World’s Most Expensive Drug: Greedy or Fair?

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What is the most expensive drug in the world? Imagine a single dose of medicine priced at $3.5 MILLION. Since the approval of the gene therapy Hemgenix in late 2022, this is a reality. This eye-popping price is easy to scrutinize, especially if you know the truth behind most newly approved drugs. Drug manufacturers think these prices are still fair, with some even winding down operations due to pricing disagreements. Also, it couldn’t be more fitting that one of the companies we will talk about, who is selling a very simple drug for one million a year, very recently saw itself forced to lay off 25% of its staff, maintain loans and preserve cash burn to simply keep up its operations for another year.

After reading this post, you will know:

  • Why soaring prices do not always equal large profits. You will not understand why some therapies, as crazy as it sounds, cannot be sold for prices under hundreds of thousands of dollars
  • The answer to the question “what is the most expensive drug”?, as well as top contenders
  • The chemical synthesis of the most expensive small molecule drug, used for an ultra-rare disease occurring in 1 out of 40 million people
  • How to estimate drug sales for gene therapies

most expensive drug in the world – what is the bar?

Hemgenix approval dethroned the gene therapies Skysona and Zynteglo, both developed as rare disease therapies by the company BlueBird Bio. With costs per dose of 3 and 2.8 million respectively, they currently land on number 2 and 3. The Institute for Clinical and Economic Review, a non-profit organization publishing clinical and cost-effectiveness analyses of treatments, deemed the true value of Skysona to not be too far off. The company itself postulated normal standard of care consisting of regular transfusion treatments cumulate to total healthcare costs of $6million over a patients life time. Comparing this with Soliris, which had been the world’s most expensive drug for some years in the past decade, we can see that in certain diseases such as myasthenia gravis, a cost-effective price would require a more than 95% discount on the annual price.

So, million-dollar gene therapies are actually not bad in terms of value provided. We have also seen some companies offer outcome-based deals, where for example 80% of the price is refunded if the patient does not respond to therapy.

Gene therapies are also less-overpriced if we look at the cost that it takes to produce them. Producing the annual supply of the antibody Soliris, costs less than 1% of its price. In contrast, gene therapies require bespoke manufacturing and supply chains, with fully loaded manufacturing costs reaching over 200 thousand dollars. But maybe you’re wondering why companies wouldn’t sell them at a lower price let’s say, half a million, and still make a decent profit? First of all, these variable costs do not include the large capital investments required for manufacturing facilities.

Drug R&D Costs

But as anyone who had more than 30min of business school will tell you, there are many more direct and indirect costs behind drugs.

Currently, it costs roughly 2.3 billion dollars to research, develop and launch a new drug. As you can see, R&D costs have been trending up, roughly doubling during the last decade. Some drugs are even higher than 3-5 billion. These large upfront investments are why a company will typically command as high of a price as it can reasonably get, to try to maximize internal return on the dollars.

But if we look at the peak sales potential of drugs, we can see that this decreased instead of increased in recent years. Basically, development is getting more expensive while returns are getting smaller.

Don’t forget that there are other costs beyond the manufacturing cost we highlighted. Companies deploy various functional teams to drive uptake of drugs – the easiest to think about are sales and marketing. On a company level, selling, general and administrative cost are usually around 15-30% of net revenues. On a product level, this obviously depends on the lifecycle stage, with new drugs having much more investments behind them than established products which are more like cash cows.

Additional Factors: Discounts and risk

Another important thing to note are gross-to-net price discounts. You see, the list price you read in the news refers to a theoretical price which is actually never paid. In the extremely convoluted US healthcare system, manufacturers give discounts to various stakeholders involved in access, distribution, or other things. These typically untransparent gross-to-net discounts translate into actual net sales for companies which can be less than 50% of the original list price.

One of the underlying problems behind high development costs is the low probability of clinical success. Science and drug development is inherently high risk, high-reward. While big companies with more than a hundred projects will always get something out of their R&D funnel, smaller companies can get wiped out if several drugs turn out to simply not work as hoped. This is why no company will ever price drugs at minimal margins, because prices need to be high to compensate for large R&D costs AND offer protection against critical pipeline setbacks.

Lonafarnib: another expensive drug

This molecule was originally discovered by Schering-Plough more than 2 decades ago as an investigational cancer drug. After development for oncology was discontinued due to lack of efficacy, and Schering-Plough was acquired by Merck, a deal was struck with the small biotech Eiger Pharmaceuticals. Eiger originally wanted to develop the molecule for hepatitis D, but was also introduced to the Progeria Research Foundation by Merck. This non-profit research organization found that the mechanism underlying lonafarnib’s activity was also involved in progeria.

This heart-breaking disorder causes rapid-aging in children. With a prevalence rate of 1 case in 20 million individuals, this is an ultra-rare disease. Patients die at an average age of 13 years, perversely from heart attack or stroke – so the unmet need is massive.

