UPDATED: Merck's melanoma 'game-changer' Keytruda likely to bolster drug pricing debate

When the FDA announced on Thursday that it had approved Merck's ($MRK) Keytruda for melanoma, analysts and doctors hailed the arrival of the first cancer drug in the U.S. to block the PD-1 pathway--a powerful new way to mobilize patients' immune systems to fight their disease. Then came this news: Merck said Keytruda (pembrolizumab) would cost $12,500 per patient per month, or $150,000 per year.

Keytruda is the latest in a string of breakthrough cancer therapies that are helping push the overall market for oncology drugs to $100 billion a year. Thanks to previously approved high-priced blockbusters such as Pfizer's ($PFE) Xalkori for lung cancer and Roche's ($RHHBY) melanoma drug Zelboraf, global oncology spending hit $91 billion last year and it's growing 5% a year, according to the IMS Institute for Healthcare Informatics.

Every new entry seems to revive the pricing debate. When Novartis's ($NVS) Zykadia hit the market in April, competing directly with Xalkori, its price raised plenty of eyebrows: Zykadia costs $13,200 per month, versus Xalkori's $11,500-per-month price.

Based on data collected by EvaluatePharma in 2013, Keytruda's price would make it the 6th most expensive drug on the market. Analysts expect the drug to generate about $1.5 billion in sales for Merck in 2017, according to estimates compiled by Bloomberg.

But are these new drugs worth the cost to the healthcare system?

When it comes to Keytruda, oncologists are talking up the drug's benefits. PD-1 inhibitors galvanize the immune system to attack tumors by blocking a pathway that would otherwise allow cancerous cells to go undetected. The FDA approved the drug for patients with advanced melanoma who have taken Bristol-Myers Squibb's ($BMY) Yervoy--an immunotherapy that is also quite costly, at $120,000 per course.

"PD-1 is truly a game-changer. It's active in a way that other drugs are not," oncologist Lynn Schuchter told The Wall Street Journal. Schuchter, who assisted in the Keytruda clinical trials as head of the melanoma program at the Abramson Cancer Center of the University of Pennsylvania, added that drugs in this class have also shown promise in treating bladder, renal and lung cancer. Indeed, Merck said in May it had 17 trials planned or already underway of Keytruda as a monotherapy or in combination with other treatments, according to Bloomberg.

Merck R&D chief Roger Perlmutter

Roger Perlmutter, president of Merck Research Laboratories, told Bloomberg the company was careful in its pricing strategy for Keytruda. "We had lots of discussions with payers and those involved with cancer treatment in order to come up with a fair price based on months of therapy and existing options," Perlmutter said. He added that Merck also factored in the cost of developing the drug, and that he didn't expect patients would need to take it indefinitely.

No doubt the pricing debate will continue as more PD-1 inhibitors make their way out of the pipeline. Bristol-Myers Squibb, Roche, and AstraZeneca ($AZN) are following close on Merck's heels with their own anti-PD-1 programs. In July, Bristol-Myers's marketing partner, Ono Pharmaceutical, won approval to market its PD-1 inhibitor, nivolumab, in Japan. Bristol-Myers owns the rights to the drug outside of Japan, Korea, and Taiwan, and it's wasting no time getting in on the burgeoning new market: It plans to apply for FDA approval of nivolumab soon and could get a decision as early as mid-2015.

- here's the WSJ story (sub. req.)
- read more at Bloomberg

Editor's Note: The story was updated to reflect that Bristol-Myers Squibb's Yervoy is an immunotherapy. 

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