Pricing likely to be touchy for drug Gilead acquired

Gilead Sciences’ acquisition of Kite Pharma has brought it back to a familiar — and contentious — dilemma: How much should a drugmaker charge for a novel drug that has the potential to cure a disease?

Back in 2013, Gilead was battered by public outrage when it priced its hepatitis C treatment Sovaldi at $84,000, or $1,000 a pill. The price of the drug, which promised to rid patients of the viral disease in three months, also faced push-back from insurers and government plans that were expected to cover most of the cost.

Pricing Kite’s drug may prove just as controversial. It treats a dire condition — an aggressive blood cancer — and it’s likely to come with

a cost of about $500,000 per patient, according to some analysts. One main reason for the price tag is that the type of drug, known as a CAR-T, is more difficult to manufacture than a simple pill: The drug is made by re-engineering a patient’s own cells to fight tumors.

“The high cost of production will initially factor into what’s an appropriate price for those kinds of patients,” Gilead Chief Executive Officer John Milligan said in an interview Monday after the company announced its $11.9 billion purchase of Kite. He declined to say what Gilead would charge for the treatment, only that it would rely on research from Kite’s team to set the price.

After Foster City, Calif.based Gilead started the current pricing debate in the U.S. with the introduction of Sovaldi, the issue has spread to every corner of the industry, with payers, politicians and patients discussing how the industry should price its products. There have been

proposals to increase competition from generics, implement price controls and bring more transparency to the process, though so far no major overhauls have been implemented.

Health insurers, however, have succeeded in forcing some drugmakers to compete aggressively against one another by excluding some costly medications from coverage in favor of cheaper alternatives.

In a nod to the lessons learned from Sovaldi and the fight with insurers, Gilead’s Milligan said, “You also need to recognize the burden to the payer world — both public and private — that will weigh into the question of what provides a fair return to us.”

Kite spokesman Christine Cassiano declined to give any specifics on what Kite’s research has indicated would be an appropriate price.

Several health insurers contacted by Bloomberg didn’t comment on the treatments. Aetna Inc. said it would review them after they are approved by the U.S. Food and Drug Administration.

“We’ll conduct a full clinical review of CAR-T therapy to determine our clinical coverage

policy,” T.J. Crawford, an Aetna spokesman, said by email.

There’s a chance the FDA could approve Kite’s drug and another from Novartis AG at the same time, which could complicate Gilead and Kite’s pricing decision. The two therapies target different forms of blood cancer — Kite’s for hardto-treat non-Hodgkin lymphoma and Novartis’ is for pediatric patients with a relapsed form of leukemia. Approving them together wouldn’t let one company benchmark the price against the other.

Novartis has already been been the target of criticism over what it might charge. This month, Patients for Affordable Drugs, an advocacy group, wrote a public letter to the pharmaceutical company, demanding that it price its drug “fairly” in light of the fact that CAR-T research has been partly funded by U.S. taxpayers.

“The initial pricing headline is it’s going to be very expensive, because it’s targeted therapy and complex to manufacture,” said Ashtyn Evans, an analyst at Edward Jones.

Unlike a bottle of pills,

which can be mass-produced, CAR-T therapy is made by extracting the patient’s immune system T-cells, inserting a gene that helps them to attack tumors and then infusing them back into the patient at a specialized medical center.

“If there are failed batches, who pays for that?” said David Nierengarten, an analyst at Wedbush securities. Another unique issue with CAR-Ts is that the process takes a few weeks, so the patient could die while his cells are being transformed, leaving the insurer reluctant to pay. Such scenarios are “not an unsolvable problem, but it will take a while to work out,” Nierengarten said.