising is how relatively little we actually do spend on cancer – excluding Medicare Advantage and including beneficiary cost-sharing, the program spent about $34 billion in 2011, or just 8.5% of total Medicare fee for service spending.  New drug costs have held steady at roughly 10-12% of total U.S. health care spending for decades, with the cost of treating cancer hovering around 5% of total health expenditures since 1985.  Given the rising incidence of the disease in an aging population, the relatively stable share of health care costs devoted to cancer treatment costs suggests that new drugs may be offsetting other types of health care spending for cancer patients.  (More about that later.)

But two critical things have changed in recent years. The first is the price of cancer medicines, which has roughly doubled over the last decade, from about $5,000 to $10,000 per month.  Increasingly, patients (particularly on Obamacare’s exchange plans) are being asked to pay co-insurance, not co-pays, for expensive medicines – a flat percentage of their total drug costs, which can amount to hundreds or thousands of dollars every month.

True, Obamacare caps total out of pocket payments for health insurance, but at over $12,000 annually, it’s not hard to see how even well-insured middle class families could bankrupt themselves paying for therapies they may have to take indefinitely to keep their cancers in check.  (And by mandating extensive benefits for even high deductible policies, Obamacare has also put downward pressure on provider payments and networks – meaning that many top cancer hospitals aren’t covered by exchange-based insurance. Notably, out of network costs are not capped by Obamacare, meaning that cancer patients who seek care at top cancer centers will almost certainly be footing more of the bill on their own.)

There is also significant evidence that even modest co-pays for drugs – let alone thousands of dollars a month – can lead to patients avoiding effective therapeutic options, leading to worsened health, and larger overall health care costs.  If even a fraction of U.S. cancer patients can’t afford the cost of effective therapies, we’re still talking about thousands of cancer patients annually who can’t afford optimal therapy for their disease. This isn’t to say that coinsurance and copays aren’t useful – they can encourage more efficient use of care, particularly when effective generics or less expensive close therapeutic substitutes are available. But they shouldn’t be used as a form of outright cost-shifting of what can amount to catastrophic costs.

Dr. Kantarjian, however, goes much further than pointing out the shortcomings in the current system and argues that market pricing for cancer drugs is unconscionable on its face.  It is morally repugnant, he believes, to charge tens of thousands of dollars a month for a pill that may cost only a few hundred dollars a month to manufacture – especially when the same company sells the same pill at a sharp discount to our wealthy competitors in Europe – where governments do, in fact, set prices for new medicines.

Dr. Kantarjian has diagnosed a real problem, but he has focused on the wrong solution.  The enormous sunk costs incurred in creation of new drugs, and the ease with which copy-cat versions of new drugs can be launched once the hard work of unraveling the underlying biology has been worked out by the innovator company requires strong IP protection to get innovator companies to sustain the difficult work of piecing together the data and clinical trials required for FDA approval.

The imposition of a number of drug price controls or their functional equivalents in the E.U. – reference pricing, capped drug budgets, health technology assessments, and the like – have all helped shift the epicenter of drug innovation from the E.U. to the U.S. (the world’s largest single pharmaceutical market) from the 1980s to today.  (Obviously, there are many other factors at work as well – like government funded basic science research through the NIH.)

Source: The Milken Institute (

Reducing incentives for innovation (and drug development returns are roughly comparable to those in the software industry) and you would encourage investors to park more of their capital in more lucrative investments (think: Snapchat), and less into research for new cancer cures.  While Dr. Kantarjian argues that innovation is far less expensive and risky than companies claim, the fact remains that the entire biotechnology industry, launched in the early 1980s, didn’t reach profitability until just a few years ago.

Effectively, price controls are a way of undermining the monopoly patent rights enjoyed by producers, and weaker patents would inevitably lead to less investment.  True, we’d have less expensive drugs in the short run, benefitting current payers, but reduced returns to investors would also sharply curtain future R&D investments.

