Interesting article in today's Boston Globe - when do a drug's advantages outweigh its higher cost?
digitalmass.boston.com
A drugmaker weighs the costs
By Naomi Aoki, Globe Staff, 1/16/02
The economic calculations began early. Even before studies proved the drug safe and effective, the Medicines Co. began figuring what the drug would cost to manufacture, what price the market would bear, and whether it could make a profit.
The drug, a blood thinner used in a heart procedure known as angioplasty, had the potential to be better than the standard medication, an 85-year-old generic known as heparin. Studies suggested the new drug reduced complications, such as bleeding, heart attacks, and even death.
But it would also be much more expensive - hundreds of dollars a vial instead of the roughly $10 it cost for heparin. In an age of rising health-care costs and stressed budgets, the company knew it would have to prove the drug could prevent enough complications to justify its added cost. If it didn't, no hospital could afford to buy the drug.
"It was really the grating question," said Clive Meanwell, the company's president and chief executive. "Without knowing the economics were there, we couldn't develop the drug."
A decade ago, drug makers rarely worried about the cost of their products. If a drug proved better than existing treatments, doctors and hospitals prescribed it and insurance companies paid for it. But as rising medical and prescription drug costs gave birth to managed care, drug companies found themselves increasingly under pressure to show that their drugs provided value for the money.
"Firms can no longer just develop drugs proven to be safe and effective," said Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development. "They have to demonstrate their drugs provide value for the dollar, not just that they are cost-efficient relative to other drugs but also relative to other therapies - surgery, diet, weight loss. If they can't, they can't get on formularies. And that's the death knell for many products."
The Medicines Co. bought the blood thinner, Angiomax, in 1997 from another Cambridge company, Biogen Inc., which had given up on its development. A clinical trial had showed the drug offered advantages to heparin but not enough, Biogen decided, to offset the costs of manufacturing the drug and its much higher price.
But Meanwell and others at the Medicines Co. believed that if they could lower the manufacturing costs, the rest of the economic picture would fall into place. That would allow them to charge less for the drug, which, combined with the reduction in costly complications, could make the drug competitive.
As they worked to develop a less costly manufacturing method, they also began the economic research. They polled a small group of doctors, physicians, and hospital administrators about what price the market would bear, and collected data about what angioplasties cost, what hospitals were paid, how frequently complications arose, and how much the complications cost.
Increasingly, companies have begun evaluating the economics of a drug early in the development process, weighing whether the potential medical benefits of a project justified its costs and continued development. They hire a staff of health-care economists or outside consultants to analyze the relative cost and medical benefits of their drugs.
Industrywide, drug makers now spend an estimated $300 million a year to establish that the benefits of a new drug outweigh its cost. Without such an economic justification, the drug has little chance of being stocked in hospital pharmacies or reimbursed by managed-care plans.
In the case of a hospital drug like Angiomax, the situation is particularly complex. Hospitals are paid a set fee for a procedure. For angioplasties, they are reimbursed an average of $10,000 per case. If the procedure goes smoothly, the hospital makes a modest profit. But if complications arise that require blood transfusions or longer hospital stays, the profits are quickly eroded and the procedures often cost more than the fee hospitals are paid.
Proving that Angiomax would prevent enough complications to pay for itself, however, would require evidence. After buying the drug from Biogen, the Medicines Co. put in place a plan to evaluate the drug's economic profile at the same time it tested its safety and effectiveness. The company designed clinical trials to establish head-to-head comparisons between heparin and Angiomax, providing the company with the medical data it would need to establish the real costs of both drugs.
The company's key study to gain regulatory approval showed that there were 22 percent fewer deaths among patients taking Angiomax than patients taking heparin, and 62 percent fewer incidents of severe bleeding.
Overall, 68 fewer patients per 1,000 suffered complications from Angiomax. Using that data, the company calculated that the reduced complications would save hospitals an average of $500 per patient in standard cases and $1,000 per patient in high-risk cases.
Armed with that data, the company interviewed hundreds of doctors, pharmacists, and hospital administrators, trying to establish the ideal price for Angiomax - the price at which the company could maximize revenue while offering a value to hospitals.
It eventually settled on $335 a vial. At that price, the theory was that the drug should pay for itself by lowering the overall cost of angioplasties.
The drug won regulatory approval in December 2000, reaching the market a month later. But the company knew the economic battle was just beginning. Many hospitals would want to confirm the Medicines Co.'s finding with their own studies and analyses. Hospital pharmacists had their own budgets to work within - even if the drug lowered overall hospital costs, it was bound to increase pharmaceutical expenses.
The Medicines Co. hired three full-time health-care economists to help craft and implement the marketing strategy. It developed a software program that allowed hospitals to input their own data to help estimate the real costs of using heparin vs. Angiomax. It has completed four studies that analyze the economics of Angiomax against those of heparin, two of which also factor in the economic impact of new anti-clotting drugs in angioplasties.
All of them have confirmed that at the very least, Angiomax pays for itself. By the end of last year, more than 260 of the 750 hospitals that do nearly all the nation's angioplasties had adopted Angiomax. Revenue from sales of the drug last year is expected to reach nearly $14 million and grow to between $36 million and $41 million this year, according to company forecasts.
Still, cost remains the primary issue in Angiomax sales. Dr. Jeffrey Popma, director of interventional cardiology at Brigham and Women's Hospital, said the Boston hospital uses Angiomax in roughly 10 percent to 20 percent of angioplasties, those in which patients are at a high risk of developing complications and appear to benefit most from the use of Angiomax.
But the hospital continues to evaluate whether the drug's use in a broader group of patients is the best medical and economic choice. And before that analysis is complete, he said, he would be reluctant to use the drug on a widespread basis.
"If it were free or the same price as heparin, we would probably use Angiomax in virtually all of our cases," Popma said. "But this is an appropriate drug to study. It needs to establish that it has clear medical benefits as well as clear economic benefits."
The Medicines Co. has worked with hospitals to run countless in-house studies that allow administrators to evaluate Angiomax before adding it to their formularies. And it is in the midst of what Stephanie Plent, the company's senior director of medical policy and economics, describes as "the definitive Angiomax study," a 6,000-person clinical trial designed to put to rest questions of the drug's effectiveness in angioplasties and its potential to reduce costs.
"There's no question that if you put Angiomax next to heparin, Angiomax is a better drug," said Plent. "The problem becomes, is the better drug worth the incremental cost to the hospital. If we can prove Angiomax saves money, then we have a slam dunk."
Naomi Aoki can be reached by e-mail at
naoki@globe.com.
Peter |
