John Carroll

Soon after Gilead won FDA approval for sofosbuvir (Sovaldi) in December and the drug became available, analysts’ peak sales estimates for the new hepatitis C drug started to soar. They continue to do so. In a field where new drugs often take years to reach their full potential, Sovaldi was pegged as a $5 billion earner — in its first year. At least one analyst suspects it could easily reach $9 billion, which would make it the most successful drug launch in pharma history.

The financials are easy to understand. Hepatitis C treatment is a mass market, growing fast as more people are screened for the slow-moving virus. The Centers for Disease Control and Prevention has been actively campaigning to get more people tested, afraid that the disease will advance unnoticed in patients for years, harming their livers.

Doctors have been warehousing patients for more than a year. They’re keeping patients treatment-naïve so they can start dosing with the first drug on the market that can cure hepatitis C without the use of interferon, an injectable with harsh side effects that frequently force people to stop taking their meds.

Managed Medicaid companies say Sovaldi could break the bank.

There’s just one problem: The price has triggered a rebellion among payers. At $84,000 for a full course of therapy ($1,000 a day for 12 weeks of treatment), some payers say Sovaldi will shred their drug budgets. Prices they associate with rare diseases are being applied to a drug that addresses a disease that could involve dozens or even hundreds of their beneficiaries. In particular, managed care companies working in the Medicaid population are suffering from sticker shock, saying this drug could break the bank.

“This is so outside the normal trend, it would really skew things,” says Mario Molina, the CEO of Molina Healthcare, which runs Medicaid plans in a variety of states. When the company negotiated 2014 Medicaid rates with states, he says, Sovaldi hadn’t been approved yet, so it wasn’t factored in. Now that the drug is available, Molina says, it should be reserved for patients who need it badly, and the plan should have the time to figure out who outside of that group should be covered.

“We’ve asked states to pay [for Sovaldi] until we can figure out the true cost,” says Mario Molina, the CEO of Molina Healthcare, which runs Medicaid plans in several states.

“If someone is awaiting a liver transplant, it makes sense to treat him,” he says. “It’s not clear beyond that who needs to be treated now. We really don’t know who should be treated first, who should wait awhile. We’ve asked states to pay until we can figure out the true cost. Some states are covering the drug; some require prior authorization. Some states are not covering the drug. It’s a mixed bag.”

“The law says Medicaid gets the best price,” says Matt Salo, executive director of the National Association of Medicaid Directors. “If that’s true” — and Salo isn’t at all convinced that it is true in the real world — “that’s great. But the best price [for Sovaldi] isn’t necessarily sustainable.”

This isn’t just about Gilead and Sovaldi, says Matt Salo, executive director of the National Association of Medicaid Directors. “There’s a lot more stuff coming down the pike that has nothing to do with hepatitis C.”

Multiply the cost of this drug times 3 million people with hepatitis C, he adds, and it doesn’t take a rocket scientist to figure out that the drug is a budget buster for Medicaid managed care and other companies.

Gilead has taken as low a profile as possible. The company built up blockbuster revenue by marketing HIV drugs, and it has weathered many storms in the past over what it charges for life-saving treatments.

Economic argument

The big biotech says that it has a clear economic argument in its favor, noting that when a new drug like Sovaldi offers a high cure rate, it can go a long way toward eliminating the catastrophic costs associated with a liver transplant. Payers, though, say that when they are being asked to foot a huge upfront bill like this, that argument won’t work.

All signs indicate that the revolt is gaining steam.

In early April, Express Scripts Chief Medical Officer Steven Miller told Bloomberg that the pharmaceutical benefit manager is organizing a coalition of payers willing to vow to switch over to the next new hepatitis C drug to come along to rival Sovaldi.

“What they have done with this particular drug will break the country,” Miller declared to the news service. “It will make pharmacy benefits no longer sustainable.”

It didn’t help matters for U.S. payers when Gilead decided to offer deep discounts to poor countries. Egypt, which has a particularly high rate of hepatitis C, is getting Sovaldi for $900 a course — a 99% discount. That’s fine for Egypt, says Molina, but why should his company be expected to essentially subsidize drugs for third-world countries?

“Never before have we seen a drug priced this high for a patient population this large,” says Sharon Frazee, PhD, vice president for research and analytics at Express Scripts.

“The cost of treating people with hepatitis C with Sovaldi is really more than what most of our payers can afford,” says Sharon Frazee, PhD, vice president for research and analytics at Express Scripts. “Never before have we seen a drug priced this high for a patient population this large.”

Once you factor in related expenses with doctor visits and so on, she adds, the real cost is closer to $100,000 — the same six-figure range that rare-disease drugs command.

Medicare to be hit

Sovaldi is going to have a particularly strong impact on government programs, which will have to cover treatment for a large portion of these patients. Medicaid isn’t the only government program that will feel the pinch. Sovaldi will hit Medicare Advantage and Part D plans — which are capitated — as well.

The price can also be a barrier for patients, with coinsurance often making beneficiaries accountable for 20% or 30% of the cost of the drug.

Sovaldi is the first in a wave of therapies now in late-stage development or up for FDA review. And Sovaldi often needs to be administered with ribavirin, says Frazee, which can have “nasty side effects.”

Once rival drugs come on the market, payers will stand a much better chance of gaining real leverage on price. “All we want is to help create a pricing environment that’s fair for patients, payers, and manufacturers,” adds Frazee. “We want Gilead to make money. We just want them to make a reasonable amount of money. They have to make it affordable.”

Congress: “Can we talk?”

A trio of House Democrats generated headlines by sending a letter to Gilead asking executives to spell out the reasons behind the price of Sovaldi. Industry insiders say this is one discussion that is likely to get considerable attention from legislators, and it isn’t likely to go away with lower prices for hepatitis C treatment.

“This time, it’s different,” says Salo. “There needs to be a serious discussion about resolving this dilemma. The issue shouldn’t be limited to just Gilead and Sovaldi. There’s a lot more stuff coming down the pike that has nothing to do with hepatitis C. The federal government negotiating drug prices is one of the many potential scenarios that come out of it.”

The discussion may also not go that far.

A matching grant with the federal government covering a larger share of the tab could suffice.

Neither will happen soon, however, and the Sovaldi price backlash may be the first of many to come.

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