A Cancer Drug's Big Price Rise Is Cause for Concern
By ALEX BERENSON Published: March 12, 2006

On Feb. 3, Joyce Elkins filled a prescription for a two-week supply of nitrogen
mustard, a decades-old cancer drug used to treat a rare form of lymphoma. The
cost was $77.50. On Feb. 17, Ms. Elkins, a 64-year-old retiree who lives in
Georgetown, Tex., returned to her pharmacy for a refill. This time, following a
huge increase in the wholesale price of the drug, the cost was $548.01. Ms.
Elkins's insurance does not cover nitrogen mustard, which she must take for at
least the next six months at a cost that will now total nearly $7,000. She and
her husband, who works for the Texas Department of Transportation, are paying
for the medicine by spending less on utilities and food, she said.

The medicine, also known as Mustargen, was developed more than 60 years ago and
is among the oldest chemotherapy drugs. For decades, it has been blended into an
ointment by pharmacists and used as a topical treatment for a cancer called
cutaneous T-cell lymphoma, a form of cancer that mainly affects the skin. Last
August, Merck, which makes Mustargen, sold the rights to manufacture and market
it and Cosmegen, another cancer drug, to Ovation Pharmaceuticals, a six-year-old
company in Deerfield, Ill., that buys slow-selling medicines from big
pharmaceutical companies. The two drugs are used by fewer than 5,000 patients a
year and had combined sales of about $1 million in 2004.

Now Ovation has raised the wholesale price of Mustargen roughly tenfold and that
of Cosmegen even more, according to several pharmacists and patients. Sean
Nolan, vice president of commercial development for Ovation, said that the price
increases were needed to invest in manufacturing facilities for the drugs. He
said the company was petitioning insurers to obtain coverage for patients. The
increase has stunned doctors, who say it starkly illustrates two trends in the
pharmaceutical industry: the soaring price of cancer medicines and the tendency
for those prices to have little relation to the cost of developing or making the
drugs.

Genentech, for example, has indicated it will effectively double the price of
its colon cancer drug Avastin, to about $100,000, when Avastin's use is expanded
to breast and lung cancer patients. As with Avastin, nothing about nitrogen
mustard is changing but the price. The increases have caused doctors to question
Ovation's motive — and left lymphoma patients wondering how they will afford
Mustargen, which is sometimes not covered by insurance, because the drug's label
does not indicate that it can be used as an ointment. When given intravenously
to treat Hodgkin's disease, its other primary use, the drug is generally covered
by insurance.

"Nitrogen mustard has been around forever," said Dr. Len Lichtenfeld, the deputy
chief medical officer of the American Cancer Society. "There's nothing that I am
aware of in the treatment environment that would explain an increase in the cost
of the drug."
Dr. David H. Johnson, a Vanderbilt University oncologist who is a former
president of the American Society of Clinical Oncology, said he had contacted
Ovation to ask its reasons for raising Mustargen's price. "I'd like to have some
evidence from them that it actually costs them X amount, so that the pricing
makes sense," Dr. Johnson said.
"It's unfortunate that a price adjustment had to occur," Mr. Nolan said.
"Investment had not been made in these products for years."

Ovation, a privately held company, also needs the money to conduct research on
several new drugs for rare diseases, Mr. Nolan said. He acknowledged that Merck
still made Mustargen and Cosmegen, an antibiotic that is used to treat a rare
childhood kidney cancer, for Ovation. He said he was not sure when Ovation would
begin producing the drugs, and a Merck spokesman said that Merck would continue
to provide the drugs to Ovation as long as necessary. But people who analyze
drug pricing say they see the Mustargen situation as emblematic of an industry
trend of basing drug prices on something other than the underlying costs. After
years of defending high prices as necessary to cover the cost of research or
production, industry executives increasingly point to the intrinsic value of
their medicines as justification for prices.

Last year, in his book "A Call to Action," Henry A. McKinnell, the chairman of
Pfizer, the world's largest drug company, wrote that drug prices were not driven
by research spending or production costs. "A number of factors go into the mix"
of pricing, he wrote. "Those factors consider cost of business, competition,
patent status, anticipated volume, and, most important, our estimation of the
income generated by sales of the product."
In some drug categories, such as cholesterol-lowering treatments, many drugs
compete, keeping prices relatively low. But when a medicine does not have a good
substitute, its maker can charge almost any price. In 2003, Abbott Laboratories
raised the price of Norvir, an AIDS drug introduced in 1996, from $54 to $265 a
month. AIDS groups protested, but Abbott refused to rescind the increase.

