A Cancer Drug's Big Price Rise Is Cause for Concern
By ALEX BERENSON
Published: March 12, 2006
On Feb. 3, Joyce Elkins filled a prescription for a two-week supply of nitrogen mustard, a decades-old cancer drug used to treat a rare form of lymphoma. The cost was $77.50.
Jeffrey Malavasic, 58, says that now that his cancer ointment is more expensive, he will use less of it.
On Feb. 17, Ms. Elkins, a 64-year-old retiree who lives in Georgetown, Tex., returned to her pharmacy for a refill. This time, following a huge increase in the wholesale price of the drug, the cost was $548.01.
Ms. Elkins's insurance does not cover nitrogen mustard, which she must take for at least the next six months at a cost that will now total nearly $7,000. She and her husband, who works for the Texas Department of Transportation, are paying for the medicine by spending less on utilities and food, she said.
The medicine, also known as Mustargen, was developed more than 60 years ago and is among the oldest chemotherapy drugs. For decades, it has been blended into an ointment by pharmacists and used as a topical treatment for a cancer called cutaneous T-cell lymphoma, a form of cancer that mainly affects the skin.
Last August, Merck, which makes Mustargen, sold the rights to manufacture and market it and Cosmegen, another cancer drug, to Ovation Pharmaceuticals, a six-year-old company in Deerfield, Ill., that buys slow-selling medicines from big pharmaceutical companies.
The two drugs are used by fewer than 5,000 patients a year and had combined sales of about $1 million in 2004.
Now Ovation has raised the wholesale price of Mustargen roughly tenfold and that of Cosmegen even more, according to several pharmacists and patients.
Sean Nolan, vice president of commercial development for Ovation, said that the price increases were needed to invest in manufacturing facilities for the drugs. He said the company was petitioning insurers to obtain coverage for patients.
The increase has stunned doctors, who say it starkly illustrates two trends in the pharmaceutical industry: the soaring price of cancer medicines and the tendency for those prices to have little relation to the cost of developing or making the drugs.
Genentech, for example, has indicated it will effectively double the price of its colon cancer drug Avastin, to about $100,000, when Avastin's use is expanded to breast and lung cancer patients. As with Avastin, nothing about nitrogen mustard is changing but the price.
The increases have caused doctors to question Ovation's motive — and left lymphoma patients wondering how they will afford Mustargen, which is sometimes not covered by insurance, because the drug's label does not indicate that it can be used as an ointment. When given intravenously to treat Hodgkin's disease, its other primary use, the drug is generally covered by insurance.
"Nitrogen mustard has been around forever," said Dr. Len Lichtenfeld, the deputy chief medical officer of the American Cancer Society. "There's nothing that I am aware of in the treatment environment that would explain an increase in the cost of the drug."
Dr. David H. Johnson, a Vanderbilt University oncologist who is a former president of the American Society of Clinical Oncology, said he had contacted Ovation to ask its reasons for raising Mustargen's price.
"I'd like to have some evidence from them that it actually costs them X amount, so that the pricing makes sense," Dr. Johnson said.
"It's unfortunate that a price adjustment had to occur," Mr. Nolan said. "Investment had not been made in these products for years."
Ovation, a privately held company, also needs the money to conduct research on several new drugs for rare diseases, Mr. Nolan said.
He acknowledged that Merck still made Mustargen and Cosmegen, an antibiotic that is used to treat a rare childhood kidney cancer, for Ovation. He said he was not sure when Ovation would begin producing the drugs, and a Merck spokesman said that Merck would continue to provide the drugs to Ovation as long as necessary.
But people who analyze drug pricing say they see the Mustargen situation as emblematic of an industry trend of basing drug prices on something other than the underlying costs. After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices.
Last year, in his book "A Call to Action," Henry A. McKinnell, the chairman of Pfizer, the world's largest drug company, wrote that drug prices were not driven by research spending or production costs.
"A number of factors go into the mix" of pricing, he wrote. "Those factors consider cost of business, competition, patent status, anticipated volume, and, most important, our estimation of the income generated by sales of the product."
