Dealing with High-Priced Cancer Drugs – A Disruptive Perspective


Nov 25, 2014

A recent 60 Minutes report on the soaring cost of cancer drugs has gotten plenty of attention. While it is difficult to argue against the usefulness of drugs that can treat late stage cancers, the six-figure annual price tags that accompany many of these drugs are raising eyebrows, especially given that some of the drugs show little survival benefit with patients. With minimum oversight on how much drug companies can charge for these drugs, prices are expected to rise even higher in the future. Many now find themselves asking: “Can cancer drug prices be reined in?”

Most cancer drugs, particularly those designated to treat late-stage metastatic cancers, are priced between $5,000 and $10,000 per month, and newer drugs coming to the market are priced even higher. Despite the increasing prices, most cancer drugs have marginal clinical benefits, with some drugs only extending median life of a patient by 2-4 weeks. Moreover, some drugs are effective on just 20-30% of patients, raising even more questions on the overall benefits of these drugs.

To curb rising prices, some have suggested a variable pricing model based on how well the drug performs for specific cancer indications. Others are calling for the FDA to ease the entry of biosimilars, a form of generic drugs for many of the existing cancer therapies. While the entry of biosimilars could introduce competition to the market, and indication-based pricing could make pricing fairer, we are skeptical that these changes could take place in the foreseeable future. Instituting indication-based pricing will require well-defined performance metrics of the drugs, including the FDA’s drug approval processes. Loosening the restriction on entry of biosimilars will be met with fierce resistance from drug manufacturers.

We think the disruptive innovation framework provides more realistic and effective approaches to stabilizing cancer drug prices. The theory indicates that cancer treatment falls within “intuitive medicine,” which is defined as care for conditions that are diagnosed mostly by their symptoms, making the efficacy of treatment uncertain. On the other side of the spectrum is “precision medicine,” which is defined as treatment via precise diagnosis of diseases. Typically, intuitive medicine is more costly and inefficient than precision medicine, as precision diagnostics reduce cost and treatment time. Under these assumptions, focusing on data-driven decision-making is the best short-term solution to the rising cost of cancer drugs. The long-term solution requires additional investments in developing precision cancer diagnostics and drugs that target specific cancer markers.

Memorial Sloan Kettering’s decision to stop offering a new colorectal cancer drug, Zaltrap, based on lack of clinical benefits compared to cheaper options, may serve as an example of how the providers and patients can respond to rapidly rising cost of cancer drugs in the near term. If a new drug is more expensive than existing drugs for the same indications, but there is no superior clinical benefit, there may be little reason to offer the expensive drug to patients. Particularly if the drug is effective only for 20-30% of the disease population, the overall benefit of a higher cost drug is even less. Such informed decisions from patients and physicians could put immediate pressure on drug manufacturers, as evidenced by Sanofi’s attempt to offer different pricing for Zaltrap to Memorial Sloan’s oncologists.

The longer-term solution to the problem can be addressed by focusing our attention and research dollars on better understanding these cancers and developing precision diagnostics to identify them. The discovery of human epidermal growth factor receptor 2 (HER2) in mid 1980s dramatically changed breast cancer treatment in just over a decade after HER2 discovery. By the turn of the century, Herceptin, the drug specifically targeting the breast cancer growth factor HER2, was extending overall survival of late-stage metastatic breast cancer patients by 20-25 months, a significant improvement. We need more Herceptin-like drugs that deliver meaningful results across a large patient population.

Currently, other than a couple of cancer categories (e.g. breast, colon, and prostate), diagnostics capabilities are quite limited, often diagnosing patients only at the terminal stage of disease. More precise diagnostics can better protect patients from terminal cancers and the associated financial burden of treatment. Unfortunately, the market for these diagnostics remains unaddressed. Until these targeted diagnostics could be developed, patients and physicians can shave off significant costs of cancer treatment by carefully reviewing cost-benefits of various options. Let’s make sure that every penny we spend on cancer drugs saves patients from the disease.

Spencer researches disruptive innovation in the healthcare industry. He has over 15 years of professional experience working with U.S. and international healthcare enterprises, most recently as an equity research analyst covering medical technology companies.