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Gilead’s $11.9 billion purchase of a groundbreaking cancer therapy could drag it into a new debate on prices

(Gilead Sciences via AP)

Gilead Sciences has ended the long-running suspense about what it would do with some of the billions in cash it has amassed from selling effective, but expensive hepatitis C drugs: Buy a groundbreaking cancer therapy.

Gilead, which has come under congressional investigation for the $84,000 price tag it put on its first hepatitis C drug, announced Monday it would shell out $11.9 billion to acquire California-based Kite Pharma. The acquisition could stir a whole new debate on drug prices.

Kite has been one of a small group of companies at the leading edge of a new frontier in cancer therapeutics called CAR-T. The therapy is novel, personalized and intensive: Immune cells are harvested from a patient, genetically programmed to fight their cancer and then reintroduced to the patient.

Kite's version of the therapy — for certain forms of the blood cancer, lymphoma — is enormously exciting from a medical standpoint, but it is also extremely likely to be costly. Cancer drugs are already routinely priced at more than $10,000 a month, and this new approach — a one-time treatment — has stoked hope for a whole new personalized approach to fight cancer. It might also need a whole new pricing model.

Gilead declined to comment on a possible price for the drug, because the Kite Pharma deal isn't expected to close until the fourth quarter of 2017. The companies expect a decision from federal regulators in November — a month after a Novartis CAR-T drug for a pediatric cancer is expected to receive approval.

“What I think we need is a balance, or equilibrium, rewarding the investment that was made — which is considerable — to manufacture these cells for each and every patient, against the ability of patients who desperately need these treatments to have access,” said Kenneth Anderson, president of the American Society of Hematology.

Gilead has spent years trying to persuade insurance companies, state Medicaid directors and the public that its hepatitis C drugs — short-term treatments with long-term effects — are a good value. The deal will put it in the future position of making a similar argument about a new drug.

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Brad Loncar, chief executive of an investment fund that focuses on cancer immunotherapy estimated the prices of CAR-T treatments might range from $300,000 to $500,000 — but argued that this class of drugs is exactly the kind of scientifically driven drug development that is worth the price.

The therapy “is not going to be expensive because drug companies are greedy, CAR-T is going to be expensive because it's at the forefront of medicine and science,” Loncar said.

Steve Pearson, president of the Institute for Clinical and Economic Review, which evaluates the cost-effectiveness of medicines, said his group is working on an assessment of CAR-T therapies expected to be complete next year. He pointed out that drugs that people take over a short-term that have a lasting-effect may be much more valuable than chronic drugs that must be taken over years to manage a disease. Factoring that value in is important, but another issue is making sure that the cost of a drug does not overwhelm the health care system.

“With a promising drug like this, we’d expect to pay handsomely to reward the innovation and the meaningful benefit to patient; there's no flinching from that,” Pearson said. “It’s just realizing that means there is a way to scale the price to that added benefit; that means it won’t cost $10 million a month and it won’t cost $10 a month.”

The outlay Gilead is making to buy Kite Pharma is similar to the investment the company made to acquire Pharmasset, the company that started its hepatitis C franchise. It also means Gilead will need to respond to investors' expectations when pricing therapies. Because of its massive success in hepatitis C — $14.8 billion in sales in 2016 — it needs something to replace that income stream as those sales drop off as competition increases and existing patients are successfully treated.

Investors are looking for Gilead to fill that gap by using some of the cash it accumulated to acquire new drugs, but that also means expectations could be high for the sales of its new cancer drug.

“It's like the monster in 'Little Shop of Horrors.' It’s the monster that keeps needing to be fed,” said Peter Bach, director of the Center for Health Policy Outcomes at Memorial Sloan Kettering Cancer Center. “They're beholden to growth expectations … the next asset has to deliver even more. Their success in hepatitis C is going to actually drive prices in cancer up.”