Absolutely, if you're looking at all the drugs covered under Medicare Part D. It's happening right now with devices and with
almost everything covered under Part D that's not a pharmaceutical product. So it could be your blood test strips for diabetes.
It could be a wheelchair. It could be a bed for somebody who's at home being cared for. What the government has done is basically
put everything into reference categories—just like they've done with drugs in Germany and Spain.
The first bids happened this year. Then they'll take the average price of the winning bid and say, "That's the price that
we're going to reimburse at."
Now, somebody can choose to get a more expensive device, but they're going to have to pay for it out-of-pocket. As the baby
boomers roll into retirement and the cost of Medicare Part D skyrockets, I can certainly imagine them doing something similar
with drugs, where there's only one drug in each category and if you want any other drug, you pay the difference.
What do you think about the controversy over Avastin's pricing, specifically the decision to charge twice as much for lung
and breast cancer indications?
In this market, price has to be justified by economic value. And the economics of a drug for one indication is not necessarily
consistent with the economics for another indication. And if you realize that from the get-go, there are a number of things
you can do. You might kill one of the indications because it's not going to be economically viable. Or, you might lower the
cost per unit, either modifying the drug itself—which would be very costly—or the way we package it—which could be less costly.
Let's consider Avastin, which was first launched for colon and rectal cancer. Genentech came up with a price that was pushing
the limit but still justified from a value perspective, and that price was about $35,000 for the course of treatment. Everyone
swallowed hard, but they accepted it.
A few years later, Avastin got approved for lung and breast cancer. Researchers had tested it using dosages that are twice
as high for breast and lung cancer—the typical amount for those indications—and now a course of treatment costs $70,000. But
the benefits are no greater than they are for colon and rectal cancer. It's going to add the same three months to your life,
but you're getting charged twice as much.
Now from a value perspective, you can't tell that story. You can't explain why a month of life is worth twice as much when
you have lung cancer than when you have colon cancer. But if Genentech had thought about this in advance, there are a couple
of things it could have done.
For starters, it could have packaged a larger dose for lung and breast cancer and charged only 10 percent more. Unfortunately,
in clinical trials, you're not only testing your drug's active ingredients, but you're also testing everything—right down
to the packaging. So if you wait until the last minute to think about pricing, it's too late. If you decide you want to change
the way you've packaged the drug, you've got to go back and do more tests. However, when you have pricing and reimbursement
people involved early on—as you're designing your Phase III trials—they're able to make sure all the pieces fit together in
a commercially logical way. And, amazingly, very few companies are doing that systematically.
What's striking is that you don't bring up the argument about recouping the cost of R&D, which was almost a mantra of the
industry for the last several years.