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Executive Summary

TAXOL "FAIR MARKET PRICE" DISCUSSIONS BETWEEN BRISTOL AND NCI have included an attempt by the National Cancer Institute to identify a benchmark for reviewing the price of the new product from the prices of existing cancer products. NCI appears to have approached the discussions with two preconceptions of a fair taxol price: (1) the monthly treatment price for taxol should be in line with the prices of existing therapies (specifically those with the same approved indications); and (2) Bristol's profit margin for taxol should mirror the implied markups for similar products. Representatives of Bristol-Myers Squibb and NCI began meeting in mid-summer on the subject of a "fair price" for the cancer product. The discussions are being held parallel to FDA's expedited safety/efficacy review of the product; taxol appears to be nearing an FDA approval decision. FDA's Oncologic Drugs Advisory Committee is set to review the taxol NDA for ovarian cancer at its Nov. 15 meeting ("The Pink Sheet" Oct. 26, T&G-15). The NCI/Bristol pricing discussions are an outgrowth of the joint development project for taxol. As part of the 1990 CRADA (cooperative research and development agreement) between Bristol and NCI, the company has agreed to take NCI's pricing suggestions into consideration. NCI's involvement in the discussions is being closely watched on Capitol Hill by Oregon Democrat Rep. Wyden (see following story). NCI recognizes the precedent that the taxol pricing discussions could set and has considered asking the Institute of Medicine to review the overall issue of fair pricing agreements after the taxol decision has been reached. According to the CRADA, NCI does not have explicit authority to request or suggest a price level to Bristol. However, the political realities of the private development of a project with NCI's extensive help obligate the institute to take a proactive role in discussing pricing strategies with the company. At a July 2 meeting between NCI and Bristol representatives, NCI Division of Cancer Treatment Director Bruce Chabner, MD, asserted the principle of pricing the new product in relationship to existing products. He suggested that Bristol should establish the price for taxol "in comparison to a competitive product." According to NCI notes on the meeting, Chabner said the company "should present their proposed price and explain the primary considerations that determined the price." NCI repeatedly has referred to cisplatin (Bristol's Platinol) as an appropriate comparison product. For example, in a briefing paper prepared early in the summer, NCI observed it could fulfill its role in the pricing process by comparing "the new agent with an appropriate agent already on the market for the same indication." In the taxol case, the briefing paper says "a reasonable comparison for taxol might be cisplatin." NCI's favored approach for assessing the fairness of the eventual taxol price is based on calculating the profit markup for the older compound, Platinol. NCI has said that applying the markup between the costs of production and the market price for Platinol to taxol might be a relatively simple way to determine whether the taxol price is fair. That approach would allow Bristol to take all of the unusual production/extraction costs for taxol into account in the price before adding on a profit margin. The institute notes that it could "request that Bristol-Myers Squibb use the cisplatin equivalent markup while also including any additional costs associated with the production of taxol." NCI is familiar with cisplatin costs because the institute "prepared clinical formulations" of that product during its development. Therefore, it apparently feels it can reasonably estimate the difference between basic production costs and market price for cisplatin. Using Platinol profit margins as a model would restrict Bristol to a lower markup than some newer agents. The Platinol price has remained relatively steady for almost 10 years, since the company negotiated an extension of its exclusive marketing rights/license with NCI in 1983. Bristol's followup compound to Platinol, Paraplatin (carboplatin), is priced about 50% higher on a monthly cost basis. One of Bristol's representatives in the pricing discussions, Dan Kiser (Fox, Bennett & Turner) contended at the July 2 meeting that the taxol project differs in almost every aspect from any other project before, including the cisplatin development. However, the comparable profit markup may appear as an attractive pricing rationale to the company when viewed against some of the other ways that NCI has considered judging fairness. NCI noted (with little enthusiasm) that it could solicit information on all steps of the taxol production and marketing from Bristol. NCI is clearly leaning away from that approach and has expressed a desire to stay away from an analysis of all the tangible and intangible costs in the development of taxol.

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