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NCI’s PRICING PARADIGM FOR CRADAs: ENTRY PRICES MUST BE IN LINE WITH EXISTING DRUGS, ADDED INDICATIONS SHOULD LOWER PRICES; FREE SUPPLIES IMPORTANT ALSO

Executive Summary

The National Cancer Institute and Bristol-Myers Squibb are establishing a pricing paradigm for products brought to market under NCI Cooperative Research & Development Agreements that appears to preclude premium pricing for new agents and to promise price reductions as markets expand. The three key elements of the pricing model to emerge from the negotiations on Videx (ddI) and Taxol (paclitaxel) are (1) entry prices within the range of existing treatments; (2) price adjustments (i.e. cuts) when new indications expand the patient market; and (3) free supply programs to make sure that the drug is available for indigent patients and continued clinical trials. NCI has not put a policy in writing. In fact, NIH officials continue to stress that HHS has not taken a final position on NIH's role vis-a-vis prices for CRADA products. However, from NCI testimony on Capitol Hill and the institute's reaction to the two Bristol CRADAs containing "reasonable pricing" clauses, it is evident that certain pricing actions are now expected by NCI in CRADAs. According to NCI and National Institutes of Health officials testifying at a Jan. 25 hearing before Rep. Wyden's (D-Ore.) House Small Business/Regulation Subcommittee, NCI has developed an unofficial target price for new agents developed under the agreements. In the case of Taxol, NCI judged the reasonableness of the price by comparing Bristol's decision against "products marketed for the same indication," NCI Division of Cancer Treatment Director Bruce Chabner explained. "We requested that the company set the price of Taxol below the median for other recently approved anticancer drugs," Chabner told Wyden. NCI chose the median existing price target instead of using a cost-based analysis to judge the fairness of the Taxol price for practical reasons, Chabner said. The institute lacks "expertise in pharmaceutical price setting," he pointed out. Bristol-Myers Squibb VP-Business Development Zola Horovitz confirmed that the company's pricing options on Taxol were restricted by the negotiations with NCI. In effect, the company was prevented from bringing a new generation treatment out at a premium price. "A product such as Taxol would ordinarily command a premium price compared to other available therapies in its class," Horovitz told the Wyden hearing, "because of its uniqueness and its life-prolonging potential, the risks and the extraordinary investment." The Bristol exec calculated that "the projected cost per cycle for Taxol is well below that of many recently introduced anti-cancer agents, even though it is not patentable and has very limited exclusivity." Under questioning from Wyden, Chabner contended that NCI succeeded in getting an unusually low entry price from Bristol. Describing estimated gross profit margins, Chabner surmised that Bristol's gross margins on Taxol are far below its similar margins on the older cancer compound Platinol (cisplatin). The production cost of Taxol, Chabner speculated, "is probably in the range of 25%-35% of the market price of the drug." He compared that to cisplatin for which "the cost is a very small fraction of the final price that was charged, probably in the order of 5%-10%." Chabner noted that NCI's other "reasonable price" CRADA helped to keep the market price of Bristol's Videx in line with competitive AIDS therapies. Chabner pointed out that the Videx initial price was "far below the entry price of its competitor, AZT" (Burroughs-Wellcome's Retrovir). Rep. Wyden asked NIH Technology Transfer Director Reid Adler how the median existing price was chosen as an acceptable target for new therapies developed under CRADAs. Adler maintained that NIH has not fixed the median price as a firm policy. He said it is "not accurate to ascribe" that as an HHS departmental policy: "The Taxol CRADA and the interactions between NCI and Bristol form a very important case study in the development of policy," Adler acknowledged. He reiterated, however, that "I don't believe that the department has a final policy ready at the present moment." Falling back on the change in administrations, Adler noted that HHS has a new secretary who may want to review the reasonable pricing clause and NIH's role in drug pricing decisions. Wyden sent a letter one day after the hearing to HHS Secretary Shalala asking her to review NIH's role in the pricing of CRADA products. "I find unacceptable the current NIH position as voiced" by Chabner "that federal labs have neither the interest nor the ability to conduct a review of the basic elements of a pricing decision in a particular project." Wyden asked specifically if HHS believes that "the model CRADA Provide[s] the NIH access" to information from the manufacturer on development, marketing and advertising costs "even on a confidential basis." He also asked for HHS comments by March 10 on "possible problems posed by more restrictive pricing language." Chabner defended the ad hoc nature of the current reasonable pricing agreements in CRADA contracts. He said that NCI believes that the "fair pricing clause in CRADAs...should