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Seattle Genetics Slaps Big Price on New Cancer Drug

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The cost per patient for Adcetris may run up to $121,500 or even higher, to treat two rare blood cancers. Having seen Dendreon's implosion, some investors are selling.

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Seattle Genetics (SGEN) is the latest company to test the market for high-priced new drugs, announcing plans Monday to charge six figures for the just-approved treatment Adcetris for two types of blood cancer.

Seattle Genetics said the drug will cost between $94,500 and $121,500 per patient depending on the number of doses. The price could run even higher because it's unknown how many doses each patient will require. (The company estimated the price based on seven to nine infusions per patient.) The pricing announcement follows Friday's news that Adcetris received a fast US Food and Drug Administration approval to teat two rare diseases, Hodgkin's lymphoma and anaplastic large cell lymphoma, or ALCL.

Shares of the company bounced around and were down 5% to $14.32 late morning. The stock is down about 20% in the past month. (See "Seattle Genetics Tumbles on Drug Worries.")

Now that Adcetris is approved, investor concerns center around the sales potential of the drug and today's pricing announcement only exasperates worries. The company is testing Adcetris for broader use.

Launching a new cancer drug is a challenge in itself and company execs admitted on a call Monday morning that they "expect some reimbursement challenges." On top of those challenges, the company is charging a whopper price for the treatment. Some investors are gun shy about pricey new drugs, especially since Dendreon's (DNDN) recent implosion. (See "Dendreon's Stock Plunges on Low Provenge Sales.")

Pricing is a tricky subject for drug and biotech executives facing a cost-sensitive insurance environment. Companies need to recoup their costs for studying a drug for many years. Seattle Genetics has been studying Adcetris since 1999. When the drug's target is a rare disease, price becomes an even more critical issue because the company has to charge a higher amount to be spread over a smaller number of patients.

There's a distinguishing factor between Seattle Genetics and Dendreon, however. While there are multiple options for prostate cancer patients, those with Hodgkin's and ALCL aren't so lucky. Dendreon's Provenge vaccine is priced at $93,000 per patient.

Still, the challenge for Seattle Genetics will be to convince the insurers as well as the doctors that Adcetris is worth every penny.

"This is the kind of drug payers have been asking about for a number of years," CEO Clay Siegel said in an interview at the ASCO cancer conference in June. "It's well tolerated, easy to administer, a high number of patients respond, there's modest toxicity vs. chemotherapy."

Saying he was confident that insurers will agree with his assessment of the drug, he added, "I think payers see this as a value proposition."

The company is offering an assistance program to help patients who can't afford the drug.

Sales estimates for Adcetris vary quite a bit with some analysts expecting near blockbuster revenue from the drug.

On the other end, Canaccord Genuity analyst George Farmer views those estimates as "unrealistically high" and predicts just under $200 million in sales by 2018. He recommends selling the stock and maintains a $10 price target on the shares.

Twitter: @brettchase
No positions in stocks mentioned.
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