No Miracle Drug Should Cost $2.1 Million

(Bloomberg Opinion) -- The day, long anticipated, when America’s system of voluntary drug pricing could break down has now arrived. Novartis has announced it will charge $2.1 million for Zolgensma, a gene therapy for infants with lethal spinal muscular atrophy.

The seeds of this extraordinary price were sewn in 1983, when Congress passed the Orphan Drug Act, a well-meaning law designed to encourage research into rare diseases. It offered drug makers tax breaks and other incentives for such work, rapid review by the Food and Drug Administration, a lower bar for market approval, and longer protection from competition.

The law has worked so well that orphan drug research increasingly crowds out investigations into drugs for such common illnesses as heart disease and diabetes.

That’s not to say orphan drugs aren’t at times miraculous. Zolgensma, by augmenting defective DNA, changed the course of neuromuscular decline in 15 babies, enabling them to achieve developmental milestones. Nor is it to suggest that orphan diseases don’t deserve attention. Some of them kill people by the thousands.

But the diseases being neglected kill Americans by the hundreds of thousands. And the prices of new orphan drugs are rising so high that, taken together, they threaten the financing of all other types of health care.

This problem has been building for decades, but Zolgensma’s launch makes it too glaring to ignore. What’s urgently needed is to amend the Orphan Drug Act to require that prices for these drugs match their clinical benefits — and not simply be allowed to rise as high as the market will allow.

To be sure, the projected sales of Zolgensma alone — just over $1 billion annually — will not break the bank. Spinal muscular atrophy affects only a few hundred newborns in the U.S. each year.

But orphan drugs as a class account for 10% of U.S. drug spending — even though they make up less than 0.5% of all prescriptions. By 2020, drugs with at least one orphan indication are expected to consume one-third of the U.S. drug budget, according to the Foundation for Research on Equal Opportunity.

Thanks to unconstrained pricing for orphan treatments, along with the raft of financial benefits embedded in the Orphan Drug Act, the best minds in drug development are being lured away from research on prevalent diseases. Consider that, in 2018, the FDA approved 34 drugs for orphan uses, but only one for chronic lung disease, and none for diabetes or coronary artery disease — all major killers. 

Orphan treatments rarely face the competitive pressures that check the prices of medicines for common conditions. Basing prices on how well orphan drugs work — determined by cost-effectiveness analysis — would right this imbalance.

The independent non-profit Institute for Clinical and Economic Review has done such an analysis of Zolgensma, and has concluded that it should be richly rewarded, with prices as high as $900,000 when used to treat infants who have developed symptoms (by far the most common group). That is about three times the annual per-capita productivity of the U.S., and the maximum we can afford for individual health interventions that target small populations — if we want to have money left over to spend on care for people with more common serious conditions.

Novartis wants $1.3 million more than that — enough to cover the annual cost of private health insurance for 74 families of four, medication-assisted treatment for 320 people with opiate addiction, or breakfast for 5,000 elementary school age children. 

Cost-effectiveness analysis and drug price-setting are criticized as antithetical to a free market. But there is nothing free about a market where Congress creates incentives that favor one kind of treatment over another.

What’s more, ICER’s analyses give treatments the benefit of the doubt: Short-term improvements are assumed to persist, and full credit is given to savings from avoiding alternative treatments.

The drug industry will argue, as it always does, that unlimited and rapidly escalating prices are needed to recoup the costs of R&D. There may be some truth in that. But Novartis did not invent or investigate Zolgensma. It merely bought AveXis Inc, the company that did. In this case, it’s more accurate to say that Novartis is trying to maximize the return on its financial investment.

The industry will also say it needs high prices to make it possible to take risks — risks that ultimately benefit everyone. That is indeed a worthwhile incentive. But the best way to provide it is to tie the size of those rewards directly to the size of the benefits treatments provide.

To contact the editor responsible for this story: Mary Duenwald at mduenwald@bloomberg.net

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

Peter B. Bach, a physician, is director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York City.

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