May 8, 2015
Cost-Effectiveness and Affordability of New Medicines (1)
There were 5,408 medicines in clinical development globally in December 2011, many of which were being developed for multiple indications (PhRMA, the Pharmaceutical Research and Manufacturers of America; http://www.phrma.org/pipeline). It is possible that up to 1,000 of these medicines will eventually be approved – based on approval rates of 50% for those in Phase 3, 20% for Phase 2 and 10% for Phase 1 (my estimates).
Can individuals, healthcare payers and society in general afford to pay for all of the new diagnostics, drugs and medical procedures?
New medicines are priced ‘as high as the market will bear’ – this is the universal pricing model for all industries and the pharmaceutical industry should not be any different. However, in most retail and industrial markets, the markets will ask questions and push back on price increases, including assessing the purchase of alternative items. Until about 15 years ago, there was very little resistance from the payers on new drug prices. Two of the countries which refused to blindly accept new drug prices and established review processes were Germany and the U.K. In Germany, insurers follow the assessments of new drugs by the Institute for Quality and Efficiency in Health Care (IQWiG). Like Britain’s National Institute for Health and Clinical Excellence (NICE), Germany’s IQWiG looks at the benefit of using a new drug versus the current standard(s) of care.
There are four questions which need to be addressed.
The first determination of effectiveness is by the drug approval agencies – does the drug have a statistically significant benefit over the standard of care used in the controlled Phase 3 clinical trials. Three major variables in designing Phase 3 clinical trials must be assessed.
Physicians, not the FDA, determine whether a new drug has a clinically significant benefit when used as an alternative to or in combination with the standard of care. They make this determination based on their clinical experience and the clinical data on the new drug. The conclusions they reach are expressed through their prescribing patterns.
Physicians decide on the treatment for each of their unique patients but they get help from groups which create clinical guidelines and run real-life clinical trials, such as the following two cancer-focused organizations.
The FDA does not govern the prescribing practices of physicians. Physicians are governed by their professional regulatory bodies, at the provincial level in Canada and the state level in the U.S.. Physicians want to keep the ability to treat a patient using the diagnostic tests and drugs which they believe will give the best clinical outcome regardless of the cost. Those last four words were not a problem before the arrival of the first blockbuster drugs in the 1980s. There was some concern when the cancer drug paclitaxel was approved in 1992 with an annual treatment cost of about US$10,000. There is now a major concern when virtually every new cancer drug carries an annual price tag of about US$100,000.
In the next blog, we will assess the last two questions and look at the cost-effectiveness and affordability of new medicines.
[The author and his immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]