The Swiss take control
“Pharma companies believe acquisitions are the only way to keep their revenues growing as fast as investors expect. With today’s complex breakthrough medicines, it’s often cheaper for a company to acquire the next blockbuster drug than to develop it in-house.” http://fortune.com/2015/07/28/why-pharma-mergers-are-booming/
By 2009 the Swiss giant, Roche, had a 15 year history pharmaceutical company acquisitions–like Syntex in 1994 and Chugai Pharmaceuticals in 2002. Their CEO was an Austrian born economist. Married with three children he skied, hiked, and made movies in his spare time. Initially thought of as shy he led the company when it plunked down billions and entered the cancer drug fray. Buying California based Genentech for $46.8 billion the company acquired a lot of debt and three antibodies that were used to fight cancer: bevacizumab, herceptin, and rituximab.
The cost of their acquisition virtually cemented their need to charge high prices and to sell a lot of these drugs. If, at the time, some companies were uncomfortable charging a lot for anti cancer drugs, seems to me that they now no longer had much of a choice. Their shareholders would (no doubt) expect little less than a $100,000 a year price tag for significant products
The entity Roche purchased, Genentech had started as a company that produced hormones. The existence of these important proteins was unknown before the 20th century, and before the 1970s they had been extracted from the glands of dead animals and human cadavers,then purified and manufactured. Contaminants were always a concern. In the 1970’s scientists at UCSF and Stanford discovered how to alter molecules of DNA found in bacterial plasmids. (Plasmids are small molecules of bacterial DNA that are not part of the nuclear DNA.) The Genentech founders figured out how to splice new genes into plasmid DNA and put the altered DNA back into the bacteria. When everything went according to plan, the new gene survived and continued to exist in future generations. The “right” Implanted genes could then tell bacteria to make a desired protein or a hormone. In the early decades of its existence Genentech made hormones and vital proteins.
At some point (according to one account) Genentech didn’t have a hormone or factor it wanted to produce, and had researchers who knew how to create antibodies.
In the wild (and in the lab) antibodies are made by white cells called B lymphocytes. Much as millions of ear hair cells work together to create a unique sound, and much as millions of retinal photo receptor cells act in concert and allow us to discern subtle differences in color, the intensity of light, a face, butterfly— similarly “B” cells work as a team. Each B cell has a unique sensor (membrane bound antibody) on its outer layer and can recognize one and only one protein complex. As a group all the B cells in the body can recognize almost 10 billion foreigners. After a B cell recognizes and bonds to a protein it makes antibodies and starts cloning itself—making large numbers of B cells that recognize the same protein and that make the same antibodies.
Man learned how to make our version of monoclonal antibodies in Cambridge England In 1975. A researcher from Argentina and a German scientist injected an antigen into a mouse and waited for the creatures B cells to clone themselves and make antibodies. Then they stuck a needle into the mouse’s spleen and removed blood. It contained a lot of the B cells that were making the desired antibody. They added cancer cells –myeloma cells—cells that don’t die. And they poured in some polyethylene glycol. Some of the B cells and myeloma cells fused, creating a hybrid. They called it a hybridoma. The scientists then identified and collected the new breed of cells, and put them into a nourishing medium. The cells survived, thrived, and they kept producing the desired antibody.
The Roche drug with sales in 2010 of $7.4 billion, Bevacizumab, Avastin, is a monoclonal antibody that slows or stops the creation and development of new blood vessels. By so doing it interferes with the enlargement of some tumors.
It was developed by a Genentech researcher named Napoleone Ferrera. Joining the company in 1988 he and his group spent years characterizing the protein and developing the humanized antibody that became the drug. The years of research were costly and privately funded, and the company was ultimately richly rewarded. The drug remains pricey and is not always covered by insurers. Using it can create an additional burden for people who are living on a tight budget and have widespread disease.
In 2008 Roy Vagelos, the chief executive of Merck commented on the price trend. His remarks were reported in the New York Times. He said he was troubled by an unnamed drug (thought to be Avastin) that “costs $50,000 a year and adds four months of life. He called it a shocking disparity between value and price.” http://www.nytimes.com/2008/07/06/health/06avastin.html
Vagelos was 79 at the time. His attitude and remarks were influenced by what he did when he was the CEO of Merck in the 1960s. Back then he was approached by a researcher on his staff named Mohammed Aziz. Aziz had been in Africa and had seen people infected with the filariae that caused river blindness. 100 million Africans were at risk for the condition and the parasite had blinded 18 million of them. The invading worm existed in two forms: adults, which can be 6 to 15 inches long and exist as lumps under an infected person’s skin; and the filaria, a small organism that infiltrated the skin and caused intense itching. The black fly that lived in the river spread the parasites from one person to the next.
