By Gilles Toulemonde, Inova CEO
A lot is happening in the field of Oncology. As new drugs are approved, and established treatments gain new indications, more and more collaborations are being established. We have seen this firsthand. In our June white paper on meetings taking place at the BIO International Convention 2017, we reported that 1 meeting out of 3 was set to discuss partnership opportunities in the field of oncology. Specifically, for immuno-oncology treatments, more than 130 biotechs and 20 pharmaceutical companies were working together, with the number of deals rising to 58 last year from just 6 in 2013 
As CEO of Inova Software, the most widely used enterprise partnering software among biopharma, I am happy to see these partnerships come to life. However, it also makes me wonder about the risks these companies are taking in these partnerships. For instance, we all know that risks of failure are high when developing a new drug. Phase 1 drugs have less than 8% chance to make it to market.  Business Developers deal with this risk every day. But anyone contemplating to out-license or in-license an oncology technology should evaluate one extra risk: pricing.
The rising cost of cancer
With the rising cost of cancer care for payers, one might wonder, is the current pricing trend is sustainable?
This question of sustainability of producing these drugs, is, unfortunately, becoming inevitable. If you look at all the cancer drugs approved by the FDA since 1981, the average monthly cost has increased by a factor of 10 from about $1,000 in the mid-80's to $10,800 in the 2010's . And the trend is accelerating. With the introduction of alternative treatments such as immunotherapies, these numbers are bound to propel, due to the high prices that come with it. This puts an enormous financial burden on patients and their families.
The new outcome-based approach
Business model and payors strategies will certainly evolve in the near future to cope with this tidal wave of rising cancer treatments cost. How it will change is still uncertain but Novartis’ decision to charge Kymriah, a CAR-T cell therapy, only when it achieves a clinical response gives some indication on future pricing business model: outcome-based pricing. That won’t be without risks for future oncology partnerships but is probably necessary for the sustainability of oncology business models.
As Kymriah was the first CAR-T therapy to be approved by the FDA, everyone was eager to hear about the price tag that came along with it. Many were relieved to find out that it would “only” be $475,000, far less than what analysts had expected . And although Novartis has announced that the one-time treatment will be free if it doesn’t work in a month, some critics still find the $475,000 price tag too expensive for patients to afford. But without the context, the price does not say much.
For the price to be justified, the outcome-based approach suggests we look at the medical benefits of the drug. Kymriah is approved in the US for children and young adults (up to 25 years) with a recurrent form of blood cancer called Acute Lymphoblastic Leukemia (ALL). In the clinical trials, 83% of the trial participants have already benefited by achieving remission in three months. Considering that without the treatment, patients have a very short life expectancy, Kymriah will probably provide many additional years to patients.
One can anticipate that each additional year will cost far less than $200,000 a year, a price suggested by economists as the value of one additional year in perfect health in the U.S. Although putting a value to life is a sensitive topic, from this point of view, Kymriah is “not expensive”.
The need to innovate pricing models
From a business standpoint, this outcome-based model also enables Novartis to look back on the process of developing Kymriah and evaluate redundancies that may lead to the same outcomes. It allows the company to test and see pricing models and adjust based on the most-efficient way possible. If Kymriah doesn’t work in a month, Novartis will lose $475,000 per month, so by taking this approach, Novartis is taking great financial accountability that will make them stick to reevaluating their processes and making it more efficient.
They have done a similar approach with previous drugs: Entresto; a heart failure drug, Gilenya; a relapsing multiple sclerosis medicine and Tasigna; a treatment for a certain type of leukemia . Novartis has established partnerships with insurance companies to be able to develop outcome-based frameworks. We have yet to see the results, but so far, the drugs are doing well in the market . According to analysts, these drugs would not have grown if it weren’t for the outcome-based pricing model they have set up. Let’s see how it goes for Kymriah, and how other similar succeeding therapies will react in terms of their own pricing models.
The approval of Kymriah and the increasing number of partnerships in the field of oncology makes me feel optimistic for the coming innovative breakthrough drugs that may possibly treat cancer. However, in order to ensure that these products do not get discontinued due to the unsustainable pricing models, it is important for partnerships in oncology to come up with pricing innovative solutions, more than just developing good science.
That is why Novartis’ decision to charge Kymriah only when it achieves a clinical response should be welcomed. Novartis’ move towards an outcome-based pricing will probably impact the of future of many innovative oncology drugs’ pricing models. The challenge, however, is to outline the clear benefits for the patient and payers, as it will require concerted efforts from all stakeholders to eventually reap the benefits of this business model.