In some drug categories, such as cholesterol-lowering treatments, many drugs compete, keeping prices relatively low. But when a medicine does not have a good substitute, its maker can charge almost any price. In 2003, Abbott Laboratories raised the price of Norvir, an AIDS drug introduced in 1996, from $54 to $265 a month. AIDS groups protested, but Abbott refused to rescind the increase.
And once a company sets a price, government agencies, private insurers and patients have little choice but to pay it. The Food & Drug Administration does not regulate prices, and Medicare is banned from considering price in deciding whether to cover treatments.
While private insurers can negotiate prices, they have limited leeway to exclude drugs from coverage based on price, said C. Lee Blansett, a partner at DaVinci Healthcare Partners, which works with drug makers on pricing and marketing.
"Price is simply not included in whether or not to cover a drug," Mr. Blansett said.
The result has been soaring prices for some drug classes, notably cancer treatments. In 1992, Bristol-Myers Squibb faced protests for its plans to charge $4,000 a year for Taxol, a breast cancer treatment.
Now, most new cancer treatments are priced at $25,000 to $50,000 annually. In some cases, companies are pushing through substantial price increases on already-expensive drugs.
Last year, Genentech raised the price of Tarceva, a lung-cancer drug, by about 30 percent, to $32,000 for a year's treatment.
In an interview last month, Dr. Susan Desmond-Hellmann, the president of product development for Genentech, said that the company had raised Tarceva's price because the drug works better than Genentech had anticipated.
"Tarceva was a more powerful and more active agent than what we understood at the time of launch, and so more valuable," she said. In an environment of soaring cancer drug costs, Mustargen's previous price was a comparative bargain, giving Ovation the opportunity to raise it substantially, said Dr. Richard Hoppe, a professor of radiation oncology at Stanford University and an expert in treating cutaneous lymphoma.
Mustargen's patent protection expired many years ago, so any company can make it. But because its sales are tiny, no drug maker has invested in a generic version.
"There's only one company that makes the drug, and they can decide what it's worth," Dr. Hoppe said.
Nitrogen mustard was initially tested as a chemical weapon. Its properties as an anti-cancer agent were discovered more than 60 years ago; today, it has been superseded by newer, less toxic medicines, and it is a niche product, with sales of only $546,000 in 2004, according to IMS Health, a market research firm.
Still, Dr. Hoppe and other oncologists call nitrogen mustard an effective treatment for cutaneous lymphoma, which initially appears as a rash but can turn deadly if it spreads inside the body. Some patients need only tiny amounts of the ointment, but others must apply it every day across large areas of their bodies.
For instance, Ms. Elkins has a severe case of lymphoma and must cover much of her body with Mustargen each day, a process that requires her to refill her prescription every two weeks. She said that the ointment was working, so she and her husband would find a way to pay for it.
Mr. Nolan of Ovation said that his company intended to work to improve access to insurance coverage for Mustargen. But Ovation has just begun to petition insurers to cover the drug. Meanwhile, patients are paying Mustargen's new, higher price out of pocket.
This is not the first time that Ovation has sharply raised the price of a drug it owns. In 2003, the company bought Panhematin, a treatment for a rare enzymatic disease called porphyria, from Abbott Laboratories. While Abbott still produces Panhematin, Ovation raised Panhematin's price, which had been $230 a dose, to $1,900, according to Desiree Lyon, executive director of the American Porphyria Foundation.
"It was a major increase," Ms. Lyon said. But she said that Ovation had worked to improve insurance coverage for Panhematin and to find ways for patients to get the drug even if they could not afford it.
Ovation also financially supports the porphyria foundation in its efforts to increase awareness of the disease and of Panhematin as a treatment, she said.
But many patients who rely on expensive drugs are stuck in a bind. Don Schare of Saratoga, Calif., said he paid $1,260 last month for 200 grams of nitrogen mustard cream, about 10 times what he paid for his prior prescription.
Mr. Schare, 69, said he was covered by the new Medicare Part D drug program and by supplemental insurance from AARP, but that neither of his plans covered Mustargen.
Jeffrey Malavasic, 58, a retired railroad worker in Florence, Ore., said he had decided to fill only half of his Mustargen prescription when he learned of the price increase. He used the drug sparingly in the past and will be even more frugal, he said.