This Top-Dollar Drug Hits the Discount Rack

Critics had complained that Sanofi's (NYSE: SNY  )  colorectal cancer drug cost too much compared to existing options. So this week, Sanofi slashed the price in half. The move sheds light on the challenges facing high-cost drugs with cheaper, comparable alternatives, such as Dendreon's  (Nasdaq: DNDN  ) 's prostate cancer drug Provenge.

A changing climate
Zaltrap, a joint project from Sanofi and Regeneron (Nasdaq: REGN  ) , received approval from the Food and Drug Administration in August for treating patients with advanced colorectal cancer. Trials showed that Zaltrap barely extended patient lifespan by about 1.5 months, making it nearly identical to Roche's Avastin in efficacy. Despite offering no real advantage over an existing drug, Zaltrap was priced at an astonishing $11,000 per month -- more than twice the cost of Avastin.

Doctors had apparently had enough of high-priced, ineffectual drugs. A trio of physicians from the Memorial Sloan-Kittering Center wrote an op-ed for The New York Times detailing why Zaltrap wasn't worth its price tag. Sanofi attempted to defend its pricing, but it released the discount information soon after.

Sanofi didn't cut its prices to be altruistic. The structure of the discount was designed to benefit doctors and hospitals foremost, which the company hopes will ramp up the number of Zaltrap prescriptions. 

Trickle down pushback?
Could the Sanofi discount force the hands of other companies facing ridicule for overpriced treatments? It's possible, assuming those companies have competitors already on the market.

Dendreon in particular should be taking notes. The company's prostate cancer treatment, Provenge, had a lot of hype as it moved through the regulatory process, but it came out of the gate with a stumble and a thud. Provenge released with a price of $93,000 for its recommended three treatment doses, and doctors had initial concerns about reimbursements. The vaccine's disappointing performance -- and the associated controversies-- have led Dendreon to a CEO upheaval and a number of layoffs.

A competing oral pill, Zytiga from Johnson & Johnson  (NYSE: JNJ  ) , costs $5,500 per month. Zytiga's trials showed patient lifespan improved nearly four months, and the drug is already being used off label in the same indication as Provenge. Zytiga and Provenge aren't as pharmacologically similar as Zaltrap and its competitor, but the price disparity between Provenge and Zytiga -- and the negative market reaction – shows that the dissatisfaction was brewing before Sanofi's troubles. It's an issue that's unlikely to go quietly into the night.

Foolish bottom line
The historical pricing power of cancer treatments has been strong for a long time. But this example could signal that the balance of power has shifted. Sanofi appears to have realized that charging top dollar for a treatment doesn't work if no one decides to prescribe it. 

In any case, with a diverse portfolio of pharmaceutical and over-the-counter products, Sanofi's business is doing fine overall, and shares are trading up over 24% year-to-date. A stable position like this allowed it to make Zaltrap's bold price cut. But weaker companies like Dendreon may not have that luxury.

As for Dendreon, it's run over the past four years witnessed sub-$5 share prices skyrocket to 10-bagger status before tumbling all the way back down below $5. But where does that leave investors -- other than a bit nauseous from the roller-coaster ride? Our own David Williamson answers this question, and many more, inside our brand new premium research report on Dendreon. Inside, he details every key issue facing the company and outlines just how Dendreon intends to regain its former glory. The report also comes with a full year of analyst updates, so claim your copy of this exclusive report today by clicking here now.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2012, at 6:16 PM, lebronz wrote:

    Wow Brandy...!

    Another great article from Motley Fewl telling its audience of a few (me included; since no one ever comments) to stay away from DNDN, which is at $4.10 per share today.

    Motley's all out efforts over the last 7 months by Brien Orielli, David Williamson, and now you ...a newbie Fewl writer that presents a pretty convincing, although inaccurate reasoning in your article on the so called "high price of Provenge" by dndn. Good Job!

    Unfortunately, it looks like Brien & David got to you first before I did..., and for that, I'm sorry.

    It is so very obvious they've convinced you to pass THEIR OWN in-accurate info in YOUR ABOVE article.

    That makes me even HAPPIER about the future prospects of dndn because it's an obvious tell..., but unhappy for your few readers that believe your mis-information!

    I'll keep this comment long and end with this:

    DNDN's Provenge method of action is completely different from the so-called available competition today (eg: zytiga & xtandi, which btw will be sequenced to extend the dying prostate cancer man's life to the MAXIMUM; It won't be an EITHER/OR like Brien, David & wallstreet wants you to believe).

    Provenge is accurately priced because it's the FIRST EVER, fda approved, novel immunotherapy cancer vaccine. It's a new paradigm in cancer treatment among the toxic chemo-therapy regimens that were available at the time of FDA approval (April, 2010)

    Xtandi and Zytiga weren't available then and as you know, they're both just simple pills that you pop, unlike Provenge, which requires a manufacturing process that is unique and personalized. The price should have been much higher. $93,000 is a bargain.

    From the latest Q3 cc, expect the price to actually increase a little sometime later in 2013 Brandy, which says even more, but I won't get into that right now.

    There is still time for you Brandy to leave the dark side b4 its too late, but I'm sure you won't.

    I look forward to your next negative article on DNDN via Brien & David & the Motley owners.

    It's a great feeling and only increases my positive sentiment on the future of DNDN.

    gl

    Leb

  • Report this Comment On November 19, 2012, at 2:08 AM, Givemeusefulinfo wrote:

    DNDN can't reduce the price of Provenge. The margins are absolutely terrible. Unlike most drugs, theirs won't improve much, if any, with increased sales.

    But that's DNDN's problem. The fool's problem (note the lowercase) is that then you go on to try to upsell your brand new premium research report on DNDN? I think not.

  • Report this Comment On November 19, 2012, at 2:36 AM, techperson wrote:

    Zytiga is $5,500 a month for 13 months. That's $71,500. The patient has to take it with steroids and enjoy all those side effects during the 13 months. The Medicare patient gets two "doughnut holes" to cover out-of-pocket.

    Provenge is infused over a period of six weeks, and then the patient is done. 70% have no copay at all.

    Provenge is "too expensive" to who? Medicare and all private insurance cover it. Are you saying it is too expensive for the insurance companies?

    Of course these drugs will be used sequentially, Provenge first, in order to maximize life extension. Medicare and private insurance will pay for both.

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