Each of the four times I received chemotherapy, the hospital billed my insurance more than $19,000. This covered several drugs, the process of infusion, and things like saline solution. (Hospital billed at $213, insurance paid $3.95.)
Three-quarters of the price was from a single drug: Neulasta. Each round, the hospital charged $14,930 for “INJECTION, PEGFILGRASTIM 6MG.” The insurance company only paid $5,895. Even so, that’s a hell of a lot of money. So what’s the deal with Neulasta?
Neulasta is not itself a chemotherapy drug. It is a bone marrow stimulant that tells your body to produce more white blood cells. This reduces the risk of neutropenia, the lack of neutrophils (white blood cells) that makes chemo recipients so susceptible to infection.
Neulasta has some shitty side effects (bone pain), which I was lucky enough to avoid. But being less susceptible to infection is certainly a good thing, even more so in the age of COVID. So, yay Neulasta.
But oh, the cost. Neulasta is the brand name of pegfilgrastim, a drug developed by Amgen and approved by the FDA in 2002. Its patent expired in 2015. You would think that would mean that competition would be driving the price down by now. And it is, a bit. But not quite like you’d think.
Amgen made $2.3 billion off of Neulasta in 2020, making it the company’s third most lucrative drug. That’s down from peak sales of $4.7 billion in 2015. The trend is in the right direction—but it’s been six years. Why the lag?
There are the usual reasons that drugs in the U.S. are more expensive than they are everywhere else, centered around the fact that government does not negotiate drug prices, and cost-effectiveness isn’t built into the system. A recent RAND study found that U.S. drug prices are 256% of those in 32 comparison countries. A 2018 study by the Department of Health and Human Services found that Neulasta in particular costs 3.6 times as much in the U.S. as it does internationally.
Then there are reasons that cancer drugs, in particular, are expensive. Of course there are R&D costs, and the cost of clinical trials. But as far as I can tell, the basic answer is “because they can be.” If you’ve got a particular cancer, there aren’t a lot of competing options to choose from; no one is really negotiating prices, and people are willing to pay quite a lot (especially indirectly, via their insurance company or Medicare) when their life is at stake.
But there is an additional reason that Neulasta, in particular, is so very expensive. Neulasta is a biologic, a complex drug produced by a living organism. Biologics have particular issues when it comes to cost. When a biologic goes off patent, you can’t create an exact duplicate of it, like you would for an ordinary drug. Instead, a “biosimilar” drug has to be developed—a comparable, but not identical, drug produced through a similar process.
This creates several additional issues. First, copying a biologic is slower and harder than copying an ordinary drug. The regulatory process is more demanding, because you have to do a lot more to demonstrate that your biosimilar is, in fact, effectively the same as the original biologic. This extended period of testing—and the fact that the approval process for biosimilars is much newer, having been established only in 2010—opens up new avenues for existing manufacturers to file legal challenges and create other delays.
Second, biosimilars are not generics. A pharmacy can substitute a generic unless a physician requests otherwise; this is not the case for biosimilars. And physicians are hesitant to switch to a biosimilar. Despite their extensive testing, as a category they are still relatively new, and there is not the same confidence in their substitutability.
Third, the screwed up way we pay for drugs—with both insurers and PBMs (pharmaceutical benefit managers, like CVS Caremark or Express Scripts) as intermediaries—creates additional opportunities for biologic manufacturers to maintain their advantage. Both insurers and PBMs negotiate what they will cover, and prefer. Both rely heavily on “rebating”—negotiating manufacturer discounts in exchange for covering, or preferring, a drug—in order to reduce costs.
A manufacturer like Amgen, most of whose profits come from a few very expensive drugs, has a strong incentive to rebate with a large insurer or PBM. So because Amgen gives rebates, United Healthcare has only approved Neulasta and will only cover biosimilars (which started to reach the market in 2019) after Neulasta has been tried—despite the fact that the list price of biosimilars is a third less. While this may be the better deal for United and its customers, it keeps the list price of Neulasta high, and stifles the nascent market for biosimilars.
This is a really messed up system, and I suspect I could write about it at length. But for now I’ll just point out the consequences: an incredibly profitable drug that went off patent in 2015 had no market competitor till 2019, and as of early 2021 still could be billed at $15,000 a shot. Things are getting better; there are now four approved biosimilars to Neulasta, all of which cost a third less at launch, and the price of Neulasta has dropped by a third since the first biosimilar came on the market.
But in the meanwhile, that’s another billion or so a year of pure profit for Amgen since 2015, without providing any additional value. And that’s just one drug. And that’s not even getting into how drug-centered our system is. We really could be doing better.