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Shape-Shifting: The Art of Drug Pricing

October 2007

On the day the announcement went out that the Food and Drug Administration had approved the new oral entry inhibitor Selzentry (maraviroc), the price was announced at $29 per day or $10,585 per year. Whether this sounded like a lot or about average depended in what country you live and what you know about drug pricing. Without knowing what other drugs cost, it would be difficult to understand what it meant at all. The purpose of this article is to share some of the background on drug pricing and community efforts to put a lid on the price of new drugs.


Early Demonstrations Expose High Pricing

In the early days of AIDS activism, drug pricing was handled on a largely reactionary basis. We waited until a company announced a price, then we all screamed in unison that it was way too high. In a few cases, community groups were able to mount demonstrations and actions that led to a reduction in price over time, but there were in fact very few examples of this actually working.

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The best known case was the fight against the original price of AZT, which led to demonstrations and even protests on the New York Stock Exchange and at the offices of the manufacturer. The price of AZT was eventually reduced, though a large portion of the actual reduction was due to a reduction in the dosage of the drug used, dropping from the original recommendation of 1,200mg per day down to the 600mg per day used currently in most settings.

Still, the demonstrations were successful because drug prices rarely go down. In later years a similar reduction was achieved in the price of acyclovir -- a drug used to treat herpes. But that's about it. Since those days, the HIV community's ability to mount demonstrations has faded, perhaps in direct proportion to the reduction in AIDS deaths because of the success of newer and better therapies. Unfortunately, those therapies are more expensive than ever.


A New Strategy Comes to the Forefront

Starting with the launch of the drugs Ziagen (abacavir) and Sustiva (efavirenz) in 1998, a different approach has been employed. People from several community groups banded together under the ad hoc name of the Fair Pricing Coalition and developed a process for working with manufacturers to influence the price of new drugs by working with them before the drugs are approved and the price is announced. Though the success of this process varies with each drug, it has often been a very productive process that helped keep the price of drugs from getting even higher than they are.

The first goal of the Fair Pricing Coalition is get each company to price its new drug in a way that is "cost neutral," which means that it should not increase the overall cost of treatment of each person who uses it. In practical terms, this requires that new drugs be priced within the range of other drugs of the same type. A new protease inhibitor (PI) should not cost more than other, already approved PIs. A new NRTI should not be priced higher than other similar drugs, and so on.

A secondary goal is to begin to lower the price of drugs, but so far, this has only been possible in developing nations, which get the lowest possible prices. Unfortunately for us, the cost of new drug development (and company profits) come almost exclusively from the prices charged in the US, Canada, Europe and Australia. Who pays the very highest price varies from one drug to another and one country to another. Because European countries typically engage in some type of price controls, popular belief is that the US always pays the highest price. However, this is not true and sometimes, the highest prices are found in a European countries. There appears to be little rhyme or reason to how this occurs. For more information on the Fair Pricing Coalition and how it operates, see the article, "What is the Fair Pricing Coalition?", on Project Inform's website.


Some Background on Pricing

As straightforward as "$29 a day" might sound, the actual "price" of a drug is much more complicated. There are several different prices for each drug, and different ways of expressing those prices. In the US, the two most common ways of stating drug prices are the "WAC" price (Wholesale Acquisition Cost) and the "AWP" (Average Wholesale Price). Neither one, though, is a real price that anyone pays, nor are they what their names imply. Rather, they're standardized ways of expressing a price in a uniform way, thus allowing comparisons to be made from one drug to another.

For the sake of simplicity, it is generally accurate to say that the WAC price is 4/5 of the AWP, or put another way, the AWP is about 25% higher than the WAC price. In addition, there's a Medicaid price and an ADAP (AIDS Drug Assistance Program) price and a VA (Veterans Administration) price. Some, like the Medicaid price and the VA price, are closely guarded secrets and cannot be publicized by law. All of them, however, start from the WAC price, from which discounts or rebates and supplemental rebates are negotiated to reduce the actual cost. Government is technically forbidden from negotiating over prices with drug companies for some of these, while negotiation is routine for others. In some cases, like ADAP, there is a standard discount from the WAC price that is required by law and state ADAP groups can negotiate supplemental rebates to lower the price further still, but this can only be done after the original price is set.

As if this isn't confusing enough, with some drugs even the WAC price doesn't fully reflect the starting point for pricing negotiations because some drugs cannot be used alone. The most common example of this is the class of drugs called protease inhibitors. Today, almost all PIs must be used with a "booster dose" of Norvir (ritonavir), another PI that is almost never used alone, but which plays a critical role in helping other PIs to work. Without it, most of them aren't worth taking. So if you ask what the real price of using a new protease inhibitor will be, in most cases you will need to add in the cost of the particular boosted dose of Norvir. While the Norvir booster is a different drug, the new protease inhibitor cannot be used without it, so their costs can logically be combined.

