Novartis tests performance pricing for much-anticipated Entresto launch

Novartis ($NVS) has big plans for its much-anticipated heart failure remedy Entresto. The Swiss drugmaker figures it can parlay impressive trial data on the drug into its biggest launch in years--perhaps ever.

But with payers keeping an eagle eye on new drug pricing, Novartis isn't taking any chances.

As Reuters reports, the company is in talks with potential purchasers about a performance-based pricing system. The drug would come with a discount up front, pharma chief David Epstein told the news service, with bonus payments down the line if Entresto does cut down on heart failure hospitalizations--and their associated costs--as it's expected to do.

It's the latest example of creative pricing at a time when U.S. payers are looking for hard evidence that new drugs are worth their higher costs. Anticipating payer pushback, makers of next-generation cholesterol therapies--including Sanofi ($SNY), Amgen ($AMGN) and Pfizer ($PFE)--have launched outcomes trials to prove the forthcoming meds deliver. Doctors have also jumped into the pricing debate, particularly in cancer; the American Society of Clinical Oncology last week unveiled a proposed framework for doctors to use in evaluating costly therapies.

Novartis pharma chief David Epstein

Pharma companies have inked occasional pay-for-performance deals, mostly in countries where cost-effectiveness agencies and government payers push hard to control drug spending. Amid an outcry over hepatitis C drug pricing in the U.S., for instance, Gilead Sciences ($GILD) set up a discount on its meds with France, in a deal that also included money-back guarantees. Several years ago, Johnson & Johnson ($JNJ) set up a money-back deal with England's National Institute for Health and Care Excellence; since then, NICE has inked similar arrangements with other drugmakers. Novartis itself has one outcomes-based pricing deal on Gilenya.

Epstein declined to offer a ballpark pricing estimate to Reuters, but the outside-the-box approach to purchasers suggests that Entresto will be expensive (and analysts have certainly been predicting as much). With heart failure a common malady--and Entresto the first new drug in decades--Novartis could run the risk of a Gilead-style backlash as high numbers of patients and a high price tag trigger high up-front spending.

Gilead has repeatedly defended its hep C drug pricing by citing long-term savings on hospitalizations and liver transplants, but that hasn't done much to dampen the controversy. Novartis has a similar argument to make about Entresto; heart failure patients are a major cost burden on the healthcare system. So, putting off some of the Entresto revenue till the drug starts short-circuiting those long-term costs could be a more popular solution.

Epstein figures performance-based payments and money-back guarantees will become more common. "When you buy other goods that don't work you either take them back or get your money back," the Novartis exec told Reuters. "Our industry is a bit unique because historically if the drug doesn't work it still gets paid for. I think that model will have to shift."

- read the Reuters news

Special Reports: Top 10 most expensive drugs of 2013 | Top 10 best-selling cancer drugs of 2013