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LONDON (Reuters) - Cancer is the fastest-growing section of the drugs market but developing new treatments is only half the battle. Persuading payers to use them, particularly in Europe, is another matter.
Recent multi-billion dollar bids for Genentech and ImClone by Roche and Bristol-Myers Squibb highlight Big Pharma's desire to secure revenues from modern cancer blockbusters like Avastin and Erbitux.
Yet use of both these medicines remains controversial in key European markets, where state-backed healthcare systems are struggling with the escalating cost of cancer treatments.
The issue has come to a head in Britain, where the National Institute for Health and Clinical Excellence (NICE) has led the world in assessing the cost-effectiveness of drugs since 1999.
Similar "health technology assessment" bodies are blossoming across Europe as authorities seek a rational way to assess whether costly new targeted cancer therapies, which may improve life expectancy by a few months, are worth using.
"Payers are all wrestling with the same thing: the level of potential demand for these new treatments," said David Twinberrow, director of oncology at healthcare information provider IMS Health. "Affordability is a big issue."
He expects global sales of cancer drugs to grow at an average annual rate of 12-15 percent over the next five years - twice the rate of the overall pharmaceutical market - and reach $75 billion to $80 billion by 2012.
But that buoyant growth is forecast to drop below 10 percent by the end of the period, reflecting growing financial constraints on payers and increased competition.
LAGGING BEHIND U.S.
Europe, which already lags well behind the United States in using modern medicines, is at the sharp end of the squeeze.
Germany, France, Britain, Italy and Spain - which together have a population slightly larger than that of the United States - accounted for just 28 percent of worldwide cancer drug sales in 2007, against 44 percent for the United States.
Over the next five years an estimated 25 to 30 new chemical entities are forecast to enter the cancer space, reflecting an explosion of research into new ways to fight tumours in the breast, lung, prostate, pancreas and other organs.
Many are likely to be approved but they may not reach patients because governments won't consider them cost effective, according to Thomas Lonngren, executive director of the European Medicines Agency - the equivalent of the U.S. Food and Drug Administration.
"That will be a different decision in each member state (of the European Union) because this is not harmonised," he said.
Britain, where NICE has failed to approve both Avastin and Erbitux for use on the state-run National Health Service (NHS), is by far the toughest European market for new cancer drugs.
But hurdles exist elsewhere, too.
France, the largest market for Avastin outside the United States, earlier this year recommended the drug as "level V" therapy in lung cancer - a category of medicines that are not typically reimbursed.
Germany's joint committee on reimbursement, meanwhile, has suggested a second oncologist opinion should be required before Erbitux is used, while Italy has sought price discounts on Pfizer's Sutent and Bayer's Nexavar.
NEW STRATEGIES
Industry analysts at Citigroup say reduced revenue expectations due to pricing pressures and the threat of more competition represent "the key downside risk" to forecasts for Roche, the world's biggest producer of cancer drugs.
To deal with the problem pharmaceutical companies are pursuing a range of novel pay-for-performance strategies.
Johnson & Johnson, for example, has entered an arrangement whereby Britain's NHS will only pay for its blood cancer drug Velcade in patients for whom it proves effective, as measured by a blood test.
GlaxoSmithKline, which last month had its Tykerb breast cancer pill rebuffed by NICE, is investigating "innovative pricing mechanisms" for its products, a spokeswoman said this week.
Sometimes, however, drugmakers decide the price of accommodating one particular payer is simply too high, especially if it jeopardises prices in other markets.
Roche recently decided not to give data for NICE to assess Avastin.
Still, in the long run the payers have the whip hand.
"It will be an unwise company over the long term that doesn't engage with NICE because it is a body that has influence beyond our shores," said Richard Barker, director general of the Association of the British Pharmaceutical Industry.
