Drug Sales Reel Amid Probe Into Charities -- WSJ
U.S. sales of blockbuster prostate-cancer drugs have dropped sharply since the start of a federal investigation into charities that help patients pay for these drugs, as the manufacturers have reduced donations to the charities and instead given away the medicines for free.
Drugmakers donate hundreds of millions of dollars a year to charities that help U.S. patients cover out-of-pocket costs for drugs. In turn, the drugmakers rely on the charities to effectively boost the sales of those drugs. The assistance ensures patients fill their prescriptions, and insurance pays the rest of the tab.
Every $1 million donated to charities can lead to up to $21 million in sales for drug companies, according to Citi Research. Because very few companies make prostate-cancer drugs, they tend to donate proportionally more to these charities than manufacturers of other treatments do.
Federal prosecutors in late 2015 started to investigate charities that provide financial assistance to Medicare patients, and at least six companies -- including the top two prostate-cancer drugmakers, Johnson & Johnson and Pfizer Inc. -- have received federal subpoenas seeking information about their dealings with the charities, according to securities filings.
It is unclear what the prosecutors are looking into, and the U.S. Attorney's Office in Boston, which securities filings said sent the subpoenas, declined to comment.
Donations to funds providing prostate-cancer drug assistance have fallen off since the investigation began, according to industry officials, analysts and charities.
With the foundations less able to help patients, the drug companies decided to give away more of the drugs for free. Sales of the two top-selling prostate-cancer drugs, J&J's Zytiga and Pfizer's Xtandi dropped 14% and 11% respectively in the first quarter from a year earlier.
The companies "got scared and stopped funding the cancer-assistance programs," said Sanford C. Bernstein & Co. analyst Ronny Gal. "So instead, they gave the drug for free. When you give patients [a drug] for free, it comes off your sales number."
The sales drop offers a window into a Byzantine arrangement that has drawn criticism for increasing health-care costs by keeping patients on ever-costlier medicines.
Patient-assistance charities help patients skirt some of the hurdles that insurers use to control spending: copays, coinsurance and high deductibles. Faced with the hurdles, patients who can't afford their share may seek a cheaper alternative, or not get their prescription filled at all. But once a foundation covers the patient's share, the prescription gets filled and the drug's manufacturer gets paid for the much larger balance of the cost by the patient's health plan.
Zytiga lists for $9,400 a month and Xtandi for $9,900, according to wholesale-acquisition-cost data from Truven Health Analytics. Medicare drug plans vary widely, but out-of-pocket costs for cancer drugs like Zytiga can surpass $7,000 a year, according to a 2015 Kaiser Family Foundation analysis.
For commercially insured patients, drug companies run their own foundations that assist low-income patients. But for Medicare patients, certain kinds of assistance from company-controlled foundations could run afoul of anti-kickback law that bars financial inducements in government-run programs.
Around the time that Medicare's drug benefit, known as Part D, went into effect in 2006, many independent charities began to spring up. They include the Patient Access Network Foundation, which is among the leading providers of charitable financial assistance to prostate-cancer patients.
To avoid crossing anti-kickback rules, the charities aren't supposed to use their aid to steer patients to any particular company's drug.
The eight biggest charities got more than $1.1 billion in donations mostly from drug companies in 2014 -- the latest available data -- to provide financial assistance to Medicare patients, according to Bernstein Research.
Starting in late 2015, companies including J&J, Pfizer, Biogen Inc., Celgene Corp., Gilead Sciences and Valeant Pharmaceuticals International Inc. received subpoenas or other requests for information about their relationships with these foundations, according to securities filings. Biogen, Celgene and Gilead declined to comment. Valeant said it is cooperating.
A J&J spokesman said the company donated more than $47 million to various independent charities last year to help patients get treatment "regardless of the medicine prescribed by the physician" and J&J checks to make sure the foundations comply with all laws and regulations. J&J has said federal prosecutors from Massachusetts asked for records "pertaining to payments to any" charities that provide financial assistance to Medicare patients.
Pfizer has said prosecutors asked for materials regarding the Patient Access Network Foundation and other charities.
The PAN Foundation wouldn't say whether it has also received subpoenas.
"PAN has really always prided itself as being a trustworthy and compliant organization. We put a premium on operating within guidelines, " PAN Foundation CEO Daniel Klein said.
Pfizer CEO Ian Read said during a recent earnings conference call that government scrutiny of the charities has had a temporary "chilling effect" on the availability of the assistance. He said he expects the matter to be resolved this year, and Pfizer will keep making donations to the foundations to "help ensure that patients can afford medically necessary drugs."
Among the patients who wound up getting free drugs from a manufacturer because a charity wasn't accepting applications was John Kleck.
Mr. Kleck, 75 years old, a retired elementary-school teacher living in Pittsburgh, was prescribed Zytiga in late March. He couldn't afford the $2,900 he owed out of pocket for the first month of the prescription, said Bethany Lyon, the social worker at the UPMC CancerCenter who helped him secure assistance. Ms. Lyon said she checked with the PAN Foundation and other charities and couldn't find one making grants, so she sought J&J's help.
Mr. Kleck met J&J's eligibility requirements, and the company is providing the drug free for the rest of the year.
Mr. Klein, the CEO of PAN, said the charity received $582 million in drug-company donations last year. Health-department rules bar the charity from saying which companies made the donations, he said.
Last year, the PAN Foundation gave out nearly 10,000 grants to prostate-cancer patients with incomes less than five times the federal poverty level, most of them insured by Medicare, according to Mr. Klein.
But Mr. Klein said the foundation didn't get enough donations to its prostate-cancer fund to meet demand and therefore didn't take applications during the second half of last year. After a donation early this year, the fund reopened in March until running out of money a week later, after helping 1,500 patients.
The Patient Advocate Foundation, another leading prostate-cancer charity, said it also was closed earlier this year but reopened in recent weeks. A third charity, Good Days, didn't respond to requests for comment.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com
(END) Dow Jones Newswires
June 12, 2017 02:48 ET (06:48 GMT)