Realist, not conformist analysis of the latest financial, business and political news

Why Does Zolgensma Cost $2.15 Million A Treatment? Because Someone’s Got To Pay

Zolgensma is a new drug out to treat a specific genetic defect which usually kills those who have it by the time they’re two years old. It’s a one time treatment that, at least as far as we know, provides a lifetime cure. It also costs $2.15 million a treatment which is, I think we’ll all agree, a large amount.

That cost is, obviously enough, an indictment of capitalism, plutocracy, free markets, the patriarchy and how we just can’t get an allotment these days. Add in anything else you’d like to complain about.

And the reason it costs $2.15 million a treatment? Because someone, somewhere, has to pay. Changing who pays doesn’t change that basic fact, that someone does.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] How much is a life worth? $2.15m? That’s the staggering price of a drug produced by the pharmaceutical giant Novartis that has just come on the market. Zolgensma is a one-off gene therapy treatment for spinal muscular atrophy (SMA), a rare degenerative disorder. Infants with the most severe form usually die within two years. For parents of babies born with SMA, any price is worth paying to save the child’s life. Novartis argues that spread across a lifetime, $2.15m is “cost-effective”. It points out, too, the expense of developing such innovative drugs. In this case, though, Novartis did not develop Zolgensma but bought up, for £8.7bn, AveXis Inc, the company that did. The Wall Street Journal described the acquisition as a “bet”. The price of Zolgensma is the return necessary for that gamble to be successful. [/perfectpullquote]

That Novartis bought AveXis doesn’t change our basic calculation here. Someone, somewhere, has had to pay the costs of getting the drug through the Food and Drug Administration. Depending upon who you believe this costs somewhere from $400 million – that number from people who look only at the direct costs – and $2 billion – from people over egging perhaps but still properly including opportunity costs, the price of capital and so on. Well, not just the FDA, but the original research, the testing, the clinical trials, the bureaucracy and so on. And don’t forget that the drugs which work have to carry all the costs of those that don’t. That $8 billion being a useful guide to how much it’s worth to buy the one that really does work instead of having to pay for the whole development process of those that don’t.

Still, I mean, $2.15 million, eh? And now the one other number we need for this to all make sense. The target market is some 20 babies a month. That’s the number in the US that have this particular genetic defect.

The treatment of that quarter thousand of babbies each year has to carry the costs of developing the drug used to treat them.

No, obviously, we’re not saying that we attach their Fisher Price mobiles with a lien until they cough up the milk phlegm to pay for it. But we’ve got to allocate the total costs of being able to treat these kids to, well, to treating these kids.

That doesn’t change whoever is paying for it. Could be us taxpayers out here – although note that at these prices a taxpayer fed system like the NHS just won’t offer the treatment, too expensive. Could be the medicine fairy who, as we know, enables all nice things to be free. Could be private insurers, as it will be in the US system. Could be only billionaires trying to save their beloveds who do. Heck, could be crowdfunding campaigns which isn’t all that different from a form of societal insurance.

But if it costs $2 billion to develop a drug to treat 250 kids a year then that’s just what it costs to develop the drug.

Sure, maybe patents isn’t the right way to do it. Novartis gets to set this price for perhaps a decade. Then anyone can make this same drug and the price will plummet – because that’s the way our current system allocates the cost of the drug development. Always interested in hearing about alternatives to the payment method.

But any alternative payment method has to grasp the point that $2 billion to treat a couple of thousand kids over the next decade is still $2 billion to treat a couple of thousand kids. However we distribute that cost it’s still $1 million per kid per treatment. Developing drugs to treat diseases and conditions which few people have simply is expensive. Moving who pays the costs around doesn’t change that.

Of course, we could reduce those costs by simply abolishing the FDA but then where would we be if medicine all became cheaper, eh?

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Quentin Vole
Quentin Vole
4 years ago

Would the NHS pay for it? NICE (who are the UK gatekeepers in this area) reckons these things in QALYs (quality-adjusted life-years). If* a baby who would otherwise have a life expectancy of 2 could expect a normal, healthy lifespan after treatment, that’s ~80 QALYs, Let’s call it 70 for ease of calculation, that’s $30,000 or ~£25,000. I think that would qualify as cost effective.

I know there are others reading who know a lot more about these things than I do.

* this ‘if’ is doing a whole lot of heavy-lifting, here

4 years ago

As I remember it, India doesn’t recognise drug patents. So one could go to India, if of course, an Indian drug firm could be bothered to make the stuff.

Though since the Indians can make a good thing out of reverse-engineering American etc drugs, the wicked Yanks insist that they can’t patent their drugs in the US. So I don’t know how long this opportunity will last.

3 years ago
Reply to  Boganboy

I just saw a crowfunding campaign in india for this drug costing 2.1 million US dollars. India’s patent laws does recognise drug patents but doesn’t support ‘evergreening’ of patents, a technique used by big pharma to stretch patent protection.

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