Novartis to test new pricing model with heart failure drug

The logo of Swiss drugmaker Novartis is seen at its headquarters in Basel October 22, 2013. REUTERS/Arnd Wiegmann

By Ben Hirschler BASEL, Switzerland (Reuters) - Novartis plans to test a novel pricing model with some customers when it launches its keenly awaited new heart failure drug Entresto, the Swiss company's head of pharmaceuticals said on Tuesday. Entresto, also known as LCZ696, is the first new drug in decades for helping patients whose lives are in danger because their hearts cannot pump blood efficiently. As a result, it is widely expected to generate billions of dollars in annual sales. How the product should be priced, however, is a dilemma for Novartis, since the company wants to reach as many patients as possible and it knows it will be competing with very cheap - though less effective - older medicines. David Epstein said he was talking to several healthcare customers about a system under which they would get the drug at a discount but then pay Novartis more if, as expected, it successfully reduces the need for costly hospital visits. "We are beginning to share the risk," he said in an interview. "When you buy other goods that don't work you either take them back or get your money back. Our industry is a bit unique because historically if the drug doesn't work it still gets paid for. I think that model will have to shift." The idea of moving from a simple pay-per-pill model to one based on clinical outcomes is being considered by several drugmakers, and Novartis already has such a system in place for one customer using its multiple sclerosis drug Gilenya. But Entresto could be an important test case because the drug will push up immediate drug costs markedly for a large number of patients, while having the potential to reduce their long-term medical bills. The issue of drug pricing has come to a head recently, thanks to the launch of extremely expensive new medicines for cancer and hepatitis C, which are straining healthcare systems and adding to co-payment costs for patients. With Entresto on track for potential U.S. approval in August, Epstein said he expected some initial hurdles that would slow its uptake, with the important U.S. Medicare system, for example, likely to restrict use for six months or so after its launch. Still, he remains very confident in the longer term, especially as Novartis is in the unusual situation of not having any rivals with similar drugs close to reaching the market. There could be more upside, too. Entresto has currently only been shown to work in heart patients with reduced ejection fraction, where the heart muscle does not contract effectively. But Epstein said he was "pretty optimistic" it could also help a similar-sized group with preserved ejection fraction, where the ventricles do not relax as they should. Epstein, whose team is in the final stages of deciding the price for Entresto, declined to detail a likely cost per pill. But he said it would take into account "cost offsets", such as fewer hospitalizations, as well as the value added from improving patients' lives. "We going to try and be fair and reasonable," he said. (Reporting by Ben Hirschler; Editing by Mark Heinrich)