A top executive at Swiss drug giant Novartis told us the inside story of the $2.1 million price tag for the most expensive drug in the world (NVS)

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The FDA just approved a cutting-edge new treatment from Swiss drug giant Novartis for a rare genetic disease called spinal muscular atrophy. Priced at $2.1 million, it is the world’s most expensive drug.
We spoke with Dave Lennon, the head of the Novartis unit that makes the drug, about how the drugmaker decided on its price tag.
Lennon acknowledged the "sticker shock" of this price point but said that because of how expensive this disease is to treat, Zolgensma is actually cost-effective for the US health system.
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People born with a devastating, inherited muscle disease now have a new cutting-edge treatment option: a "gene therapy" that works to treat the condition at its genetic root.

The treatment, called Zolgensma, was approved by the US Food and Drug Administration on Friday, and drugmaker Novartis said it’ll be available immediately. Because the treatment alters the genetic information responsible for the disease, it could work for patients for a period of years, longer than most medicines. It’s still unclear if it’ll work permanently.

That long-term nature also helps explains its staggering price tag: $2.1 million. That makes it the most expensive drug in the world. Health insurers can choose to pay for Zolgensma on an installment plan: $425,000 a year for five years.

Because of the price tag this wasn’t just any drug launch.

Novartis acquired the biotech that developed Zolgensma last year for nearly $9 billion. The drugmaker began talking about the price publicly as early as half a year before Friday’s FDA approval, and it started negotiations with health insurers before the approval, too.

"Our view is we’re going to be well ahead of where most products would be at this point in time," Dave Lennon, president of Novartis’s AveXis business unit, told Business Insider on Tuesday.

"There’s no meeting where you show up for the first time and you introduce potential price points we’re talking about and people jump up and down and say ‘Yes, I’m very happy to do that,’" Lennon said. "There’s sticker shock when you first talk about this kind of price point."

‘We should be looking at the lifetime costs of therapy’

Spinal muscular atrophy is a rare genetic condition that affects muscle movement and is the leading genetic cause of death in infants.

An estimated 10,000 to 25,000 individuals in the US live with the condition, according to the SMA Foundation. Only babies who are under two years old would likely be eligible for Zolgensma, Novartis said on Friday, and the company expects about 1,100 people to be eligible for it at launch.

The severe nature of this rare disease is also why Novartis and AveXis believe that $2.1 million is actually a cost-effective price for the US healthcare system.

The Institute for Clinical and Economic Review, a group that measures the cost-effectiveness of new drugs, agrees. Its president, Dr. Steve Pearson, called the price tag "within the upper bound" of a cost-effective price on Friday.

Those who are born with spinal muscular atrophy have impaired reflexes and lessened muscular and head control, lacking the ability to sit without help. In studies, kids treated very early on with Zolgensma were achieving normal development milestones, like sitting, and many are on track to go to kindergarten next fall, Lennon noted.

Spinal muscular atrophy is already very expensive to treat, and Zolgensma is expected to have long-term benefits for those who get it, Lennon and other Novartis executives said this week.

"At the end of the day, it does not take away the sticker shock that this product creates," Lennon said. "But we frankly take exception to the concept that it could be the most expensive medication, because that’s evaluating it as a one-time treatment, and trying to compare it to a drug that may work for a month, or a week, or a year,"

"That’s not the right framework," he added. "We should be looking at the lifetime costs of therapy."

The story behind the price tag

The $2.1 million price tag was based on health economic analyses done by the company. It also looked at other therapies, both for spinal muscular atrophy and in the rare disease space, as benchmarks.

Biogen’s Spinraza, for instance, was the first-ever drug approved for spinal muscular atrophy and costs up to $750,000 for the first year of treatment and $375,000 in subsequent years. Like most medications, Spinraza is not a one-time treatment and must be taken consistently by patients.

That would make Zolgensma half the cost of 10 years of treatment with Spinraza, Novartis noted in a Friday press release.

"We have to remember this is a new therapy which has unique constructs that made us think differently about how we wanted to approach this," Lennon told Business Insider.

AP Photo/Eric Risberg

Novartis has also been working proactively with payers like health insurers and government programs, as well as a pilot program being organized in Massachusetts.

The company said on Friday that more than 15 payers are in "advanced discussions" around contracts with it, and that it expects 30% of patients will be covered within 30 days of approval.

"Our goal is to work as quickly as possible to get access for everyone," Lennon said, something that’s been helped along by flexibility and building incentives into contracts so health insurers set up policies covering gene therapies and commit to paying for them quickly.

Payers have also been very interested in agreements where a portion of the price tag is returned in the case of a patient either dying or needing to use ventilators, which would suggest that Zolgensma didn’t help them. The company is offering health insiders this type of "outcomes-based" contract, or to pay over a period of up to five years, or both, Lennon said.

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