Spectrum Pharma Slashes Fusilev Price to Woo Doctors
The decision by Spectrum to offer deeper Fusilev price discounts in the second quarter suggests company executives are more concerned about competition from generic leucovorin than they state publicly. Fusilev sales have soared due to chronic supply shortages of the less expensive but clinically equivalent leucovorin. But if leucovorin supply returns to more normal levels, doctors treating their colon cancer patients might stop using the more expensive Fusilev and switch back to the cheaper generic alternative.
By offering deep discounts on Fusilev, Spectrum is trying to woo oncologists with the prospect of higher profits. Oncologists pocket the difference between the dollar amount that Medicare reimburses for Fusilev and discounted selling price that Spectrum charges. When Spectrum drops the Fusilev price but Medicare reimbursement stays the same, the profit margin for oncologists increases.
But this price-cutting strategy can't go on forever. Under Medicare rules, cancer drugs are reimbursed based on the actual (discounted) selling price plus a 6% premium, calculated with a six-month lag. That means Spectrum's discounted Fusilev price, if it continues, will eventually result in lower Medicare reimbursement and smaller profit margins for oncologists as early as the first quarter 2013.
Whether or not oncologists choose to stick with Fusilev and lower profit margins or switch to generic leucovorin remains to be seen. Either way, investors are concerned with Spectrum's surprise decision to slash Fusilev pricing in the second quarter because the colon cancer drug doesn't appear to be as profitable to Spectrum as previously believed.
--Written by Adam Feuerstein in Boston.
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