Next-generation cancer drugs offer new hope to patients. Image source: Getty Images.
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The U.S. Food and Drug Administration has been a busy bee of late. Even though the drug development process of taking a molecule from discovery to the pharmacy shelf can take upwards of a decade, the FDA has approved 73 novel drugs since September 2014. Of these 73 new drugs, a whopping 20 of them are targeting cancer.
It's not hard to understand why oncology is such a hot area of research for drug developers. According to the IMS Institute for Healthcare Informatics' annual Global Oncology Trend Report, cancer-drug sales totaled $107 billion in 2015, and they're expected to climb to $150 billion by 2020. Cancer, itself, is a large unmet disease, giving both big and small players an opportunity to make a difference, as well as fund future research with the potential profits of approved drugs.
New cancer drugs are all extremely pricey
But the one factor that really stands out regarding the 20 cancer drugs approved since September 2014 is that they're essentially all extremely expensive for both the consumer and insurance companies. Here are the approximate annual costs of these 20 cancer drugs, listed in chronological order with the most recent approval first.
Table by author. Data from various news sources. Lonsurf and Lynparza did not have reliable U.S. cost data, and thus are represented as "insufficient data."
With the exception of Yondelis, a chemotherapy treatment administered to treat soft tissue sarcomas, there isn't a single cancer drug approved since September 2014 that costs less than $104,000 annually at the wholesale level. Understand that insurers are almost assuredly getting some level of gross-to-net discounts from these drugmakers off wholesale listed prices, and that patients taking these drugs may not be on them for an entire year. Life expectancies and treatment tolerability vary by cancer type and the drug being administered, so in some cases these drug costs may be more palatable than what you see above.
Nonetheless, the point is that cancer drugs are growing increasingly expensive, and the drugmakers behind these approved therapies are counting on growing pricing power to fuel additional research, as well as subsidize the entrance of these products into emerging markets and developing countries, where these products simply wouldn't be profitable.
Image source: Getty Images.
Why cancer drugs cost so much
You might be wondering what on Earth could be fueling six-digit costs for cancer drugs. Ultimately, it comes down to a number of factors.
As we looked at two summers ago, there are 10 primary reasons prescription-drug prices are so expensive in the U.S. compared with other parts of the world. These reasons included research-and-development and marketing costs; legal costs to defend intellectual property; a high standard of living in the U.S., where loftier drug prices can be expected; the lack of a universal health plan in the U.S.; and the strongest demand for pharmaceutical products in the world. All of these reasons still hold water for cancer drug developers -- but there are additional reasons, too.
Image source: Getty Images.
For example, cancer-drug developers have worked hard to create oral drugs, which allow the patient to take medication without having to head to the doctor's office. Oral medications are extremely convenient, and that convenience comes with an added price.
Another key point is that cancer-drug developers are focusing more on targeted therapies. By targeted, I mean cancer drugs that focus on a specific gene mutation, protein, or respective biomarker that can allow it to be more effective against cancer cells while reducing healthy cell death. As the personalization of medicine pushes into oncology and physicians move away from the one-size-fits-all mentality of cancer treatment from decades past, we're likely to see cancer-drug prices rise.
Cancer-drug developers also have veritable monopolies or oligopolies on many cancer indications. Long patent periods certainly help protect drug developers against facing generic competition -- in the U.S., patent protection often extends 20 years from the date the FDA approves a drug for human clinical trials -- but there just isn't much in the way of competition for cancer-drug developers, especially with many now focusing on specific subsets of patients based on biomarkers. This lack of competition creates a market that allows the manufacturer to push prices higher.
Image source: Merck.
Lastly, we're also witnessing discernable progress in better patient quality of life and overall survival for cancer patients, although the magnitude of these effects largely depends on cancer type. For example, Merck's cancer immunotherapy Keytruda, which has become a very effective treatment metastatic melanoma treatment, showed that about 40% of patients taking Keytruda were still alive at year three. By comparison, before Merck's revolutionary drug was approved, most metastatic melanoma patients failed to make it past one year. This improved quality of life and overall survival is almost certainly pushing cancer drug prices higher.
How regulators could fight back
Cancer-drug developers are essentially crossing their fingers and betting that U.S. regulators won't be able to pass legislation to control oncology-drug inflation -- and if history is any indicator, they're probably right. However, recent instances of supposed pharmaceutical price gouging, such as Valeant Pharmaceuticals with cardiovascular drugs Nitropress and Isuprel, have pushed regulators not to sweep prescription-drug reform under the rug this time. Instead, regulators are looking at three primary ways to stymie cancer-drug inflation.
First, some lawmakers have proposed allowing the federal government to use its might to negotiate drug prices for Medicare. Since older Americans are far more likely to develop cancer than younger adults, focusing on Medicare would be the most effective way of helping to control drug costs. Insurers are generally fearful about excluding cancer drugs from their formulary for fear of losing members to rival drug plans, but with Medicare having such a broad reach across the nation -- 93% of physicians and hospitals accept Medicare -- the thinking is the government could have enough leverage to negotiate better cancer-drug prices.
Image source: Getty Images.
The second idea involves instituting a value-based payment model. Instead of allowing cancer-drug developers to simply charge whatever they feel their drug is worth, a value-based model would reimburse companies based on the quality of life and overall survival benefit a drug delivers. The biggest challenge, though, is creating an accepted formula that accurately reflects quality-of-life improvements.
The final solution involves allowing the importation of overseas pharmaceutical products to increase competition. One of the seven points in Donald Trump's health-reform plan involves allowing consumers to purchase pharmaceuticals from overseas markets to save money. Allowing overseas pharmaceutical purchases would require the U.S. government to set up a system of checks to ensure that quality standards of imported drugs were being met.
But even if one or more of these solutions were implemented, there are no guarantees of success. Cancer-drug developers have levers of their own that they can pull, which include reducing R&D in rare-disease cancer types if they don't believe they can turn a profit, and potentially laying off workers and taking their business overseas to more development-friendly countries.
Simply put, the cancer-drug price debate isn't something that's going to be solved overnight, but as a consumer and investor, you should pay close attention to where the debate over pricing heads next.
The article These 20 Recently Approved Cancer Drugs Essentially Have 1 Thing in Common originally appeared on Fool.com.
Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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