In January 2012, the U.S. Food and Drug Administration approved Kalydeco, the first drug to treat the underlying cause of cystic fibrosis, after just three months of review. It was one of the fastest approvals of a new medicine in the agency's history. Vertex Pharmaceuticals, which discovered and developed the drug, priced Kalydeco at $294,000 a year, which made it one of the world's most expensive medicines. The company also pledged to provide it free to any patient in the United States who is uninsured or whose insurance won't cover it. Doctors and patients enthusiastically welcomed the drug because it offers life-saving health benefits and there is no other treatment. Insurers and governments readily paid the cost.
Several months later, Zaltrap was approved to treat colorectal cancer. The drug was discovered by Regeneron, an emerging biopharmaceutical company like Vertex, but sold by the French drug maker Sanofi. Though it worked no better in clinical trials than Roche's cancer drug Avastin, which itself adds only 1.4 months to life expectancy for patients with advanced colorectal cancer, Sanofi priced Zaltrap at $11,000 a month, or twice Avastin's price. Unexpectedly, there was resistance. Doctors at Memorial Sloan-Kettering in New York, one of the world's leading cancer centers, decided Zaltrap wasn't worth prescribing. They announced their decision—the first time prominent physicians anywhere had said "Enough" to the introduction of a high-priced cancer drug—on the op-ed page of the New York Times. Three weeks later Sanofi effectively dropped its price by half through rebates to doctors and hospitals. Even so, British health authorities said they would not pay for the treatment.
The FDA approved 39 new drugs in 2012, the most in a decade and a half—a sign that the pharmaceutical industry may be recovering from its long fallow period. Wall Street applauded the revival, especially because many drug companies are facing patent expiration for their top-selling products and could see dwindling revenues after years of lackluster research productivity. Most of the new drugs either treated rare diseases like cystic fibrosis or were marginal improvements over existing cancer drugs. All carried extremely high price tags.
But a closer look at the rollouts of Kalydeco and Zaltrap reveals startling differences in how companies value a drug and justify its price. It also provides a preview of a likely future in which extremely costly drugs are common.
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