Is the $2.1 Million Price Tag for Novartis' Zolgensma Ridiculous?

By tinkering with our genes, biopharma companies are making big breakthroughs that are revolutionizing how doctors treat disease. Last week, the Food and Drug Administration approved the latest of these game-changing therapies, Novartis'(NYSE: NVS) Zolgensma, after it delivered remarkable results in infants with spinal muscular atrophy (SMA), a deadly genetic disorder. The potential to prevent death in infants by restoring the expression of a critical missing protein is a tremendous advance, but most of the media attention so far has focused on Zolgensma's $2.1 million price tag. Is this price as crazy as it sounds?

In this episode of The Motley Fool's Industry Focus: Healthcare, analyst Shannon Jones is joined by contributor Todd Campbell to explain why Zolgensma's price might not be ridiculous.

Also, Jones and Campbell discuss how new gene therapies may also reshape treatment for hemophilia A patients by eliminating the need for weekly infusions of a missing coagulation protein. Does BioMarin's (NASDAQ: BMRN) latest data demonstrate that this approach is the future? Listen in to learn why investors' view is mixed.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

10 stocks we like better than WalmartWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 1, 2019The author(s) may have a position in any stocks mentioned.

This video was recorded on May 28, 2019.

Shannon Jones: Welcome to Industry Focus, the show that dives into a different sector of the stock market every single day. Today is Wednesday, May the 29th, and we're talking Healthcare. I'm your host, Shannon Jones, and I am joined via Skype by healthcare guru Todd Campbell. Todd, how's it going?

Todd Campbell: Oh, it's going great, and I am just really, really excited to talk about some incredibly innovative, disruptive new medicines that could become available. I love these topics and I love doing these shows exactly for this reason.

Jones: I am so on point with you, Todd. Preparing for this show for this week, I always love coming on week after week, but for me, when we talk about innovation, when we talk about really pushing the needle and driving better health outcomes, I get super excited. So I've been waiting days to talk about this. For our listeners, today's show is really all about the field of gene therapy. First, we're going to be diving into what is right now the most expensive drug soon to come out on the market. It was approved last week. We're also going to be talking about BioMarin's updates on their potential game changer for hemophilia. We're going to be diving into all of that, but let's kick things off with Novartis.

There's been a lot of buzz here, Todd, and a lot of splashy, somewhat controversial headlines around Novartis, ticker NVS, and their gene therapy drug Zolgensma. Try saying that 10 times. This is a drug, one-and-done therapy, that truly has the potential to change lives. Todd, we've been talking about this drug on the show before. You pointed this out last Friday when the approval came through that this is not only a game changer for Novartis, for another company we've been talking about, Regenxbio, but truly a huge win for patients. What can you tell us about this drug and what this means?

Campbell: Right, and we've talked about this indication a few times, too, because, as we get knee-deep into this conversation, I'm sure we're going to talk about another drug that's on the market already that got launched in 2016. What we're talking about with Zolgensma is a gene therapy that's now approved for use in an indication called spinal muscular atrophy, or SMA. It's approved for use in patients who are younger than 2 years old. One of the things that everybody who's following this story should understand is that SMA is a deadly disease. It's the leading genetic cause of infant mortality. It's characterized by an inability to produce a particular protein that's critical to the survival of motor neurons. Unable to produce that protein, these infants lose the ability to breathe on their own, they can't eat on their own. Ninety percent, sadly, of the patients with the most severe type, type one, are either on permanent ventilation by age 2, or sadly pass away. So there's a major need for new approaches to this.

Zolgensma, which just won FDA approval last week, is game changing because it's a one-and-done therapy. It uses an inactivated viral vector that was developed by Regenxbio, which as you mentioned, we've talked about on the show before, to deliver a functional copy of the gene responsible for producing the protein that they can't produce on their own. In trials, Shannon, the results are...I'll just call them remarkable. Remarkable.

