On 18 December 2018, the World Health Organization (WHO) published a “Technical report on Pricing of cancer medicines and its impacts” (hereinafter referred to as the “WHO Cancer Report”). The mandate for the WHO Cancer Report emanates from operative paragraph 2(9) of the WHO Cancer resolution passed in May 2017 (WHA70.12, Cancer prevention and control in the context of an integrated approach) which requested the Director-General to:
(9) to prepare a comprehensive technical report to the Executive Board at its 144th session that examines pricing approaches, including transparency, and their impact on availability and affordability of medicines for the prevention and treatment of cancer, including any evidence of the benefits or unintended negative consequences, as well as incentives for investment in research and development on cancer and innovation of these measures, as well as the relationship between inputs throughout the value chain and price setting, financing gaps for research and development on cancer, and options that might enhance the affordability and accessibility of these medicines;
The 171-page report provides an exhaustive treatment of the pricing of cancer medicines and an in-depth analysis of the R&D costs of cancer medicines, including incentives. A key policy option provided in the WHO Cancer Report is that international action is required to improve transparency in reporting the costs of R&D and production, including public sources of funding.
Medicines Law & Policy (ML&P) provided perspicacious insight into the implications of the WHO Cancer Report which can be found here.
The main findings of the WHO Cancer Report are reproduced here:
Estimates of R&D costs, including for cancer medicines, are highly variable and not transparent. Reported estimates, after adjustments for the probability of trial failure and opportunity costs, range between US$ 100–150 million and US$ 4–6 billion, but the most commonly accepted estimates are between US$ 200 million and US$ 2.9 billion.
The WHO Cancer Report observed that the “market structure of cancer medicines is characterized by imperfect competition,with evidence of individual companies holding monopoly over specific cancer therapeutic areas.” (WHO Cancer Report, Page 27). For instance, the WHO noted that the market concentration for melanoma medicines exceeded the United State Department of Justice and Federal Trade Commission threshold for a highly concentrated market.
The analysis found that three companies accounted for about 50% of the global market of cancer medicines by 2017 sales value. The market is considered highly concentrated in certain cancer therapeutic areas. For example, three companies – Bristol-Myers Squibb, Ono Pharmaceutical and Merck & Co –accounted for nearly 97% of the 2017 global market for the melanoma medicines…The level of market concentration would be even higher if the analysis were to consider the existing collaboration between Bristol-Myers Squibb and Ono Pharmaceutical for developing and commercializing nivolumab and ipilimumab.The analysis also found a highly concentrated market for breast cancer, and moderately concentrated markets for prostate, lung and haematological cancer.
The WHO found that by the end of 2017, forty-nine cancer drugs had cumulative sales of over US$5.0 billion – this included rituximab with accrued sales of US$93.7 billion, trastuzumab with accrued sales of US$88.2 billion and imatinib with accrued sales of US$63.8 billion.
To examine returns on R&D investments, an analysis was undertaken to examine the sales incomes from cancer medicines approved by the United States Food and Drug Administration from 1989 to 2017 for the originator companies. For the 99 medicines included in the analysis, the average income return by end-2017 was found to be US$ 14.50 (range: US$ 3.30 to US $55.10) for every US$ 1 of R&D spending, after adjustments for the probability of trial failure and opportunity costs; 33 of those medicines had already qualified as “blockbuster drugs” by having an average annual sales income exceeding US$ 1 billion. Many medicines, particularly biologics, continued to generate high sales incomes for the originator companies after expiry of patents and the end of exclusive marketing rights.
