On Monday, Gilead Sciences' (NASDAQ:GILD) wowed investors with an $11.9 billion deal to buy clinical-stage CAR-T drugmaker Kite Pharma (NASDAQ: KITE), and on Wednesday, the FDA approved Novartis' (NYSE:NVS) CAR-T, Kymriah, making it the first CAR-T to secure a regulatory green light. With Novartis pricing Kymriah at an eye-popping $475,000, and the two companies on course to compete against one another for market share as soon as next year, investors are right to wonder if Gilead Sciences will price its CAR-T drugs similarly, or undercut Novartis. 

First, a bit of background

Chimeric antigen receptor T-cell therapy, or CAR-T, helps the immune system find cancer by reengineering T-cells so that they can spot and bind to proteins expressed on the surface of cancer cells.

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Novartis' Kymriah and Kite Pharma's (soon to be Gilead Sciences') CAR-Ts work similarly. Each involves removing a patient's T-cells and shipping them to a facility where they're engineered to spot and bind to CD19, a protein commonly expressed by B-cell cancers. Once the companies have finished altering the T-cells, they're infused back into the patient. 

While Kymriah and Kite Pharma's axi-cel are similar, at first, they'll be used in different patients. Novartis' Kymriah won approval on Wednesday for use in pediatric patients with acute lymphoblastic leukemia, or ALL. It can be used in patients whose disease has returned following multiple prior treatments, or who no longer respond to treatment with other therapies.

Alternatively, axi-cel is under FDA review for use in certain types of non-Hodgkin's lymphoma, including diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL) and primary mediastinal B-cell lymphoma (PMBCL). Like Kymriah, heavily pretreated patients with few remaining treatment options will be able to use it.

The addressable market in each of these indications is small, but the need for new treatments is big.

In Novartis' case, roughly 3,100 patients age 20 and younger are diagnosed with ALL annually, and roughly 15% to 20% of them could benefit from Kymriah. In clinical trials, the overall remission rate for patients receiving Kymriah was 83%. 

The patient population targeted by axi-cel is larger, but it's still relatively limited. There are about 72,240 people diagnosed annually in the U.S. with NHL, and about 20,140 people die from it every year. However, diffuse large B-cell cancer, the largest indication for which axi-cel could win approval in November, represents only about one-third of these patients, and that suggests an addressable market of around 7,000 advanced NHL patients. In trials, 82% of patients responded to axi-cel, including 54% who saw a complete response.

Novartis hasn't filed for approval of Kymriah in advanced NHL yet, however, interim trial results suggest response rates similar to axi-cel, and if that's still true when the trial wraps up later this year, then Kymriah could compete head-to-head with axi-cel in NHL as soon as next year.

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Cutting edge, at a cost

Both Kite Pharma and Novartis are studying the potential to use CAR-T and other cell therapies in a variety of cancer indications, including some of the most common cancers, and because of CAR-T's complexity, advocates and payers are worried that sky-high prices for the first CAR-Ts to win approval could set a precedent for a class of drugs that may eventually be used to treat far more patients down the road.

A report from the U.K.'s price watch dog earlier this year suggested a price as high as $649,000 could be justified in pediatric patients with ALL. Based on that assessment, Kymriah's $475,000 list price seems like a bargain; especially since payers will negotiate for discounts that reduce the price further.

While the market for Kymriah in ALL is pretty small, and payers will be able to digest its cost in that indication pretty easily, similar pricing for Gilead Sciences' axi-cel, could put CAR-T on a course that breaks-the-bank for payers. For instance, if CAR-T is eventually approved for use in all NHL patients, a $475,000 price tag would translate into over $34 billion in annual spending in the U.S. alone for that indication, before discounts.

It's unlikely that will happen, but it does hint at what's at stake for these companies, and why CAR-T drug developers may end up embracing indication-specific pricing that varies depending on the type of cancer, the availability of competing treatment options, and CAR-T's efficacy in patients. If indication based pricing is CAR-T's future, then Gilead Sciences could price axi-cel for use in NHL at a discount to Kymriah's price in ALL.

A battle looms

An axi-cel decision is expected on Nov. 29, and while there's no guarantee it will win a regulatory go-ahead, I think it's likely. If axi-cel is approved, then it will become incredibly important for investors to see what pricing strategy Gilead Sciences adopts. In the past, Gilead Sciences has pressed the envelope on pricing in other indications, so it's no stranger to cost controversy. Only time will tell how lessons it has learned from its past will influence its strategy for CAR-T, or ultimately, which company will win the war for market share. One thing, however, appears certain: a new era of increasingly costly cancer treatment is upon us.