January 17, 2014 / 4:36 PM / 6 years ago

Drugmakers see innovation justifying further price rises

By Deena Beasley
    SAN FRANCISCO, Jan 17 (Reuters) - As U.S. consumers are
asked to shoulder more prescription drug costs, drugmakers say
prices for brand-name medicines will keep rising, mainly because
use of their products reduces other healthcare costs.
    Switzerland-based Roche Holding AG has a growth
rate above the industry average due to its "high-quality"
products that command "better prices, with fewer price cuts,"
Chief Financial Officer, Alan Hippe said, speaking at the annual
JP Morgan Healthcare Conference in San Francisco earlier this
    As long as Roche, maker of drugs like Herceptin for breast
cancer, can prove that its new therapies work better than
existing drugs, it can maintain pricing trends, Hippe said.
    The company's leukemia drug Gazyva, priced at around $41,000
for a course of therapy, was the first to receive approval last
year under a new U.S. regulatory program for "breakthrough"
therapies that show promise in early testing. The Food and Drug
Administration launched the pathway in response to scientific
advances, especially targeted therapies designed to work for
those with certain genetic mutations.
    "A lot more people in pharma are asking the question of not
just approval, but reimbursement," said Todd Davis, managing
director at HealthCare Royalty Partners, which structures
financing deals for biotech companies tied to drug royalty
payments. "If you have another me-too product, or even worse, a
product not as good as other market alternatives, it's a tough
    But there has been sticker shock. A consortium of
influential leukemia specialists appealed last year in the
journal of the American Society of Hematology for drugmakers to
reign in "unsustainably high" costs that many patients cannot
    U.S. spending on the top 20 prescription medications rose 14
percent between 2008 and 2012, when it totaled nearly $326
billion, even as top-selling drugs like Pfizer Inc's 
cholesterol-lowering Lipitor became available as low-cost
generics, according to the latest numbers available from  market
information company IMS Health.    
    Spending on therapies for multiple sclerosis, a disease in
which the body's immune system attacks the central nervous
system, more than doubled over that period, reaching nearly $9
billion in 2012, the IMS data show.
    Drugs to treat cancer topped the list, at nearly $26 billion
in 2012, compared with spending of less than $20 billion four
years earlier.
    At the same time, health insurance plans offered by
employers as well as coverage now available under President
Barack Obama's Affordable Care Act are asking consumers to pay a
bigger share of drug costs - in the form of higher co-payments
and deductibles.
    As a result, there is more pressure than ever to prove to
governments and health insurers - which still pay for most
prescription drugs - that a particular medicine does indeed
improve health, ideally lowering overall healthcare costs by
keeping patients out of the hospital or well enough to work.
    Pharmaceutical industry executives attending the conference
this week expect that dynamic will remain in place, rewarding
them with even higher income for their best-performing products.
    The United States, with 5 percent of the world's population,
now accounts for about 35 percent of global spending on
prescription drugs.
    Roche expects that to continue "for the foreseeable future."
Other developed markets, totaling 10 percent of the world's
population, account for about 37 percent of spending. The
remaining 28 percent of drug sales are in emerging markets,
which account for 85 percent of the population.
    The United States spends more per capita on pharmaceuticals
because prices here are market based. In European countries and
many developing nations, government run health plans, rather
than drug manufacturers, set reimbursement rates.
    BioMarin Pharmaceutical Inc sells some of the most
expensive drugs for extremely rare diseases, including the
$350,000-a-year enzyme replacement therapy Naglazyme. It sees
little risk to the U.S. reimbursement landscape "if you have a
compelling clinical value proposition," according to CEO,
Jean-Jacques Bienaime.
    He said payers trim billions in spending every year when
older and more widely used drugs, like Lipitor, go generic.
"It's not like their budget is exploding," Bienaime said, noting
that U.S. spending on pharmaceuticals dropped for the first time
in 2012 from a year earlier.
    "Payers are becoming smarter," said Anne O'Riordan, global
managing director of Accenture Life Sciences. "They are asking
for more proof of efficacy outcomes."
    John Lechleiter, CEO at Eli Lilly said drugmakers
need to show that their medicines are cost effective.
    "Increasingly, with personalized medicine, we're able to be
much more precise and much more specific about which drugs may
benefit certain patients more than others," he said.
    That precision has a cost.
    Express Scripts, which manages pharmacy benefits
plans for major employers, said it is now budgeting a 10 percent
annual price increase for brand-name drugs, and 14 percent for
"specialty" products like cancer medications.
    "The bottom line is that we're not the tobacco industry,"
said George Scangos, CEO at Biogen Idec Inc, which last
year began selling a new pill for multiple sclerosis, Tecfidera,
at an annual price of $54,900. "We come to work every day to
make people healthier."
    Like many drugmakers, Biogen has assistance programs in
place to help patients cover their out-of-pocket costs for
prescription drugs.
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