Novartis pushes for new pricing strategy in Japan
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Novartis pushes for new pricing strategy in Japan

Swiss pharmaceutical giant Novartis is urging Japan to consider a new pricing model for medicines that link payment to patient outcomes. This is not new ground for Novartis: the company has experimented with similar pricing strategies elsewhere, and has been amongst the most innovative players in the sector when it comes to thinking about how people should pay for drugs.

Under this system, only those patients who directly benefited from a treatment would end up paying for it. It’s a bold move from a company that has confidence in its products. More than that, it could have the potential to alleviate social crises over the cost of healthcare, and the thorny ethical problem of whether people should pay for products that have not delivered the desired outcome.

Novartis’ share price has risen by 17% in 2017 so far

 novartis graph 061017

Source: Yahoo Finance

The drug that Novartis particularly has in mind for this new pricing regime is Kymriah – the first CAR-T cell therapy to be approved by the FDA, which uses the patient’s own genetically-altered immune cells to treat cancer. It’s easy to see, from a business perspective, why Novartis is keen to push this drug on a “pay-for-performance” basis. Kymriah has been shown to be effective for 80% of patients thus far (a staggering percentage for a cancer-killer), and only requires one round of treatment. That means lots of happy customers, and no lengthy therapies.

This method of pricing would be a first for Japan, but that doesn’t necessarily mean it will be thrown out. An official at the Japanese health ministry told Nikkei Asian Review that they “won’t reject the matter out of hand if it is brought up – we will discuss it internally first.” Among other questions over the system will be how it interacts with existing methods of payment for treatment. This, says the official, will require a “national conversation.” However, that is one Japan sorely needs to have, as drug costs in 2015 accounted for an enormous 20% of the country’s 42.2 trillion yen medical bill of that year.

Dominion holds Novartis in its Global Trends Managed Fund.

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