WASHINGTON _ Economic modeling has been employed bySomatix Therapy Corp. to devise some realistic estimates about howits cancer vaccine may be used by physicians and paid for byinsurers. This has helped the company develop a pricing andmarketing strategy than ensures an adequate return on investment. Ifthe model works, Somatix could enjoy an initial gross margin of 70percent.

Somatix Executive Vice President for Commercial DevelopmentEdward Lanphier told a biotech conference held in Washington lastweek that successful commercialization requires the use of aneconomic model to look at both the business and clinical side of aproduct's development.

The commercialization of a gene or cell therapy requires themanufacturer to consider what clinical and regulatory requirementswill be imposed. "The overriding issue is clinical outcomes. Oncethat is determined the manufacturer can look at the business side,"said Lanphier.

Lanphier described how the unique characteristics of ex vivo genetherapy affects the economic model. While some biotech drugs canbe administered intramuscularly or intravenously, making themappear superficially similar to synthetic drugs, the mode of deliveryof ex vivo gene therapy is quite different.

"It doesn't look like a pharmaceutical, it looks like a clinic in theSwiss Alps," said Lanphier. "Ex vivo gene therapy stands apartbecause each patient is treated separately. The product cannot beproduced in bulk. Its manufacture is labor intensive and requirescomplex facilities. The bottom line is the cost of each therapy is veryhigh," he said.

The characteristics of the GVAX cancer vaccine were plugged intothe model. GVAX is an injectable vaccine which stimulates the anti-tumor response in the body's immune system. GVAX entered itsfourth clinical trial and is being tested for renal and prostate cancer,as well as melanoma patients.

For GVAX ex vivo immunotherapy, nearly 30 days are required tocomplete the manufacturing process. On day one, the tumor isremoved from the patient. Cells are established in culture, requiring7-10 days. The cells are transduced to secrete huGM-CSF, a one-dayprocedure. The cells are expanded in culture for 14 days, thenirradiated and frozen, consuming one day. Eight days are set aside fortests for release specifications and then the vaccine cells are returnedto the patient to elicit the desired therapeutic immune response.

"This manufacturing process assumes using a 26,000 square footprototype facility costing $12 million that has the capacity to produce150-200 vaccines," Lanphier said. The plant employs 200 full-timeequivalents with little automation. Processing cannot begin untilcertain regulatory obligations are met including obtaining anestablishment license from the FDA's Center for BiologicsEvaluation and Research.

This manufacturing imperative assigns about 50 percent of the cost ofthe vaccine to labor costs, 27 percent to direct material costs and 16percent to overhead, Lanphier said.

For the past two years Alameda, Ca.-based Somatix developed theeconomic modeling study with an outside consultant. Areimbursement planning study that involved market research withproviders and insurers also was completed.

"The goal was to establish a payment-oriented marketing plan tomaximize payment for the GVAX vaccine," Lanphier said.

Information On The Payer Mix

Information on different type of payers was broken down accordingto seven tumor types. For example, the economic model determinedthat 43 percent of breast tumors are treated in women insured byMedicare, 5 percent by Medicaid, 41 percent by private insurers and7 percent self-insured. In the case of prostate tumors, 75 percent ofmen diagnosed with prostate cancer are insured by Medicare. Thesecond largest payer category are private payers.

Having defined the payer mix, an average payment rate can beassigned to each category based on treatment charge and cost dataobtained from published Medicare data and private insurance databases.

The payer mix also sketches the size and characteristics of theoptimal patient population as well as the treatment sites. "Payer mixis not the whole story but it is a piece of the overall problem,"Lanphier said.

Renal cell carcinoma was selected as a target indication primarily onscientific and clinical factors but also marketing factors. On thescientific side of the ledger, patients diagnosed with renal cellcarcinoma have a poor prognosis. In terms of marketing, theindication is sound because many potential patients are insured byprivate insurers and the potential market is considerable.

The economic model estimates that 23,000 new renal carcinomascases are diagnosed in the U.S. each year.

The pricing analysis consisted of establishing a price projectionconsistent with the cost of the goods, pharmaceutical margins andthird-party payment.

The economic value of GVAX to insurers is modeled upon anestimate of its therapeutic value. GVAX's therapeutic value is in turndetermined by its ability to improve patient survival. "It's still tooearly to tell from clinical trials if GVAX extends patients lives,"Lanphier said.

But assuming the therapy does work, the value of those saved livesare factored into the pricing models. Lanphier referred to reports inthe literature that have emerged in the past few years that examine thecost effectiveness of therapies and the economic value of patientsurvival or life years saved by a particular therapy. He quoted arecent New England Journal of Medicine article on the costeffectiveness of tissue plasminogen activator (TPA) which found that"the cost of treating mild to moderate hypertension is estimated at$10,900 to $72,100 per year of life saved, depending on the choice ofhypertensive agent."

The Price Of Life

Other researchers have estimated the cost per life year saved for aliver transplant patient to be $44,000 to $250,000, for a coronaryartery bypass patient $44,000, and high-dose chemotherapy for breastcancer at $52,000 to $86,000.

Somatix has modeled GVAX's cost per life year saved at $15,000 iftwo years were added to the patient's survival and $3,000 if 10 yearswere added to the patient's survival. "At these costs, GVAX easilyfalls within the acceptable range of cost effectiveness established forother high value medical interventions," Lanphier said.

The marketing opportunities for each price according to tumor typewere then modeled. Based on an estimated 23,000 new melanomacases in 1994, and assuming 27 percent of these patients would becandidates for surgery and therefore candidates for GVAX, theannual serviceable market would be 8,640 patients, according to themodel. Based on 23,000 new renal cancer cases in 1994, andassuming that 30 percent would be surgery candidates, the annualGVAX market would be nearly 7,000.

If GVAX were given a price tag of $30,000, the estimated market formelanoma would be $260 million and $210 million for renal cancer.Based on an incidence of 244,000 prostate cancer patients of whom 9percent would be surgery candidates, the GVAX market would $659million. For 138,200 colorectal cancer patients, of whom nearly 30percent would be sent to surgery, GVAX has a potential market of$1.24 billion.

Total annual potential sales are more than $2.4 billion, under thismodel.

Assuming the initial costs of goods were $9,000 and if the GVAXvaccine were priced at $30,000, Somatix would accrue a initial grossprofit margin of 70 percent. n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.

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