Growth spurt

As patents ex­pire, fo­cus is on high-priced drugs

Modern Healthcare - - COVER STORY - Jaimy Lee

At least seven of the 35 new drugs ap­proved by the Food and Drug Ad­min­is­tra­tion last year cost $9,000 or more per month as man­u­fac­tur­ers turn to de­vel­op­ing high-priced spe­cialty drugs to shore up bot­tom lines erod­ing from the ex­pi­ra­tion of patents on best­selling drugs that treat com­mon con­di­tions.

So-called spe­cialty drugs treat chronic dis­eases such as mul­ti­ple sclero­sis, hep­ati­tis C and can­cers that hit lim­ited pop­u­la­tions. Spend­ing on th­ese drugs has grown year af­ter year as more drug man­u­fac­tur­ers have pur­sued treat­ments for un­met med­i­cal needs.

Of 35 new drugs ap­proved last year, nine were for or­phan dis­eases af­fect­ing fewer than 200,000 peo­ple in the U.S., and 28 were clas­si­fied as spe­cialty drugs by Ex­press Scripts, the largest U.S. phar­macy ben­e­fit man­ager.

PBMs and in­sur­ers have been sound­ing the alarm on ris­ing spe­cialty drug costs for years, es­pe­cially as the num­ber of drugs top­ping the $100,000 thresh­old rose.

How­ever, it’s clear—both from the phar­ma­ceu­ti­cal in­dus­try’s pipe­line of drugs tar­get­ing high un­met med­i­cal needs and from pa­tients will­ing to pay high prices for treat­ments that pre­vi­ously didn’t ex­ist—that there is a mar­ket for high-priced spe­cialty drugs.

Pre­scrip­tion drug spend­ing grew 2.9% to $263 bil­lion in 2011 over the pre­vi­ous year. CMS of­fi­cials, in their an­nual spend­ing re­view pub­lished in Health Af­fairs, at­trib­uted ris­ing drug spend­ing to growth in pre­scrip­tion drug prices, specif­i­cally cit­ing brand-name and spe­cialty drugs and in­creased spend­ing on new brands.

Spe­cialty drugs made up 17.6% of Ex­press Scripts’ phar­macy ben­e­fit spend­ing in 2011 and will likely ac­count for more than 25% of spend per mem­ber per year by 2014.

“This has in­cred­i­ble im­pli­ca­tions for health­care,” said Dr. Steve Miller, Ex­press Scripts’ se­nior vice pres­i­dent and chief med­i­cal of­fi­cer. “Be­cause if you think that the

generic wave was go­ing to take care of your phar­macy spend and that we could all take a sigh of re­lief, that sigh pe­riod is over. Th­ese are go­ing to come fast and fu­ri­ous.”

Onyx Phar­ma­ceu­ti­cals, a South San Fran­cisco-based bio­phar­ma­ceu­ti­cal com­pany, last July re­ceived FDA ap­proval for its mul­ti­ple myeloma drug, Kypro­lis. A study of 266 pa­tients found that 23% of those pa­tients re­ported com­plete or par­tial dis­ap­pear­ance of their tu­mors af­ter treat­ment.

An Onyx spokes­woman said the com­pany looked at fac­tors like un­met med­i­cal need and the size of the pop­u­la­tion be­fore set­tling on a $9,950 monthly price tag for the drug.

Ap­proval isn’t the only time that drug prices are con­sid­ered. The costs of al­ready pricey mul­ti­ple sclero­sis treat­ments, many of which have been on the mar­ket for years, tend to rise by 20% each year, even with the ar­rival of costly new drugs such as Sanofi’s Auba­gio.

Sev­eral of the drugs ap­proved dur­ing the FDA’s fis­cal 2012 have al­ready raised their prices. In­cyte’s Jakafi re­ported a 9% in­crease in Novem­ber, while Ver­tex Phar­ma­ceu­ti­cal’s Ka­ly­deco rose to $25,603 in 2013 from its launch price of $24,500 in 2012.

There are 5,400 drugs in clin­i­cal devel­op­ment, and nearly 1,800 of those drugs have been des­ig­nated or­phan drugs, ac­cord­ing to a report re­leased in Jan­uary by the Phar­ma­ceu­ti­cal Re­search and Man­u­fac­tur­ers of Amer­ica.

“Spe­cialty medicines are har­ness­ing cut­ting-edge sci­ence to bring needed med­i­cal ad­vances to pa­tients while ac­count­ing for a small share of health spend­ing,” a PhRMA spokes­woman said. “The cost of th­ese med­i­cal ad­vances has been grow­ing at a his­tor­i­cally slow rate, av­er­ag­ing 3.3% per year over the past five years.”

The pric­ing struc­ture for or­phan drugs makes them vi­able sources of in­vest­ment. “Drugs for rare dis­eases can se­cure higher prices to the lim­ited size of the pa­tient pop­u­la­tion; there are fewer, if any, com­peti­tors; and there is a high level of un­met need,” ac­cord­ing to a 2012 Thom­son Reuters re­search report.

The pop­u­la­tion for Fer­riprox, a treat­ment for iron over­load in pa­tients with a ge­netic dis­or­der that causes ane­mia, is fewer than 300 pa­tients, an ApoPharma spokes­woman said. The drug costs about $12,000 per month.

“To be able to re­coup our costs of devel­op­ment, it was nec­es­sary to charge a higher price than would be charged for a med­i­ca­tion to treat a com­mon disease,” she said. “How­ever, in the in­ter­est of keep­ing costs down, the price charged is about the same as that for Ex­jade, the other oral iron chela­tor.”

Dr. John Santa, di­rec­tor of Con­sumer Re­ports Health Rat­ings Cen­ter, said the in­dus­try should be part of the so­lu­tion to high prices, in­clud­ing pro­vid­ing more “clear-cut ev­i­dence” about a drug’s ben­e­fits and risks. “This is really test­ing the trans­parency and cred­i­bil­ity of the health­care process.”

Ver­tex ex­ecs Fred Van Goor, right, and Paul Neg­ulescu helped de­velop Ka­ly­deco.

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