We're not done yet though because the price of the add-on booster, Norvir, has a highly varying cost depending on how a person takes it. A few years ago, Norvir's manufacturer raised the AWP price of Norvir by 400%, in their view to compensate for its reduced use as a booster instead of it being used as a primary drug. But this horrendous price increase only applied to people who got the drug through private insurance or bought it out of pocket (something very few people do). The old AWP price, which first had to be converted to the WAC price, stayed in effect for people who took Norvir under Medicaid or ADAP programs. And in a final step, the ADAP Crisis Task Force negotiated further reductions in the price of the Norvir booster, with the effect that for the ADAP program at least, Norvir costs less today than it did four years ago under the old price, before the 400% increase.


A New Drug Gets Priced

Now, anyone who's still following this is ready to consider the question, "What is the price of Pfizer's new oral entry inhibitor, Selzentry?" The only information given is that the daily WAC price is $29 per day. Evaluating what this meant and how it compared to other drugs was the challenge faced by the Fair Pricing Coalition team that had worked with Pfizer for several months trying to keep the price as low as possible.

To really understand the price of Selzentry, all of the factors discussed above had to be taken into account, plus one more, very big factor. Before using Selzentry, people need to take a "tropism" test that determines whether they have the kind of virus that will respond to the drug. Some people do; some don't. If people with the wrong kind of virus take the drug, at best they waste someone's money; at worst, it will accelerate the failure of other drugs in their regimens since they will get no help from Selzentry.

The Fair Pricing Coalition team figured that if Pfizer was going to insist on including the price of the Norvir booster used with PIs when making a comparison to those drugs, it was only fair that the cost of the tropism test be considered part of the cost of using Selzentry. This was a critical point because Selzentry doesn't use a Norvir booster, which seems to give it a cost advantage relative to PIs. But that advantage is quickly lost when the cost of the tropism test in added to the price of
Selzentry, as it is only fair to do.

Below is the summary of price comparisons made in the Fair Pricing Coalition's evaluation of the true net cost of using Pfizer's Selzentry, compared to the prices of the three newest PIs. The comparisons are revealing and show the complexity of evaluating the price of new drugs. We'll leave it up to the reader to draw his or her own conclusions about the price of Selzentry. The only thing that has changed since the approval of Selzentry is that a second, somewhat less expensive tropism assay has been announced. Because it hasn't been clinically validated, however, it's not possible to predict just yet how much it will affect the sales of Selzentry.

Basic WAC prices of Selzentry and three protease inhibitors, per day (before discounts or rebates):

     Selzentry (maraviroc)

$29.00

     Aptivus (tipranavir)

$29.80

     Prezista (darunavir)

$26.00

     Reyataz (atazanavir)

$25.72


The picture changes by adding cost of ritonavir boosting (different for private vs. government payers):

For private payers, Selzentry seems like a good deal compared to boosted alternatives, assuming they pay the full price of the Norvir booster. Of course, the real price is further negotiated.

     Selzentry (maraviroc)

$29.00

     Aptivus + 400 Norvir

$64.09

     Prezista + 200mg Norvir

$42.15

     Reyataz + 100mg Norvir

$34.32


For public payers (the price before discounts/rebates for ADAP, etc), the Norvir price is the standard price before the 400% increase in 2005:

     Selzentry

$29.00

     Aptivus + 400 Norvir

$36.64

     Prezista + 200mg Norvir

$29.42

     Reyataz + 100mg Norvir

$27.43

Then there's the tropism test, estimated costs:

     For private payers: $1,800-$2,000 (negotiated based on volume, etc.)
     For public payers: $1,400-$1,600 (to be negotiated)

A person will have to take this test at least once and perhaps more than once. For comparisons, we've used $2,000 for private payers and $1,500 for public payers. Actual price may be lower.

Putting it all together, including ritonavir boosting for the PIs and the Trofile test for Selzentry, for the first year we get the following:

     Private payers, 1st year: (before negotiation)

     Selzentry

$12,585

     Aptivus

$12,527

     Prezista

$15,385

     Reyataz

$23,393

 

     Public payers, 1st year:

     Selzentry

$12,085 (base price, before discounts/rebates)

     Aptivus

$10,012

     Prezista

$10,738

     Reyataz

$13,374

The actual price for public payers will be lower for all the drugs since they will be further negotiated. Their relative positions though are unlikely to change much. All prices can change quickly when companies make their (usually) annual "cost of living" increases, which average around 5%. Five percent of $10,000 or $12,000 is another $500-$600 dollars each year, which is compounded and thus increases with each passing year.

And that's the real price of Selzentry and its competitors.




  
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This article was provided by Project Inform. It is a part of the publication Project Inform Perspective. Visit Project Inform's website to find out more about their activities, publications and services.
 
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