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Drugmakers see innovation justifying further price rises

By Deena Beasley SAN FRANCISCO, Jan 17 (Reuters) - As U.S. consumers are asked to shoulder more prescription drug costs, drugmakers say prices for brand-name medicines will keep rising, mainly because use of their products reduces other healthcare costs.

Switzerland-based Roche Holding AG has a growth rate above the industry average due to its "high-quality" products that command "better prices, with fewer price cuts," Chief Financial Officer, Alan Hippe said, speaking at the annual JP Morgan Healthcare Conference in San Francisco earlier this week.

As long as Roche, maker of drugs like Herceptin for breast cancer, can prove that its new therapies work better than existing drugs, it can maintain pricing trends, Hippe said.

The company's leukemia drug Gazyva, priced at around $41,000 for a course of therapy, was the first to receive approval last year under a new U.S. regulatory program for "breakthrough" therapies that show promise in early testing. The Food and Drug Administration launched the pathway in response to scientific advances, especially targeted therapies designed to work for those with certain genetic mutations.

"A lot more people in pharma are asking the question of not just approval, but reimbursement," said Todd Davis, managing director at HealthCare Royalty Partners, which structures financing deals for biotech companies tied to drug royalty payments. "If you have another me-too product, or even worse, a product not as good as other market alternatives, it's a tough road." But there has been sticker shock. A consortium of influential leukemia specialists appealed last year in the journal of the American Society of Hematology for drugmakers to reign in "unsustainably high" costs that many patients cannot afford.

U.S. spending on the top 20 prescription medications rose 14 percent between 2008 and 2012, when it totaled nearly $326 billion, even as top-selling drugs like Pfizer Inc's cholesterol-lowering Lipitor became available as low-cost generics, according to the latest numbers available from market information company IMS Health.

Spending on therapies for multiple sclerosis, a disease in which the body's immune system attacks the central nervous system, more than doubled over that period, reaching nearly $9 billion in 2012, the IMS data show.

Drugs to treat cancer topped the list, at nearly $26 billion in 2012, compared with spending of less than $20 billion four years earlier.

At the same time, health insurance plans offered by employers as well as coverage now available under President Barack Obama's Affordable Care Act are asking consumers to pay a bigger share of drug costs - in the form of higher co-payments and deductibles.

As a result, there is more pressure than ever to prove to governments and health insurers - which still pay for most prescription drugs - that a particular medicine does indeed improve health, ideally lowering overall healthcare costs by keeping patients out of the hospital or well enough to work.

Pharmaceutical industry executives attending the conference this week expect that dynamic will remain in place, rewarding them with even higher income for their best-performing products.

The United States, with 5 percent of the world's population, now accounts for about 35 percent of global spending on prescription drugs.

Roche expects that to continue "for the foreseeable future." Other developed markets, totaling 10 percent of the world's population, account for about 37 percent of spending. The remaining 28 percent of drug sales are in emerging markets, which account for 85 percent of the population.

The United States spends more per capita on pharmaceuticals because prices here are market based. In European countries and many developing nations, government run health plans, rather than drug manufacturers, set reimbursement rates.

PRECISION AT A PRICE BioMarin Pharmaceutical Inc sells some of the most expensive drugs for extremely rare diseases, including the $350,000-a-year enzyme replacement therapy Naglazyme. It sees little risk to the U.S. reimbursement landscape "if you have a compelling clinical value proposition," according to CEO, Jean-Jacques Bienaime.

He said payers trim billions in spending every year when older and more widely used drugs, like Lipitor, go generic. "It's not like their budget is exploding," Bienaime said, noting that U.S. spending on pharmaceuticals dropped for the first time in 2012 from a year earlier.

"Payers are becoming smarter," said Anne O'Riordan, global managing director of Accenture Life Sciences. "They are asking for more proof of efficacy outcomes." John Lechleiter, CEO at Eli Lilly said drugmakers need to show that their medicines are cost effective.

"Increasingly, with personalized medicine, we're able to be much more precise and much more specific about which drugs may benefit certain patients more than others," he said.

That precision has a cost.

Express Scripts, which manages pharmacy benefits plans for major employers, said it is now budgeting a 10 percent annual price increase for brand-name drugs, and 14 percent for "specialty" products like cancer medications.

"The bottom line is that we're not the tobacco industry," said George Scangos, CEO at Biogen Idec Inc, which last year began selling a new pill for multiple sclerosis, Tecfidera, at an annual price of $54,900. "We come to work every day to make people healthier." Like many drugmakers, Biogen has assistance programs in place to help patients cover their out-of-pocket costs for prescription drugs.