Pharma and Profits. John L. LaMattina
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OK, if one were to take that position, how do new, expensive medicines stack up in terms of delivering value? Are they worth the prices sought by drug companies?
In the case of SovaldiTM, we have a drug that cures hepatitis C and, in doing so, prevents the downstream consequences of patients contracting liver cancer or needing a liver transplant. Rather than questioning Gilead’s management on the R&D costs generated in Sovaldi’sTM development, Senators Wyden and Grassley should ask the following questions:
1 How does this compound compare with existing hepatitis C treatments in terms of efficacy and safety?
2 How expensive are these other treatments?
3 Without this drug, how many patients with hepatitis C will die?
4 How many patients with hepatitis C will contact liver cancer or will need a liver transplant if their disease remains uncured?
5 Without SovaldiTM, what would be the ultimate cost to the healthcare system to treat the resulting cases of liver cancer and liver transplantations?
If these senators do this, they will find that even at $84 000 per patient, SovaldiTM is well worth the expense. Its value is neither the R&D costs incurred in its discovery and development nor in the years or time and money invested at exploring other approaches to hepatitis C cures that did not work. Its value comes from saving lives and ultimately saving the healthcare system millions. When it comes to drug pricing, to paraphrase a former President Clinton’s advisor, James Carville: “It’s the value, stupid!”
To this point, the focus has been on Sovaldi’sTM $84 000 price, which is its list price. This number is often the starting point in negotiations with payers to gain access to their formularies and healthcare plans. In the period when only SovaldiTM was on the market, payers had a relatively weak hand. That, however, all changed when AbbVie launched its hepatitis drug, Viekira PakTM. AbbVie’s list price was modestly lower at $83 319 for a course of treatment. However, now payers had a choice and competition can drive costs down. Big payers like Express Scripts and CVS Health do not pay the list price – the one usually quoted by the industry’s critics. Instead, given the vast number of patients in their plans, payers can negotiate significant reductions.
At a Forbes Healthcare Summit [2] shortly after AbbVie’s launch of Viekira PakTM, the aforementioned Dr. Steven Miller, then the CMO of Express Scripts, could not hide his glee that SovaldiTM now had competition. In fact, he had selected Viekira PakTM for the 85 million members in the Express Scripts network. At the Forbes meeting he surprisingly announced that the price paid in the United States for hepatitis C drugs was less than in Europe. The Express Scripts number remains confidential. However, drug prices in Europe are public. At that time, the United Kingdom paid $55 000/patient for hepatitis C drugs and Germany $67 000. Given Dr. Miller’s comments, we can speculate that the US price for these drugs was under $50 000.
After the launches of SovaldiTM and Viekira PakTM, however, a new generation of hepatitis C drugs became available such as HarvoniTM (Gilead), ZepatierTM (Merck), and MavyretTM (AbbVie). The last is particularly interesting. AbbVie’s list price for the drug, which is approved for all genotypes of hepatitis C, was $26 400 for an eight‐week treatment. If the infection was not cured after this time, another four weeks of treatment would cost an additional $13 200 (total of $39 600 for 12 weeks). Suddenly, curing hepatitis C had become relatively cheap.
Against this backdrop, it was surprising to hear Gilead’s then CEO, John Milligan, apologize for the original price of SovaldiTM. Milligan’s act of contrition was made at another Forbes Healthcare Summit [3]. Forbes had assembled an impressive panel of biopharmaceutical CEOs to discuss the sorry state of the industry’s reputation. Any conversation of this topic immediately turned to drug pricing and Gilead’s SovaldiTM took center stage. Milligan was asked if Gilead’s pricing strategy was a mistake.
“Yeah, it was an interesting launch for the HCV product. We priced the product at exactly the same as the existing standard of care, which worked about 50 percent of the time, and are providing a benefit that, based on real world experience, works about 98 percent of the time. From our perspective, it was a very good value. What happened was a failure to understand exactly how many people were direly ill and had to come into care. That is, there were hundreds of thousands of people who needed this immediately, whose doctors felt that they needed this immediately. The surge into the system was very large, and that created a lot of anxiety around the payers and of course created an outcry against us for having mispriced the product.”
As Milligan pointed out, no one questioned the value of the product. Not only are people cured of hepatitis C but an enormous saving is also accrued by the healthcare system down the line as SovaldiTM reduces the ultimate consequences of HCV: cirrhosis of the liver, liver failure, the need for liver transplants, liver cancer, and, ultimately, death. But despite the tremendous benefits of SovaldiTM, Milligan took a contrite tone:
“I think our failure, if I have to take a step backwards, was that we were unable to have a good enough conversation with the payers. Perhaps we were a little conservative about what we could have or should have said to them to allow them to prepare for the number of patients that came forward. Honestly, it was far more than we thought. We did not think the system could or would try to handle as many patients as it did. We essentially quadrupled the number of patients treated in a year. That surge really created a lot of pain.”
Milligan was being overly apologetic. Payers certainly know how many of the patients in their plans have HCV. Furthermore, the FDA approval of SovaldiTM was no surprise. The clinical trials for this drug were well publicized, as were the remarkable results. Payers often claim that they will pay for true value. SovaldiTM certainly demonstrated that both in terms of benefiting patients and offering reduced healthcare costs. This is a life‐saving, cost‐saving drug. Their outcry against Gilead’s list price went against the claims that this is the type of therapy they want the biopharmaceutical industry to produce.
But, again, the discussion focused on Sovaldi’sTM list price. In fact, as other companies like Merck and AbbVie came up with their own cures, the price to the US payers dropped precipitously. Curing patients for $40 000 or less is a bargain compared to the cost of previous, less effective treatments.
SovaldiTM is a great example of the value that innovative drugs can bring to us all. Yes, there are examples of terrible gouging, such as irresponsible price hikes for generic drugs or wanton price increases that some companies make for their drugs two or three times a year. But Gilead did not do that. If a company is denied reasonable pricing for excellent new drugs, then the biopharmaceutical industry will likely stagnate and many new opportunities for drug R&D will go unfunded.
This was a great opportunity for Gilead’s CEO to voice these issues. It is too bad he did not.
The availability of HCV cures was especially timely for Vietnam War veterans. Many of these heroes contracted the disease as a result of battlefield injuries requiring blood transfusions. They were now suffering from the consequences of this largely silent menace – liver disease, cirrhosis, and liver cancer. Without these drugs, the sicker of these patients were facing certain death.
At the 24th Annual Wharton Health Care Business Conference, Dr. David J. Shulkin, the Secretary of the US Department of Veterans Affairs, announced that the VA was on track to eliminate hepatitis C infections for those willing and able to be treated. In October 2014, the VA had over 146 000 veterans afflicted with hepatitis C. Dr. Shulkin predicted this number would drop to 20 000 [4].
How did this happen? Here is the VA’s response as contained in their 2018 Budget in Brief:
“In 2014, VA began a ground‐breaking system of care for Veterans with the Hepatitis C Virus (HCV). The Food and Drug Administration approved two new, highly‐effective drugs – Sofosbuvir (SovaldiTM) and Simeprevir (OlysioTM)