be retained." The clause appears "to place a spotlight on price and puts the company on notice that its pricing policy will receive public scrutiny," Chabner pointed out. More restrictive pricing language or authority, Chabner argued, "would discourage cooperation between NIH and the private sector." Chabner repeated reports that NCI is having difficulty holding commercial sponsors to existing CRADAs and getting sponsors to take on new projects. Recent comments from NIH have identified Merck as a company balking at any CRADA agreements. Pfizer is understood to have required the deletion of a reasonable pricing clause to continue work on a CRADA project ("The Pink Sheet" Dec. 7, 1992, p. 5). Referring apparently to the Pfizer situation during his Wyden testimony, Chabner said: "In our recent experience, one company has refused to accept a fair pricing clause as part of a license agreement for an anti-AIDS drug and another has done the same for an anti-cancer drug CRADA." A third company, Chabner noted, "has discontinued its collaboration with NCI on the development of a novel anti-AIDS drug because of fears that the government would use its involvement as a reason to impose price restrictions." Another company has "suspended negotiations for cooperative development of two cancer drugs pending the outcome of the Taxol pricing hearings." Wyden attacked the industry's reticence to sign new CRADAs. "Bristol-Myers and other companies claim," Wyden declared in his opening statement, "that if the government insists on answers to these pricing questions they will walk away from the table and that sick Americans will die as a result." The Oregon congressman pressed for more detailed cost information from the company on the cost of development and production of Taxol to use as a basis for determining the fair price of the product. Wyden asked whether Bristol had considered a cost-plus pricing arrangement for Taxol. When Horovitz said it had not been discussed, Wyden shot back sardonically: "Is there anything that has been discussed other than stonewalling the government?" Chabner also stressed the importance to NCI of Bristol's efforts to make drugs available to indigent patients and clinical trial patients in NCI programs. The CRADA mechanism and its reasonable pricing language, Chabner said, "is an extremely useful vehicle." NCI was able "to argue forcefully for total access to the drug, both for those that can afford it and those unable to pay." The price negotiations called for by the CRADA "allowed us to guarantee that the thousands of patients already receiving Taxol on a compassionate basis will continue to receive the drug free, even though Taxol has been approved by the FDA," Chabner said. Bristol has reported previously that NCI estimates about 5,000 patients will receive the drug through those clinical trials in 1993. Wyden questioned why NCI is giving so much weight to the value of the giveaway programs to the indigent and clinical trial patients when the cost of the product to the private market is near the top of the price range for existing therapies. "What I am puzzled about," Wyden told Chabner, "is, if you are interested in the indigent, why wouldn't you be interested in similar cost considerations as they relate to the vast majority of people, because we all know that the majority of people are going to pay for it through their insurance, unless agencies like yourself get more hard-nosed about getting price deals." James Love, director of the Taxpayer Assets Project, maintained in testimony to the hearing that Bristol's price estimates for treatments with Taxol understate the probable average cost of the product. Bristol has cited a single treatment cycle cost of $986.18 for private pay patients. Love claims the single treatment price is likely to be higher at $1,169. The key factor in the difference in cost estimates is the amount of the usual dosage. The company used an average treatment cycle dose of 6.75 vials, Love calculated. He said the average dose will probably be eight vials per treatment. Love also noted that the dosage for breast cancer -- the next indication being aggressively pursued by Bristol and NCI -- is about "30% higher...than for ovarian cancer." NCI expects Bristol to scale back the price for Taxol as the patient population increases. Chabner noted that one of the reasons that NCI approved of the Taxol initial pricing was the institute's understanding that "the price will be adjusted as indications for Taxol's use broaden and the market expands." In a document explaining the factors it has taken into consideration for pricing, Bristol commented obliquely on the potential for wider use. The firm noted that "the granting of additional indications by the FDA for Taxol is uncertain; therefore, the ability of Bristol-Myers Squibb to evaluate or project the commercial potential of the drug beyond [the original] limited patient population is equally uncertain." In the future, Bristol faces several potential points at which it could have a falling out with NCI: (1) if the company does not pursue full approval for added indications (relying instead on off-label use); or (2) if Bristol does not bring the price of the product down as the market size increases.

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