Oh, the Prices We Pay, Reloaded - Celgene Balks at Explaining High Price of Thalidomide

A brief article on Bloomberg.com implied that Celgene has been fighting efforts by the Canadian Patented Medicine Prices Review Board to get pricing data about the drug Thalidomid (thalidomide):

Celgene Corp., the biotechnology company specializing in blood-cancer medicines, will get a hearing before Canada’s highest court over the country’s demands to provide pricing information for the drug Thalomid.

The Supreme Court of Canada today agreed to hear Celgene’s appeal of a Federal Court of Appeal ruling that said Canada’s Patented Medicine Prices Review Board was entitled to information about the pricing of the drug. The high court gave no reason for its decision.

Celgene’s two top-selling drugs are Revlimid and Thalomid, for a form of blood-cancer called multiple myeloma. They brought in more than 80 percent of the company’s total $2.25 billion in 2008 revenue.

It should be no surprise that Celgene may be sensitive about the price of Thalidomid. We posted back in 2005 about the stratospheric prices of new drugs that seemed disproportionate to manufacturing and development costs on one hand, and the value of the drugs for patients on the other. We noted that thalidomide, a very old drug that notoriously was found to cause birth defects when it was given to pregnant women, but that then showed promise as an anti-cancer drug, was being marketed in the US for $29 per capsule (approximately $25,000 a year), while a generic form sold in Brazil for $0.07 per capsule.
 
The amount Celgene manages to make from this very old (and demonstrably cheap to produce) molecule is vivid, albeit anecdotal evidence about what has gone wrong with health care prices in the US.  Despite health care insurance companies' protestations that their goal is to provide reasonably priced health care, they seem utterly incapable of negotiating down the prices of even the most obviously over-priced drugs.  And the US government Medicare program so far is prohibited by law from negotiating prices.  How our supposed free market health care system has tilted so far in favor of pharmaceuticals is a reason to wonder, but ought to be reason to investigate. 
 
Meanwhile, Celgene's 2010 annual report shows that the company has sold more than $400 million worth of Thalidomid yearly since 2007. The company's total sales in 2009 were $2.567 billion, while it spent $795 million on research and development, and $754 million on general, sales, and administrative expenses. According to the company's 2009 proxy statement, in 2008 its CEO received over $8.5 million, its COO over $5.1 million, its CFO over $2.1 million in compensation, and a senior vice president over $3.0 million. The total compensation of its five highest-paid hired managers (compare to a total of 2813 full-time employees in 2009), approximately $20.5 million 2008, was was approximately 2.6% of the company's net income in 2009, and just under 1% of its total sales.
 
As we have said previously, so the health care bubble continues to inflate.  One cause is"compensation madness," including "insiders hijacking established institutions for their personal benefit."  Another is the amazing acquiescence of those who pay bills at all levels, from the individuals who ultimately fund health care through salary dollars not earned, health insurance premiums, co-pays and the like, and tax payments, through the health care insurers and government agencies who did not balk at paying $25,000 a year for thalidomide in 2005.  If we really want to provide accessible health care of good quality and a reasonable cost, we will need to develop mechanisms to pay more reasonable amounts for health care goods and services. This will require some courage facing down the corporate and organizational insiders who have made themselves very rich from the current craziness.

Post Title → Oh, the Prices We Pay, Reloaded - Celgene Balks at Explaining High Price of Thalidomide

More Air Into the Health Care Bubble: the $30,000 a Month Cancer Drug

Over four years ago, we posted about the stratospheric prices of new drugs that seemed disproportionate to manufacturing and development costs on one hand, and the value of the drugs for patients on the other.  For example, back then we noted that thalidomide, a very old drug that notoriously was found to cause birth defects when it was given to preganant women, but that then showed promise as an anti-cancer drug, was being marketed in the US for $29 per capsule (approximately $25,000 a year), while a generic form sold in Brazil for $0.07 per capsule.

That was then, and this is now.  This week, the New York Times reported on a $30,000+  per month cancer drug. 

A newly approved chemotherapy drug will cost about $30,000 a month, a sign that the prices of cancer medicines are continuing to rise despite growing concern about health care costs.

The price of the new drug, called Folotyn, is at least triple that of other drugs that critics have said are too expensive for the benefits they offer to patients. The colon cancer drug Erbitux, for instance, costs $10,000 a month and the drug Avastin about $8,800 when used to treat lung cancer.

So what could be the rationale for this breathtaking price?

