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Is $475,000 Too High a Price for Novartis’s ‘Historic’ Cancer Gene Therapy?

August 31, 2017, 3:34 PM UTC

On Wednesday, Swiss pharmaceutical giant Novartis made history as the first company to win Food and Drug Administration (FDA) approval for a groundbreaking new type of cancer treatment known as CAR-T. This technology harnesses the power of patients’ very immune cells—which are extracted from them, reengineered in a lab, and then pumped back into the body—to kill aggressive blood cancers. The treatment, named Kymriah, was hailed by doctors and the life sciences community as a major advance in medicine and a boon to children and young adults with a certain form of leukemia (the group for whom the gene therapy is approved). The FDA itself called the approval a “historic action.”

“It’s really transformative,” as Dr. Kevin J. Curran, a pediatric oncologist at the Memorial Sloan Kettering Cancer Center, told Fortune in an interview. “It’s shown a massive response rate in people with these cancers. It’s given hope to patients and parents. If other treatments fail, we can tell them, we have this new weapon in our arsenal that teaches your cells to fight cancer.”

But Novartis immediately faced backlash from several patient groups over the therapy’s massive list price. The company announced that Kymriah would ring in at $475,000 for a treatment course (and that’s actually a bit less expensive than what many analysts had expected). To some, that price tag is unjustifiable.

Drug price scandals have become a prominent flashpoint in America over the last several years, with companies like Valeant and Mylan under the gun for gigantic list price hikes on old products. However, there are those who argue that Novartis CEO Joe Jimenez shouldn’t be lumped in with the Martin Shkrelis of the world considering Kymriah’s formidable benefit (many patients see no signs of their hard-to-treat cancers at all three months after treatment) and the first-of-its-kind pricing structure the company is pursuing in the U.S.

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“The thing that’s hard to articulate about this is, whenever you see a high absolute price, it seems wildly outrageous. $475,000 is a lot of money, no question,” said Brad Loncar, a biotech investor who runs a fund dedicated to cancer immunotherapies, in an interview with Fortune. “But the price in this case, in my opinion, was not set by greed.”

Loncar argues that, unlike companies that abuse their prerogative to dictate whatever list prices they want in the U.S., Novartis has actually pulled off the kind of scientific innovation that the biopharma industry claims as its beating heart. He also points to the “outcomes-based” pricing model that the company will be instituting alongside the federal Centers for Medicare and Medicaid Services (CMS)—Novartis will only receive reimbursements for Kymriah if patients respond to it after the first month of treatment. “Joe Jimenez deserves a lot of credit for leadership today. I think this would have looked very different if it were another company,” said Loncar. “I’m not sure if for this indication Novartis can even make it profitable.”

Loncar believes that prices will actually come down in the CAR-T field as companies continue to innovate and navigate the manufacturing complexities of the treatments. And if more drug makers and insurance companies join in on a movement to price medicines based on how effective they actually are for patients, Loncar says, the U.S. could see not just a new frontier in science, but a “new era in how we pay for cancer therapies.”

For more valuable insight into the Novartis drug and the pay-for-performance model, make sure to check out this new piece from renowned medical oncologist David Agus and health economist Dana Goldman.

This essay appears in today’s edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.