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How a $37,000-a-year medicine sets a good model for drug pricing

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hortly before his company won the right last week to sell a new drug for severe eczema, Dr. Len Schleifer made a brash promise.

He vowed to price the medicine “responsibly” and avoid the anger that high drug prices have stirred. “You’ll get to judge me and see how we do,” he told me.

To his credit, Schleifer appears to have delivered.

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The drug, called Dupixent, has a list price of $37,000 a year. This isn’t cheap. But Regeneron Pharmaceuticals could have charged still more, since other companies charge roughly $50,000 a year for older, less effective psoriasis treatments. (There are steroids and ointments on the market that cost much less, just a couple of thousand dollars a year, but these may not help patients with the most severe form of the debilitating disease.) That makes Schleifer’s decision on pricing unusual.

“The drug is truly unique, so he could have priced it pretty much wherever he wanted,” said Dr. Steve Miller, the chief medical officer at Express Scripts, the nation’s largest pharmacy benefit manager, which works on behalf of insurers.

Other drug makers ought to pay close attention, at least if they hope to defuse some of the growing national anger over the cost of medicines.

The key lesson to be learned: communicate.

For months before Dupixent won approval, Schleifer personally spent time with payers, gathering feedback and gauging reactions as pricing scenarios were kicked around.

His team also huddled with the Institute for Clinical and Economic Review, an independent arbiter for determining whether drugs are cost-effective. The goal was to set a price that would yield a good report card on value, a key hurdle these days. After rebates and discounts, Dupixent’s net price will actually be closer to $30,000, which is in line with ICER’s evaluation. (Dupixnet is jointly marketed by Regeneron and Sanofi.)

“The difference here was the preparation for the launch price, not just the launch product,” said Geoffrey Porges, an analyst at Leerink, who described the Dupixent game plan as a “new paradigm” for engaging payers. “If all this works then other companies are going to rethink launches, and maybe pricing as well.”

This strategy is in stark contrast to the approach taken by Gilead Sciences.

The biotech famously slapped an $84,000 price tag on its groundbreaking Sovaldi hepatitis C treatment three years ago. Because it had such a high cure rate, the drug quickly generated an enormous number of prescriptions. This, in turn, strained budgets for Medicaid and private insurers. But Gilead failed to confer with payers in advance.

There is an expression for this kind of behavior — tone-deaf. As a result, Gilead became a lightning rod for criticism of the pharmaceutical industry, and deservedly so, despite any savings its medicines bring to the health care system down the road.

“It was smart for Regeneron to get a pricing agreement before approval,” said Richard Evans, an analyst at Sector & Sovereign Research. “In this environment, payers don’t want unpleasant surprises.”

Whether Dupixent becomes a game-changer is unclear.

Already, though, another example popped up last week. Roche’s Genentech unit priced a new drug to treat primary progressive multiple sclerosis, the rarest form of the disease, at $65,000 a year. This is 10 percent to 25 percent lower than other MS treatments, although discounts can vary. Genentech also went on record saying it would not follow the highly criticized tradition in the industry of continually raising MS drug prices, year after year.

As with the Regeneron drug, there is little competition for the MS drug, called Ocrevus. This means that insurers and pharmacy benefit managers will likely feel pressure to cover the medicines, and the drug companies may not have to offer steep discounts to get it in front of patients.

Not every drug maker will be able to follow this paradigm, in no small measure because not every new drug to hit the market occupies a unique niche or tackles an unmet medical need.

“This is likely to be more the exception than the rule,” says John LaMattina, a former head of R&D at Pfizer and now a senior partner at PureTech Health, a venture capital firm. “There can be uncertain [product pipeline]issues that can make it difficult for a company to do this.”

Even so, it would be a mistake for any drug maker to dismiss what Regeneron and Genentech have done.

It’s no longer enough to repeatedly insist that high prices reflect hefty investments in research, or that the drugs are worthwhile because they generate long-term health care savings. Setting a price that makes it possible for the largest number of patients to be treated is the most important goal. This requires flexibility and compassion. Which drug maker wants to be next?

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