Drug Effectiveness

Could it be that the drug is extremely effective? Not according to the NY Times:

Folotyn has not yet shown an effect on longevity. In the clinical trial that led to approval of the drug, 27 percent of the 109 patients experienced a reduction in tumor size. The reductions lasted a median of 9.4 months.

But considering all the patients in the trial, only 12 percent had a reduction in tumor size that lasted for more than 14 weeks. The trial did not compare Folotyn to another drug or a placebo

A PubMed search revealed no sign that this trial had been publsiehd, and no publications reporting any controlled trials of this drug.

So at best, this drug at best may temporarily shrink tumors, although that assertion is based on evidence that has not yet been published or subject to peer-review. It does not seem that the tremendous price of the drug could be justified by tremendous benefits to patients.

Research, Development and Manufacturing

So, perhaps the drug was very difficult and expensive to create, manufacture and develop?  That does not seem to be the case, either.

Folotyn's generic name is pralatrexate. As the name suggests, it is a chemical compound very similar to the much older anti-cancer drug methotrexate. [See O'Connor OA. Pralatrexate: an emerging new agent with activity in T-cell lymphoma. Curr Opin Oncol 2006; 18: 591-597.]  It was first developed not by Allos Therapeutics, but by Memorial Sloan-Kettering Cancer Center, Southern Research Institute, and Stanford Research Institute.  The Allos Therapeutics 2008 annual report noted that the company's total research and development expenses for the drug from 1992 through 2008 were $26.8 million (so much for the urban myth that the average drug costs $1 billion to develop.)  Based on the estimate that the drug would cost roughly $30,000/ month from the NY Times, the company could recover all the development costs of this drug after 893 patient-months of use.

Allos Therapeutics does not actually make pralotrexate, but outsources its production, according to the company's .  The firm's total yearly manufacturing costs (for several experimental drugs as well as pralotrexate) in 2008 were $6.7 million.

So it does not seem that the tremendous price of the drug could be attributed to the costs of discovering, developing, or manufacturing it.

So where would the money go?

General and Administrative Costs, Executive and Board Compensation

Allos Therapeutics seems to spend a disproportionate amount of money on marketing, general and administrative costs.  According to the 2008 report, "marketing, general and administrative expenses include costs for pre-marketing activities, corporate development, executive administration, corporate offices and related infrastructure."  In 2008, these expenses were $23 million, in one year, almost as much as the company spent over 16 years to research and develop Folotyn.

Allos Therapeutics has enriched its corporate insiders.  According to the company's 2009 proxy statement, in 2008, CEO Paul L Berns received $2,091,600 in total compensation; Chief Commercial Officer James V Caruso received $1,259,700; and Chief Medical Officer Pablo J Cagnoni received $1,408,700.  The total compensation of the five highest paid executives of the company in 2008, $5,945,500, was over 10% of the entire company's budget, $53,639,000. 

Mr Berns, who has only been with the company since 2006, owned 994,606 shares or equivalent (at a price of $6.62 per share on 4 December, 2009, worth $6,584,292).  Mr Caruso owned 272,072 shares or equivalent,and Dr Cagnoni owned 386,245.   Although two board members, Stewart Hen and Jonathan S Leff seemed to be serving by virtue of their positions with Warburg Pincus & Co, whose Private Equity VIII LP owns over 29% of Allos Therapeutics stock, Mr Hen and Mr Leff received $120,700 and $119,400 to sit on the board.

These amounts should be considered in light of the fact that the company is comparatively tiny.  Its 2008 report disclosed that it only has 81 full-time employees, of whom fully 31 "are involved in marketing, corporate development, finance, administration, and operations."  The company has never made money.  Its 2008 report noted losses of over $20 million a year in the past five years, and a total loss of over $289 million.

So one wonders if the real reason pralatrexate was priced so high was to justify the millions that top company leaders have reaped from a company that lost money over the 16 years?

Summary

The NY Times reported that people outside of Allos were not pleased with the price of Folotyn:

Dr. Lee N. Newcomer, senior vice president for oncology at the big insurer UnitedHealthcare, called the price of Folotyn 'unconscionable.' He said that Folotyn alone would cost as much as UnitedHealthcare now typically spends in total to treat a lymphoma patient from diagnosis until death. That median expenditure now, he said, is $87,000 for a little over a year of treatments.

But Dr. Newcomer said insurers would be obligated to pay for Folotyn because there were no alternatives.

Furthermore,

'This drug is not a home run,' Dr. Brad S. Kahl, a lymphoma specialist at the University of Wisconsin, said during a meeting of an advisory committee to the F.D.A. on Sept. 2. 'It’s not even a double. It’s a single.'

