New drug pricing law puts cancer drugs in the spotlight

Democrats' new drug pricing law will likely deliver a financial blow to one of the fastest-growing and most lucrative segments of the pharmaceutical industry: cancer drugs.

Why it matters: The drug industry argues that the new law will keep oncology treatments from reaching some patients who need them. But experts say the current system lets companies profit from developing drugs that yield only incremental advances — and that cancer drugs will still be valuable enough for companies to pursue.

The big picture: The dispute over how Medicare drug price negotiations affect cancer care is a microcosm of a larger debate, in which the pharmaceutical industry argues that price controls will reduce their incentive to bring new drugs to market.

• But the cancer market is unique, both in terms of its recent growth trajectory and in how drugs' uses typically evolve once they’re already on the market.

What they’re saying: Research on cancer drugs after initial approval "will be gutted by this bill," Stephen Ubl, CEO of the industry trade group Pharmaceutical Research and Manufacturers of America, wrote in an Aug. 4 letter to Congress.

• "It tells researchers that their successful post-approval research will quickly be subject to government price setting. And it virtually assures that President Biden's cancer moonshot never leaves the ground."

How it works: Cancer drugs are usually launched to target one type of cancer. Companies then do additional research once the drug is on the market to see if it is also effective against other forms of cancer, which can earn approvals for other "indications."

• The first clinical trial is generally the biggest hurdle in terms of cost and risk.
• "If you have an approved drug you may not need to start from scratch again," said Aaron Kesselheim, a professor at Harvard Medical School. "There are still trials that need to be done, but it can be a more expedited process by skipping some of the earlier parts."

State of play: Under the new law, beginning in 2026, certain older drugs without generic competition will be subject for Medicare negotiations. That means there will be a limited amount of time during which a drug company has monopoly pricing power, even if a competitor hasn’t yet materialized.

• Drug companies argue the limitation on their ability to maximize a cancer drug’s revenue will mean it may not be worth it to look for new indications of the drug.
• The Congressional Budget Office has estimated that 15 fewer drugs would be introduced to the market over a 30 year period as a result of the law. Put into context, about 1,300 drugs typically would be approved over the next 30 years under current law.

The other side: Some experts dismiss the industry's concerns as fear mongering, countering that expanding the market for a particular oncology drug will still be more than profitable enough to justify R&D costs.

• "If a supplemental indication is a big enough group of cancer patients, then it will still make financial sense to seek a label expansion to those patients," Kesselheim said.
• A special provision in the law could exempt helpful new cancer drugs from negotiation, said Rachel Sachs, a law professor and drug pricing expert at Washington University in St. Louis.
• And the law may actually encourage drugmakers to focus on more truly novel products, Sachs argued. "We may not need companies to develop another inhibitor — and so, it's the case right now that pharma isn't always choosing to invest in the spaces that are the best spaces."

By the numbers: Nearly half of the drugs in the FDA pipeline were cancer drugs as of January 2021, according to a University of Chicago white paper. The authors argue that means oncology drugs will be significantly impacted by the new law and fewer will come to market.

• ProPublica previously reported that the lead researcher, Tomas Philipson, has served as a consultant for the pharmaceutical industry.
• Cancer drugs are also making up an increasingly large portion of drug companies' revenue. Among ten large pharmaceutical companies, cancer drug revenues increased by 70% between 2010 and 2019, while revenues from other non-cancer medicines decreased by 18%, according to a study published in Cancer.

The intrigue: Research suggests that not all cancer drugs — nor all approved indications — offer the same value to patients.

• Initial indications offer a higher clinical benefit than subsequent uses, according to a study of multi-indication cancer drugs published last month in Applied Health Economics and Health Policy. However, the pool of potential patients — or the prevalence of the specific kind of cancer — was higher for the second and third indications than the first.
• The study also looked at the prices of the drugs over time in seven countries. The U.S. is the only place where prices rose over time with new indication approvals; everywhere else, they either fell or didn't change.

The bottom line: Capping the price of a new drug after a certain amount of time “certainly does decrease the incentive of a manufacturer to pursue different indications, because functionally they have significantly less revenue per unit,” said Avalere Health's Massey Whorley.

• But a decreased incentive isn’t the same as no incentive.
• "What the calculus then shifts to ... is it going to continue to allow them to fully recoup their costs of pursuing a new indication," Whorley added.

Go deeper: The search for next-generation cancer treatments