Cancer-Drug Prices Are at a Tipping Point

Cancer drugs generate a great deal of outrage with their six-figure price tags for vulnerable patients. Until now, they’ve faced little in the way of price competition.
That finally might be set to change with a recent wave of FDA approvals.

Growth Industry
Despite having grown to become one of the largest categories of drugs, cancer medicines face relatively little price competition 2017-10-12 15-35-41
Source: Bloomberg
*includes a group of 25 large pharmaceutical companies tracked by Bloomberg Intelligence

Cancer is less common than chronic conditions like diabetes, and there are hundreds of types and subtypes. Expensive cancer drugs may treat only a small subset of patients with a certain disease. These medicines are generally taken for a relatively short time period. As a result, any individual cancer drug makes up only a small portion of what an insurer spends on drugs, so negotiating price is less of a priority.
It’s also particularly tricky to substitute cancer drugs for one another. Cancer is biologically complex, and treatment varies substantially for individual patients. And when people potentially only have months to live, they are willing to pay for anything that might even slightly improve their odds. It’s tough for insurers to get in the way of that or make physicians and patients jump through hoops to use such drugs.
What’s more, many expensive cancer drugs are taken at a hospital rather than at home. That means their use isn’t always overseen by pharmacy benefit managers, which are especially aggressive and successful in driving price competition.
The result is an environment with relatively little direct competition, where drugs like Roche Holding AG’s Rituxan can be on the market for more than a decade and face little price competition.

A Bit Different
Cancer drugs like Rituxan are lightly discounted; in contrast, more than half of diabetes drug Humalog’s revenue is rebated 2017-10-12 15-36-07
Source: Symphony Health Solutions/Bloomberg Intelligence, Bloomberg

But competition is heating up in a few cancer-drug categories that are expected to combine for more than $35 billion in sales in 2021. That ought to give insurers incentive to start driving prices down.

Cancer Crowd
A set of three different cancer drug classes are set to face price competition in the coming years 2017-10-12 15-36-34
Source: Bloomberg

The market for a type of breast-cancer medicine might follow a fairly conventional script to greater price competition. Pfizer Inc.’s Ibrance has become a blockbuster since its approval in early 2015; the drug is expected to generate more than $3 billion in sales this year. Then came the rapid-fire approval of similar drugs from Novartis AG in March and Eli Lilly & Co. in late September. Both latecomers have some safety issues, and it’s not clear they’re more effective than Ibrance. Their only avenue to taking market share might be to compete on price. This could be a test of such a strategy’s effectiveness in cancer drugs.
A second class of drugs, known as PARP inhibitors — currently used in ovarian cancer — was shocked earlier this year when the FDA approved AstraZeneca PLC’s Lynparza for a larger-than-expected group of patients. The FDA’s decision shrunk a head start for Tesaro Inc.’s Zejula and suggested the agency considers these drugs largely substitutable. That could make it difficult for any of these drugs to dominate patient segments. And that in turn will give insurers leverage to lower prices; three of these medicines are already available and another is in late-stage trials.
A third class, PD1/L1 inhibitors — which help the immune system recognize a wide variety of cancers — may be the most vulnerable to price competition. The first of these medicines, Keytruda from Merck & Co Inc., hit the market in 2014. There are now five such drugs available in the U.S., expected to combine for more than $20 billion in sales in 2021.
Increasingly, these drugs overlap; all five are now approved to treat a subset of bladder cancer patients, for example. Any lead in a particular cancer seems unlikely to last long — these companies assiduously replicate each other’s successful trials. These medicines cost more than $150,000 a year and are set to become available to ever-broader groups of patients. Price competition is only a matter of time.

Welcome to the Jumble
Several cancer types are getting increasingly crowded with immuno-oncology drug approvals 2017-10-12 15-37-09
Source: Company sites, FDA,

Everything that has stymied cancer-drug price competition in the past still exists to a certain extent for these drugs. But
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