Saying that even a single was helpful, Dr. Kahl was part of a majority on the panel that recommended approval of the drug, 10 to 4.

But after recently learning what Allos planned to charge for Folotyn, Dr. Kahl said he was 'disappointed' by the 'excessive' price.

'It dampens my enthusiasm for using that drug,' he said. 'It creates these huge ethical quandaries about trying a drug that has a modest benefit for the average patient at enormous expense.'

So the health care bubble continues to inflate.  I suggest that the case of the ridiculous pricing of Folotyn shows how this bubble is in part generated by "compensation madness," not only "insiders hijacking established institutions for their personal benefit," but also insiders able to become rich at the expense of even tiny, money-losing corporations.   But the bubble is also generated by the amazing acquiescence of those who pay bills at all levels, form the individuals who ultimately fund health care through salary dollars not earned, health insurance premiums, co-pays and the like, and tax payments, through the health care insurers and government agencies who did not balk at paying $25,000 a year for thalidomide in 2005, and seemingly will not balk at paying $30,000+ a year for pralatrexate in 2009.

If we really want to provide accessible health care of good quality and a reasonable cost, we will need to develop mechanisms to pay more reasonable amounts for health care goods and services.  This will require some courage facing down the corporate and organizational insiders who have made themselves very rich from the current craziness. 

NOTE (21 December, 2009) - See also comments on the Postscript blog.

Post Title → More Air Into the Health Care Bubble: the $30,000 a Month Cancer Drug

Oh, The Prices We Pay: Thalidomide for Cancer

The New York Times recently reported on the high prices paid for drugs to treat cancer, notably the newer "targeted therapies." Some examples included:

• $54,000 per year for Avastatin, made by Genentech,
• $31,000 per year for Terceva, made by Genentech, and
• $25,000 for Thalidomid, made by Celgene.

The article shows how the prices of these drugs drastically ratcheted upwards in the 1990's, starting with Taxol, made by Bristol-Myers-Squibb, at $4,000 per year, starting in 1992, through Herceptin, made by Genentech, at $20,000 per year, in 1998, to Erbitux, at $100,000 per year, made by Bristol and ImClone Systems.
The article stated that these prices are unrelated to manufacturing costs, and simply based on what the market will bear. A biotechnology analyst, Geoffrey Porges, said, "it's sort of one of those things where everyone looks over their shoulder at everyone else, says, 'he started it, it wasn't me,' and it builds."
Of course, this raises the question of why those organizations whose goal is to control health care costs, particularly federal payers represented by the Commission for Medicare and Medicaid Services (CMS), and managed care organizations haven't been able to address this price inflation.
A notable example is Thalidomid, whose price is listed above. Thalidomid is thalidomide, a drug whose adverse effects in the 1960's lead to major reform of the US drug approval process. (For a background article on the history of thalidomide go here: Rouhi M. Thalidomide. Chemical and Engineering News, June 20, 2005. ) "Chemie Grünenthal introduced thalidomide--under the brand name Contergan--to the German market on Oct. 1, 1957, as a sedative to treat insomnia as well as to reduce nausea associated with pregnancy." Richardson-Merrell had applied to introduce thalidomide, under the trade name Kevadon, to the US in 1960, but the application was held up by a diligent officer of the US Food and Drug Administration, because of inadequate documentation of drug safety. The drug never made it to the US market, because by 1961, there were widespread reports in Europe of babies born with severe deformities to mothers who had taken thalidomide. (For more background on the history of thalidomide, see the materials from the NIH here, and from the March of Dimes here.) Later, discoveries that thalidomide had anti-inflammatory properties lead to studies of its use in several severe diseases, including multiple myeloma.
Now, what can the possible rationale for charging $25,000 per year for the nearly 50 year old drug thalidomide for multiple myeloma, other than it is considered a new "targeted therapy?" The drug is a relatively simple molecule first sold, again firs sold almost 50 years ago. Its manufacture does not involve high technology. Celgene raised the price of thalidomide from $6.00 to $29.00 per 50 mg capsule from 1998 to 2004. The price of a 100 mg capsule in Brazil is $0.07.
So thalidomide becomes another poster child, not only for the production of serious birth defects that lead to reform of the drug approval process 40 years ago, but also for how those organizations who claim to control health care costs are willing to pay amazingly high prices for "high tech" health care interventions, even if they are just re-named low-tech interventions from the last century.

Post Title → Oh, The Prices We Pay: Thalidomide for Cancer