Bristol-Myers Squibb was the darling of Wall Street recently, with an impressive five percent increase in first-quarter revenue to $3.63 billion. Its research and development cost in that same quarter increased by only two percent to $946 million.
It is noteworthy that marketing, selling, and administrative expenses at the pharmaceutical giant decreased by four percent over the same period, with a 14 percent decrease in advertising and product promotion spending.
This remarkable boost in revenue was driven by robust sales in the company’s oncology portfolio, which includes the drugs Yervoy and Sprycel. While champagne corks were popping in the Bristol-Myers boardroom, some oncology patients were likely counting their pills and sliding precipitously into debt just for a chance at living a few more months.
Without a doubt, progress has been made in treating certain cancers; it is no longer necessarily a death sentence. But even so, most patients currently receiving cancer treatment will die of their disease.
Because the return on investment has been robust for big pharma, but not so great for patients, some oncologists have started calling for value-based pricing for cancer drugs in the United States.
Except for cancers caught in the early-stages, cancer of the testes, and certain blood cancers, most cancers remain incurable and are now chronic illnesses. The very life-threatening nature of a diagnosis exerts great pressure on both patients and physicians to use extremely expensive drugs that in many cases provide little clinical benefit. Cancer patients consider it the cost of staying alive.
According to a report in the Journal of the National Cancer Institute, 11 of the 12 cancer drugs approved in 2012 by the Food and Drug Administration cost more than $100,000 per year.
Currently, one of the most expensive cancer drugs is Bristol-Myers’ Sprycel, approved by the FDA in 2006 for treatment of chronic myeloid leukemia, a type of cancer that starts in blood-forming cells in the bone and then enters the blood stream.
The drug saw worldwide revenue increase 19 percent, or $342 million, in the last quarter. In the United States alone, a 30-day supply of Sprycel, which extends the average person’s lifetime by approximately 42 months, costs approximately $9,000. That’s an expense, averaged out, of about $215 per month for the drugs alone.
To understand why pharmaceutical companies charge so much for cancer drugs, one has to simply be reminded that they’re businesses and thus focused on revenue.
In 2013, Bristol-Myers’ net sales were $16.4 billion, with research and development expenses of only $3.7 billion. Sprycel was one of the company’s top-selling drugs—at $1.3 billion in sales—for that year.
Two years earlier, in 2011, Bristol-Myers’ was charging $120,000 for four doses of Yervoy, an FDA-approved drug for treating metastatic melanoma, or skin cancer that has left the skin and moved to other places in the body. Despite its high cost, Yervoy yielded only 3.7 more months of survival in patients previously treated with other cancer drugs and 2.1 months in patients who had never received treatment.
Because the return on investment has been robust for big pharma, but not so great for patients, some oncologists have started calling for value-based pricing for cancer drugs in the United States—and they want the government to lead the way.
To be sure, our population is aging and cancer disproportionately affects older individuals, especially those of Medicare age. Half of this demographic gets by on a fixed income, made up of Social Security, pensions, earnings, and other income sources that amounted to less than $22,500, on average, in 2012, according to The Henry J. Kaiser Family Foundation. (For blacks and Latinos, this median income was $15,250 and $13,800 respectively.) For these patients, a diagnosis of cancer that requires the treatment of expensive cancer drugs can be a death sentence.
Further complicating the discourse over the cost of cancer drugs is the fact that there is no requirement for pharmaceutical companies to show magnitude of benefit, as the FDA approves drugs based on evidence of safety and efficacy. Here, statistics often trump clinical significance. That means a pharmaceutical company can show statistically significant extension of life, even though clinically the patient lives for only a few weeks to months on that particular drug.
Many oncologists are pushed into a corner, and worry that they’ll be labeled as “killers” if they dare to tell their patients the truth: That the exorbitant drug cost—the loss of their homes, the depletion of savings, the inability to pass something on to their children or other relatives—might not be worth the return on investment.
Pharmaceutical companies are businesses, focused on money-generating innovations. Yes, they have a fiduciary duty to their shareholders to maximize profits. Certainly, no one wants to slow innovation nor temper the pharmaceutical companies’ ability to bring truly life-saving cancer drugs to market.
However, the price paid for cancer drugs should reflect their clinical impact on patient survival. While one cannot discount the high cost of drug R&D and the time and cost incurred in bringing a new treatment to market, there must be a balance between innovation/profit maximization and cost to society in terms of lives lost and rising overall health care expenses.
How can we fix the problem? Pharmaceutical companies should decrease cancer drug costs over time; most companies recoup their R & D costs within the first five years of going to market. Thereafter, the incoming revenue is almost all profit. On the government side, Congress needs to revisit the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which prohibits Medicare from directly negotiating with drug companies in order to allow for a better pricing structure.
Additionally, the federal government, through the Centers for Medicare and Medicaid Services, should consider modified use of compulsory licensing to depress drug costs among Medicare patients with limited income. Under compulsory licensing, a country grants license to a low-cost generic drug company to manufacture a drug that is still under patent protection. This strategy has been effective in addressing the high cost of AIDS therapy in developing countries.
In 2012, approximately 120 physicians from 15 countries authored a commentary in the journal Blood, calling for drug companies to lower cancer drug costs. These physicians were not against company profits, but against profiteering.
Physicians must continue to critically evaluate the cost of emerging cancer drugs against the backdrop of tangible long-term benefits, and should be willing to say, “No, we will not recommend these drugs to our patients given the marginal return on investment or marginal improvement in outcome.”
Bristol-Myers anticipates that, going forward, gross margin will be in the 75-76 percent range, and selling, general, and administrative expenses will continue to decrease. As the company plans its forward-looking strategy, patients grapple with the high costs of cancer drugs with no relief in sight.