The price tag for the newly approved cancer therapy Kymriah from from Novartis (NVS): $475,000. Other than a few treatments for extremely rare diseases, this marks the most expensive drug to ever go on sale.

The indication is for a small patient group with limited to no other options. Kymriah was approved for pediatric acute lymphoblastic leukemia (ALL) that is refractory (resistant to other remedies) or has relapsed at least twice. There are approximately 3,000 new cases of ALL each year, but the majority can be pushed into remission by standard therapy. This leaves an estimated 600 patients eligible for Kymriah, according to Novartis.

From a business perspective, that’s not a lot of scale. And so, part of the reason why the price is this high is so that it can cover Novartis’s costs.

But while it still may seem like a staggering figure, analysts argue it’s reasonable.

First off, Kymriah makes use of a new and complicated treatment process. The therapy, known as CAR-T, uses a patient’s own immune system to fight tumors. And with CAR-T, each dose is tailored for an individual patient, which requires a complicated process where human cells are transported (often by air across the country) and re-engineered before they are returned.

Second, efficacy is high and treatment is concentrated. In a clinical trial, a single dose of Kymriah left 83% of participants with no cancer after three months, which oncologists praised, particularly as these patients had limited to no other options.

“With a gene therapy, patients are treated with one dose. That compares to regular treatments where drugs are taken over several years,” Edward Jones’ Ashtyn Evans said. In other words, since the developer isn’t paid over months or years, the price point will be higher.

Plus, Novartis is collaborating with the Centers for Medicare and Medicaid Services (CMS) for an outcomes-based approach, where payment is only required when patients respond to Kymirah by the end of the first month.

“Novartis has been at the forefront of outcomes-based pricing and is very pleased to work with CMS on this first-of-its-kind collaboration with a technology that has the potential to transform cancer care,” according to Novartis CEO Joseph Jimenez.

Novartis lab worker (Krisztian Bocsi/Bloomberg)

It’s actually cheaper than the alternatives

Third, it’s actually cheaper than alternatives. Stem cell therapy or the cost of being on a drug over several years, particularly to treat cancer, adds up to the hundreds of thousands of dollars, according to Evans.

The UK’s National Institute for Health and Care Excellence said earlier this year that a $649,000 price tag would be appropriate. And Wall Street analysts expected the cost to reach as high as $750,000 dose.

Lastly, this approval could lead to more development and benefits down the road.

“We’re entering a new frontier in medical innovation with the ability to reprogram a patient’s own cells to attack a deadly cancer,” FDA Commissioner Scott Gottlieb said in a press release. “New technologies such as gene and cell therapies hold out the potential to transform medicine and create an inflection point in our ability to treat and even cure many intractable illnesses.”

The product from Novartis is the first therapy in the CAR-T to come before the FDA. But the company is also developing Kymriah for CAR-T therapies targeting other blood cancers.

And other companies have products in the works.

Gilead (GILD), which just announced the acquisition of Kite Pharmaceuticals (KITE), is expected to go in front of the FDA later this fall for refractory non-hodgkins lymphoma (NHL) with its product Axi-cel. It too sees its product as a starting point for more development and therapies.

And while right now the therapies are focused on “refractory” cases where traditional stem cell therapies are not effective, analysts say CAR-T could become a first-line treatment down the road and extend beyond blood cancers to solid tumors as well.

Nicole Sinclair is markets correspondent at Yahoo Finance

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