And once a company sets a price, government agencies, private insurers and
patients have little choice but to pay it. The Food & Drug Administration does
not regulate prices, and Medicare is banned from considering price in deciding
whether to cover treatments.
While private insurers can negotiate prices, they have limited leeway to exclude
drugs from coverage based on price, said C. Lee Blansett, a partner at DaVinci
Healthcare Partners, which works with drug makers on pricing and marketing.
"Price is simply not included in whether or not to cover a drug," Mr. Blansett
said. The result has been soaring prices for some drug classes, notably cancer
treatments. In 1992, Bristol-Myers Squibb faced protests for its plans to charge
$4,000 a year for Taxol, a breast cancer treatment.
Now, most new cancer treatments are priced at $25,000 to $50,000 annually. In
some cases, companies are pushing through substantial price increases on
already-expensive drugs.

Last year, Genentech raised the price of Tarceva, a lung-cancer drug, by about
30 percent, to $32,000 for a year's treatment. In an interview last month, Dr.
Susan Desmond-Hellmann, the president of product development for Genentech, said
that the company had raised Tarceva's price because the drug works better than
Genentech had anticipated.
"Tarceva was a more powerful and more active agent than what we understood at
the time of launch, and so more valuable," she said. In an environment of
soaring cancer drug costs, Mustargen's previous price was a comparative bargain,
giving Ovation the opportunity to raise it substantially, said Dr. Richard
Hoppe, a professor of radiation oncology at Stanford University and an expert in
treating cutaneous lymphoma.
Mustargen's patent protection expired many years ago, so any company can make
it. But because its sales are tiny, no drug maker has invested in a generic
version.
"There's only one company that makes the drug, and they can decide what it's
worth," Dr. Hoppe said.

Nitrogen mustard was initially tested as a chemical weapon. Its properties as an
anti-cancer agent were discovered more than 60 years ago; today, it has been
superseded by newer, less toxic medicines, and it is a niche product, with sales
of only $546,000 in 2004, according to IMS Health, a market research firm.
Still, Dr. Hoppe and other oncologists call nitrogen mustard an effective
treatment for cutaneous lymphoma, which initially appears as a rash but can turn
deadly if it spreads inside the body. Some patients need only tiny amounts of
the ointment, but others must apply it every day across large areas of their
bodies. For instance, Ms. Elkins has a severe case of lymphoma and must cover
much of her body with Mustargen each day, a process that requires her to refill
her prescription every two weeks. She said that the ointment was working, so she
and her husband would find a way to pay for it.

Mr. Nolan of Ovation said that his company intended to work to improve access to
insurance coverage for Mustargen. But Ovation has just begun to petition
insurers to cover the drug. Meanwhile, patients are paying Mustargen's new,
higher price out of pocket. This is not the first time that Ovation has sharply
raised the price of a drug it owns. In 2003, the company bought Panhematin, a
treatment for a rare enzymatic disease called porphyria, from Abbott
Laboratories. While Abbott still produces Panhematin, Ovation raised
Panhematin's price, which had been $230 a dose, to $1,900, according to Desiree
Lyon, executive director of the American Porphyria Foundation. "It was a major
increase," Ms. Lyon said. But she said that Ovation had worked to improve
insurance coverage for Panhematin and to find ways for patients to get the drug
even if they could not afford it.

Ovation also financially supports the porphyria foundation in its efforts to
increase awareness of the disease and of Panhematin as a treatment, she said.
But many patients who rely on expensive drugs are stuck in a bind. Don Schare of
Saratoga, Calif., said he paid $1,260 last month for 200 grams of nitrogen
mustard cream, about 10 times what he paid for his prior prescription. Mr.
Schare, 69, said he was covered by the new Medicare Part D drug program and by
supplemental insurance from AARP, but that neither of his plans covered
Mustargen. Jeffrey Malavasic, 58, a retired railroad worker in Florence, Ore.,
said he had decided to fill only half of his Mustargen prescription when he
learned of the price increase. He used the drug sparingly in the past and will
be even more frugal, he said.



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