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Sovaldi and the Cost....
PHARMA & HEALTHCARE | 3/27/2014 @ 8:15AM |12,742 views
http://www.forbes.com/sites/natesadeghi/2014/03/27/breaking-the-bank-the-innovation-cost-paradox-of-us-healthcare/
Sovaldi And The Cost-Innovation ParadoxLast week, three senior members of the House Energy and Commerce Committee, Democrats Henry Waxman, Frank Pallone Jr. and Diana DeGette, caused quite a kerfuffle in the investment community by sending biotech giant Gilead Sciences GILD -4.01% a letter demanding management justify the $84,000 price tag for Sovaldi (sofosbuvir), a recently-approved treatment for chronic hepatitis C (HCV). Sellside notes speculated that generalist investors, after an indiscriminate buying spree this year that further inflated already frothy biotech valuations, were fleeing the sector en masse and without apparent irony for the safety of bank and credit card stocks.
At $1,000 per pill, Gilead’s Sovaldi pricing strategy ignores the “left digit effect,” that truism of consumer psychology that explains why $19.99 feels like a bargain when $20.00 seems outrageous. Despite this apparent miscalculation from an otherwise savvy management team, it’s unlikely that carping about drug pricing in a free market system — even when it’s done publicly by high profile members of Congress — will lead to any substantive change. Other than trying to shame away capitalism, Congress doesn’t have the tools to control individual drug costs. Nevertheless, biotech indices have sold off sharply over the past week. Fear of pricing pressure is powerful stuff indeed.
Wax on, wax off. Rep. Henry Waxman gets fired up about drug prices. (Photo credit: charliekjo)
Sovaldi is extremely effective. The prior standard-of-care, Vertex Pharmaceuticals’ Incivek (telaprevir), when added to two other drugs (interferon and ribavirin) cures at most 80% of treatment-naive HCV patients after 24 weeks, with nasty toxicity. In a similar combination, Sovaldi cures roughly 90% of patients in half the time, with virtually no side effects. Gilead’s “all oral” HCV regimen — a single pill containing Sovaldi and second drug, ledipasvir, which should receive FDA approval later this year — will push cure rates even higher and further reduce treatment times for some subgroups, while eliminating side effects associated with interferon and ribavirin. Importantly, Gilead isn’t the only player in the HCV revolution; AbbVie ABBV -1.32% should receive FDA approval this year for a similarly effective and well-tolerated oral regimen, and several other companies have intriguing “next generation” drugs in mid-to-late stage development.
By any objective metric, Sovaldi is a good value. The drug costs less on an absolute basis than Incivek (~$100,000 per year), which is reimbursed without question, and is an even better deal if one applies a “cost per cure” methodology (A recent Mt. Sinai study shows a $189,000 cost per cure for Incivek-containing regimens.) Moreover, remember that the government pays nowhere near list price; Medicaid receives a mandatory 23.1% discount on branded drug prices (Sovaldi is covered by privately-administered Medicare Part D plans for patients over 65 years old).
So why all the fuss?
Congressman Waxman’s anxiety stems from the enormous potential system-wide costs associated with the estimated 4.1 million HCV-infected patients in the US. Let’s pause to consider the math: even at half the current price, treating every HCV patient in the US with Sovaldi would cost the system an eye popping $172 billion. This calculation suggests the most important questions raised by last week’s letter aren’t about Gilead’s pricing strategy in particular, but rather about our societal value systems in general.
Sovaldi isn’t even close to the most expensive drug on the US market; that honor goes to Alexion Pharmaceuticals' ALXN -1.14% Soliris, a chronic therapy that treats a rare blood disorder called paroxysmal nocturnal hemoglobinuria (PNH) and costs more than $400,000 per year. Yet Congress hasn’t questioned the price of Soliris and other exorbitantly priced “ultra orphan” drugs, since the aggregate cost in those cases is limited by how few patients have each disease. Nor is HCV the most expensive disease category in total: antidepressants, anti-diabetic agents, and antipsychotics are a far greater long-term cost to the system, since drugs in those classes represent a decades-long systemic annuity for the tens of millions of patients on therapy.
Undeniably innovative, Sovaldi lies at an unfortunate intersection of per patient and short-term systemic costs. As such, the drug is a microcosm of the US healthcare system’s structural problems. We want big scientific advances, but are not prepared to handle the costs of a drug so effective and tolerable that every patient wants it at once. (Ironically, efforts to control Sovaldi expenses system-wide, such as allowing treatment for only the sickest patients, may obviate the revenue sustainability questions that Gilead bears often cite as the downside of the company’s R&D breakthrough.) Even worse, since HCV often remains quiescent for years, Sovaldi’s high price tag tests our well-known inability as humans to appropriately discount for long-term risks. (The downside of inaction in HCV is often manifest years later as the need for an expensive liver transplant or treatment for liver cancer.)
