By Stephen Prescott, M.D.
Copyright © 2014, The Oklahoma Publishing Company
Just before Christmas, the Food and Drug Administration approved a new treatment for hepatitis C. The drug, developed by AbbVie, represented the fourth new medication to enter the market since December 2013 for a viral illness that affects an estimated 3 million Americans.
The revolution in hepatitis C treatment means many things. First and foremost, it represents a new day for patients suffering from a debilitating, lifelong illness that can cause cirrhosis and cancer of the liver.
Previous treatments for hepatitis C required weekly injections, took up to a year to work, and carried such severe side effects that many patients quit—or chose never to begin. The new drugs come in pill form, require only a 12-week treatment regimen for most, and have few side effects. They also cure at a much higher rate, with 90 percent or more of patients disease-free following treatment.
But every silver lining has a cloud, and the one that hovers over these drugs is price.
Sovaldi, a drug developed by Gilead Sciences that reached the market a year ago, carries a sticker price of $84,000 for 12 weeks worth of pills. That amounts to $1,000 a pill. Not surprisingly, those numbers have generated a fair amount of consternation among politicians, insurers and just about anybody faced with the cost of paying for the treatment.
Despite the hue and cry, Sovaldi immediately became a blockbuster. In the first nine months of 2014, it had sales of $8.55 billion (of which more than $7 billion came from U.S. sales), far and away the largest first-year revenues of any drug in history. If those sales continue, it will become one of the best-selling drugs ever.
But the unhappiness over Sovaldi’s pricing has persisted. So when AbbVie’s new drug received approval last month, the self-described “chief whining officer” of the nation’s largest pharmacy benefits manager took swift and decisive action.
Express Scripts made the newly approved treatment from AbbVie the exclusive option for patients who suffer from the most prevalent form of hepatitis C (known as genotype 1). That means that if you’re one of the 25 million Americans whose prescription benefits are managed by Express Scripts, you can’t take Sovaldi or either of the other two new hepatitis C drugs unless you want to pay for them yourself.
How did AbbVie get this sweetheart deal with Express Scripts? It wasn’t enough that the benefits manager was unhappy with Sovaldi’s pricing; the retail price of AbbVie’s new drug was essentially identical to that of Sovaldi. So AbbVie made a bargain with Express Scripts.
Although terms of the deal weren’t disclosed, AbbVie is providing the drug to Express Scripts at a significant discount. I’d guess that number is in line with the $50,000 to $70,000 price tag of the new hepatitis C treatments in Western Europe.
Yes, you read that correctly. Even though these drugs were developed by U.S. companies and are produced here, they’re cheaper overseas. The reason is simple: Foreign governments haggle with drug companies over price.
In the U.S., Medicare and Medicaid are legally forbidden from negotiating drug prices. If a treatment is approved by the FDA, the government has to pay the sticker price—and it cannot bar access to it. And, generally, whatever rate the federal government pays, private payers (like insurance companies and health plans) fall into line.
So Express Scripts has done what the U.S. government couldn’t: It has started a price war. The hope is that Gilead will respond by lowering Sovaldi’s price. That’s generally how markets work. In this case, it’s happening a bit belatedly, but it’s happening. And the special sauce that made it all work was competition.
Companies like Gilead and AbbVie have created products of real value in these new drugs. They’ve invested significant time and money in developing and bringing to market these life-changing therapies. They are certainly entitled to profit from their work, not only to recover their costs and reap the benefits of their innovation, but also to encourage others to follow suit in developing new therapies for other illnesses.
Still, with ever-rising cost of drug discovery, the question of how to control price is hardly settled. In Oklahoma, if we wanted to treat all 30,000 or so state residents suffering from hepatitis C with the new drugs, the price tag would likely run somewhere in the $2.5 billion to $3 billion range.
Essentially ending hepatitis C would bring with it considerable health care savings. More importantly, it would also mean longer and healthier lives for tens of thousands of Oklahomans. How can anyone decide what, exactly, that’s worth?
Prescott, a physician and medical researcher, is president of the Oklahoma Medical Research Foundation. He can be reached at email@example.com.