Mehta Analysis: Welcome to BioPharma 2.0

Executive Summary

Viren Mehta of Mehta Partners LLC ponders what the approval of Novartis gene therapy Zolgensma foreshadows, in terms of future therapies and pricing.


The flowers of this lazy, cool spring in the Northeast US are soothingly beautiful. So ironically are the headlines about the first $2m single-dose gene therapy breakthrough from Novartis AG. Zolgensma will cure and transform the lives of a couple of thousand young children suffering from a missing SMN1 gene that causes spinal muscular atrophy (SMA) and usually brings early death. This cure is expected to enable these children to lead a full and fulfilling life that will yield tremendous value to society. The patients would otherwise incur a lifetime cost of some multiple of this $2m tag

Welcome to the exciting journey that the biopharma industry has begun with the advent of curative therapies. With a bit of luck, gene therapy and a range of related R&D tools will enable accelerated development of such cures for polygenic as well as single-gene maladies, in turn broadening and deepening biopharma’s value to society.

To be sure, these are early days for Zolgensma, a five-year-old modality, and at least one death that may not be treatment-related is being investigated. To date, the alternative is Biogen Inc.’s Spinraza, which needs several painful doses a year. Its cost can surpass Novartis’s $2m tag, depending on SMA patient life span. Roche expects to launch its oral treatment risdiplam in the near future. 

If Zolgensma’s life-time curative powers prove to be true, not only will it become the standard of care for SMA, it also will usher in screening requirements. It will become unethical to not screen all newborns for this gene defect. While such screening will add to the societal costs – especially as each successive gene therapy may well lead to a need for regular mass screening – optimal use of these therapies will yield much greater value.

Gene Therapy For Polygenic Diseases

Now it is just a matter of time before the techniques of this single gene therapy are applied to polygenic diseases that afflict countless millions – not just a thousand or two.

This will be a long journey, even as an increasing number of illnesses are being targeted by a rapidly growing number of gene therapies in the pipeline.  The beauty of such once-and-done cures is that the template that yields a clear pathway to fix one malfunctioning gene is likely replicable for many more similar pathways. A rapid decline in the cost of bringing such cures to market can be expected, hopefully with commensurately lower prices for each successive new cure. 

Still, how will we afford such therapies that may cure subsets of heart or respiratory or liver diseases, to name just three major ailments plaguing our society? This question is surely going to be a pain point in the near future. Therefore, rapid-fire deployment of gene therapies along a template and economies of scale need to be facilitated by all stakeholders so that the cost of such cures will not only become manageable, they may well transform the entire healthcare equation by lowering biopharma costs even as we treat an ever-growing number of today’s intractable chronic diseases.

Biopharma managers as the key stakeholders can readily appreciate the potential, starting with an assessment of the possible economics of this SMA therapy for Novartis. First, Novartis needs to amortize its investments in this curative R&D, including some multi-billion dollar acquisitions that have begun to bear fruit – not to mention the financing costs so that patients and payers can pay this large sum over several years. Note that Zolgensma was approved based on one study in only 36 children, hence its clinical development costs would have been much more modest than research and preclinical costs – exactly opposite to today’s R&D mix.

Second, the cost of goods (COG) would be high for such a personalized product production during its early days, but the $2m denominator likely brings COG down to the 10% of revenue norm for the industry. 

And third, Novartis would win really big in not needing any selling, just some marketing, bringing its operating margins to well over one-half of the revenues. And this ratio will only get fatter as COG and most other costs diminish with scale and experience. Some estimate that Novartis can expect around $40bn in revenues over the initial patent life of this SMA therapy, not considering any clever designs it may have to delay biosimilar competition some time later in the 2030s. Even without any price increases, Novartis would earn well over $20bn over the life of this SMA therapy, which it would justify by the larger sums it will save society by making these patients productive citizens with its one-shot cure.

From Chronic To Curative Treatment

By contrast, much of the industry’s revenue today comes from lifetime consumption of symptomatic therapies. In developed countries, over a lifetime, a chronic disease treatment per patient may cost anywhere from under $100,000 if a generic drug is used to well over $500,000 if a better, newer treatment has become available.

If a curative therapy is approved for such chronic diseases, how would it need to be priced?

Take malfunction in lipid metabolism that is treated with statins offering a mixed risk-reward profile. Genome research points to a handful of genes that may be responsible for this malfunction in a large portion of these patients. Arguably a cure for such polygenic malady may emerge in a decade or two. Is it too ambitious for the biopharma to set itself a target to price such treatments at under $1,000, or $1bn for each million patients cured? We outlined above the attractive economics for Novartis with only $40bn dollars in SMA therapy lifetime revenue even during these pioneering days. For lipid malfunction, tens if not hundreds of millions of patients need to be treated at some stage in their life. The bounty for the biopharma is obvious even as it does well by doing good.

Recall how we all salivated but felt the idea of a $1,000 computer so implausible when Steve Jobs talked about it just a generation ago. Closer to home, the first personal genome map that cost $1m about 20 years ago can be had for under $1,000 today. Biopharma innovation is even more resourceful today to not aim for a win-win future for biopharma and for society. Why not a $1,000 gene therapy cure for a majority of chronic diseases by 2040?

Viren Mehta founded and is managing member of Mehta Partners, LLC, a globally integrated boutique providing strategic insights to senior management teams in the biopharmaceutical sector for nearly 30 years.

This column originally appeared on Scrip Biopharma Intelligence, May 29 th, 2019.

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