A $475,000 price tag for a new cancer drug: crazy or meh?

Forget McGregor-Mayweather. The biotech world has been waiting for months to hear about Novartis’s pricing decision for Kymriah, its just-approved CAR-T therapy for cancer. That interest turned into anxiety days earlier when Gilead announced its purchase of Kite, given that Kite is expected to be the next company to market its own CAR-T treatment and Gilead — rightly or wrongly — is viewed as a company ready to push the envelope on price in service of its shareholders.

So in the past few days, we have learned that McGregor is not Rocky Balboa and that the first CAR-T drug to get to the marketplace has a price of $475,000, a number that is both so large and so lacking in context that it is difficult to determine if it is too high by fivefold or too low by half. (Complicating any analysis, this price tag does not include all of the attendant medical costs that will be incurred when this treatment is administered.)

Common sense is a poor guide after the decades-long run-up in cancer drug prices that has moved us from mouths agape in response to a price of $1,000 a month to meh in response to a price of $20,000 a month. Our plan is to wait for the Institute for Clinical and Economic Review’s independent assessment of CAR-T therapy pricing, due out on March 16, 2018.

Two parallel features of the Novartis announcement, independent of the price of Kymriah, are harbingers of long-needed moves toward value-based pricing, an approach that directly links a drug’s price to a transparent measure of its benefit. Novartis has announced that in Kymriah’s first indication, young adult and pediatric acute lymphoblastic leukemia, the company will charge for the drug only when it achieves a clinical response.

We recently reviewed the strengths and weaknesses of this approach, called an outcomes-based contract. While charging only when a drug works can align price with benefit, there are a few tricks that companies can use to steer around this objective.

One approach is to charge a price that is far too high in the first place, so any reconciliation linked to outcomes only modestly moves the net price. Another approach is choosing the wrong outcome, or one that tilts towards the drug delivering a benefit. Concerns will doubtless be raised that Novartis is putting its thumb on the scale by choosing to score a response by 30 days as success, rather than waiting for a year to see how the patient fared. Short-term responses in cancer are, by definition, more frequent than long-term benefits, often termed the duration of response.

In this case, it is a fair criticism of Novartis’ approach. In the pivotal trial of Kymriah, 25 percent of patients who at first responded to the drug had disease progression by six months. Novartis may also point out that the company needed its outcome to parallel the outcome on the FDA label, although we are not convinced that this limitation is strict given that companies like Amgen have contracted on endpoints not on their FDA labels.

That we and policymakers will be able to watch how this contract is executed, and ultimately reconciled, is another step forward toward value-based pricing, something essentially guaranteed because the agreement is with a public payer. The few outcomes-based contracts that have been announced in the past have generally been between private insurers and pharmaceutical companies, and the terms have been proprietary.

For instance, in an article reporting on an outcomes-based contract for Roche’s cancer drug Avastin, the results table is labelled as explicitly not including the actual terms of the agreement. In Novartis’s announcement, the company calls out indication-specific pricing. This idea, introduced in 2014, capitulates to the reality that for many drugs, such as those used to treat cancer, the magnitude of the benefit can vary between indications. That means the value-based price will vary too.

In conjunction with the Centers for Medicare and Medicaid Services, Novartis announced that it will be entering the market in a manner that its next approved indication for Kymriah may have a different price from the $475,000 announced on Wednesday. The mechanics of how the company will achieve having two prices in the market have not been spelled out, but the Institute for Clinical and Economic Review recently reviewed several possible approaches that might work.

We see this as a step forward. It is an approach already being tested in the private sector with the Express Scripts and CVS, two massive pharmacy benefit managers, offering indication-specific pricing approaches to some oral anti-cancer drugs.

There seems to be bipartisan interest in this approach as well, as the notion that Medicare Part B drugs (many of which are used to treat cancer) were proposed to be approached under indication-specific pricing under the Obama administration as part of a pilot program that was never finalized — an effort that is being advanced by the current administration. We note that Amitabh Chandra and Craig Garthwaite, two well-regarded health economists, have criticized this approach as one that could shift more profits to manufacturers.

But a Twitter war seemed to clear up all of the disagreements.

Anna Kaltenboeck is a senior health economist and program director and Peter B. Bach, M.D., is the director of the Drug Pricing Lab at Memorial Sloan Kettering Cancer Center in New York. Bach has received payments from Novartis.

This article was updated to include an author’s disclosure.