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3 Justifications for the High Cost of Gattex

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NPS Pharmaceuticals (UNKNOWN: NPSP.DL  ) has priced its Gattex drug for short bowel syndrome, or SBS, at $295,000, expecting to make peak sales of $350 million from the 3,000-5,000 Americans suffering from this rare disease. SBS causes malabsorption when a significant portion of the small intestine is removed as a result of Crohn's disease, trauma, cancer or other conditions. It is a debilitating disease that urgently needed a focus therapy -- the question, however, is: Is that therapy worth more than a quarter-million dollars to the suffering patient?

Justification 1: Current state of non-drug therapy
Before Gattex, every day SBS patients would intake nutrients and fluids through parenteral support, or PN -- that is, through infusion other than the mouth. However, PN does not address the issue of malabsorption, which occurs at the end of the digestive process in the small intestine. It reduces the quality of life from continual intravenous infusion and frequent trips to the bathroom.

According to a National Institute of Health report (link opens PDF), PN therapy costs around $180,000 to $570,000 per patient per year. There are associated side effects including shortened life span, and life-threatening complications such as sepsis, blood clots, or liver damage. According to the STEP study done by NPS, using Gattex, 25% of patients have three infusion-free days per week, which reduces PN dependency by nearly six months. Many patients have complete independence from PN. This improves life of SBS patients to an extent, but it has yet to be thoroughly evaluated for complete elimination of patients' dependency over PN.

Now, assuming that PN costs $350,000 on an average, a half-year dependency reduces this cost by $175,000. Add in the price of Gattex, and a patient is effectively paying $120,000 more for six months of normalcy, freedom from food infusion, and reduced chances of PN-related diseases. It's no wonder why Gattex, launched this past January, is being considered as a major breakthrough.

Justification 2: No real competing drug in the market
There is no first line therapy for SBS, and available options only act as supplementary to the therapy process but can't remove the associated complexity. There are two approved products: somatropin (rDNA origin) for injection (human growth hormone) and L-glutamine powder for oral solution. These products are largely unsuccessful in meeting their desired results despite being marketed as treatment options of SBS for four to 16 weeks.

Humatrope (somatropin [rDNA origin] for injection) from Eli Lilly (NYSE: LLY  ) is used for growth hormone deficiency in children. It is also used to address symptoms of SBS. Despite costing less than Gattex, the product does not resolve the problem satisfactorily. Humatrope only did $91 million in sales last quarter and saw a 9% decline year over year.  

Justification 3: Orphan drugs are generally pricey
Orphan drugs usually come with high price tags ranging from $100,000 to $500,000, and even more in certain diseases. The rationale is simple -- it costs hundreds of millions of dollars to develop an orphan drug, and with profit being the major incentive, companies need to recover that money and make a profit on top of it. Since patient population is small, the cost of the drug goes up. So far, insurance companies do not seem to excessively mind it, neither do patients co-paying for treatment.

For instance, Soliris from Alexion Pharmaceuticals  (NASDAQ: ALXN  ) , costs nearly $440,000 for the treatment of rare blood disease (PNH), which is pretty high compared to Gattex. The product is highly effective against PNH and well covered by both private and national health insurers. In addition, Soliris is approved in the U.S. and EU for the treatment of atypical hemolytic uremic syndrome, or aHUS. This is also a rare disease, and no treatment is currently available. The fact that the company anticipates continued growth in Soliris just goes to show that no matter what the cost, orphan drugs will sell if they are effective.

So, from all three standpoints -- replacement therapy costs, existing drugs, and general orphan drug market trend -- Gattex pricing seems to be justified. No doubt, both the patient population and the market will figure that out.

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