Cancer Drug Mark-Ups: Year Of Gleevec Costs $159 To Make But Sells For $106K

By Richard Knox

The rocketing cost of prescription drugs garners almost daily attention lately. Polls say it’s high on the list of Americans’ health care worries; presidential candidates are calling for sweeping reform; a storm erupts when one company jacks up the price of an HIV drug by 5,000 percent.

And now, research reveals the yawning gap between the price of widely used cancer drugs and their actual cost.

The true cost -- what drug makers have to spend to get those pills to your local pharmacy -- is made up of the active ingredient and other chemicals, their formulation into a pill, packaging, shipping and a profit margin.

British researchers, in a report to be delivered this weekend at a European cancer conference, say the price of five common cancer drugs is more than 600 times higher than they cost to make.

For instance, the analysis figures the true cost of a year’s supply of Gleevec (generic name imatinib), used to treat certain kinds of leukemia, at $159.

"This is a ginned-up pricing structure that isn’t a product of careful analysis. It’s not a bunch of guys in green eye-shades but a bit of dart-throwing and chutzpah."

Dr. Peter B. Bach

But the yearly price tag for Gleevec is $106,322 in the U.S. and $31,867 in the U.K. A generic version costs about $8,000 in Brazil.

“We were quite surprised just how cheap a lot of these cancer drugs really are,” pharmacologist Andrew Hill of the University of Liverpool said in an interview. “There’s a lot of scope for prices to come down.”

Hill’s team got the ingredient costs from a public data base called IndiaInfoDrive.com. The Liverpool group did the same analysis for four other drugs in the same class, called tyrosine kinase inhibitors, or TKIs. They’re used to treat lung, breast, liver, pancreas and thyroid cancer as well as leukemias. Their names are Tarceva (erlotinib), Nexavar (sorafenib), Tykerb (lapatinib) and Sprycel (dasatinib).

The true yearly cost of these four drugs ranges from $236 for Tarceva to $4,022 for Tykerb. But their U.S. sticker prices range from $78,797 to $135,679.

The analysis has implications beyond the United States. Hill says more than a million cancer patients around the world meet criteria for taking the five TKI pills. “Very few of them are being treated now,” he says, because the drugs are so expensive.

A 100-Fold Rise

And the implications stretch way beyond these specific cancer drugs. Overall prices for cancer medications have been going up at a fast clip. Dr. Peter B. Bach of Memorial Sloan Kettering Cancer Center in New York has documented a nearly 100-fold increase in cancer drug prices since 1965 after adjusting for inflation.

“The rate of rise exceeds the rise in benefits from these drugs,” Bach says. “This is a ginned-up pricing structure that isn’t a product of careful analysis. It’s not a bunch of guys in green eye-shades but a bit of dart-throwing and chutzpah. And if there’s a critical Op Ed piece or a Twitter avalanche [in response to a high price] they’ll lower it.”

Bach speaks from experience. Three years ago, he and two other colleagues announced in a New York Times Op Ed piece that Memorial Sloan Kettering would not be prescribing a new colon cancer drug because it didn’t improve outcomes despite its high price tag. The manufacturer responded by halving the price.

That’s also what happened this past week when the CEO of Turing Pharmaceuticals announced a rollback of the $750-per-pill price of a drug called Daraprim, needed by some HIV patients, following a public outcry. The pill previously cost $13.50 apiece. The company didn’t say what the new price will be.

Meanwhile, another controversy is brewing over the cost of a new class of cholesterol-lowering drugs called PCSK9 inhibitors. They can lower cholesterol levels by 60 percent, but they cost more than $14,000 a year -- far more than older so-called statin drugs taken by millions of Americans.

A Boston-based group called the Institute for Clinical and Economic Review this month published an analysis that concludes the new drugs should be priced at least 67 percent less, based on their likely benefit and the ability of insurers to absorb the potential cost.

A Systemic Solution?

But a drug-by-drug debate won’t solve the overall problem of skyrocketing prices. So there are stirrings of more systematic ways to tackle it.

The Obama administration is reportedly working on a drug price-control scheme.

Hillary Clinton, who tweeted sharp criticism of Turing Pharmaceutical’s price hike of Daraprim, last week issued a sweeping proposal to control prices. And her Democratic rival for the presidential nomination, Bernie Sanders, is hot on the issue.

Drug companies warn that regulatory action to lower prices would threaten their ability to innovate.

“We’ve spoken with Bernie Sanders’ advisers and shown him our results with HIV, hepatitis and cancer drugs,” Hill says.

But controlling drug prices promises to be a battle royal. The pharmaceutical lobby is one of Washington’s most powerful.

Drug companies warn that regulatory action to lower prices would threaten their ability to innovate and will deprive Americans of important new drugs.

Clinton’s proposal to regulate drug prices “would restrict patients’ access to medicines, result in fewer new treatments for patients, cost countless jobs across the country and could end our nation’s standing as the world leader in biomedical innovation,” the Pharmaceutical Research and Manufacturers Association says.

But even industry critics like Bach have some reservations about the way Clinton would go about medication price reform. For instance, she proposes to require drug companies to spend a certain proportion of their revenue on research and development -- a line item that now takes a backseat to sales and marketing.

Bach says Clinton’s approach buys into the industry’s argument that there should be a premium on its pricing to pay for R&D.

“Pharma uses the language of a regulated monopoly like utility companies, which argue that they need to be compensated for infrastructure costs,” Bach says. “Apple never says, ‘We charge $600 for an iPhone because of our research.’ Or Ford never says a Taurus costs X dollars because of its R&D.”

Bach also rejects the frequent industry claim that high drug prices are justified by the amount of money they potentially save in avoided hospitalization or transplants for patients who would otherwise need expensive care.

“That argument is unique to the pharmaceutical industry,” Bach says. “Can you imagine if Poland Spring priced their bottled water to include the value of avoiding cholera? Or if the price of condoms included the cost of an avoided pregnancy?”

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