People who had the problem were constantly scratching themselves. When kids scraped their skin, then touched their lids, the microfilaria got into their eyes. The subsequent eye inflammation, lead to scarring and blindness. In some villages 25% of the inhabitants couldn’t see. In an attempt to escape, many moved away from the river to less fertile ground and suffered from malnutrition.
Ivermectin, a Merck drug that had been one of the large pharmaceutical company’s financial failures, destroyed the filariae that attacked horses. Aziz suggested it might have an effect on the creatures that blinded so many Africans.
The company was, at the time, doing quite well. It had started long before as a German company. In its early days it made medicinal morphine and codeine; it had also been the birthplace of one of the first medical books for the masses, the Merck Manual. In 1966 Roy Vagelos a physician and academic lipid researcher, became the company’s CEO. Under his leadership the company developed Lovastatin and Simvastatin, the first drugs that limited the body’s production of cholesterol. The company then sponsored studies that proved that the drugs lowered the risk of heart attacks and death.
At the same time scientists at one of the company’s labs discovered a drug that killed a number of the worms that attacked cattle, sheep and horses. Called Ivermectin it was marketed as a means of preventing heartworm in dogs, but it didn’t do much for hookworm or the parasites that attacked man. Its commercial value was limited. Further research on the chemical was suspended. It was shelved until the day that Aziz met with Vagelos and got permission to perform additional studies.
Merck produced a quantity of pills, and Aziz went to Senegal to study their effect.
Pinch biopsies of the skin of infected people showed huge numbers of the filariae. Half of the people who were infected got a pill and the other half didn’t. A month later a second biopsy showed the filariae had been eradicated from the people who had been treated.
Based on the positive results Merck spent years performing tests that proved Ivermectin was safe and effective. Then they went to the African leaders and tried to sell it for a dollar a pill. The government had no money. OK, 50 cents a pill, a dme, the Merck representative said, but the government really didn’t have enough money. The World Health Organization was spraying rivers with insecticides (though the black flies were already becoming resistant to the spray). The WHO wasn’t interested. Officials in the U.S. State department and at the White House were excited but “the government was broke.” (Ronald Reagan was president.) The French were about to approve the drug. (There were cases in Paris that had originated in colonial Africa), but in the U.S. the FDA wasn’t interested.
Merck was in business to make money and to enrich its officers and stockholders. But the drug was ready; these were the 1980s, and Roy Vagelos the guy in charge was a doctor as well as a business man. Vagelos and others at Merck decided they would provide the medication free of cost to anyone who would use it. They had spent millions to develop the medication. Providing it gratis would cost the company (and its shareholders) tens of millions of dollars, but Vagelos made the announcement and waited to see how the stockholders would react.
He claims he received a lot of positive feedback but he didn’t get one negative letter. For years, thereafter, the best of the best researchers in the country wanted to come to and work for Merck. And Vagelos stayed on as head of Merck for an additional 6 years.
In his New York Times quoted speech he said the high prices charged for Avastin were, “not sustainable.” He was wrong.
Keeping the price of Avastin high has been a struggle. That year (2015) the British National Health Service and some insurance companies were disturbed by the thought of spending tens of thousands of dollars for the extra months of life the drug could provide. Headquartered in Switzerland, Hoffman La Roche–According to “The Street’—had to resist an effort by many European countries to lower the price of their expensive, cancer fighting drugs. “A bid to push down drug prices by the Swiss health ministry “infuriated drugmakers”.. and the company warned that such a move would hurt employment and would have a “negative impact on their future contribution to the Swiss economy.” In the years subsequent to its release Avastin’s annual revenue always topped $5billion.
The second drug Roche acquired, herceptin, as also an antibody. Once injected antibodies float through the body and recognize cells containing the targeted protein-the gene. Most cancer causing genes “are sequestered deep in the cell.” The gene in question, neu, by contrast, is connected to the cell membrane and “a large fragment hangs outside.”)
Genes are strings of DNA in the nucleus. They direct the cells: make them grow, die, and function. Every human cell has the same 21,000 genes. One of Genentech’s scientists, Axel Ulrich made an antibody that targeted a previously ignored gene. His target, neu, had caused cancer in the brains of rats. It was discovered in the 1970s when a researcher (working with Robert Weinberg at MIT) had injected the “DNA from neurological tumors in rats, into normal mouse cells. The injected cells had turned cancerous.” After the gene was discovered it was seldom used and “more or less forgotten.” ” http://www.nytimes.com/books/first/b/bazell-her.html
Ulrich’s antibody would attach to neu and create an abnormal complex. A macrophage, a white cell that “engulfs and rids the body of cellular debris” would float by. It would sense the antigen-antibody combination, know it doesn’t belong, and clean up the “mess.”….obliterates the antibody and the cell that it’s attached to.
