Genentech's Avasitin Price Is Unsustainable

The New York Times “Costly Cancer Drug Offers Hope, but Also a Dilemma” examines the value proposition of Genentech’s (DNA) Avastin. In "UK Provides No Public Funding for Genentech’s Avastin Users" and '“Drugs and Value”, a Financial Times Editorial', I discussed the controversy over the UK National Health Service refusing to pay for Avastin. Avastin did not pass the UK National Institute of Health and Clinical Excellence [NICE] cost-benefit screen.

Now Avastin’s value is being questioned in America. Avastin sales were $3.5B worldwide, with $2.5B of that in the US. Annual administration can cost a patient (or their insurer) between $50K and $100K per year. About 100K patients take Avastin each year.

Avastin works by cutting off the blood supply to tumors, but has not been effective without simultaneously administrating chemotherapy. The value question has three parts: quality of life, survival, and finally cost.

Quality of life centers on time to progression. If the cancer is not as aggressive, the side effects of the disease are reduced. Patients claim less exhaustion and pain, but they still have to deal with the side effects of chemotherapy. Given the subjective nature of comfort, it is hard to justify Avastin’s price for reduced pain alone. Up until recently, the FDA considered time to progression. Now there appears to be a greater emphasis on survival.

Avastin could extend life for a few months over chemotherapy alone. Until NICE opened the discussion on value, no cost was too high for the slightest medical improvements. Now we have the right to question whether a few months of life is worth $100K. Does having Avastin on the formulary increase insurance premiums enough to exclude a significant number of Americans from being able to afford health insurance? Secondly, do drugs costing as much as Avastin cause excessive medical underwriting by private insurers?

Roy Vagelos (former Merck [MRK] CEO) said of drugs costing $50K or more: “There is a shocking disparity between value and price and it’s not sustainable.” Doctors and hospitals charge insurers up to $35K per month to administer Avastin to non-Medicare patients. Medicare currently pays Genentech’s average selling price, but limits doctors to a 5% to 6% markup for their service. If Genentech gets approval to market Avastin earlier in the cancer progression, some patients could be on Avastin for years.

The stakes are high for both Genentech and the American health insurance system. If Avastin is determined not to be worth its cost, Genentech will have to substantially lower the price. Private insurers have not shown enough discipline in rejecting FDA approved drugs of little value. Once they start, Genentech’s market value could tumble.

As I have said before, insurance for high cost, marginal value treatments must be separated from “core” health insurance. Perhaps Messrs. Greenspan and Bernanke could help! Those Americans that want access to drugs like Avastin, excessive use of General Electric (GE) imaging equipment, and $100M proton accelerators should buy supplemental insurance.

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Genzyme has one for a half a billion dollars a year for treatment