At $475,000, new cancer drug raises thorny questions about drug pricing — and value

September 4, 2017

Fabrice Coffrini/AFP/Getty Images

A first-of-its-kind cancer treatment is generating unbridled excitement — but also underscoring intense concerns over pricing and value.

The drug, which is known as a CAR-T therapy, is expected to dramatically raise the chance of survival for children who have an aggressive form of leukemia and fail to respond to other treatments.

The $475,000 price tag is much less than Wall Street expected and might disappoint some investors who hoped for a premium on such a complex drug. But it’s still causing anxiety among patients. Mindful of the hit its reputation could take, Novartis is offering, in effect, a money-back guarantee: If a patient fails to respond in the first month, there will be no charge.

“It’s not really straightforward to figure out what the price should be,” said David Epstein, a former head of Novartis Pharmaceuticals who now chairs a biotech called Rubius Therapeutics.

Indeed, the pricing for the Novartis drug, a one-time treatment called Kymriah, is one of the most closely watched developments in the heated national debate over prescription drug costs since a new generation of expensive hepatitis C medicines debuted three years ago.

Here’s why: The approach Novartis is taking underscores several front-and-center issues — how much Americans should pay for a medicine that is discovered with taxpayer dollars; whether it is feasible for a drug maker to forego payment if its treatment fails to help a patient; and the extent to which a company can successfully charge different prices for treating different diseases with the same drug.

“This technology is truly pioneering and groundbreaking,” said Bill Hinshaw, the head of U.S. oncology at Novartis. In trials, 83 percent of children with acute lymphoblastic leukemia who were treated with the drug were cancer-free three months later. And these children typically have no other option. “There’s a different kind of value proposition here,” Hinshaw said.

He also argued that Novartis could easily have charged more, since various models suggested pricing could — and should — be anywhere from $500,000 to $800,000. “But we were trying to determine how we can price this in a responsible and sustainable way,” he explained.

That sounds fair enough, but there’s more to the story.

The price will actually vary for each disease that Novartis treats with CAR-T. An interesting test could come soon, as Novartis hopes Kymriah will be approved to treat adults with an aggressive form of non-Hodgkin lymphoma. But trials showed the drug isn’t nearly as successful for those patients; just a third are cancer-free after three months. So the perceived value may be less.

As further uses are approved, “the price could be higher — and could be lower,” said Hinshaw. And Novartis might also encounter more pushback from payers as competitors, such as Gilead Sciences, start selling CAR-T drugs.

There’s another issue: The money-back guarantee may sound like a good deal, but it’s not clear how patient responses to the drug will be measured. Moreover, a 30-day cutoff can easily work in the company’s favor, since a short-term benefit is more typical among cancer patients.

“This may give us a chance to know if such deals really work,” said Dr. Steve Pearson, who heads the Institute for Clinical and Economic Review, a nonprofit that assesses the value of medicines and plans to issue a report on CAR-T drugs in March. “But you want to make sure the deals are transparent to see how they affect the bottom line.”

Meanwhile, David Mitchell, a cancer survivor who runs Patients For Affordable Drugs, claims analyses performed for his group indicate pricing is too high by as much as $150,000.

“The decision to set a price at $475,000 per treatment may be seen by some as restraint, but we believe it is excessive,” he said in a statement. “Novartis should not get credit for bringing a $475,000 drug to market and claiming they could have charged people a lot more.”

Prompting such criticism is uncertainty about what Novartis has invested to justify its pricing.

Novartis chief executive Joe Jimenez is on record saying the company invested more than $1 billion to get to this point, which would include running clinical trials and outfitting production facilities. But the company has declined to provide any breakdowns.

As it turns out, the drug was discovered with funding provided by the National Institutes of Health to different institutions, including the University of Pennsylvania, which partnered with Novartis.

In all, Mitchell and other activists calculate taxpayers provided $200 million to develop the CAR-T technology that is now being used by several companies to develop an array of drugs. (The procedure is quite complex: Patient blood cells are extracted and then modified to attack cancer cells before being reinjected into a patient.)

Novartis also received a tax credit equal to half the cost of clinical trials, according to Jamie Love of Knowledge Ecology International, a consumer group that tracks access-to-medicine issues. “When you propose a price like this, it’s incumbent to have more transparency,” he insisted.

Novartis certainly deserves credit for its efforts to keep pricing fair. And its shareholders deserve a return on the investment the company made in research and development. But if the company wants to dispel the notion that it will profit excessively on the backs of cancer patients and U.S. taxpayers, it needs to provide more information.

Value, after all, is in the eye of the beholder.