Jones: This particular drug is truly a landmark. It's only the second gene therapy ever approved for a genetic disease. This is really pushing the needle in terms of just innovation. These are truly sick patients here. Many of these children don't survive past their second birthday. So the need has been huge. But I won't say this is the only treatment out there. Biogen and Ionis have a drug on the market called Spinraza. Spinraza is not a one-and-done treatment. Spinraza essentially was approved in late 2016, has been treated in over 7,500 patients with severe and milder forms of SMA. So they do have a slightly broader label. They can treat anywhere from the sickest, which are the type one patients that you mentioned, Todd, all the way up to adults who have milder forms of the disease, and had a more gradual progression of the disease as well. But Spinraza also comes with a high price tag. You're talking about spinal infusions that cost $750,000 in the first year, and then $375,000 annually thereafter. So, for a lot of reasons, Novartis and their drug with AveXis is not only one and done, but really also has the convenience factor, and even though it wasn't a head-to-head trial, potentially a drug that could prove to be even more efficacious than what's out there.

Campbell: Right. The approval was based on data from two trials: an ongoing trial and an early stage trial. As of March 2019, 19 of the 21 patients who were enrolled in their STRIVE clinical trial were alive and not requiring permanent ventilation. Thirteen of those patients had reached the age of 14 months. Also, 10 of those patients were able to sit without support for at least 30 seconds at an average of 12 months. That's something that, Novartis, when it was talking about just how important this approval is for these patients, they said that wouldn't happen in this patient group, they just would not be able to sit on their own for that long of a period of time. They also said that only about 25% of the patients who met the criteria to be enrolled in STRIVE would even be expected to live beyond the 14th month mark. They also reminded investors of another trial called START in which 15 patients were enrolled. Twelve of those were enrolled in the highest dose cohort, the one that was approved. And at 24 months, all 12 of those patients were alive and not requiring permanent ventilation. That is just, again, remarkable for this indication.

We've been talking all around this, Shannon, for the five minutes we've been chatting -- talking about the price. We already mentioned this is a drug on the market, marketed by Ionis and Biogen, that's pretty expensive, $750,000 for the first year, in which four injections are given, and $375,000 in the remaining years thereafter, three injections per year. This drug, Novartis has priced at $2.125 million per patient. One of the things you're seeing in the media is, that's the focus. That's the clickbait-y headline that everybody's running with -- $2 million gene therapy. But we have to remember, too, that the way that Novartis has priced this drug, Shannon, is they're allowing payers to pay for the drug over five years. On average, that's $425,000 a year. If you add that up and then compare it to Spinraza, it's actually cheaper.

Jones: And not only cheaper, but Novartis has come out and said that because it's a one-time treatment, it actually costs 50% less than the 10-year cost of current chronic management of the disease itself. You even have ICER, which is the Institute for Clinical and Economic Review, they evaluate drug prices, they are actually backing the pricing of this drug, too. They came out earlier this year, said the drug was worth up to about $1.5 million, and they estimated that a reasonable price would be between $1.2 million to $2.1 million based on their estimate of quality-of-life years. So for them, they're saying this falls right in the range of what they're looking at. So not only do you have Novartis trying to work with insurers to make sure access is there for patients, but you also have ICER coming back and backing the price of this, too.

Campbell: Yeah, and that's important, because what it's really going to come down to is, OK, you have this drug. Theoretically, this can be life-changing for these infants. If you're a parent, you're going to want your infant to have this. Spinraza, not to knock it, it's a great drug, but in the trials that backed up its approval, it only worked in about 40% of patients. Again, not a head-to-head trial. But on the surface, having a one-and-done therapy rather than one that requires multiple injections per year is very attractive. They're working with payers, trying to figure out, OK, we'll do this five-year pricing plan. There may be some ensures that get value pricing, where as long as it's working within those patients, they'll continue to pay for that five-year period. They're still ironing out all those details. But they do expect to make this product available within two weeks. Following this approval, that's a really rapid amount of availability. That'll be great, obviously, for Novartis' top line theoretically, because Spinraza's sales in the first quarter were over $500 million. It has a $2 billion revenue run rate. So if Zolgensma can win away a lot of market share, and I think it can, then this could be a significant drug for Novartis, and also for Regenxbio, because Regenxbio can collect royalties and milestones.

Jones: That's right. Really, for shareholders of Novartis, they're hoping to recoup some of that $8.7 billion that the company spent to buy and acquire AveXis last spring. And really, with the way the pricing is built out for this drug, and with the addressable market, it doesn't sound like it'll take long to recoup those costs. Certainly a blockbuster drug on their hands, for sure. But yes, for Regenxbio, super, super excited to see them get validation of their platform. Again, they are building out a technology platform for a lot of these viral vectors, a lot of these companies that are developing treatments for cell and gene therapies to move forward. So if it's not on your watch list, you should put it there, that's ticker symbol RGNX for Regenxbio as well.

