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A $2 million drug is about to hit the market

The Wall Street Journal. logo The Wall Street Journal. 5/7/2019 Denise Roland
© Bill West/Associated Press

A new treatment for an infant muscle-wasting disease is about to go on sale at a potential cost of $2 million, a record price tag likely to fuel the continuing scrutiny of how companies price their drugs and how insurers pay for them.

Novartis AG has yet to set a price for the gene therapy called Zolgensma, but executives say the drug’s potential to cure spinal muscular atrophy, an inherited disease that typically kills babies before they turn two, justifies a seven-figure price.

Gene therapies target diseases that result from a faulty gene by introducing a working version into the body. They are attracting interest, both for their ability to cure otherwise devastating illnesses in one treatment and also for their high cost. Luxturna, the only gene therapy on sale in the U.S. so far to treat a form of inherited sight loss, costs $850,000 a patient.

“A therapy is useless if no one can afford it,” said Cathryn Donaldson, a spokeswoman for America’s Health Insurance Plans, an industry association. She said members want to encourage innovation but that high prices are a problem.

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The issue is gaining in importance as more gene therapies go on sale. The Food and Drug Administration expects to approve 10 to 20 gene and cell therapies a year by 2025.

Zolgensma is expected to go on sale soon, with an FDA decision due this month. The treatment tackles spinal muscular atrophy, whose sufferers lack a gene essential for muscle control. Without treatment, victims of the most severe form typically die before their second birthday, making SMA the most common genetic cause of infant death. Between 400 and 500 babies are born with SMA every year in the U.S., around 300 of whom have the most severe version.

All 12 babies treated in Zolgensma’s first clinical trial have passed their second birthday, with most hitting key milestones like holding up their heads, eating by mouth and sitting unaided.

Insurers nonetheless balk at such high prices. That is partly because they’re accustomed to paying for courses of therapy—some of which amount to millions of dollars over the lifetime of a patient—over time rather than in one treatment.

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They are also wary of paying the entire bill upfront when a treatment’s effect could wane over time. Zolgensma was first given to a patient in a clinical trial just five years ago, so its lasting effect isn’t yet known.

Andrea James, whose 9-month-old son Axel has SMA, is worried her insurer will refuse to pay for the therapy when it goes on sale. “It’ll be a big fight,” said the Baton Rouge, La., resident.

Her son is already taking a treatment called Spinraza, given by spinal injection every few months, she said. Ms. James is concerned her insurer will force her to pick between the two. Biogen Inc.’s Spinraza, which is a lifelong treatment, is priced at $750,000 for the first year, and then $375,000 for each year after.

Novartis and others developing gene therapies say paying in installments could help smooth out costs. Another option is “value-based payments” where insurers pay upfront but get a partial refund if treatment proves ineffective.

But that idea is challenged by rules designed to ensure Medicaid plans get the best prices. The concern: if a commercially insured patient gets a rebate, the drugmaker might have to offer that discount to all Medicaid plans.

“The whole system was built for chronic care, and never intended for this curative model,” said Ron Philip, chief commercial officer of Luxturna-maker Spark Therapeutics Inc. “We’ve never had to tackle these issues.”

Spark, which recently agreed to be acquired by Roche Holding AG, is pushing the government to approve a pilot program that would allow it to offer installment and value-based payment models. Meanwhile, it has struck deals with payers offering limited rebates that don’t trigger the best-price rule.

Novartis is optimistic it can make new payment models work. “I can tell you unequivocally, we’ll be ready with alternative payment models at launch,” Paul Hudson, head of its pharmaceuticals business, told investors earlier this year. A lot is at stake: Zolgensma is one of Novartis’s most important launches and analysts expect it to generate around $2 billion a year at peak.

Still, new payment models don’t address what insurers see as the bigger issue: prices that are too high to begin with.

“The starting price is controversial,” said Michael Sherman, chief medical officer of Harvard Pilgrim Health Care, an insurer. “A value-based agreement doesn’t mean we’re getting to fair value.”

One problem is the lack of an agreed way to determine a reasonable price for new drugs. An approach used in cost-effectiveness studies is to assign a dollar value to a year of healthy life, but opinions differ on what that value should be.

Novartis has said Zolgensma would be cost-effective in the $4 million to $5 million range. But an analysis by the Institute for Clinical and Economic Review, an independent nonprofit, concluded that Zolgensma should cost no more than $1.5 million. The main difference was that Novartis assigned a higher value to a year of good quality life.

Regardless of what counts as good value, insurers say multimillion-dollar price tags aren’t sustainable as more gene therapies come to market.

“It raises the specter of whether there will be enough money in the system to pay for all of these,” said Dr. Sherman.

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