May 22, 2015

Looking Inside the Biotech Black Box (Part 9)


Cost-Effectiveness and Affordability of New Medicines (2)

“Is the new drug cost-effective versus the standard of care?” will be addressed in this and the following blog.

The following two definitions are from the glossary on the NICE website (

  •  Cost-effectiveness analysis: Cost-effectiveness analysis assesses the cost of achieving a benefit by different means. The benefits are expressed in non-monetary terms related to health, such as symptom-free days, heart attacks avoided, deaths avoided or life years gained (that is, the number of years by which life is extended as a result of the intervention).Cost_Image_Part9
  •  Quality-adjusted life years (QALYs): A measure of the state of health of a person or group in which the benefits, in terms of length of life, are adjusted to reflect the quality of life. One QALY is equal to 1 year of life in perfect health. QALYs are calculated by estimating the years of life remaining for a patient following a particular treatment or intervention and weighting each year with a quality of life score (on a zero to 1 scale). It is often measured in QALY_Image_Part9terms of the person’s ability to perform the activities of daily life, freedom from pain and mental disturbance.

I first heard about QALYs 25 years ago when the first pharmaceconomic analyses were being done. I worked for the generic drug industry association from 1989 to 1992 and was involved in presentations to various provincial healthcare commissions (which were very popular at that time), provincial formulary committees and the newly created Canadian regulator PMPRB or Patented Medicine Prices Review Board ( One of the mandates of the PMPRB’s Human Drug Advisory Panel is “to make recommendations respecting the level of therapeutic improvement, primary use (where required) and the selection of drug products to be used for comparison purposes and dosage regimens for patented drug products submitted for review by the HDAP.”

If there is little or no therapeutic improvement, the analysis requires answers to only 2 questions:

  •  What costs are increased?
  •  What costs are decreased?

The cost-effectiveness of many treatments for acute medical conditions is relatively easy to assess. Let’s look at an infection treated by a family physician for which the current standard of care is antibiotic A and a potential alternative treatment uses antibiotic B. The current cost of the care would include the labor cost of healthcare professionals, the cost of any diagnostics and the cost of any therapeutics, including antibiotic A. An assessment of cost differences must look beyond the price difference between the two antibiotics and look at all cost changes, including labor and diagnostics. The effectiveness of an antibiotic would be based on the cure rate, the average time to cure and the rate of recurrence requiring further treatment. Costs are probably relatively low and most costs are incurred over a couple weeks. If the treatment is in a hospital, costs will be higher but the treatment time-frame is still relatively short.

The biggest point of contention is usually ‘the level of therapeutic improvement’, with the improvement potentially being in safety, efficacy or both.

Unless large head-to-head trials have been run, the level of therapeutic improvement becomes a marketing battle.

The first new drug in the H2-antagonist class to treat ulcers was Tagamet (cimetidine; FDA approval in 1979), followed by Zantac (ranitidine), Axid (nizatidine) and Pepcid (famotidine). Zantac was second to market but became the class leader on the basis of a great marketing campaign claiming superior safety to Tagamet but there was little proven difference in therapeutic benefit between all the drugs in this class. As generic versions of these drugs started to appear, some formularies started to pay only for the cheapest in a class of drugs deemed to be essentially therapeutically equivalent. Low dose OTC versions of these drugs are now available for treatment of indigestion and heartburn.

The next development in this therapeutic area was the approval of proton pump inhibitors (PPIs), including Losec (omeprazole), Pantoloc (pantoprazole), Prevacid (lansoprazole) and Pariet (rabeprazole). Astra launched Losec in the U.S. in 1989 and AstraZeneca followed with the single isomer version Nexium (esomeprazole) in 2001. Low dose OTC versions of some of these drugs are also now available for treatment of indigestion and heartburn.

The standard of care for peptic ulcers underwent a dramatic change when it was shown that the problem was a bacterium, Helicobacter pylori, and the infection should be treated with antibiotics. The therapy currently listed in the Ontario Drug Benefit formulary is Hp-PAC (lansoprazole, clarithromycin, amoxicillin). A searchable version of this formulary is available at

The cost-effectiveness of treatments for chronic medical conditions is much more difficult to assess and will be discussed in the next blog.

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