Seattle Genetics: The Next Litmus Test for High Priced Cancer Drugs

8/22/11Follow @xconomy

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how much longer patients can expect to live if they are among the lucky ones to go into complete remission, or if their tumors shrink by half. We do know there are so many patients from clinical trials who are still alive it will take years to really answer that question. There are much worse kinds of uncertainty to have.

It’s hard to have an open and honest conversation about the factors that go into pricing a cancer drug today, because this stuff is so politicized, but I tried last week in an interview with Seattle Genetics co-founder and CEO Clay Siegall and the company’s commercial chief, Bruce Seeley. They clearly need to thread the needle very carefully on this pricing question.

Think about it. There’s risk in pricing a drug too high, and risk in pricing it too low. Price it too high, and you invite “pushback,” as Siegall puts it, from insurers and patient advocates, which could mire the drug in red tape, protests, and various pencil-pushing challenges, discouraging doctors from prescribing the drug to eligible patients. Price it too low, and you might fail to generate enough sales to satisfy the investors who supported the company through 14 long years of development, and more than $545 million of R&D spending just to get this far.

“We want to make sure we price this drug so that we can maximize the impact on patients, and maximize the effect for the company as well,” Siegall says. “What we are excited about doing is making sure we can treat as many patients as possible, and also do well for our shareholders.”

Seattle Genetics’ officials say they have spent months of work talking with doctors and insurers about the “value proposition” of the drug, essentially trying to suss out how valuable customers think the drug is, and how much they’d be willing to pay.

Feedback from these talks has been positive. One of the big reasons is that this drug is scientifically designed to hit a target known as CD30 that is overabundantly expressed on tumors of patients with these cancers. A simple lab test can tell doctors when a patient’s tumor has a lot of these CD30 targets. And when they do, there’s basically a 75 to 85 percent chance that the patient will see a significant improvement.

Seattle Genetics CEO Clay Siegall

That’s different from a lot of cancer drugs on the market today, in which doctors play a guessing game that goes something like this: Prescribe a $100,000 cancer drug, and give the patient a 100 percent chance of suffering from side effects, and a one-fourth to one-third chance of seeing any benefit. That’s not what most people consider a good deal. When you start talking about a three-in-four chance a patient with a death sentence will really benefit, with minimal side effects, now you’re talking about something that’s worth a six-figure check.

The key here is this: If you’re a drugmaker who can show doctors and patients that the odds are obviously in their favor, that they will see a really big benefit from one of these new drugs, then you’ll probably get less pushback. Roche/Genentech and Daiichi Sankyo/Plexxikon’s vemurafenib (Zelboraf), a drug for patients with metastatic melanoma, has followed a similar pattern with striking effectiveness in a specific group of people. The price is $56,400 for a six-month course of treatment. I haven’t seen a peep of complaint.

It may be hard for those in the biotech business to swallow, but nobody outside the industry cares that drugmakers spent a lot of money and took a lot of risk and need to be rewarded when they get an FDA approval. It’s all about getting paid for the value you bring to patients. And your drug better deliver the goods. Because if it doesn’t, maybe it’s time to listen to the patients and back off a bit on price.

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