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How Roche Took Taxpayers for $1.4B by Charging $2,000 for Drugs That Could Cost $7


Genentech CEO Pascal Soriot and Severin Schwan, his boss at parent company Roche (RHHBY), ought to hang their heads in shame at the results of an Inspector General's report into how much taxpayers' money is wasted in overspending on their eye disease drugs: $1.4 billion every two years.

The 25-page report, written in plain English, brings together several years of research that Roche and Genentech would rather no one know about. It concludes that the company's two drugs, Avastin and Lucentis, are equally effective at treating the leading cause of blindness in people over age 65, but that Roche has manipulated their supply in favor of Lucentis, which costs $1,915 per dose compared to Avastin at just $7 per dose.

Amazingly, it's all legal. The Office of the Inspector General recommended a change in the law that would allow Medicare to do what everyone else who buys goods on the free market does: Discriminate between the two products based on their price.

You can measure the depth of Genentech's cynicism by looking at the reaction of its PR staff to the report:

We do not believe that cost should be the only factor considered when choosing a medicine. Genentech believes Lucentis is the most appropriate medicine for wet age-related macular degeneration as it was specifically designed for the eye and studied in 18 completed clinical trials to establish both the safety and efficacy of the medicine.

There is a growing body of evidence that suggests injecting off-label Avastin into a person's eye may pose greater risks than Lucentis. This evidence needs to be considered when making a treatment decision.

Genentech made a similar argument a few days ago, when the FDA warned that 12 patients had sustain life-threatening infections after a single compounding pharmacy had tried to save them money by using cheap Avastin in place of expensive Lucentis.

This is scaremongering, because it is not strictly true. Genentech suggests that the use of Avastin to treat wet age-related macular degeneration (wet AMD) was itself the cause of the infections. It was not. The infections were caused because Genentech packages the two drugs in a way that makes it difficult for doctors to use Avastin to treat blindness, the OIG report notes:

Avastin is packaged in 100- and 400-milligram vials that exceed the 1.25-milligram dose commonly used for treating wet AMD, physicians often use compounding pharmacies to repackage it into single-use syringes that contain the smaller intravitreal dose.
In other words, the infections occurred as Avastin vials were split into syringes containing the smaller doses required. Some of the injured patients have filed lawsuits. Legally they may not have case against the company, but from a moral point of view Soriot and Schwan knew this could happen and rather than acting to prevent it -- by offering Avastin for blindness -- they did the opposite.

A tax on both our houses
Both Democrats and Republicans ought to be enraged: Lucentis is the single biggest expenditure within the Medicare Part B budget. Here's why that is, per the OIG:

  • People treated for wet AMD on Medicare increased from 198,000 in 2008 to 218,000 in 2009.
  • During those years, patients were treated 936,382 times with Avastin and 696,927 times with Lucentis.
  • Medicare paid physicians $40 million for the Avastin treatments and $1.1 billion for the Lucentis treatments.
  • 97 percent of Medicare money spent on the two drugs for wet AMD goes to Lucentis even though 57 percent of patients are using Avastin
  • If Medicare were allowed by law to pay for all those treatments at the Avastin rate then it would have saved approximately $1.1 billion in taxpayer dollars and beneficiaries would have saved approximately $275 million in copayments.
  • Conversely, if some doctors and patient weren't making the effort to divert Avastin for use against wet AMD, Medicare would have increased its spending by approximately $1.5 billion and beneficiaries would have paid approximately $370 million more in copayments.
  • Genentech gets its price because Medicare is required by law to reimburse drugs at 106 percent of the average sales price.
Genentech and Roche get away with this because -- in addition to Medicare being banned from negotiating prices -- neither company has applied for FDA approval to market Avastin for blindness. Without that approval, the company can go on pushing Lucentis and blocking doctors and patients from the cheaper Avastin.

Sure, Genentech and Roche have a right to profit from the drugs they have created, the company told BNET, and Roche got $1.7 billion in sales from Lucentis last year. But even at just $7 a dose Roche made roughly $6.4 billion in sales from Avastin last year, as it's also used to treat a variety of cancers.

One could argue that with all the facts on the table, Genentech is merely allowing the marketplace to decide which drug to use. But that's not so either: Genentech incentivizes doctors to use Lucentis by giving them 3 percent rebates on every dose they inject, the OIG noted.

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Image by Flickr user cphoffman, CC.