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The Amount You Pay for Cancer Drugs May Double -- Here's Why

By Sean Williams - Updated Jun 19, 2017 at 8:22PM

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Cancer immunotherapies could push the price patients and insurers pay for cancer drugs through the roof.

Chances are, you need little or no reminder about how expensive prescription drug costs are these days. If you've been to the pharmacy at any point over the past couple of years, you know!

Cancer drug prices could soar

According to findings from AARP, the aggregate cost of branded, specialty, and generic drugs rose more than 170% for older Americans between 2005 and 2013. However, drug price hikes have been particularly noticeable for specialty drugs, especially cancer drugs. Per the IMS Institute for Healthcare Informatics' annual Global Oncology Trend Report, cancer drug sales could balloon to $150 billion by 2020 from just $107 billion in 2015.

Drug capsules lying atop a pile of $100 bills.

Image source: Getty Images.

How is such phenomenal growth possible? Look no further than initial drug prices for cancer therapies, along with double-digit percentage price increases thereafter. As we saw last July, the approximate annual cost of 20 newly approved cancer drugs was over $100,000 in all but three instances -- and two of those instances were due to insufficient price data. Essentially, a cancer diagnosis has come to mean a potentially six-digit annual bill for you, your family, or your insurance company.

But here's the scary aspect of cancer drug pricing: The cost to the patient and insurer could really head a lot higher. In fact, a recent article suggests they could double, or even triple, in the years to come.

Cancer immunotherapies are pushing patient and insurer costs higher

According to a recently published article from MarketWatch, which referenced an EP Vantage/Evaluate Report, the number of ongoing and completed trials involving cancer immunotherapies has quadrupled to nearly 800 from about 200 in the fall of 2015. Cancer immunotherapies are medicines that work to block the immunosuppressant quality of cancer cells, which keeps them hidden from a patient's immune system. At the same time, they can kick a cancer patient's immune system into overdrive to eradicate cancer cells.

A visualization of a cancer drug capsule knocking out a cancer cell.

Image source: Getty Images.

While these therapies have been tested as single agents, they've been shown in a number of studies to be most effective when combined with other chemotherapeutic agents -- many of which are already approved by the Food and Drug Administration (FDA). That's great news for the patient because there's hope for higher objective response rates and longer duration of stable disease.

It's also terrible news because they could be on the hook for the cost of not one, but two cancer medications. And by the looks of the data, drugmakers with immunotherapies are throwing these medicines at every type of cancer and in every combination imaginable.

As of last year, the approximate annual cost of a handful of approved immunotherapies was $150,000 for both Merck's (MRK 1.24%) Keytruda and Roche's Tecentriq, and $143,000 for Bristol-Myers Squibb's (BMY 2.33%) Opdivo. If these immunotherapies are combined with another six-figure chemotherapy agent, it could mean significant out-of-pocket costs for the consumer, and hefty costs to insurers that'll likely be passed along as higher premium costs.

The dynamics behind cancer immunotherapy pricing

One reason immunotherapies have been able to command such a high price point is that they're producing results in select clinical trials that have never been seen before.

A lab tech holding a vial of blood and making notes.

Image source: Getty Images.

For example, a recently published study in the journal Science showed that Merck's Keytruda, when tested in 86 patients with advanced pancreatic, prostate, uterus, or bone cancer who had a specific genetic mutation, provided an objective response -- defined as tumor shrinkage in any form -- in 66 of those patients, including 18 patients whose tumors completely disappeared. Researchers normally caw over response rates in the 30th percentile, but we're talking about an objective response rate of 77% here! That's unheard of, and also why the FDA recently gave Keytruda the label expansion it rightly deserved.

Cancer immunotherapy developers also benefit from the clear competitive advantages of operating and selling drugs in the United States. These include exceptionally long patent protection periods, the possibility of accelerated drug approvals and instant access to pharmacies, a lack of a universal health plan that could potentially cap drug prices, and the highest demand for pharmaceutical products in the world.

Three wildcards that could impact cancer immunotherapy pricing

However, there are three additional dynamics that could impact immunotherapy pricing moving forward. For starters, label expansion opportunities could work in favor of the consumer and insurers. It's not uncommon for drug developers to price a newly approved drug in nosebleed territory and lower their list prices once broader label expansions are approved by the FDA.

Drug developers would prefer to reach a larger audience with their medicines, but they typically lose some of their negotiating power with insurers when dealing with a larger patient pool since they don't want to price themselves off insurer formularies. But since immunotherapies are so new to market, it remains to be seen if label expansions could lead to modest price cuts as we've witnessed in other indications outside of cancer.

A doctor and patient discussing test results.

Image source: Getty Images.

Secondly, we've yet to see how successful immunotherapies will be as a group. Though there have been numerous success stories, there have also been some surprising failures, demonstrating that immunotherapies could leave the door open for competing drugs down the road. Bristol-Myers Squibb's Opdivo, which had been leaving Keytruda in the dust, face-planted in the CheckMate-026 study last year as a first-line treatment for advanced non-small cell lung cancer (NSCLC) in patients whose tumors had at least 5% PD-L1 expression.

The hazard ratio of the study actually demonstrated progression-free survival favorability toward the chemotherapy placebo, and only a 1.2-month median overall survival advantage was noted for the Opdivo arm. The more clinical failures we see of cancer immunotherapies, the greater the potential for list-price cuts.

Lastly, it remains to be seen if President Trump can hold to his campaign promise of lowering drug prices in America. Trump has repeatedly commented that drug prices are too high in the U.S., and he's suggested everything from setting up a bidding system to importing drugs from trusted foreign markets, like Canada, as a solution. Of course, this could be a far-fetched solution given the time Congress is currently devoting to healthcare and tax reform, and Republicans usually favor free-market pricing.

For the time being, it looks as if cancer drug prices are headed significantly higher, and that's bad news for consumers, both young and old.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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