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Are Ultra-High Drug Prices Sustainable?

Goodrx (NASDAQ: GDRX) recently released its list of the 10 most expensive drugs on the market. Novartis' (NYSE: NVS) gene therapy Zolgensma remains at the top, but newcomers Eiger Pharmaceuticals (NASDAQ: EIGR) and Y-mAbs Therapeutics (NASDAQ: YMAB) took second and third place with Zokinvy and Danyelza, respectively. In this video from Motley Fool Live, recorded on March 15, Fool.com Contributors Brian Orelli and Keith Speights discuss the high-priced drugs and whether the prices are sustainable in the long run.

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Brian Orelli: GoodRx released its list of the top 10 most expensive drugs. Novartis' gene therapy for spinal muscular atrophy, Zolgensma, remains at the top at $2.125 million.

Zokinvy, I guess it is, from Eiger Pharmaceuticals is a bit over $1 million depending on the size of the patient. This is a new drug since it just got approved up in November of 2020. It treats a rare genetic disease that causes premature aging. So it seems like that's really not a one-and-done thing. The insurance is going to pay a million dollars per year probably for those patients.

No. 3 on the list is Danyelza, which is from Y-mAbs Therapeutics. It treats neuroblastoma in the bone marrow. It costs $977,000, again, not a one-and-done but with neuroblastoma, patients are going to take it for the rest of their lives.

Are these prices sustainable? And then the old adage that companies sorta get less push back when the drugs don't affect that many people and high prices are pretty much the only way to justify costs of research for small orphan indications.

Keith Speights: I think you hit on it. The high prices are sustainable as long as payers don't balk at the high prices. Obviously, most patients anyway can't afford to pay those prices for drugs. That's just impossible. So the insurers and the government payers have to step in and foot the bill.
I think in many cases, payers have been willing to pay these extremely high prices for drugs that treat rare diseases. The reason why, is just like you said, Brian. There are so few patients with those rare diseases that the overall costs for the payers isn't too bad. But that's not true in all cases. There have been cases of pushback with some of these high-priced drugs, even though they only are used to treat a very small number of patients.

As a case in point, Zolgensma is the highest-priced drug in the world. It was No. 1 on the list you mentioned. It generated sales of less than $1 billion last year. I think around $920 million. That's relatively low when you think about it, and especially for the highest-priced drug. But it's just because there are so few patients with spinal muscular atrophy. But some insurers have pushed back on Zolgensma's price tag, so it's not a universal acceptance there for that particular therapy.

I think the bigger challenge, at least over the long run, with payers pushing back on these high drug prices could be with those drugs that require lifetime usage instead of just the short-term more one-and-done deals. For example, Zokinvy, one of the drugs you mentioned, the second-highest priced drug, it's roughly around half the cost of Zolgensma. But its lifetime costs will be a lot higher because it's used regularly, and so I wouldn't be surprised to see some payers push back on that particular drug as they really start incurring big bills for it over the next few years.

But of course, the real challenge here though is that drug makers aren't going to target rare diseases unless they know they can generate a positive return on investment from their R&D efforts. So that means they do have to set high price tags for these treatments because there are just so few patients for them to make their money back from their investments. So I think this is a problem, but it's not a problem that I think is going to be solved. I think more than anything it's just an ongoing tension that's just going to have to be managed. I don't think we're going to get away from it anytime soon.

Orelli: I feel like the one-and-dones, the solution has to be that the insurers come together and they share the cost. Because whoever has that patient at that time is going to incur all of the costs, but then whoever insures that patient later in their life is going to reap all of the rewards of not having to have to pay, the person no longer having that disease. I feel like that's the easy solution for the one-and-dones.

For the ones that are long-term that you have to take it for the rest of your life, I think that becomes a little more complicated, and it has to be at the state where the amount that they're paying isn't that much more than they would pay for a large indication. If it's high price where the companies are keeping their sales around a billion dollars or less, then I feel like it's harder for the insurers to push back, even though it's a lifetime cost. If it's that low of the annual sales then it must be that there's not that many patients that treat that disease.

Then any other that's in the top 10 that you want to highlight?

Speights: There was one in GoodRx's top 10 that I think is worth discussing. It was I think No. 10 on the list, and it's Alexion Pharmaceuticals' (NASDAQ: ALXN) Soliris. Just a few years ago, I think maybe as recently as 2019, maybe a little earlier than that, Soliris was the No. 1 most expensive drug in the world. Now I think it was number 10 on the list, so it's come down.

But the thing that I think is really important to note with Soliris is that although it's still a very high-priced drug, I can't remember the price tag but it's around $0.5 million. It loses U.S. patent exclusivity next year. Now, biosimilar won't hit the market immediately because of some litigation and settlements. Amgen (NASDAQ: AMGN), ticker there's AMGN, they plan to launch a biosimilar to Soliris in 2025. But it won't be very long before there's at least one biosimilar available to Soliris.

So when that happens, I think you're going to see prices come down. I think maybe that's the best long-term solution to these high-priced drugs is that after a period of time they lose exclusivity. Biosimilars or generics can then enter the market and then bring the cost down for both payers and patients. I think that's the long-term solution, but you're right. Over the relatively short term, payers are going to have to pony up to cover these drugs because otherwise, the drug makers won't develop them.

Brian Orelli, PhD and Keith Speights have no position in any of the stocks mentioned. The Motley Fool recommends Amgen and GoodRx Holdings, Inc.. The Motley Fool has a disclosure policy.


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