Democrats’ drug pricing law puts cancer drugs in the spotlight
The Democrats’ new drug pricing law will likely deal a financial blow to one of the most dynamic and lucrative segments of the pharmaceutical industry: cancer drugs.
Why is this important: The pharmaceutical industry argues that the new law will prevent cancer treatments from reaching some patients who need them. But experts say the current system allows companies to profit from drug development that only generates incremental progress – and that cancer drugs will always be valuable enough for companies to pursue.
The big picture: The dispute over how Medicare drug price negotiations affect cancer care is a microcosm of a larger debate, in which the pharmaceutical industry argues that price controls will reduce their incentive to put new drugs on the market.
- But the cancer market is unique, both in terms of its recent growth trajectory and the way drug uses typically evolve once they’re already on the market.
What they say : Cancer drug research after initial approval “will be gutted by this bill,” wrote Stephen Ubl, CEO of industry group Pharmaceutical Research and Manufacturers of America, in an Aug. 4 letter to Congress.
- “It signals to researchers that their successful research after approval will soon be subject to government price fixing. And it virtually guarantees that President Biden’s cancer crush will never leave the ground.”
How it works: Cancer drugs are usually launched to target one type of cancer. Companies then do additional research once the drug is on the market to see if it’s also effective against other forms of cancer, which may lead to approvals for other “indications.”
- The first clinical trial is usually the biggest hurdle in terms of cost and risk.
- “If you have an approved drug, you may not need to start from scratch,” said Aaron Kesselheim, a professor at Harvard Medical School. “There’s still some testing to be done, but it can be a more expedited process by skipping some of the earlier parts.”
State of play: Under the new law, beginning in 2026, certain older drugs without generic competition will be negotiated with Medicare. This means that there will be a limited amount of time during which a pharmaceutical company will have monopoly pricing power, even if a competitor has not yet materialized.
- Drug companies argue that the limitation in their ability to maximize revenue from a cancer drug means it may not be worth pursuing new indications for the drug.
- The Congressional Budget Office estimated that 15 fewer drugs would be introduced to the market over a 30-year period due to the law. Put into context, approximately 1,300 drugs would typically be approved over the next 30 years under current law.
The other side: Some experts dismiss industry concerns as alarmist, countering that expanding the market for a particular oncology drug will still be more than profitable enough to justify the R&D costs.
- “If an additional indication is a large enough group of cancer patients, it will still make financial sense to seek an extension of the label to those patients,” Kesselheim said.
- A special provision in the law could exempt useful new cancer drugs from trading, said Rachel Sachs, a law professor and drug pricing expert at Washington University in St. Louis.
- And the law could actually encourage drugmakers to focus on truly new products, Sachs argued. “We may not need companies to develop another inhibitor – and so, it’s the case right now that the pharma industry doesn’t always choose to invest in the spaces that are best.”
By the numbers: Nearly half of the drugs in the FDA pipeline were cancer drugs in January 2021, according to a University of Chicago white paper. The authors argue that this means oncology drugs will be significantly affected by the new law and fewer drugs will come to market.
- ProPublica previously reported that lead researcher Tomas Philipson has served as a consultant to the pharmaceutical industry.
- Cancer drugs also represent an increasingly large share of pharmaceutical company revenue. According to a study published in Cancer.
The plot: Research suggests that not all cancer drugs – or all approved indications – offer the same value to patients.
- Initial indications offer higher clinical benefit than subsequent uses, according to a study of multi-indication cancer drugs published last month in Applied health economics and health policy. However, the pool of potential patients – or the prevalence of the specific type of cancer – was higher for the second and third indications than for the first.
- The study also looked at drug prices over time in seven countries. The United States is the only place where prices have increased over time with new indication approvals; everywhere else they have either fallen or not changed.
The bottom line: Capping the price of a new drug after a certain amount of time “certainly lessens a manufacturer’s incentive to pursue different indications, because functionally it has much less revenue per unit,” Avalere’s Massey Whorley said. Health.
- But a reduced incentive is not the same as no incentive.
- “What the calculus then shifts to … is it going to continue to allow them to fully recoup their costs of pursuing a new indication,” Whorley added.
Go further: The search for next-generation cancer treatments