Once created, the antibody to neu, was intriguing, but not really useful. Ulrich talked about it when he gave a seminar at UCLA in 1986. One of the attendees, Dr. Dennis Salmon was interested. According to Mukherjee, Salmon thought he and Ulrich should collaborate. Ulrich gave UCLA a DNA probe that identified neu, and Salmon checked his array of cancer samples and see if any of them were, perhaps, driven by the gene. Until that time it had only been found in mouse brain tumors. There didn’t seem to be much chance that it would turn up in a human tumor.
But it did. The oncogene, now called Her-2/neu, was found in some breast cancers, and it turned out to be an important reason for their rapid growth. Some breast cancers made and used it in large quantities. Scientists implanted Her-2 containing cancers in a mouse and watched them grow wildly. Traztuzumab, the antibody that inactivated Her-2 caused the cancer cells to die.
The scientific findings were intriguing, but it took a while before Genentech was fully committed to the idea of making a cancer drug. It would be a first for them. Their prior monoclonal antibodies had produced something the body needed: insulin, clotting factors for hemophiliacs, growth hormone. A drug that interfered with cancer was a reach.
Salmon kept working the project. They shouldn’t use the standard mouse monoclonal antibody. It could trigger an immune response. They found a Genentech scientist who knew how to produce humanized monoclonal antibodies. In the summer of 1990 he successfully created Herceptin. Women with breast cancer became experimental subjects. 15 were studied in 1992. 900 were tried on the drug in 1996. It kept making a difference. When, in 1998, the drug application was submitted to the FDA it was quickly approved. Its initial monthly price was $3,208. It rose to $4,573 in 2013.
The research and development costs were part of the overall lab costs of Genentech. Before Genentech found a useful antibody the company scientists probably produced a lot of duds. So the overall cost of creating a new drug was significant. Testing, development, and getting FDA approval costs a lot. I suspect hundreds of millions of dollars were spent in the process.
But the reward, $6 billion plus a year, dwarfs the expenses. The high price tag has little to do with research and development and much more to do with the way the market works. The pharmaceutical manufacturer has a five year monopoly. During that time they have no competition and can charge whatever they think they can get away with. People with insurance don’t pay for the drug so there’s usually not much of a public outcry. If one company charges less for a new cancer medication others might follow suit, and that might upset the apple cart. To enhance stockholder value prices need to stay high. And of course Roche had a need to recoup the $46.8 billion they paid when they bought Genentech in 2009.
When Roche announced their revenues in 2016, the third antibody they had acquired from Genentech, Rituximab topped the list. With $7.3 billion in annual sales worldwide and $3.9 billion in the U.S., the drug was on fire. In an unsubstantiated 2011 blog a person with rheumatoid arthritis said that one hospital charged $11,288 for his 6 infusions and another charged $18,544.
When pharmaceutical spokes people justify the high price of drugs they commonly invoke the cost of research, but are unable to supply details. Rituximab provides a window into how much it really costs to create an innovative medication if researchers have a strong sense of where they are going and how they are planning to get there.
Approved by the FDA in 2012 the injectable antibody has revolutionized the treatment of some lymphomas. It targets a unique protein on the surface of only one kind of human cell: the B cell. Part mouse and part human (chimeric) in origin, the antibody was first tested for dose and toxicity in 1994.
The drug was developed by a San Diego start up called Idec. Its founders included a San Diego immunologist and several Stanford university researchers. From the start (1985) they were looking for a monoclonal antibody that could be used to treat B-cell lymphomas. There are about 240,000 cases of the disease in the U.S. each year. They were also trying to develop a monoclonal antibody that would improve some autoimmune and inflammatory diseases. Their efforts consumed millions of dollars.
In 1991 they needed more money and had an initial public offering of stock. The proceeds gave them enough to get through FDA phase one testing–(toxicity– dose) and phase 2—treating patients and seeing if the drug worked. They had allegedly spent $80 million to this point. They did not have the money necessary to perform the phase 3 studies the FDA requires before they approve a drug. The startup couldn’t get the drug to market.
In 1995 their CEO, a former Genentech guy, signed a collaboration agreement with his former employer, Genentech. The giant chipped in $60 million and acquired “a majority of the sales and profits that Rituxan would generate if it earned FDA approval.”
It was initially approved in 1997. Out of the gate Genentech charged $3475 for a month’s worth of the infusion. In 2002 $1.47 billion of the drug was sold. Genentech got most of the money. Idec got $370 million. By 2013 the average 30 day cost of infusions had gone up to $5031.
Vis-a-vis the price having something to do with the cost of development, Idec spent $80 million and walked away with $370 million. Genentech spent $60 million and hit the jackpot. The cost of research, development and getting the drug to market was $140 million. In 2017 it brought in over $7000 million—$7 billion.