Read the Fine Print on the $475,000 Price of a Cancer Breakthrough
Novartis could have priced Kymriah much higher, and it’s being unusually flexible.
Kicking it off, Gilead Sciences Inc. bought Kite Pharma Inc., a pioneer in “CAR-T” cell therapy, which uses a patient’s immune cells to potentially eradicate blood cancers with just one treatment. And on Wednesday, Novartis AG’s entry in this field, Kymriah, became the first such treatment to get FDA approval — a month ahead of schedule, to boot.
Making this even more interesting, Novartis priced the drug at $475,000 for one treatment. That is eye-popping, but well below even higher expectations of up to $700,000. And Novartis said it would offer ways to make the price even lower for some patients.
Kymriah will still be one of the most-expensive drugs ever, and its list price doesn’t include the other costs of administering a complicated treatment with major side effects. But if CAR-T drugs are to become more than just niche medicines, then drugmakers will have to be flexible on pricing. It is encouraging that Novartis is building such flexibility in from the start.
Novartis hopes to use “indication-based” pricing, meaning it would charge patients differently depending on what sort of cancer they have. Kymriah’s initial FDA approval is for a narrow group of patients: children and young adults with a specific blood cancer. These patients will likely be charged the highest prices. Not only is this a niche population, but the drug works particularly well in this group, with remissions achieved in 83 percent of patients within 3 months.
But in clinical trials for older patients with a different cancer, Kymriah hasn’t worked as well. So Novartis will likely charge that larger group less for the drug, if it is approved for those patients in the future. This would not be an entirely altruistic move on the drugmaker’s part. A discount may be necessary to get doctors to prescribe, and payers to pay for, a drug in a larger population that will see less benefit. If Kymriah is to meet Wall Street’s sales expectations, then it will need to move well beyond its initial approved use. Variable pricing may help.
Novartis is also working with the Centers for Medicare and Medicaid Services on a novel plan where it won’t charge for Kymriah if it isn’t working after a month. There’s room for the drugmaker to do much more here. In the narrow group of patients for which Kymriah has initial approval, the response rate after a month is very high. Relapses tend to occur later. That means discounts tied to long-term success would be more meaningful. But Novartis will end up eating the cost for some treatments — and that’s a big deal for a drug that is expensively manufactured for each individual patient rather than in large batches.
Novartis may still take some heat for its price tag, but it could have been much worse. A U.K cost-benefit analysis of CAR-T drugs suggested a $750,000 price could be justified. Novartis is notably scrapping the typical pharma playbook, which is to start high and privately give discounts to insurers. That would have been the wrong approach in this case, optically and strategically, inviting a fiercer backlash and slowing uptake of the drug.
Novartis knows how that movie goes. It thought its heart drug Entresto, approved in 2015, could be a blockbuster with $5 billion in annual sales. But pharmacy benefit managers and insurers afraid of such spending threw up roadblocks to the drug’s broader use — it only costs about $4,500 a year, but heart disease is a huge market — that have badly hurt sales growth and expectations. Analysts once expected Entresto to hit $1 billion in sales this year; now they expect that milestone to come in 2018, and just barely. By adding extra pricing levers for Kymriah, Novartis will be better at adapting to an even more complicated market than Entresto’s.
The fact that a $475,000 price looks something like restraint says a lot about the state of drug pricing in the U.S. But in this case, the fine print matters.
Originally posted on Bloomberg.com