June 5, 2012

Price? Price Per Month Of Life Extension? Does It All Boil Down To Cost?

The discussion about the cost of oncology drug treatment is quietly growing larger. Sure, someone yells loudly once and while, and then silence. Another bellow, and then more silence. The volume is rising.

A decade or two ago, who would have thought the U.S. would have lost its AAA rating (global reserve currency and destination of the fearful notwithstanding)?

The point is what was unthinkable is now thinkable.

Cure cancer at any cost? Live a month or two or three longer? What's that worth? What are you willing to pay? What are you able to pay? In the U.S., for example? In India?

These are all good questions. Questions whose asking are becoming louder and more frequent with time.

For now, how much do different oncology treatments cost?*
  • BMS' Yervoy: $120,000 for a 4-dose treatment;
  • Roche's Zelborak: $56,400 for a 6-month course of treatment;
  • Dendreon's Provenge: $93,000 for a 3-infusion treatment in a month;
  • J&J's Zytiga: $40,000 for an 8-month cycle;
  • Medivation's MDV3100: $40,000 to $60,000 for a course of treatment (analyst estimate); and,
  • Seattle Genetics' Adcetris: >$100,000 for a course of treatment.
* Roughly, for purposes of the following analysis and commentary. Figures may have changed.

Compare to Provectus' PV-10: $20,000 to $30,000 (analyst estimate). Provectus wins. Adjust for life extension, by dividing the treatment costs above by the number of months the respective drug extends life. Provectus wins more handily.

Companies are profit-driven organisms. They usually endeavor to charge as much as the market can bear. From a profit perspective, if a drug costs a lot to develop and bring to market, the drug development company will have to charge a high price to recoup those historical expenses. Once costs are recouped and before the patent cliff arrives, treatment costs are pure profit.

If a drug company developed a drug dramatically less expensively than the industry norm, how would that result influence its pricing strategy? If the drug also produced dramatically better efficacy and possessed a robust safety profile, how would pricing strategy further change?

PV-10’s gross margin is more than 80%. Gross margin is in excess of 99% when not including a sales return-type allowance. At a $20,000 treatment cost assumed or inferred by analysts, an 80% margin suggests a $4,000 drug cost. But, what if the actual cost to produce a treatment course of PV-10 is, say $1,000? Or $500? Or $100?

What if the eventual acquirer of Provectus decides to charge $15,000 for PV-10, or $10,000, or maybe just $5,000, to encourage adoption and use (assuming sufficient physician education and buy-in to PV-10's clinical value proposition). What if physicians then begin using PV-10 as a first-line treatment after surgery, or a "true" first-line treatment before surgery (i.e., the first tool out of the oncologists tool kit)? What is the impact of this "predatory pricing" -- predation of competitors, not of patients -- on the lifespan and sustainability of the competitive landscape and the size and growth of the global addressable market for PV-10? The implications are of great import.

This part of Provectus' story may not get a lot of press, but it is very important to the company's two main customers at the current time: the FDA and big pharma.

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