That means far fewer drugs in the long run.  And the long run is what really matters.  Drugs continue to produce enormous social gains long after their patents expire (tamoxifen remains a mainstay of breast cancer treatment more than a decade after it lost patent protection in 2003).  Consequently, the long run losses to patients and payers from worse health (and lost productivity) from reduced drug development would rapidly become staggering.

This isn’t to say that the current system isn’t in need of serious reform.  Patents encourage increased R&D investment, but also raise the price of new drugs above what many may be willing – or able – to pay.  Insurance and producer price discrimination can solve that problem to some extent, but the rapidly rising number of effective new drugs targeted to niche populations (at least compared to primary care medicines) inevitably sets up higher prices spread over fewer patients.

Part of the solution is to spread development costs and profits over more time, over larger groups of patients, and to slash the time and cost required to bring new treatments to patients – which would in turn spur greater pricing competition.

New Types of Patent Rights, Spread Over More Patients and More Time

The same monopoly patent rights that are required to drive innovation mean costs and profits are front-loaded onto the first patients during products’ effective patent life (currently about 10 years).  Future generations of patients get far more of the benefits (as treatment regimens improve, and side effects are better understood), at a far lower price.  Ironically, this means that innovator companies (high prices notwithstanding) capture relatively little of the social surplus of their medicines, which may be sub-optimal both in terms of generating future capital for R&D and driving higher prices for buyers of patent protected drugs.

Shifting more of the costs into the future, effectively spreading them over many more patients, would strike a better social balance while also having the advantage of improving incentives for developing more targeted innovations.  In his book The Cure in the Code, my colleague Peter Huber has suggested creating a limited intellectual property rights for biomarker licensing – essentially allowing innovator companies to continue to charge modest royalties from every company that utilized the same “knowledge base” even after the original patent expired.    Huber writes that

To get private money fully engaged in creating these [molecular maps of disease], we need a new data exclusivity right to cover them.  The right should be narrow…but it should also last a long time.  The objective is to allow the market to spread the cost of developing biomarker know-how across the broad base of future beneficiaries.  …

The market will develop more pioneer drugs, and government paymasters will be more willing to accept them, if one important component of first-pill costs can be spread across many more patients.  The early users already shoulder more risk; they shouldn’t be paying so much more as well.

Huber’s solution is elegant because it would also raise the cost of future branded and generic drugs – slightly – without disrupting their fundamental cost effectiveness (or attractiveness for payers). By creating a novel biomarker property right, it would also supercharge investment into biomarker discovery – which is currently happening piecemeal, since it suffers from a “tragedy of the commons” – while everyone benefits from biomarker discovery, it requires large investments to work out the underlying biology and receive regulatory approval.

Patients and payers would reap huge benefits from a biomarker property right – which would encourage many more finely tuned drugs and diagnostics.  Gains in early detection would undoubtedly also lead to less expensive treatment modalities.  It is, after all, vastly more expensive and difficult to treat a late stage cancer than one caught in its earliest stages.

And if companies could then turn around and use the same biomarker knowledge to develop surrogate endpoints for regulatory approval purposes – essentially a molecular scale biomarker that would be “reasonably likely to predict a clinical benefit” – via the FDA’s accelerated approval pathway we could shave years and likely hundreds of millions of dollars off of the cost of drug development.  In that case, we’d likely see many more drugs come to market much more quickly as much less cost.

Competition across many more entrants (including smaller, nimbler companies with less overhead), and many more types of technology (perhaps including cancer vaccines), would likely lead to greater pricing competition even among patented products.  A better understanding of disease biology that would flow from a biomarker property right would also allow providers to use existing FDA approved drugs (including generics) “off-label” to compete with higher cost new drugs.

Pharmaceutical benefit managers (PBMs) would benefit from multiple competing products and technologies for the same indications, as companies competed on price and quality for the increased volume that comes with better formulary positioning.

