Can a Drug's $500,000 Price Withstand Competition?

(Bloomberg Opinion) -- Alexion Pharmaceuticals Inc.’s Soliris may be the most successful rare-disease medicine in history. Its approval in multiple conditions and an annual price tag that can exceed $500,000 propelled the drug to more than $3 billion in sales last year. 

Now, for the first time, it looks like Alexion’s blockbuster will face serious competition.

On Tuesday, Kentucky-based Apellis Pharmaceuticals Inc. published the results of a head-to-head trial between its drug APL-2 and Soliris for use in treating a rare and deadly form of anemia. APL-2 significantly outperformed Soliris, and the results beat the expectations of several Wall Street analysts. If Apellis can get regulatory approval and demonstrate efficacy in other diseases, it could have a blockbuster of its own on its hands.

The prospect of APL-2 becoming a genuine money-maker for Apellis sent the company’s shares up more than 20 percent in trading Tuesday. But the outcome of the trial has implications that go beyond the financial fortunes of the the drugmaker and its shareholders. It also sets up a potential test case on whether competition can do something about the out-of-control costs of rare-disease drugs — a very special class of medicines. 

Rare-disease treatments are exceptionally expensive for a few different reasons. The first is simple math. If patient populations are small, then the price has to be higher for companies to make a decent return. Second, the average health plan or insurer is unlikely to cover multiple people with the same condition, so there’s far less pushback on price than there is for widely used drugs. And finally, because competing for tiny pools of patients isn’t that appealing, drugmakers often end up with markets all to themselves.

Put all that together, plus the potential for expanding usage, and you get a blockbuster like Soliris. That’s at least until generic versions arrive, an eventuality Alexion is doing its best to delay for as long as possible. Alexion is also working on switching patients to its newer drug Ultomiris, which gives similar results with much more convenient dosing and has many extra years of patent life. 

The arrival of the Apellis drug has a chance to upend things. Based on its exciting recent data, Apellis could make a case for pricing at a premium to Soliris. But the smarter course might be to undercut it. Soliris is well-established, and physicians are comfortable with the medicine. They may need an extra nudge to try something new. Alexion already priced Ultomiris at a discount to Soliris to prompt switches. It wouldn’t be surprising if Apellis did the same. 

Alexion would likely have to respond with discounts to protect its franchise and keep its switch strategy viable. Patients and the health-care system would benefit from both better pricing and an expanded set of options.

This scenario could be wishful thinking; after all, pricing in the rare disease space is strange enough that the usual rules of competition might not apply. And there are other examples, especially in oncology, where the entrance of rival medications hasn’t done all that much to lower prices.

But here’s hoping anyway that this is a situation where markets work how they should.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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