This always fatal disease is caused by mutation in the gene coding for a protein called lamin A. A single cytosine-to-thymine mis-spelling is the most common mutation, and has critical effects.

Normal lamin A is modified with a farnesyl group which helps direct it to the nuclear lamina (a shipping tag). The tag is subsequently cut-off from normal lamin A. However, the progerin cannot be defarnesylated – meaning the un-natural shipping tag stays on the protein – and this interferes with a myriad of different cellular mechanisms. Because lonafarnib is a farnesyl transferase inhibitor, it prevents the addition of farnesyl groups to progerin to start with. Due to the missing shipping tag, the proteins do not reach their destination as easily but also do not accumulate and mess up the nuclear lamina either.

Although far from a cure, the simple farnesylation-block has significant clinical effects. Treated patients have significantly lower mortality risk and over the course of 11 years, live roughly 2.5 years longer. It also had a good safety profile with small number of discontinuations.

How Expensive is it?

As this is a significant improvement in ridiculously small patient population, we can start to understand why this medicine costs around one million a year, despite being a simple small molecule. This makes it the most expensive small molecule drug. There are not that many sales to be made – as many of the 400 children living with progeria worldwide were already dosed in your clinical trials. Of course, Eiger could theoretically sell it for cheaper, but you also must consider cost of the several clinical trials which lonafarnib was tested in, including its oncology history. So even though the price looks Machiavellian, the company actually lost 200 million dollars in the last three years.

The current R&D spend is focused on the development of lonafarnib in hepatitis D, which is a much bigger commercial opportunity but will also come with lower pricing. They also have additional pipeline projects, so all this cash drain resulted in them recently communicating a 25% workforce reduction. In summary, we see that having the most expensive small molecule drug doesn’t necessarily make life easy.

Chemical Synthesis

Lonafarnib was synthesized on a up to mind-blowing 100kg scale when it was planned as an oncology drug. If you compare the key intermediate to the target, you will notice that we need to introduce an aryl bromide group. How is this done selectively? If you ever had some electrophilic aromatic substitution theory, you would know that other positions are more electronically activated due to the present chloride substituent.

The team approached this starting with a single nitration, giving rise to two nitro regioisomers. Regardless of their position, the effect is the same. A novel reduction system with catalytic iodide proved to reduce the nitro group as well as ketone, saving a step. A mix of hypo-phosphorous and phosphorous acid avoided halogen side reactions while reducing both groups. However, they also observed severe foaming at the beginning of the reaction. For more control, they first added H3PO3 to reduce the nitro group, and then H3PO2 to reduce the ketone. This system proved better than hydrogenation or metal catalysis which would have decomposed the aryl halide groups and introduced potential contaminants.

With the amine in place, the desired bromination product is favored through either ortho-direction in one of the isomers, or para-direction in the other. After removal of the amino groups, the most acidic site is between the aryl rings. The addition of LDA, quinine and this electrophile led to a chiral alkylation, proceeding with impressive 95% ee. Gratifyingly, they were able to recycle the quinine – quite important if you run things on a double-digit kilo scale. Next, a diastereomer salt formation enriched ee to 99%. Last, a final amide formation introduced the missing part – and a one-pot Boc deprotection and urea formation gave the product.

Hemgenix in hemophilia B: The world’s most expensive drug

Now that the chemists are happy, we can pivot to the most expensive drug. For this, we need to understand a disease called hemophilia B, an inherited bleeding disorder caused by a deficiency of the coagulation factor IX. This disorder is characterized by frequent and recurrent bleeding into joints or soft tissue, leading to chronic pain, disability, and impaired quality of life.

The current standard-of-care for haemophilia B includes life-long on-demand and prophylactic replacement therapy with FIX concentrates. This replacement therapy is effective at reducing bleeding episodes and is well tolerated – although some patients develop antibodies, making them resistant to replacement therapy. These repeated injections become extremely expensive over a patients lifetime, with most estimates well beyond $10 million. ICER says 3 million dollars would be a very reasonable price – so Hemgenix is not too far off. So clearly this one-time treatment has a lot of impact, but how does this work biochemically?

How do Gene therapies work?

Gene therapies use engineered viruses as carriers or so-called vectors of genetic information to correct a patient’s genetic code, ultimately restoring the proper functions of vital proteins. For Hemgenix, this vector is adeno-associated virus or AAV-based. It’s like a train or truck delivering cargo. As viruses are doing virus things, they can enter cells and integrate or transduct the missing gene into the cell.

Compared to normal viruses, these AAV are modified to lose their replicative abilities, rendering them safe as therapies for humans. In addition, a DNA regulatory element called promoter limits the transgene expression in only the desired tissue. In this case, it’s the liver, as factor 9 is produced in hepatocytes and released into circulation from there. The actual factor 9 gene being incorporated is basically a factor 9 protein on steroids, which is 7-times more activity than wildtype due to a single mutation. This allows for a lower AAV vector dose which in turn decreased averse immune reactions by patients.

