A Gardasil Gotcha

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Getting a drug through the FDA often isn't enough for drug companies. To make money, they've also got to persuade someone -- usually health insurers like UnitedHealth Group (NYSE: UNH) or Aetna (NYSE: AET) -- to pay for the product.

That's what makes this week's article and editorial in The New England Journal of Medicine about Merck's (NYSE: MRK) Gardasil so worrisome for Merck and GlaxoSmithKline (NYSE: GSK). Glaxo is hoping to bring its own human papillomavirus (HPV) vaccine, Cervarix, to the U.S. market. The article basically concludes that the vaccination is worth the money -- about $360 to $400 for a three-dose series -- for young girls, but not for women in their 20s. One of the authors said that "the vaccine becomes less cost-effective" for older women.

The problem is that Gardasil is approved for females aged 9 through 26. That's fine as far as it goes, but Merck has been trying to get it approved for women through age 45. Even if it succeeds in getting the label expanded, it might be difficult to get insurers and government agencies to pay for the vaccine.

There's certainly precedent for payers rejecting drugs that don't have a large enough benefit. For instance, the UK's National Institute for Health and Clinical Excellence is considering not paying for kidney cancer treatments like Pfizer's (NYSE: PFE) Sutent and Onyx Pharmaceuticals' (Nasdaq: ONXX) Nexavar because the drugs extend patients' lives by only a few weeks to a few months, on average.

To combat a similar possibility, Merck is offering doctors a free replacement dose when a dose is given to a patient who then finds out that her insurance won't cover it. This might lead to patients deciding to finish the three-dose regimen and pay for the remainder out of pocket.

With Merck and Schering-Plough (NYSE: SGP) having so much trouble with Vytorin, they're both in desperate need of replacements for the lost growth. Merck is counting on continued growth from Gardasil as well as fellow newcomer diabetes treatments Januvia and Janumet, and HIV treatment Isentress. Loss of sales of Gardasil to older women won't be the end of the world for Merck, but it certainly isn't going to help with a comeback.