Novartis CEO calls for new drug payment model ahead of Zolgensma launch

Novartis is looking to launch spinal muscular atrophy (SMA) gene therapy Zolgensma this year. But the possibility of a price tag as high as $5 million has already sparked controversy. To prepare for the pricey rollout, CEO Vas Narasimhan is now calling for changes to the U.S. drug payment system.

For chronic diseases, current healthcare systems are made in a “pay-as-you-go model,” but not for single-treatment therapies that could potentially cure them. And that makes new models for evaluating the benefits of such treatments and for payment necessary, Narasimhan said in commentary in CNBC on Friday.

“[W]e need new economic models to determine exactly how much value [a cure] represents” when compared with the cost and suffering saved from longtime chronic care, he wrote.

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How much value Zolgensma represents, factoring in what's sure to be a hefty price, is exactly where Novartis clashes with the conclusion from the Institute for Clinical and Economic Research (ICER).

Using its usual cost-effectiveness threshold of $150,000 per quality-adjusted life year (QALY) gained, the cost watchdog decided Zolgensma should cost no more than $900,000. Novartis, however, has argued the gene therapy would be cost-effective even at $4 million to $5 million under a higher QALY bar, which the company said is more appropriate for a rare disease like SMA.

Narasimhan acknowledged assessing the value of such medications is the easier part and that “the most difficult challenge … is payment.”

Gene therapy developers such as Novartis and Bluebird Bio have offered up the option of value-based pricing, accepting the full price only when the drug works or in installments over several years. But the current Medicaid and Medicare systems aren’t built for these new solutions.

“Congress should clarify that value-based payment approaches that may help reduce overall healthcare costs will not inadvertently trigger government price reporting or anti-kickback provisions,” the CEO said.

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Expensive gene and cell therapies are growing in number. Researchers are developing 300 such therapies against more than 100 serious diseases, Narasimhan said, and by 2025, the FDA expects to approve 10 to 20 of them a year.

If such premium pricing continues and as more patients receive treatment, it won’t be long before the reimbursement system crashes and the overall healthcare costs get too heavy to bear, Evercore ISI analyst Josh Schimmer said in a Friday note to clients. And like it or not, when that day comes, expensive orphan therapies will come under scrutiny and lead to regulatory changes, he said.

Even at the potentially jaw-dropping price Novartis might eventually charge, Zolgensma is still cheaper than paying for a drug that costs $400,000 per year over a lifetime, “but there are all sorts of adjustments required, such as time value of money as well as potential genericization and patent cliffs that might have otherwise occurred,” Schimmer said.