Sure The Drug Works. But Is It Worth It?

Cancer sufferers enduring chemotherapy contend with a harsh reality: The potent drugs can so deplete the immune systems of patients that they fall victim to serious, even fatal, infections. So when biotech company Amgen Inc. developed a drug called Neupogen that helps prevent such infections, patients had reason to cheer.

So did medical insurers. A few months after Neupogen was approved by the Food & Drug Administration, a study published in the New England Journal of Medicine showed that even though the drug costs about $1,000 per course of treatment, by preventing an infection it can save roughly $7,000 in hospital costs. That timely study was no accident. It was part of an Amgen strategy to integrate economic analysis into the process of testing a product's medical effectiveness. And that strategy is becoming one of the hottest topics in drug marketing circles.

'FIRST HURDLE.' Behind the scenes, big drug companies and small biotech businesses alike are scrambling to provide a rigorous analysis of a drug's cost impact long before it hits the market. They're also rushing to prove the worth of existing drugs whose prices are being challenged by third-party payers. With medical costs spiraling, says Paul R. Dawson, vice-president of sales and marketing at Amgen, "economic and health policy research is more important than advertising and promotion."

For decades, that wasn't so. The biggest challenge drugmakers faced was proving that medicines were effective and safe. Once the FDA gave the O. K., companies could charge high prices, and insurers paid up. Who could deny the appeal of a pill or a single injection that could stop an illness in its tracks? That's how drug companies built the highest profit margins in U. S. industry.

Now, however, the magic is wearing off. As health care costs soar, insurance companies, health maintenance organizations, and government payers are cracking down. Insurers are taking their time agreeing to reimburse the cost of new drugs. And HMOs and cost-strapped hospitals are hesitant to stock these products until they have proven their value. Even Congress has turned up the heat by challenging the average 20% net profit drugmakers earn on their product lines. Increasingly, "the FDA is only the first hurdle," observes Daniel Paterson, manager of clinical affairs for Access Biotechnology, which helps companies design drug tests.

At least half the major drug companies have responded to this pressure. The San Francisco-based Center for Outcomes Information says the companies are directing their marketers to design so-called outcomes research on the economic and quality-of-life impact of their products. Merck & Co., for example, is funding a trial comparing its blockbuster drug Mevacor, which runs patients about $700 a year, against other, less expensive cholesterol-lowering therapies. Merck believes the study will show that Mevacor is cheaper in the long run because it works better and has fewer side effects.

It's not as if drugs haven't had to measure up against alternatives before. But manufacturers have sometimes justified huge price premiums based on such factors as whether a drug has to be taken only once a day instead of twice. Now, the studies are including many more variables: Does a new drug replace other treatments? Does it have side effects that force the patient to return often to the doctor? Does it actually make the patient feel better? "The FDA may not be interested in that, but the marketplace is demanding this data," notes Gregory K. Tucker, manager of product economics at Hoffmann-La Roche Inc.

TRICKY OUTCOMES. The marketplace also expects outcomes research to be done with the same rigor as trials for the FDA, with the work done by independent, third-party scientists. That's a far cry from the "back-of-the-envelope" marketing studies big drug companies historically conducted, says Wayne Roe, chairman of Health Technology Associates, a Washington (D. C.) consultant. Companies would design a small trial to prove a single marketing advantage such as less stomach upset--and they usually could cancel the trial and quash unflattering findings. "Third-party payers have a much more sophisticated set of ground rules," says David Tennenbaum, director of the medical necessity program for Blue Cross & Blue Shield Assn.

Take Group Health Cooperative of Puget Sound. The HMO has typically spent 10% of its outpatient drug budget on pain relievers called "nonsteroidal anti-inflammatories," or NSAIDs, mainly to treat arthritis. The cost of these agents varies widely, and there was little information on their long-term effects. Andrew Stergachis, a researcher at the nearby University of Washington, developed a trial to compare arthritis patients from Group Health who had taken four of the NSAIDs available. Pfizer makes an NSAID called Feldene, which costs 12 times as much as the cheapest remedy, and is footing the $150,000 bill for Stergachis' research. Stergachis says he is conducting his research without interference. "They are supporting a study, not buying results," he insists.

Outcomes research can be tricky. For one thing, some of the potential cost-saving variables are hard to quantify. Amgen's anemia-fighter Epogen, for example, reduces and sometimes eliminates the need for blood transfusions, offsetting part of the drug's cost. Harder to measure is Epogen's value in reducing the risk of contracting serious blood-borne maladies such as hepatitis and AIDS from the transfusion. Or in simply making patients feel better, which reduces the stress in their domestic lives.

CRYING FOUL. By the same token, outcomes research must not define "cost" too narrowly. The University of Mississippi tried to cut its hospital's pharmacy budget by eliminating mild sedatives that are considered minimally effective. But outcome studies later revealed that physicians simply prescribed stronger--and more dangerous--sedatives, so the hoped-for savings didn't materialize.

Until guidelines are standardized, some companies will cry foul when their products come up short. Genentech Inc. managed to blunt the impact of two large trials that showed that its TPA heart-attack drug, which costs $2,200 a dose, wasn't much more effective than a rival costing one-tenth as much. Its sales force persuaded many doctors that those trials had big flaws.

But third-party payers aren't waiting until such tests are perfected. The federal Agency for Health Care Policy & Research is funding outcome studies, and insurers such as Blue Cross/Blue Shield will pay for better information, too. The upshot is that if drug companies can't prove the worth of expensive therapies, their products may never make it to the pharmacy shelves.

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