As you might expect, Hemgenix was superior to replacement therapy in a mid-sized trial with 54 patients. This led to a significantly lower rate of bleeding events as the primary endpoint. 96% of patients were able to stop replacement therapy. This transformational benefit shows in the increased factor IX activity of patients. Severe hemophilia is characterized with untreated factor IX activity below 5%. This also approved, with immediate and sustained increase post-treatment. Given the adult population, the approval is only in patients over 18 years. In summary, instead of continuously replacing factor 9 exogenously multiple times a week, incorporation of the missing gene solves the problem for good – or at least for more than 20 years.

How can we estimate drug sales?

Hemgenix is the world’s most expensive drug – so will it lead to the highest profits?

You might know that total yearly sales equal sales per year multiplied with the cost per patient. We already know the latter – but what is the true number of patients that will get treatment?

Well, there’s only approximately 6000 people with hemophilia B in the US. Let’s assume this population grows by 1% each year. Do you remember if we can treat all of them? Nope! The approval is only for adult patients, which might be around 80% of patients, and only in cases with severe hemophilia B, maybe around 60% of the patients. So 6K times 80% times 60% – some of you might do it in their head –is 2’880. But why is the number I have here different? Well, I mentioned some patients develop antibodies or inhibitors to factor IX replacement therapy. Because Hemgenix does not have data in these patients, we will exclude them too. This reduces the eligible pool by 2%.

Gene THerapies Are Unique

Now just multiply this number with price? Think again! Will all patients use Hemgenix, immediately? Clearly not – most of them will never receive it due to limited coverage due to the high cost, and the uptake will only gradually increase with time.

It’s probably fair to say that not much more than 10% of patients will ever get Hemgenix, and we also need to assume a build over time – let’s say a one or two percentage points every year. Hemgenix is a one-time treatment. It practically cures patients or it “does not work”. Therefore, more patients being treated reduces the addressable pool.

But hey, this therapy will also not be the only one. There is another hemophilia B gene therapy (Pfizer/Spark). Even if we assume that the first-to-market therapy will dominate, the second product will also have some penetration. Obviously, this all depends on its relative efficacy, safety and importantly price. Here, I simply assumed that the new product would have 50% of Hemgenix’ uptake, delayed by one year.

This means the blue line gives us the actual pool we can treat with each product in every year, factoring in the total number of patients previously treated with Hemgenix and the Pfizer/Spark product. I hope you could follow.

Now we can take the number of new patients treated with Hemgenix, calculated by multiplying the phased penetration with the untreated addressable pool, and multiply it with the price per patient. There are also some less important pricing assumptions.

How Profitable is The World’s most expensive drug?

Do you notice anything about the result? The number of Hemgenix-treated patients actually peaks after just a few years, maybe even staying below 200 patients per year. This translates into peak sales of $630M.

Definitely nothing to sneeze at, but we also have to be real here – many mega-blockbusters with lower pricing are much more lucrative for companies due to steady revenues and higher number of patients. Throw the quarter million-per unit production cost on top, program development cost, and all your other functional and SG&A cost … Just because something is the world’s most expensive drug, doesn’t mean it’s highly profitable or overly “capitalistic”.

And let’s once again re-iterate the topic of low probability of success. With bad luck, developers can easily risk all profits of one drug while financing others. Even the simplest medicines can simply fail to demonstrate efficacy – but the development of innovative therapies like gene or cell therapies is another beast. Very recently, the FDA put a clinical hold on Arcellx’s Phase 2 investigating a CAR-T cell therapy following the death of a patient. Just half a year prior, Gilead invested over $300M to secure development and commercialization rights. This shows how fast the profits gained on some products can disappear.

Thank you for sticking through to the end! As always, I hope you’ve learned something!

Key references

  • Lonafarnib: First Approval | Drugs. 2021; 81(2): 283
  • A Novel Iodide-Catalyzed Reduction of Nitroarenes and Aryl Ketones with H3PO2 or H3PO3: Its Application to the Synthesis of a Potential Anticancer Agent | Org. Lett. 2011; 13 (19): 5220
  • Impact of farnesylation inhibitors on survival in Hutchinson-Gilford progeria syndrome | Circulation 2014;130(1): 27
  • Gene Therapy with Etranacogene Dezaparvovec for Hemophilia B | N Engl J Med 2023; 388(8): 706
  • Etranacogene dezaparvovec for hemophilia B gene therapy | Therapeutic Advances in Rare Disease. 2021;2. doi: 10.1177/26330040211058896
  • Structure-activity relationship study to improve cytotoxicity and selectivity of lonafarnib against breast cancer cells | Arch Pharm (Weinheim) 2023; 356(4): e2200263
  • Deloitte | Measuring return from pharmaceutical innovation 2022 – IQVIA | Global Trends in R&D 2021

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