Austerity Pressures AMD Drug Pricing As Avastin Attracts

| About: Novartis AG (NVS)
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Substitution of Avastin for Lucentis in eye disease resulted in blowback on both sides of the Atlantic this week, with legal and market action affecting the fortunes of Novartis (NYSE:NVS), which sells the drug in Europe, and competitor Regeneron. The Swiss group has taken to the courts to bar a group of UK hospitals from using cheaper small doses of Avastin, a cancer drug, in place of more expensive Lucentis, a targeted drug in wet age-related macular degeneration (AMD).

In the US, a government report essentially calling for greater use of Avastin undermined Regeneron Pharmaceuticals’ cost-savings message with AMD drug Eylea, a document credited with a drop in the share price of the New York company yesterday. With austerity the watchword for governments around the world, and with clinical evidence suggesting Avastin is an effective drug, this week provides signs that Lucentis and Eylea may meet greater scepticism in coming months and years.

Substitute for another drug

Avastin and Lucentis are biological cousins, antibodies that block the vascular endothelial growth factor necessary for growth of blood vessels that feed tumours, in Avastin’s case, and fluid leakage in the eye, in Lucentis’ case. For years, ophthalmologists have substituted Lucentis with a diluted form of Avastin specially prepared at compounding pharmacies.

The US National Institutes of Health settled much of the efficacy debate last year when it published the results of the Catt study, which found the two drugs equal at improving eyesight after a year of treatment. Avastin has never been approved by regulators to treat eye diseases and questions over whether it is equally as safe as Lucentis do remain. Both drugs are manufactured by Roche (OTCQX:RHHBY); Novartis has rights to Lucentis outside of North America.

Novartis has chosen to sue a group of National Health Service primary care trusts in southern England for using Avastin over Lucentis; due to its lack of license for AMD the company claims it is untested and therefore risky.

Lucentis was approved for use in the NHS based on a price of £761 ($1,227) per dose, or £18,300 ($29,519) for two years based on monthly dosing as indicated in the label. When used as an eye drug in the UK, Avastin’s cost is estimated at less than 10% the cost of Lucentis.

Given the stalled economies and austerity budgets being imposed throughout Europe, however, the use of Avastin as an eye drug is undoubtedly widespread and growing. This will not necessarily be the only salvo – Novartis has a great deal of incentive to try to protect its Lucentis income, projected to be the company's biggest selling drug in 2018 with sales of $2.37bn. Widening Avastin use in eye-care is clearly a threat.

Dosing advantage

Meanwhile in the US, a notable event this week in the tussle between the two products was the release of an oversight report from inspector general of the Department of Health and Human Services, which recommended that Medicare establish a payment code for Avastin in AMD. It would be tantamount to incorporating the cancer drug into a national fee schedule when treating Medicare beneficiaries, which encompass the bulk of patients with wet AMD.

In compiling the report, the inspector general’s office surveyed physicians and found the average price paid for diluted Avastin in early 2010 was $26 a dose; compared with $1,928 a dose for Lucentis. Given the $1.1bn spent on Lucentis by Medicare and its beneficiaries through their 20% co-payments, the savings by switching more treatments to Avastin would be significant.

With congressional leaders seeking savings totalling in the trillions of dollars in the next decade, the pressure will be on for Medicare to find cost reductions wherever possible – Lucentis use becomes an easy target.

This does not bode well for Roche, but neither does it make for comforting reading for Regeneron, which is in the midst of the Eylea launch. The product won approval based on non-inferiority to Lucentis; its chief advantage is less frequent dosing. However, as with Lucentis against Avastin, Eylea has not proven to be a superior drug to Lucentis. At $1,850 an injection in the US the annual cost of the drug is still an eye-watering $16,000.

The Regeneron biological offered significant savings of $13,000 over Lucentis in its US payment strategy - however, it is nowhere near what off-label Avastin can save. With Roche now seeking a label for dosing once every other month for Lucentis in the US, as was found to be effective in the Catt trial, the pricing battle will heat up even more.

As governments confront yawning spending deficits and mounting debts, the high priced targeted AMD drugs will find themselves under rising scrutiny. Whilst Novartis, Regeneron and Roche can continue to point to the licensed use of Avastin as a reason not to use it in AMD, the growing evidence of its effectiveness and safety will make it increasingly difficult to justify their argument.