At $2.1M, Novartis gene therapy will be world’s most expensive drug

False dichotomy. We have robust public and private medical research universities.

For things like drugs and treatments, which often are covered by patents, you shouldn’t necessarily get to charge whatever the market will bear. But even then, looking to costs is a bad idea. If saying “you should be entitled to a 10% return above your costs” actually worked, why not do it for everything? Why not pass a law that says that smart phones can only be sold for 10% above cost? If that would work for drug development, it would work for smart phones too. From the supply side, the two are very similar: top talent + massive capital investment + high-tech manufacturing = product. We’d have $300 iPhones every bit as good as what we have now, right?

For drugs, a “fair price” is best determined by looking to return on investment. If the investors in Novartis are earning 10x what they could have earned by investing in a web tech start up, maybe that is unreasonable. Such high returns are unnecessary to keep capital from fleeing to alternative industries.

But that’s not what is happening. Novartis’s return on invested capital last quarter was 9.5%. Alphabet’s was 37%. Novartis is not making outsized profits. It’s making healthy profits consistent with investing in a high-risk, high-tech industry.

A contrary moral rule creates perverse incentives. It tells people that if you want to save lives, you need to invest billions of dollars while getting a minimal return. But if you just want to peddle advertising, you’re free to make as much money as you want. If you consider some things “too important” for the profit motive, what you’re doing is incentivizing people to invest money, time, and their careers in things that aren’t important.

money isn't free. If for profit companies didn't fund this research, no one would. Opportunity cost of money is a real cost and it is reflected in the price of any commercial good -- drugs are no exception

Is there profiteering in some cases? Yes. Is there in this case. Probably a bit. But it is not realistic or fair to think drug companies should price solely based on a cost-plus model, ignoring losses from failed research efforts and the cost of capital

However, cost of capital is a huge driver of costs and reducing it would be very valuable. The question is how to do that

If you're curious to see how these different things affect drug price, I made a tool where you can play around with different drivers of drug prices (incl cost of capital) to see how they affect price: https://www.baybridgebio.com/drug_pricing_calc.html

So for a rare disease there might exist a current treatment that results in them being bedridden and unable to feed themselves without an assistant. But with this new treatment the patient will be able to move around themselves in a wheel chair and feed themselves with some minor aid from an assistant.

How much more expensive can such a treatment be for it to be worth it? If you are the person involved the difference in life would be immense and worth any money but for someone on the outside those millions might be better spent on other care.

>or

What an optimist you are!

Per the financial statements, ~$500M of that $700M was r&d (the rest was general and administrative expense). A lot of the r&d spend was payments to third party research and manufacturing firms. Given the small clinical trial size I'd imagine more money went to contract manufacturing than research.

There are very few companies and people that can make gene therapies at scale at acceptable quality levels. It seems like this expertise is quite expensive. There was probably a lot of process development here since making these drugs at scale is so new (here "at scale" means "enough for ~100 patients")

They also spent a lot building out their own manufacturing site.

They also had a $135M license payment, I think to the company they licensed their viral vector from

So something like they spent $100M on this one winning idea but also $600M on 50 other ideas that went nowhere.

There is a reality here that these therapies are really fucking expensive to produce. If we want them to be cheap or free their discovery needs to be subsidized and funded in a non-profit driven manner

Edit: to clarify, Medicare does not only cover seniors. Other important groups include those with end-stage renal disease and those with significant disabilities. Those often also receive Medicaid, and are known in industry jargon as “dual-eligible.” Medicare becomes their primary payor, with Medicaid picking up the balance of what Medicare won’t cover. Both programs are ultimately overseen by CMS (center for Medicare and Medicaid services). Pay negotiations for Medicaid occur on a state level, but a huge chunk of the tab is picked up federally, so they tend to weigh in.

Newborns with SMA will almost certainly be initially covered by parental private insurance (pre-dx), and transition to dual coverage afterwards. Please note that there are a combination of gene therapies under discussion, only one of which will be given once at birth- the rest will entail ongoing costs that will be borne by Medicare and Medicaid.