Of the 156 US FDA-approved cancer medicines identified, 99 had data for more than half of the years since approval and were included in the analysis. Total sales from this set of medicines (US$106.9billion) represent 80.4% of the estimated global revenue of cancer medicines in 2017(US$133 billion)(18). The analysis found that as at the end of 2017, forty-nine (49.5%) of the cancer drugs had cumulative sales of over US$5.0 billion. At the end of 2017, five drugs had accrued sales incomes of greater than US$50 billion for the originator companies: rituximab (US$93.7 billion), trastuzumab (US$88.2 billion), bevacizumab (US$ 83.4 billion), pegfilgrastim (US$64.0 billion), imatinib (US$ 63.8 billion) (Fig. 3.5, p.26).
The WHO analysis suggested that the “sales revenues of a majority of cancer medicines are significantly above the risk-adjusted costs of R&D estimated in literature.”
The analysis suggests that the sales revenues of a majority of cancer medicines are significantly above the risk-adjusted costs of R&D estimated in the literature. As shown in Fig. 3.5, as at the end of 2017, the cumulative sales of 73 (74.5%) and 56 (57.1%) cancer medicines since launch were above the assumed median risk-adjusted R&D costs of US$794 million and the upper threshold of US$2.8 billion, respectively. In total, 99 cancer medicines generated US$1216.7 billion in cumulative incomes between 1989 and 2017, representing an average return of US$14.50 in sales income (range: US$3.30–55.10) for every dollar invested for R&D, assuming a risk-adjusted R&D cost of US$794 million (range: US$2827 million; US$219 million)(94). The returns from this set of medicines will continue to rise because many molecules have long remaining periods of market exclusivity (e.g. ibrutinib, nivolumab, palbociclib, pembrolizumab.
The median time to generate revenue to fully cover risk-adjusted R&D cost of US$794 million was 3 years (range: 2 years; 5 years, n=73). For the maximum estimated risk-adjusted cost of R&D (US$2827million), the time to cost recovery was 5 years (range: 2 years; 10 years, n=56).
The WHO asserted that the “pricing of medicines is unconnected to either the relative or absolute therapeutic value of the medicines, or the costs of R&D and production.”
Instead of setting prices according to the value of medicines, pharmaceutical companies often place more emphasis on setting prices according to their income expectations. As noted by an executive of a major multinational firm, pricing of medicines is driven largely by the firm’s consideration of “the cost of business, competition, patent status, anticipated volume, and, most important [emphasis added], our estimation of the income generated by sales of the product”. In other words, pricing of medicines is unconnected to either the relative or absolute therapeutic value of the medicines, or the costs of R&D and production.
In relation to concerns that pursing strategies to ensure affordable access to cancer medicines would harm innovation, the WHO issued a clear response:
Concerns that lower cancer medicine prices might impair future R&D seem misplaced because evidence suggests that (a) prices of cancer medicines bear little or no relationship with R&D costs; (b) financial returns of cancer medicines are high; (c) potential impact on revenue due to lower prices could be offset by higher volume, especially when the marginal cost of production is low; and (d) governments and the non-profit-making sector have made substantial contributions to the R&D of medicines through direct funding and other incentives.
The WHO underscored the role that publicly funded research has played in the development of cancer medicines including abiraterone, temozolomide and enzalutamide.
The public sector has made a wide range of contributions to the R&D of medicines generally, including cancer medicines, ranging from providing direct funding of basic science research and clinical trials to building physical research infrastructure, supporting the operation of institutions such as cancer registries, building medical research workforces through education programmes and incentivizing R&D through tax credits or reductions. Such public-sector investment has often led directly to the discovery and development of cancer medicines such as abiraterone, temozolomide and enzalutamide.
Given this consideration, some stakeholders have questioned whether pharmaceutical companies can legitimately claim to recover the full costs of R&D by setting high prices for medicines. They see a need to clarify whether the public has been “paying twice”, or should be paying twice, for medicines developed with at least partial support from public resources. It is also important to clarify the relationship between the government, industry and universities when pursuing joint research ventures.
WHO’s analysis concluded that “cancer medicines, through high prices, have generated returns for the originator companies far in excess of the R&D costs and financial rewards to finance and incentivize future R&D.