Drug's drastic price increase creates questions for makers


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.

On Feb. 17, Elkins, a 64-year-old retiree who lives in Georgetown, Texas, returned to her pharmacy for a refill. This time, after a huge increase in the wholesale price of the drug, the cost was $548.01.

Elkins' 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.

Doctors say the increase 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.

In August, Merck, which makes the nitrogen mustard - also known as 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.

Ovation has raised the wholesale price of Mustargen about tenfold and that of Cosmegen even more, according to several pharmacists and patients.

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.

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," Johnson said.

Sean Nolan, vice president of commercial development for Ovation, said that the price increases were necessary to enable Ovation to invest in manufacturing facilities for Mustargen and Cosmegen. He said the company was working with insurers to obtain coverage for patients.

"It's unfortunate that a price adjustment had to occur," Nolan said. "Investment had not been made in these products for years."

But Nolan 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 itself, 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, like 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, a giant Illinois drug maker, 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 and 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," 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 drugs that are already expensive by any measure.

Mustargen's patent protection expired years ago, so any company can make it. But because its sales are tiny, no drug maker has made the investment to produce a generic version.

"There's only one company that makes the drug, and they can decide what it's worth," Hoppe said.

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