But with that, let's switch gears, let's talk about the other name in the headlines as well. And that is none other than BioMarin, ticker BMRN. Investors have been waiting pretty anxiously for new updates on their gene therapy drug for hemophilia (valoctocogene roxaparvovec). We'll just call it ValRox for short here, Todd.

Campbell: Thank you! Thank you!

Jones: [laughs] You're welcome! So, we got updates yesterday, actually multiple updates. Todd, it was a bit of a mixed bag of results. Left some investors scratching their heads. What did you make of it?

Campbell: We're going to get into the nitty-gritty of that in a minute. I think that this, actually, this gene therapy is potentially more important to the healthcare system than the one we were just talking about in the earlier segment because this is a larger patient population. Hemophilia A, these patients don't produce a protein clotting factor VIII that's necessary for coagulation; as a result, they're at risk for life-threatening bleeds, and these bleeds can happen a lot for patients with the severe form of it. It's not a huge patient population, but it's big. Over 100,000 patients have hemophilia A, and it's a $10 billion treatment market right now. So, a one-and-done gene therapy in this indication could theoretically be even more important because it impacts more people and theoretically could save payers a lot of money by changing or disrupting the current treatment paradigm.

BioMarin's ValRox is the drug that they're evaluating. They have a Phase I/II trial that is continuing and ongoing. And they have a Phase III trial. And they released information from both of those trials. The Phase III data is the one that arguably was more of a mixed bag. A lot of people looked at the durability of this gene therapy and were wondering how long really will it benefit patients. We'll get to the data in a second. The Phase III study results were actually interim results. Those results were good enough that BioMarin now plans on filing for FDA approval of ValRox at some point soon. They're going to give us an update on the exact timing in the third quarter. But they did say on their conference call that they think it's possible to have ValRox approved in the EU and the U.S. in the third quarter of 2020.

Essentially, Shannon, what ValRox does is, it restores, it delivers a gene necessary to produce the missing clotting factor, restoring coagulation for these patients, thereby preventing the need for them to have regular prophylactic infusions of factor VIII. That's huge, because factor VIII infusions, prophylactic, run between $200,000 and $300,000 a year.

Jones: Extremely expensive. I'm so glad that you brought up that point, because yes, this drug does have the potential to truly transform and change the healthcare landscape just because of how expensive it is to treat this condition. But really, what it comes down to is, ValRox is enabling patients to make their own factor VIII so they don't have to keep using this expensive drugs to treat the disease. I think with the data that came out this week, bleeds, of course, and controlling bleeds, is one thing, and I think for patients and for physicians, obviously that's the outcome that they want. But for investors, for even practitioners, the question mark, I think, for the data that was released is really about the durability of response. What we saw for the first three-year Phase II update, No. 1, it came out before they were anticipating it. I don't think they were anticipating releasing that until June. So we got it early, which was great. But it was the durability of response here, Todd, that I think just has more question marks than answers right now.

Campbell: Right. The Phase III that they're going to use to file for approval showed at weeks 23 through 26 a 96% reduction in average annualized bleeds. So, the average patient went from 16 events at baseline annualized per year to less than one event. That is huge. I think that is very important to recognize. You're talking about better than 90% reductions in bleed rates and significant reductions in the need for these prophylactic infusions. Like you said, investors actually knocked down BioMarin on this news because they looked at that three-year data on the Phase I/II and said, "Yeah, but we're noticing a decline in the activity of factor VIII. What does that mean? Does that mean that over time it will continue to decline, production will decline, and these patients will end up needing to go back on prophylactic therapy?" I mean, I suppose it's possible. If you look at that Phase I/II data, the three-year update, on average, the average patient, the activity was 64 international units per deciliter at the end of the first year -- 64. Remember that number, 64. At the end of two years, it had dropped to 36. At the end of three years, it had dropped on average to 34. I think patients are looking at that decline and saying, "Whoa, we've gone from 64 at year one to 34 right now. What does that mean?" And I think, Shannon, the thing that we need to remind everybody is that clinicians call hemophilia severe when patients are producing one international unit per deciliter. One. When you get above five, five to 40, that's considered mild disease, and less likely to be at risk for spontaneous bleeds.

