We Don't Care if It's the First Lupus Drug in 50 Years

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As usual, the U.K.'s National Institute for Health and Clinical Excellence -- or NICE -- isn't playing very nice.

The agency in charge of determining what drugs are covered by the U.K.'s national health-care plan has decided not to cover GlaxoSmithKline (NYSE: GSK  ) and Human Genome Sciences' (Nasdaq: HGSI  ) new lupus treatment, Benlysta.

It's a bang-for-your-buck issue. Sure Benlysta is the first drug approved specifically to treat lupus in more than 50 years, but NICE doesn't care. It's worried about the decrease in symptoms compared to the cost, especially in relation to other medications.

Human Genome Sciences is down 4% today, but there's really no reason for investors to fret just yet. This is only a preliminary decision. There's still a comment period, which will likely involve Glaxo and NICE sitting down and negotiating a price that's acceptable to both sides. That's just the way it works.

Glaxo knows how to work the system. Last year, the company negotiated a deal for its kidney-cancer drug Votrient at the same price as Pfizer's (NYSE: PFE  ) rival Sutent. If a clinical trial comparing the two (scheduled to read out in mid-2012) doesn't show equivalent efficacy between Votrient and Sutent, Glaxo will issue a rebate.

Benlysta doesn't work for all patients, so the deal could involve NICE agreeing to pay for the patients that respond, with the companies picking up the tab for the rest. Johnson & Johnson (NYSE: JNJ  ) made that sort of risk-sharing deal with NICE to get its cancer drug Velcade approved. Alternatively, NICE might be worried about the long-term costs for the chronic disease. Celgene (Nasdaq: CELG  ) satisfied that type of issue for Revlimid by agreeing to pay for any patient that was on the multiple myeloma treatment for longer than 26 treatment cycles (about two years).

It would have been great if NICE had accepted the price as is, but just consider this the opening round of negotiations.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer, Johnson & Johnson, and GlaxoSmithKline, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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