"Happy new year" might not be the way, exactly, to describe the sort of 2005 that oncologists - not to mention their patients - might expect as a result of changes wrought by the Medicare Modernization Act.
How unhappy the year might be remains to be seen, but anxiety mounts as the date nears when the Centers for Medicare and Medicaid Services (CMS) implements the dreaded "ASP plus 6 percent" Part B reimbursement structure, affecting some 40 million (as of 2001) people enrolled in the programs. (See BioWorld Financial Watch, Nov. 1, 2004.)
Starting at the first of the year, reimbursement in free-standing cancer clinics will switch from a method based on the average wholesale price (AWP) to one based on the average sale price (ASP).
Payment for infused cancer drugs already slipped in 2004 to 85 percent of the AWP (the amount was 95 percent the previous year). In 2005, though, reimbursement shifts to the amount of the ASP plus 6 percent. The dip in payments to clinics (as opposed to hospitals) giving the cancer drugs rightly has made investors edgy about the likes of biotechnology giants Amgen Inc. and Genentech Inc. - both of which count on their cancer drugs to continue to sell well.
Amgen, of course, has Aranesp (darbepoetin alfa), the second generation of Amgen's red-blood-cell booster Epogen (epoetin alfa) and Neulasta (pegfilgrastim), the longer-acting version of Neupogen (filgrastim) for treating infection during chemotherapy.
Genentech's oncology leaders are Rituxan (rituximab) for non-Hodgkin's lymphoma, Herceptin (trastuzumab) for breast cancer, and the recently approved Avastin (bevacizumab) for colorectal cancer.
How much the situation will worsen may not be clear, but it's a pretty sure thing that the "private pay sector," i.e. insurance companies, will follow whatever happens as a result of the new CMS rules. They always have.
Especially likely to be due for trouble is the much-ballyhooed Avastin - the compound that has gilded the bottom line of Genentech, pulling in year-to-date revenues of about $354 million under the 95-percent-of-AWP guideline, applied because Avastin was approved this year and had "pass-through" status. Physicians end up pocketing several thousand dollars per course of Avastin treatment. Everybody, including many patients, has been pleased.
One of the firms more aggressively tracking the potential impact of CMS changes - to an extent that is even possible - has been Robert W. Baird & Co., which tried figuring the differences for Avastin from this year to next, and came up with what the firm called "a sizeable takedown" in profitability.
Under the 95-percent-of-AWP guideline, the implied, per-patient profit for a 10-month course of treatment is $9,350. Under the new guideline, it drops to $2,574. Baird finds Avastin's 2005 consensus revenue estimate of $1.1 billion - almost double the estimate for 2004 - "an increasingly difficult target."
A survey of 148 oncologists by CancerConsultants Inc. found that Avastin use likely is to decline by as much as 40 percent in 2005. Avastin most recently made news at the end of November, when Genentech disclosed that a randomized Phase III study of the drug plus the FOLFOX4 chemotherapy regimen (oxaliplatin/5-FU/leucovorin) improved overall survival in metastatic colorectal patients, compared to FOLFOX4 alone.
Avastin is not the only drug that might be bound for difficulty. Other biologics' usage also is due to drop, if the survey is any indicator.
Erbitux (cetuximab), the colorectal cancer drug from ImClone Systems Inc., Bristol-Myers Squibb Co. and Merck KGaA, will drop 39 percent in 2005. Intron (interferon alpha-2b) for hepatitis B from Schering-Plough Corp. could lose 38 percent. Rituxan's estimate from the survey is a 37 percent reduction, with the same for Chiron Corp.'s Proleukin (aldesleukin) interleukin-2 for metastatic melanoma and metastatic renal-cell cancer. The poll said Herceptin use could fall by 34 percent next year.
Another unfavorable note for Avastin - since it's used in combination with both - is the finding by the CancerConsultants survey that use of the cytotoxic agents Camptosar (irinotecan) from Pharmacia Corp. (since merged with Pfizer Inc.) and Eloxatin (oxaliplatin) from Sanofi-Synthelabo SA (now Sanofi-Aventis Group) might also go down. Camptosar use could sink by 29 percent and Eloxatin by 25 percent.
Among other high-profile drugs due for hits, according to guidance provided by the survey: Gemzar (gemcitabine), from Eli Lilly and Co., for the first-line treatment of inoperable locally advanced or metastatic pancreatic cancer (29 percent); Doxil, a form of liposomal doxorubicin from Ortho Biotech Products LP, a subsidiary of Johnson & Johnson (27 percent); and Velcade (bortezomib) for multiple myeloma from Millennium Pharmaceuticals Inc.
Avastin, though, may be due for some upbeat headlines shortly. Long-awaited data with the drug in colorectal cancer from the ECOG-3200 trial are expected in the second quarter.
On the upside for Genentech overall, Baird noted, the firm has 13 marketed products providing a diverse revenue stream - $3.3 billion last year, including $1.9 billion from the oncology part. Still, Baird remains "neutral" on the firm's stock.
The realization about CMS' impact has been slow to break, apparently. CancerConsultants also found that, in the first quarter of this year, 27 percent of surveyed oncologists had analyzed the financial impact. By the second quarter, that rose to 47 percent. By the third quarter, still only 59 percent had gauged the consequences (though 19 percent said they "didn't know").
If there's a ray of possible good news related to CMS, Baird said, it might be heralded by results of a survey several weeks ago dealing with supportive-care drugs. CMS has a "quality of care demonstration project" that suggests a brighter future for Aranesp and Neulasta, along with MGI Pharma Inc.'s Aloxi (palonosetron hydrochloride) for chemo-induced nausea and vomiting.
Winton Gibbons, analyst with William Blair & Co., said the breakdowns of possible consequences for oncologists are interesting, but noted the doctors are given "various multipliers and add-backs" that amount to a fee for service.
"Even if they weren't, are they not going to provide the drug?" he said. Regarding Avastin, Gibbons told BioWorld Financial Watch, "we've known what the ASP pricing is since August" and, though it has since changed, the difference works out to about 5 cents.
In any case, "I can't imagine doctors are giving expensive biologic chemotherapy solely to make money," Gibbons said. "That's just me. I believe they do plastic surgery to make money or diagnostics to make money."
The uptake of Avastin might have been fast because it was profitable, he allowed, and CMS changes will have an impact. "But does that mean [Avastin] is going to see a decline in 2005? I don't think so."