Saturday, March 25, 2006

An Unrevealing Interview with Genentech's CEO

We have frequently posted about the high cost of drugs and devices. For example, here we noted the increasing costs of drugs, and how they seemed unrelated to costs of production or the overall benefits they provide patients. One of our examples was the more than $50,000 a year cost of Avastatin, made by Genentech.

MSNBC recently interviewed Arthur Levinson, the CEO of Genentech about this, among other questions.

The MSNBC reporter asked Levinson, "what's your response to critics who say Avastatin is too pricy?" His response:

There have been a lot of articles on the pricing of Avastin that I think are missing important points. They're focusing on the annual cost, but I prefer to put that in the context of all the priorities the government has for health care. In the last couple of months, cancer has become the leading cause of death for Americans.

About $2.5 trillion a year is spent on health care, and 12% of that is on prescriptions. Of that spending, 6% is on anti-cancer drugs. I think that's relatively modest. I told the audience today that 40% of them will get cancer and 42% of those who do will die. That's a lot of people. It's a serious disease that deserves serious efforts. It won't bankrupt the American economy.
Thus he completely evaded the question.

The reporter's next question was, "What about patients who can't afford the drug?" He responded:

We took a look at access and discovered that the vast majority of patients have insurance. So their out-of-pocket expense per month [on co-payments] averages $129. We don't think that's terribly onerous. And we have among the most generous patient assistance plans in the industry. Our view is if someone can't afford the drug, we should provide it to them. We get no credit for doing that.
This response begged the question. Even though many patients may have insurance which will currently pay for anti-cancer drugs, the cost to the insurers is real, and ultimately passed along to patients and the public. So just why is Avastatin so expensive? Is the price just what the market will bear, as we discussed in the earlier post?

Mr. Levinson, by the way, pulled down total compensation of just under $4 million and received stock options currently valued at $14.3 million in fiscal year 2005, according to Genentech's most recent proxy statement. Presumably, this high level of compensation reflects his share-holders' confidence in his ability to run the corporation. Yet he seems at a loss to explain the pricing of one his most profitable and important products.

Maybe the insurers and managed care companies who have been willing, so far, to pay more than $50,000 a year for Avastatin should pay some attention. And maybe Congress, which did not allow the Center for Medicare and Medicaid Services (CMS) to negotiate the price of drugs paid for by the new part D benefit, should pay attention as well. If there is no good rationale for pricing the drug so high, why not try to negotiate it down?

Why insurance companies and managed care organizations have not yet done a more effective job of negotiating the prices of drugs like Avastatin remains one of the great mysteries of health care. Instead, their only strategies for controlling health care costs are decreasing physicians' across the board reimbursement while simultaneously heaping ever more onerous bureaucratic requirements on physicians. These also seem to be the only cost-cutting strategies. Yet these strategies are threatening to put primary care (and other "cognitive") physicians out of business. Who will then diagnose the cancers which the expensive drugs may be used as treatments?


Anonymous said...

I have worked on pricing of new biotech therapeutics, like Avastin. I agree with your sentiments, but am not surprised by the interview.

Arthur Levinson's argument is the party line now. Pharmaceuticals point to the relatively low share of health care costs drugs are responsible for, and ask why insurers and the government are balking at paying their price (capitalizing on residual HMO backlash). This shift of blame seems to be working for them.

Patient access programs are intended to show how they, too, are concerned for the un- and under-insured. Costs for such programs (which provide free drug to those meeting certain low-income/asset requirements) are now built into a company's assessment of drug marketing/development costs, for predictions of profit and NPV. They would not implement these access programs if they impacted profit much, and certainly, there are patients who do not meet their requirements but face impossible costs related to the drug.

Insurers and MCO's have not negotiated the price of Avastin more aggressively because they feel they can't. Avastin is a new, unique therapeutic - and often talked about as a wonder drug by the medical profession as well. Insurers are liable to be sued if they don't cover it, by a doctor or patient, and given current sentiments, the plaintiff would probably win big (unlike in Britain with Herceptin). Some states even mandate coverage of anti-cancer agents. And, although there has been a lot of consolidation in the insurance market, insurers don't want a competitive hit from other companies and the press talking about their refusal to cover a new, potentially life-extending/saving drug.

I agree that pricing is out of control. It will last as long as the different parties who can exert influence (the public, elected officials, physicians, insurers and MCOs) allow it to.

Anonymous said...

Thank you for caring enough to write your article, however I want to address one part of it.

I am not addressing the cost of Avastin but rather I am addressing your comment about the CEOs salary. If he is trying to run a company that produces pharmaceuticals (for which research and trials cost alot), why should he not be compensated as the top person. We don't get concerned with CEO's of auto companies or ball players who make exceptionally large amounts of money doing what they enjoy. I don't think his salary or bonuses are any different than the others only to name a few.