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.