Finally, precision medicine, enabled by robust biomarker development, would also help tilt market share to innovators who were able to deliver the best outcomes at the lowest total health care cost.  A better understanding of a product’s real value to patients would only enhance and accelerate efforts to eliminate wasteful and ineffective care that costs the U.S. hundreds of billions of dollars annually.

Harvest The Eggs, Don’t Strangle the Goose

We have to be very careful in how we approach questions of drug pricing.  There is a large and growing literature that suggests that drug treatment offsets other health care costs.  (See here, here, and here.)  The CBO recently estimated that for every 1% increase in prescription usage, other health care costs are reduced by .2%.   Economists at the University of Chicago suggest that, over the past 20 years, lifespan increases partly due to medical innovations have led to an increase in wellbeing half the size of total GDP each year– and that a 1% decline in cancer deaths would generate $500 billion in social value.

null We’ve also seen some cost savings from better cancer medicines, especially from reduced side effects and hospitalizations.  Recent data from IMS health also suggests that global cancer drug spending is moderating, with just 5.4% growth over the past the last five years – compared to 14.2% annual growth from 2003-2008. This is at least partly due to greater competition from manufacturers.

Robust pricing has also lead to enormous investment in cancer therapeutics, with more than 30 percent of all preclinical and phase I products having a cancer or supporting indication.  Pricing should continue to reward innovation, while innovators, payers, and patients work together to develop better standards for measuring the impact of new medicines on the entire continuum of cancer care – including quality of life, side effects, and the need for ancillary hospital or physician services.  That information, by itself, will help physicians and patients make better treatment choices.

Finally, we shouldn’t ignore the impact of other factors on cancer drug pricing: overly bureaucratic and burdensome clinical trials, poor clinical trial enrollment rates, and unreproducible academic studies that send companies down too many dry holes and waste valuable resources.  And Obamacare, insofar as it increases hospital consolidation, appears to be increasing oncology care costs (189% average higher cost in hospital settings compared to physician’s offices, according to IMS.)

Novel IP rights would drive innovation on the supply side and better align drug prices with value to patients on the demand side.  And regulatory reforms that expand the FDA’s Accelerated Approval framework would all help to make cancer drug development more effective, predictable, and sustainable for patients and payers.

A final word about cancer innovation and costs.

Stacy Erholtz, a 50 year old mother with myeloma had failed all conventional therapies for her cancer – including chemotherapy and two stem cell transplants – when she entered a clinical trial at the Mayo Clinic.  She was treated with a massive dose of the measles vaccine – enough to inoculate 10 million people.

Within minutes of her inoculation, her temperature spiked, and she started shaking and vomiting – but within 36 hours her tumors started shrinking, and today she is in complete remission, according to a report in the Mayo Clinic Proceedings released just this week.

This is just a proof of concept that “virotherapy” – destroying tumors with a virus that spared normal tissues – can work in a patient with advanced metastatic disease.  But it’s still an astonishing accomplishment that has the potential to save lives even as it reduces the use of other expensive treatments with severe side effects.  That’s the future of medicine.

Let’s figure out how to get there faster.

INVESTOR’s NOTE: Companies that are well positioned to capitalize on advances in cancer immunotherapy include Bristol Myers Squib (NYSE:BMY), Novartis (NYSE:NVS), Merck (NYSE: MRK) and Astra Zeneca (NYSE:AZN) through it’s subsidiary, MedImmune.  However, rising prices for specialty pharmaceuticals will also place a premium on PBMs who can effectively control specialty drug costs for their clients through aggressive formulary management.  Leading PBMs include Express Scripts (NASDAQ:ESRX),  CVS (NYSE: CVS) and Walgreen (NYSE:WAG).

FIND ME ON TWITTER: @PaulHowardMI on Twitter, and follow The Apothecary on FacebookOr, sign up to receive a weekly e-mail digest of articles from The Apothecary.


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