So, if you're an investor, and you're looking at this data, I think the things to focus on are, ideally, a gene therapy that can produce at 40 would be great, because mild ranges from 5 to 40. But anything above 5, you're basically taking someone who is categorized as severe and requiring prophylaxis and turning them into a mild patient that may not require prophylaxis.

Jones: And ultimately, with particularly the Phase III, data management is really focusing on controlling bleeds. They were able to meet the threshold for submitting for approval for what the regulators wanted to see. So while the data are mixed, I think ultimately, this is approvable data moving forward.

Because the shares fell 5% or 6% off the news, I think another knock is just keeping in mind the competition. You've got Spark Therapeutics, soon to be acquired by Roche. You've got uniQure with their preclinical hemophilia A program. Sangamo Therapeutics also has a drug with a potential to show longer durability. I think while the data are good, there are still some overall question marks, because ultimately, if this field gets crowded, and you see that the bleeds are controlled pretty comparably among all the competition, I think it will come down to durability of response. Management is saying that with factor VIII levels, it looks like they're starting to plateau. Ultimately, they think durability, at minimum, could be about eight years, which is still pretty good, to your point, Todd. I mean, these are patients who have had very little other options to choose from. So I think overall, it's headed in the right direction. There'll just be some question marks around competition.

Campbell: Yeah. If you look at the cost, again, going back to the cost of prophylaxis, it's going to run you between $200,000 and $300,000. If you have a severe bleeding event, you can absolutely see the cost per patient climb above $1 million for a patient in any given year. But let's ignore that, let's just look at the $200,000 to $300,000. Multiply by that eight, that's $1.6 million plus in potential value, that then, you would have to figure out what the price is. And I think that's what a lot of investors are looking at. They're like, OK, if this is a lifetime fix, they could get away with charging anything -- $3 million, $4 million, $5 million per patient. But if it's not as durable, maybe they're only going to be able to price it at $1 million or something like that. We simply don't know. It's too early to even have that conversation.

I think that what we need to recognize is that from a patient perspective, and from a doctor treating a patient perspective, it's really all about the bleeds. As long as you're producing enough factor VIII so that you're not at risk of those spontaneous bleeds, I think that you're going to find that patients and doctors are happy, and are going to be more than willing to use it. And I think you're going to find that payers are going to be more than willing to pay for it. You mentioned you've got Spark out there with SPK-8011. You've got Sangamo out there with SB-525. You've got all of these others who are also working on gene therapy.

As we saw with hepatitis C, if all of these drugs do come to market -- let's just assume, because there have been questions about durability with Spark's and some of these others, but let's assume that they all have this durability problem. Eventually, you'll get to a point where prices will be driven down because there's multiple players in the market. We're still pretty far away from that. I think that BioMarin, the fact that they're already an existing company, a proven company, $1.7 billion in estimated revenue coming this year already from their existing rare disease drugs, I think this is a very, very important advance and an important potential drug for this company. And frankly, I think that investors may regret selling shares yesterday.

Jones: All right, Todd, you're putting it out there. We're going to hold you to it. [laughs]

Campbell: Yeah, I'm going out on a limb. And, before we jump, one more thing, too. Think about how important this market has been. Roche acquired Spark, which you mentioned. That was a $5 billion deal. Spark, they have one drug on the market that does a couple million dollars in sales. In 2018, you have Sanofi acquire Bioverativ. That was an $11.6 billion deal, and it was done when Bioverativ's sales were only about $1 billion. And in 2016, you had Shire buy Baxalta for $32 billion when its sales were about $6 billion, of which half came from hemophilia. So I think this is a very attractive market. I'm not saying the BioMarin's going to get acquired --

Jones: You're saying there's a chance there, Todd. [laughs]

Campbell: I'm saying there's a chance. I'm saying there's a significant interest in this space, and that this is a disruptive medicine that we shouldn't ignore as investors.

Jones: Yeah, very, very well said. We'll be sure to keep all of our listeners up to date on all the latest as this continues to play out. But that'll do it for this week's Industry Focus: Healthcare show. Thank you so much for tuning in!

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is being mixed by Austin Morgan. For Todd Campbell, I'm Shannon Jones, thanks for listening and Fool on!

Shannon Jones has no position in any of the stocks mentioned. Todd Campbell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Biogen and Ionis Pharmaceuticals. The Motley Fool recommends BioMarin Pharmaceutical. The Motley Fool has a disclosure policy.