It’s interesting to contrast the furor over Sovaldi, which offers a permanent cure, with our willingness to accept that more than 25% of Medicare dollars are spent each year on individuals in their last year of life. We spare no expense to stave off acute threats to our desired immortality. Of course, let’s not forget that Congressional complaining about expensive yet ineffectual oncology drugs, for example, would also risk alienating important voting blocs. HCV patients, more often found at society’s margins than at the polling booth, make for an easy target.
Of course, there’s a simple fix for these problems Americans aren’t willing to accept: a European-style single payor system. The data show clearly that outcomes across a range of measures are equivalent or superior in Europe to those in the US, despite substantially lower per capita spending. Regardless of these facts, Americans’ devout individualism — at least when it’s convenient for us as individuals — reliably quashes any serious effort to move us towards a more systematically cost conscious structure. That dynamic may not last forever, but it feels like dogma now.
As the Sovaldi pricing drama subsides and fickle Congressional attention shifts elsewhere, investors will likely continue to reward biomedical innovation, given the high opportunity cost of biotech sector ignorance. That means this won’t be the last time medical innovation lays bare the shortcomings of a system that promises unfettered access to innovation at minimal cost. Unfortunately, at least for now, Congress seems more interested in playing drug price Whack-a-Mole than addressing crucial questions about what we are willing to pay for, and why.
http://www.forbes.com/sites/natesadeghi/2014/03/27/breaking-the-bank-the-innovation-cost-paradox-of-us-healthcare/
Sovaldi And The Cost-Innovation ParadoxLast week, three senior members of the House Energy and Commerce Committee, Democrats Henry Waxman, Frank Pallone Jr. and Diana DeGette, caused quite a kerfuffle in the investment community by sending biotech giant Gilead Sciences GILD -4.01% a letter demanding management justify the $84,000 price tag for Sovaldi (sofosbuvir), a recently-approved treatment for chronic hepatitis C (HCV). Sellside notes speculated that generalist investors, after an indiscriminate buying spree this year that further inflated already frothy biotech valuations, were fleeing the sector en masse and without apparent irony for the safety of bank and credit card stocks.
At $1,000 per pill, Gilead’s Sovaldi pricing strategy ignores the “left digit effect,” that truism of consumer psychology that explains why $19.99 feels like a bargain when $20.00 seems outrageous. Despite this apparent miscalculation from an otherwise savvy management team, it’s unlikely that carping about drug pricing in a free market system — even when it’s done publicly by high profile members of Congress — will lead to any substantive change. Other than trying to shame away capitalism, Congress doesn’t have the tools to control individual drug costs. Nevertheless, biotech indices have sold off sharply over the past week. Fear of pricing pressure is powerful stuff indeed.
Wax on, wax off. Rep. Henry Waxman gets fired up about drug prices. (Photo credit: charliekjo)
Sovaldi is extremely effective. The prior standard-of-care, Vertex Pharmaceuticals’ Incivek (telaprevir), when added to two other drugs (interferon and ribavirin) cures at most 80% of treatment-naive HCV patients after 24 weeks, with nasty toxicity. In a similar combination, Sovaldi cures roughly 90% of patients in half the time, with virtually no side effects. Gilead’s “all oral” HCV regimen — a single pill containing Sovaldi and second drug, ledipasvir, which should receive FDA approval later this year — will push cure rates even higher and further reduce treatment times for some subgroups, while eliminating side effects associated with interferon and ribavirin. Importantly, Gilead isn’t the only player in the HCV revolution; AbbVie ABBV -1.32% should receive FDA approval this year for a similarly effective and well-tolerated oral regimen, and several other companies have intriguing “next generation” drugs in mid-to-late stage development.
By any objective metric, Sovaldi is a good value. The drug costs less on an absolute basis than Incivek (~$100,000 per year), which is reimbursed without question, and is an even better deal if one applies a “cost per cure” methodology (A recent Mt. Sinai study shows a $189,000 cost per cure for Incivek-containing regimens.) Moreover, remember that the government pays nowhere near list price; Medicaid receives a mandatory 23.1% discount on branded drug prices (Sovaldi is covered by privately-administered Medicare Part D plans for patients over 65 years old).
So why all the fuss?
