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Niche blockbusters: the next drug cost crisis?

Posted Aug 30 2011 9:08pm

For quite a while –especially in the 1990s and early 2000s– rising drug costs were a major driver of medical inflation. Big pharma was rolling out lots of “me too” products in existing drug classes –such as statins (e.g., Lipitor) and COX-2 inhibitors (e.g., Vioxx)– that could be prescribed widely. In a normal market, having lots of competition might drive prices down. But not in health care, where third party reimbursement and the need to obtain a doctor’s prescription subvert the usual supply and demand relationship. What we saw was doctors writing more and more prescriptions for patients who could easily have done without, and health plans reimbursing for the drugs to the tune of high hundreds to low thousands of dollars per patient per year. Those blockbuster products –like Lipitor and Vioxx– now have generic competition or have been discredited due to safety concerns and are no longer placing a serious strain on health plan budgets.

But in the past decade specialty drugs –especially biotech products– have become hot. Companies like Genzyme have proved that health plans will reimburse to the tune of $100,000 or more per patient per year for rare but serious diseases like Gaucher’s, which means a product can reach $1 billion in sales on a very small base of patients. Now the big pharma companies are latching on to this business model, charging very high prices for biotech and traditional drugs to treat a small set of patients. The Wall Street Journal ( Pfizer’s Future: The Niche Blockbuster ) describes how Xalkori (crizotinib) is being marketed for $9600 per month compared to $160 per month for Lipitor. It works on a small fraction of lung cancers, but at $115,200 per year Pfizer doesn’t have to reach many patients to rake in big revenues.

Cirotinib was basically a failed drug in that it just worked on a few people. And it’s no cure. Even the poster child for the drug described in the Journal, Linnea Duff is going off the drug because it’s stopped working for her.

There are a lot of people with rare, serious diseases or mutations. If pharma companies target them all  with $100K+/year therapies we’ll soon find that as a society we are paying a fortune for modest benefits. In the current policy environment where any mention of cost/benefit considerations leads to shrieks of “rationing” the trend toward pricey, niche drugs can continue for some time. But ultimately the business strategies of the pharmaceutical companies will lead the country to the realization that costs do in fact matter and that trade-offs must be considered.

With the right policy moves and entrepreneurial response, perhaps we can achieve the same level of benefits with lower cost, or settle as a society for less cost and less benefit. The main opportunity is to lower the cost of clinical development.

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