Cost of Care: Cancer biotechs urge balance as pricing reforms target top sellers

This is a recurring column about the cost of U.S. healthcare, including drug pricing policy, regulatory decisions, investment in research and development, and more.

Proposed U.S. pricing reforms targeting the world's best-selling drugs may have repercussions for how smaller companies finance the development of cutting-edge cancer therapies, biotech CEOs said.

Drug pricing reform is a major part of U.S. President Joe Biden's Build Back Better agenda, which would have enabled the government-run Medicare program to negotiate prices for medicines that have been on the market for years if the bill had passed the Senate.

The number of novel drugs entering the market would drop 10% long-term if investors spooked by the change reduce their funding for the biotech sector, according to a Jan. 13 analysis by the Congressional Budget Office, which provides nonpartisan analysis for lawmakers. The U.S. Food and Drug Administration approved 50 novel drugs in 2021.

Federal spending for prescription drugs under Part D of Medicare was $96 billion in fiscal year 2021 and would, under current policies, total $1.6 trillion from 2022 to 2031, the CBO estimated.

Bringing money into smaller biotech ventures like Houston's Salarius Pharmaceuticals Inc. is already a balancing act made harder by the very slim chances that an experimental cancer drug will make it to market, CEO David Arthur told S&P Global Market Intelligence. Only 3.3% of cancer drugs go from phase 1 to approval, according to an MIT study from May 2019.

"There's got to be a return on investment to attract venture capitalists and pharmaceutical companies and everybody else to put money at risk in small companies that will ultimately lead to the development of life-altering and life-saving drugs," Arthur said. "That is going to require some breakthrough leadership at our government level and the level of our major insurers."

Privately held Californian biotech Atreca Inc. is developing multiple assets in oncology and infectious diseases, including a cancer immunotherapy in phase 1 clinical trials and a preclinical COVID-19 antibody treatment. Even with drugs so far out from entering the market, Atreca must also navigate a fine line between innovation and affordability, particularly as cancer treatments become more targeted and less one-size-fits-all, CEO John Orwin said in an interview.

"One of the obvious challenges here is the increasing cost and risk of cancer drug development, somewhat compounded by the fact that the biology — which is now leading us to more tailored therapies, which is fantastic for the patient — means that we have smaller patient populations with which to recoup the investments," Orwin said.

Limiting impact

Although the larger Build Back Better legislation that passed the House in November is "dead," the government is still working on ways to push ahead with core tenets such as prescription drug pricing reform, Sen. Tim Kaine, D-Va., told reporters Jan. 16. Proposed compromises include provisions to only allow for a small number of older drugs to be negotiable by Medicare, which could limit the impact on smaller biotechs.

Biotechs that are putting their first drugs through clinical trials do not have the luxury of diverse portfolios to absorb the reduced revenue, unlike their Big Pharma peers. Bristol Myers Squibb Co., for instance, can hedge by accessing different markets simultaneously, CEO Giovanni Caforio said at the J.P. Morgan Healthcare Conference Jan. 10.

"The advantage of having a much more diversified portfolio of medicines across different parts of Medicare and commercial markets and many more medicines launching is that, going forward, [Bristol Myers] is even better positioned, in fact, to navigate reform than we've ever been in the past," Caforio said.

Cutting costs to push development

Another biotech chasing a new cancer target is New York's Loki Therapeutics Inc. CEO Christopher Bradley said that the company needs to take all development and manufacturing costs into consideration to avoid pushing prices into a realm that would hinder access for patients.

Loki's technology platform, which is set to undergo a phase 1 study, activates and redirects the body's immune cells from previous childhood vaccinations to eliminate cancer cells. The company's ambition is to keep costs — and therefore a higher market price — down by avoiding procedures like complex sequencing and cell manipulation while they determine how the therapy will be used, the CEO said.

"At our stage, where it will be very binary if [a drug] either is going to work or it won't work, pricing is not really a priority yet," Bradley told Market Intelligence. "Having said that, we want to make sure that as we start production, and we scale it, we are not in a situation where we need to be charging some of the prices that more complicated therapies like CAR-T [cell therapies] are commanding."

CAR-T cell therapy Kymriah from Switzerland's Novartis AG, for example, has a list price of $475,000 in the U.S. for patients with B-cell acute lymphoblastic leukemia.

Even more widely used cancer therapies have faced criticism over pricing. Bristol Myers' blockbuster chemotherapy drug Revlimid brought in $12.1 billion in 2020 revenue at a list price of $763 per pill, according to a September 2020 report by the U.S. House of Representatives Committee on Oversight and Reform.

"The Committee's investigation demonstrates that drug companies are taking full advantage of the federal law that currently prohibits Medicare from negotiating directly with drug companies to lower prices," Committee Chairwoman Rep. Carolyn Maloney, D-N.Y., said in the report. "The drug companies are bringing in tens of billions of dollars in revenues, making astronomical profits, and rewarding their executives with lavish compensation packages — all without any apparent limit on what they can charge."

The high cost of oncology drugs, especially in combinations often required by patients, means small biotechs like Iterion Therapeutics Inc. need to look at where they can have the biggest market impact on a limited budget.

The Houston-based cancer drug-developer is exploring the experimental therapy tegavivint in a phase 1 and 2 clinical trial in patients with progressive desmoid tumors, for which there is no approved treatment.

"The first thing we focus on is where can we have the most impact on patients in areas where they have limited [or] no other opportunities," Iterion CEO Rahul Aras told Market Intelligence. "The second thing we focus on as a small company moving forward is where can we make that impact in an indication on a reasonable clinical development budget."

Iterion is also developing tegavivint to treat acute myeloid leukemia, pediatric cancers and non-small cell lung cancer. From a development perspective, it is important to establish an initial focus to keep clinical timelines and costs manageable, Aras said.

"You have to really define the patient population you're going after and understand that this is where you work and this is what you're going to explore, and we're not going after the whole bucket [of conditions]," the CEO said.

By taking a targeted approach to drug development, small biotechs with new technologies can head to market at a quicker, and more cost-effective, pace. Aras pointed out that this, in turn, could lead to lower costs for patients far down the road and in the larger healthcare landscape.

"You can potentially get to an endpoint in a relatively shorter period of time," Aras said.