GCEA and Mark Cuban changed how I think about drug pricing

THE NEW SONG

I recently had the opportunity to interview Gunnar Esiason on the Leerink Center for Pharmacoeconomics podcast about the far-reaching impact of biopharmaceutical innovation, as well as the time, effort, and capital that goes into developing new treatments. If unfamiliar with his story, his ESPN E60 documentary is a must-watch. From the documentary press release:

“Gunnar Esiason was just two years old when he was diagnosed with cystic fibrosis (CF), a genetic disease that causes the lungs to fill with mucus, making breathing difficult. At the time, the average life expectancy for someone with CF was around 30 years. With reporting by E60’s Jeremy Schaap, the program explores groundbreaking advancements in cystic fibrosis treatment, the challenges faced by families affected by the disease, and a father’s unyielding determination to secure a future for his son.”

The biopharmaceutical industry has many phenomenal stories to tell, Gunnar’s being one of them. Less told is the risk and the money that it took for those stories to be a reality. Three of our industry’s leaders talked about the 18 years and $13 billion it took to get a breakthrough cystic fibrosis therapy in a recent Vital Health podcast.

Maybe even less told is why a drug’s price is worth it. That breakthrough cystic fibrosis treatment has a list price around $300,000 per year. A drug’s price, especially of that magnitude, is understandably scrutinized. One of the speakers on the Vital Health podcast who has a child living with cystic fibrosis helps put that price in perspective when he said:

“My son who typically could cost upwards of $500,000 a year in hospitalizations hasn’t been in the hospital once. And he’s alive. And now he works and pays taxes and he’s not a burden on the health care system. And soon that drug is gonna cost pennies. So why aren’t people tracking costs avoided?”

The good news is health economists are tracking costs avoided. Generalized cost-effectiveness analysis (GCEA) provides a framework for consideration of health system costs, less commonly quantified societal costs, and rarely accounted for expected changes in a drug’s price over time. The quote above talks about hospitalizations, work productivity, and future genericization—all of these would be tracked in a GCEA.

The teams at No Patient Left Behind and entityrisk looked at Trikafta^® (cystic fibrosis therapy) under a GCEA framework. Under the GCEA framework, which tracks these health system and societal costs and accounts for expected price changes over time, the cost-effectiveness estimates were far less than commonly used thresholds for cost-effectiveness (some even cost-saving) although no single threshold is recommended or known.

No one is claiming that GCEA is a perfect science, but it can be a helpful tool to understand the impact of an innovation on stakeholders and to inform decisions. We may not know what the optimal price is to support a perfectly dynamically efficient system; however, GCEA can tell us what we might have to believe to find the market-based price “worth it.” For Trikafta, the GCEA suggests we have to believe that generic competition will eventually enter and result in substantial price drops.

That leads me to how the Mark Cuban Cost Plus Drug Company changed how I think about drug pricing. Their prices are so transparent it became impossible to not acknowledge that drug prices change over time. Drugs that were priced at more than $100,000 per year during their branded period can have generic equivalents that only cost a couple hundred dollars a year. See our earlier newsletters that provide specific examples of this for dimethyl fumarate and imatinib.

GCEA explained to me the importance of future price drops (after an appropriate protected period) for health system efficiency and affordability. The Mark Cuban Cost Plus Drug Company showed me it is already happening.

SO WHAT

It isn’t hard to believe that generic competition will eventually enter for Trikafta and its price will drop substantially. However, this requires thinking over the long-term. It’s a move from short-term budgetary thinking to long-term efficiency.

Biopharmaceutical innovation has the potential to save health system costs, but this often requires thinking beyond the initial period during which the price of a drug is “high.”

A real-world data analysis using claims data showed that over the first 180 days on Trikafta, the medical costs went down by approximately $16,000 per person receiving treatment. This doesn’t include the cost of the drug though. When we look at the drug costs over the same 180-day period, the pharmacy costs increased by approximately $156,000 per person receiving treatment. Therefore, during the time when Trikafta has exclusivity and its price is “high,” it will result in higher total health care expenditures on average. The real-world data analysis suggested an increase in total cost of health care of $140,000 per person receiving treatment over that 180-day period.

However, this only considers the short-term health system budget impact while the drug has market exclusivity. Let’s think long term. If generic competition eventually drops the price to less than $16,000 for a 180-day course of treatment (or less than $30 per pill given a typical Trikafta regimen is three pills per day), the health system could experience cost savings.

In an analysis I conducted with Dr. Joey Mattingly, we abstracted the manufacturer price (i.e., price before any markup or shipping cost) for each NDC in the January 23^rd, 2024 price list from the Mark Cuban Cost Plus Drug Company. For generic pills (n=1,639 unique NDCs), the median manufacturer price for a generic pill was around $0.20 per pill. As is common with cost data, the distribution was positively skewed. However, the 90^th percentile was still less than $4 per pill.

Trikafta is just one example of a pharmaceutical that has the potential to save health system costs with market competition.