Congressman Waxman’s anxiety stems from the enormous potential system-wide costs associated with the estimated 4.1 million HCV-infected patients in the US. Let’s pause to consider the math: even at half the current price, treating every HCV patient in the US with Sovaldi would cost the system an eye popping $172 billion. This calculation suggests the most important questions raised by last week’s letter aren’t about Gilead’s pricing strategy in particular, but rather about our societal value systems in general.
Sovaldi isn’t even close to the most expensive drug on the US market; that honor goes to Alexion Pharmaceuticals' ALXN -1.14% Soliris, a chronic therapy that treats a rare blood disorder called paroxysmal nocturnal hemoglobinuria (PNH) and costs more than $400,000 per year. Yet Congress hasn’t questioned the price of Soliris and other exorbitantly priced “ultra orphan” drugs, since the aggregate cost in those cases is limited by how few patients have each disease. Nor is HCV the most expensive disease category in total: antidepressants, anti-diabetic agents, and antipsychotics are a far greater long-term cost to the system, since drugs in those classes represent a decades-long systemic annuity for the tens of millions of patients on therapy.
Undeniably innovative, Sovaldi lies at an unfortunate intersection of per patient and short-term systemic costs. As such, the drug is a microcosm of the US healthcare system’s structural problems. We want big scientific advances, but are not prepared to handle the costs of a drug so effective and tolerable that every patient wants it at once. (Ironically, efforts to control Sovaldi expenses system-wide, such as allowing treatment for only the sickest patients, may obviate the revenue sustainability questions that Gilead bears often cite as the downside of the company’s R&D breakthrough.) Even worse, since HCV often remains quiescent for years, Sovaldi’s high price tag tests our well-known inability as humans to appropriately discount for long-term risks. (The downside of inaction in HCV is often manifest years later as the need for an expensive liver transplant or treatment for liver cancer.)
It’s interesting to contrast the furor over Sovaldi, which offers a permanent cure, with our willingness to accept that more than 25% of Medicare dollars are spent each year on individuals in their last year of life. We spare no expense to stave off acute threats to our desired immortality. Of course, let’s not forget that Congressional complaining about expensive yet ineffectual oncology drugs, for example, would also risk alienating important voting blocs. HCV patients, more often found at society’s margins than at the polling booth, make for an easy target.
Of course, there’s a simple fix for these problems Americans aren’t willing to accept: a European-style single payor system. The data show clearly that outcomes across a range of measures are equivalent or superior in Europe to those in the US, despite substantially lower per capita spending. Regardless of these facts, Americans’ devout individualism — at least when it’s convenient for us as individuals — reliably quashes any serious effort to move us towards a more systematically cost conscious structure. That dynamic may not last forever, but it feels like dogma now.
As the Sovaldi pricing drama subsides and fickle Congressional attention shifts elsewhere, investors will likely continue to reward biomedical innovation, given the high opportunity cost of biotech sector ignorance. That means this won’t be the last time medical innovation lays bare the shortcomings of a system that promises unfettered access to innovation at minimal cost. Unfortunately, at least for now, Congress seems more interested in playing drug price Whack-a-Mole than addressing crucial questions about what we are willing to pay for, and why.
"ps....It is also tiresome to see so many articles portray the majority that have HCV as poor minority. That truly gets under my skin!"
Um, I don't think he meant "poor minority". I think he meant (found at society’s margins = ) drug addicted! Very OLD data!
Um, I don't think he meant "poor minority". I think he meant (found at society’s margins = ) drug addicted! Very OLD data!
That statement popped out to me as well! I can assure you that I vote....primaries, local and federal.
I didn't agree with all he wrote but at least it was thought provoking and raised points I hadn't seen before....points our lame stream media should be raising, IMO.
ps....It is also tiresome to see so many articles portray the majority that have HCV as poor minority. That truly gets under my skin!
I didn't agree with all he wrote but at least it was thought provoking and raised points I hadn't seen before....points our lame stream media should be raising, IMO.
ps....It is also tiresome to see so many articles portray the majority that have HCV as poor minority. That truly gets under my skin!
Mostly an interesting commentary except for this one statement that popped out to me:
"Of course, let’s not forget that Congressional complaining about expensive yet ineffectual oncology drugs, for example, would also risk alienating important voting blocs. HCV patients, more often found at society’s margins than at the polling booth, make for an easy target."
When I am not horribly ill with Post-Interferon Syndrome from the "cure" I am certainly at the polling booth!
"Of course, let’s not forget that Congressional complaining about expensive yet ineffectual oncology drugs, for example, would also risk alienating important voting blocs. HCV patients, more often found at society’s margins than at the polling booth, make for an easy target."
When I am not horribly ill with Post-Interferon Syndrome from the "cure" I am certainly at the polling booth!
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