Express Scripts Inc. Cheers As Data Shows Drug Pricing Up 3-Fold, Even When Adjusted For Inflation, Survival

February 5, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Massive benefits provider Express Scripts Inc. may be ready to take on the pricing of cancer drugs, but some Wall Street analysts are cautioning this week that even accounting for inflation, the cost per life year has increased about 3.5 fold—-meaning that the launch prices of anticancer drugs, even when adjusted for inflation and survival benefits, have increased substantially over time.

Express Scripts has already said it will take on the pricing of cancer drugs as soon as it can, its chief medical officer told Bloomberg last month, after the company’s earlier decision to go with an exclusive and cheaper provider of hepatitis C drugs, AbbVie AbbVie (ABBV), sent that company into a bidding war with close competitor Gilead Sciences, Inc. .

“We want to be able to start influencing the [cancer] market by 2016,” CMO Steve Miller told Bloomberg. “We are accumulating all the keys to the puzzle to be able to do this.”

No matter what the cost of cancer drugs, however, analyst Mark Schoenebaum with ISI/Evercore, the net gain benefit to patients is huge, despite a four-fold increase.

“On Jan. 15, I sent a note out showing that cancer drug prices have increased 100 fold since 1965. The note also stated that since 2006, cancer drug prices have risen about four fold. Yes, these numbers are inflation adjusted,” Schoenebaum wrote in a note to investors Wednesday.

“After sending this note, I immediately received the following comment: ‘Yeah, but Mark-outcomes are so much better-I bet if you adjusted for outcomes prices would be flat or maybe even lower today,’" he said. “Turns out such data exists!”

Schoenebaum then cited data that according to a recent NBER working paper, the "cost per life year gained" of cancer drugs has also increased. “Since 1996, the cost per life year has increased about 3.5 fold. This compares to the rise in inflation adjusted cancer drug prices in the same period of four fold,” he wrote. “The paper defines price per life year gained as: "the price per treatment episode (in 2013 dollars) divided by survival benefits."

Based on the data below in the chart, the paper claims: "A regression of the price per life year gained on approval year indicates that benefit- and inflation-adjusted launch prices increased by $8,500 per year. Put another way, in 1995 patients and their insurers paid $54,100 for a year of life. A decade later, 2005, they paid $139,100 for the same benefit. By 2013, they paid $207,000…Our empirical results suggest that the launch prices of anticancer drugs, even when adjusted for inflation and survival benefits, have increased substantially over time."

As such, drug companies will likely have an uphill battle on their hands. Although Express Scripts has a massive reach across many programs, including some of the world’s largest prison systems, it usually does not control payments for injected or infused cancer drugs that doctors administer to patients.

Instead, Miller told Bloomberg the company is hoping to change that model by targeting more immunotherapy drugs, which are patient administered and can sometimes cost upward of $150,000. Many of those blockbusters are produced by two specific companies, Merck & Co. (MRK) and Bristol-Myers Squibb Company (BMY), which declined to comment Thursday.

St. Louis-based Express Scripts started the price war between dueling hepatitis C drugs in October when it said it would change its standard formula to a new, cheaper AbbVie instead of choosing Gilead Science’s pricey Harvoni or Sovaldi treatments. But Miller said Thursday that taking on cancer treatment will be a more difficult process, but one it will attempt to navigate nevertheless.

“We are going to have to walk gingerly, but make no mistake we are on that walk,” he said.

Miller’s comment don’t come without precedent. Express Scripts Chief Executive George Paz told the audience of a panel at the J.P. Morgan Healthcare conference in San Francisco last week that what worked for bringing down prices for liver disease might also work to rein in the cost of cancer drugs.

"The big opportunity out there is really in cancer," Paz said. "If we can get out in front of that, that is a huge opportunity."

Paz also took aim at companies that charge sky-high rates for drugs that are essentially a cure, such as Gilead’s hepatitis drugs Harvoni and Sovaldi. Express Scripts has pointed out that many public health programs like Medicaid and state prison systems currently foot the bill for the $94,500 price tag of Sovaldi, which has a cure rate of around 90 percent.

"Everyone's got to make money, but how much?" said Paz at the time.