Drug Prices and Value: Finding Middle Ground

A Conversation With Hagop M. Kantarjian, MD

Get Permission

The advent of targeted therapies along with complex personalized treatment regimens has added many effective tools to the oncology armamentarium. But progress has a price tag. Although the oncology community needs new drugs, there is growing concern that the price of many newer compounds is untenable, for patients and the health-care system at large.

Hagop M. Kantarjian, MD

Hagop M. Kantarjian, MD

To shed light on this issue, The ASCO Post recently spoke with Hagop M. ­Kantarjian, MD, Chairman of the Leukemia Department at The University of Texas MD Anderson Cancer Center, Houston. Along with being an internationally recognized leukemia expert, Dr. Kantarjian has studied and published on the issue of drug prices and value.

Hatch-Waxman Act

Drug pricing is not a new issue. In 1984, Congress passed a bill known as the Hatch-Waxman Act, which, among other things, sought to balance the interests of patent companies while introducing more generic drugs into the market. Did it work?

Originally, as it was conceived, it was a powerful force in leveling out the generic and brand markets. Prior to the Act, generics accounted for less than 20% of U.S. drugs; today the figure is about 85%. This has a substantial cost-savings effect. Studies estimate that generic drugs have saved our health-care system about $1.5 trillion from 2004 to 2013.

The Act outlines the process for generic manufacturers to file what is called an abbreviated new drug application (ANDA) when seeking U.S. Food and Drug Administration (FDA) approval for a generic drug. Congress has encouraged companies to launch patent challenges by granting a 180-day period of marketing exclusivity to the first generic competitor of a brand-name drug, which is known as a “first-filer.” During that 180-day period, no other generic company can receive FDA approval to sell its product. However, this marketing exclusivity period does not prevent brand-name companies from introducing their own authorized generic versions.

Patent Challenges

Besides adding more litigation to an already highly litigated system, what do these patent challenges accomplish?

Given the questionable validity of many patents, these challenges become a very important way to make the system more equitable. One study found that 89% of litigated patents that have been settled are categorized as “secondary patents,” which cover ancillary aspects of drug innovation rather than the active ingredient.

Brand companies win only 32% of cases involving secondary patents. Not surprisingly, they win about 92% of cases involving active-ingredient patents.

Current Impact

Where are we now in the issue of generic drugs in regard to lowering costs?

First, high cancer drug prices have become a major concern both for the system and for individual patients, many of whom are faced with out-of-pocket expenses that they simply can’t afford. Very high drug prices cause an array of financial and emotional distress. Treatment abandonment due to costs is also a problem for cancer patients.

Drug prices are directly influenced by the availability and affordability of generics. However, certain pharmaceutical companies have engaged strategies that have subverted the original intent of the Hatch-Waxman Act. There are complex intersections of patent, antitrust, and state laws that allow for the extension of patented drugs and delay the availability of generic drugs. And there are other factors in this complicated drug-to-patient dynamic that keep the price of drugs at the highest level the market will bear.

Delaying Generic Availability

Please share a few factors that slow the introduction of generic drugs into the market.

One of the most common ways to delay a generic form of a drug entering the market is the “pay-for-delay” agreement, by which a brand-name drug company pays a would-be competitor to delay selling a generic version of the drug. Without any competition, the brand-name company can continue demanding high prices for its drug. According to data from the Federal Trade Commission (FTC), pay-for-delay settlements cost our health-care system—taxpayers, insurance companies, and consumers—about $3.5 billion per year.

There are complex intersections of patent, antitrust, and state laws that allow for the extension of patented drugs and delay the availability of generic drugs. And there are other factors in this complicated drug-to-patient dynamic that keep the price of drugs at the highest level the market will bear.
— Hagop M. Kantarjian, MD

Another pricing strategy is called “authorized generics,” whereby drugs manufactured by brand companies or in collaboration with other companies are subsequently marketed under a different label at generic prices. The patent companies either produce their own authorized generics or provide intellectual property to generic companies to allow them to enter the market earlier than others.

As interpreted by the courts, the Hatch-Waxman Act allows brand companies to produce their own authorized generic versions during the first-filing generic’s 180-day exclusivity period. Brand companies can wield authorized generic creation as a leveraging tool, since the introduction of authorized generic competition reduces generic first-filer revenues by 40% to 50% during the 6-month exclusivity period and by 50% to 60% in the subsequent 30-month period.

Can you give the readers an example of a drug that has profited from this tactic?

Probably the best example is imatinib (Gleevec), which is a remarkable drug that can give a chronic myeloid leukemia patient a full life expectancy. When generic imatinib entered the U.S. market in February 2016, it was priced at about $140,000 per year. Generic imatinib is available in Canada for $8,800 per year, and Gleevec, for $38,000 per year. In the United States, Gleevec cost about $146,000 per year. So, in fact, the generic price wasn’t a true generic price but a price similar to the patented drug price.

Moreover, 12 additional months (of higher market prices) were added beyond the drug’s patent expiration date. It boils down to 6 months of generic drug entry delay and an additional 6 months of market dominance by both companies.

There’s another strategy commonly known as “product hopping,” also referred to as “forced switching,” which involves a brand-name company switching the market for a drug prior to its patent expiration date, to a reformulated version that has a later-expiring patent but that offers little or no therapeutic advantage. The new version may be a slightly different tablet or capsule dose or a slow-release formulation. Then, before facing generic competition, a brand-name company can withdraw its original drug, forcing a switch to the reformulated brand drug, enabling the branded company to keep its market exclusivity, and preventing consumers from obtaining the benefits of generic competition. 

Drug Importation

We know that drugs can be acquired cheaply overseas. One argument against drug importation is that the lack of quality control in other countries would pose a danger to U.S. patients. How do you respond to that reasoning?

The price of identical brand name drugs around the world can be as low as 20% to 50% of the price in the United States. Generic drugs can also become available earlier outside the United States. For example, there are now more than 18 generic versions of imatinib available worldwide, including 3 in Canada since 2013.

The price of generic imatinib in Ontario cannot be greater than 25% of the patent drug price by Canadian law, which, as I mentioned earlier, is only $8,800 per year. In India, imatinib costs about $400 per year. As far as the argument about quality control and safety, there are no data that back that up.

Drug Development

It costs in excess of a billion dollars, in many cases, to bring a new cancer drug through the pipeline into the market. How much of that cost is reflected in the ultimate pricing?

Bringing a new cancer drug to market is a long and costly process, but using that experience as a pricing model really isn’t fair. For instance, the United States and New Zealand are the only countries in the world that allow direct-to-consumer television advertising of prescription medications. In 2012, $3.5 billion was invested in the United States in pharmaceutical marketing, and 9 of 10 large pharmaceutical companies spend much more on marketing than on research and development.

Finding Solutions

You’ve identified the problems. Please share some possible solutions.

First off, patients and providers should be aware of the strategies outlined in this discussion and advocate for measures to lower prices. We could allow Medicare to negotiate drug prices, like the Veterans Administration does. We should also monitor and penalize pay-for-delay strategies that are anticompetitive and allow importation of drugs for personal use.

In addition, we could establish reasonable price boundaries for generics, as is done in Canada. For example, a highest generic price might be no greater than 50% during the 6-month exclusivity period of the first generic and no greater than 10% to 20% of the patent drug in general.

Among other straightforward measures, we could reduce or eliminate television advertising of prescription drugs. ■

Disclosure: Dr. Kantarjian reported no potential conflicts of interest.