Legislation & Regulation

Sovaldi Dilemma Likely to Get Worse

Analysts say new competition in the hepatitis C market may not offer lower prices. And Gilead is preparing a higher-cost Sovaldi treatment.

John Carroll

Three years ago, Vertex had the hottest drug launch in the biopharma industry as it rolled out telaprevir (Incivek), a new standard of care that quickly broke into the blockbuster drug club with more than $1 billion in annual sales.

In August, the drug became obsolete. Vertex yanked the antiviral, halting production and sales because of the simple fact that even at $84,000 for a 12-week course of treatment, Gilead’s sofosbuvir (Sovaldi) had taken the hepatitis C market by storm.

Angry payers

Payers have been outraged. Some state Medicaid groups — including Texas’s state agency — have balked at the cost, and some private insurers suggest that doctors warehouse patients who can wait for therapy.

“We depend on drugmakers to be socially responsible and set prices that reward their innovation, but at a reasonable cost to society,” writes Paul Markovich, CEO of Blue Shield of California, in an op-ed piece for the San Francisco Chronicle. “By all appearances, Gilead has shattered that trust. How many in this [new] crop will be like Sovaldi, major improvements in the treatment of a serious condition? Let’s hope many. But if hope is all we have to restrain the pricing of those new drugs, we’re on the road to financial ruin.”

Some specialists reported that they were warehousing patients who could wait for treatment for as long as a year until Solvaldi received FDA approval.

But by all accounts, the public campaign meant to focus attention on the price hasn’t had much of an effect. Sovaldi has been eating up market share and winning over specialists with a clear case that it has a new and higher standard of care to offer. And the drug has become a textbook example of just how limited payers’ options can be when they face a groundbreaking treatment with a big price — a situation that is likely to be repeated as more such pricey treatments make their way to the market.

Warehousing isn’t unusual for hepatitis C patients. Specialists were reporting that they had begun warehousing patients a year before Sovaldi was approved, willing to wait for a better therapy that no longer required interferon, which often triggers harsh side effects that can make the treatment seem worse than the disease. A significant minority of these patients also weren’t diagnosed until years after they were exposed to infected blood, often through contaminated medical equipment or dirty needles. That has raised the odds that a significant minority of these new patients have liver damage — raising the stakes on their need for a quick and effective treatment.

So even as some payers struggle to find a way to either gain a discount or steer patients to other therapies, Gilead remains in control of its best shot at a cure. Far from backing down as it racks up billions in sales in Sovaldi’s first full year on the market, Gilead is prepping a near-term combination therapy, adding a new therapy — ledipasvir — to Sovaldi that will broaden its efficacy and likely push the cost even higher, according to some prominent market analysts.

In a recent analysis for Wall Street investors, who are keeping a close ear to the ground to see if the rumblings turn into a payer rebellion that can affect the company’s revenue, Geoffrey Porges at Sanford C. Bernstein & Co. estimates that the new combination of Sovaldi and ledipasvir will probably cost $100,000 for a 12-week course. In part, that is because the combination is better than the solo, making it possible to cure hepatitis C in a wider group of patients that includes a broader range of hepatitis C genotypes.

Anticipating the combo

Decision Resources surveyed physicians and found that 40% expect to start prescribing the combo in the next six months — the decision deadline at the FDA is October 10 — with awareness of the combo among doctors outstripping anything else on the horizon at the FDA.

Payers have been looking to AbbVie to come in with its own cocktail therapy in the coming months, hoping that the competition will look to seize market share the old fashioned way: offering discounts to companies looking for a cheaper alternative.

Help not on the way

Products from Bristol-Myers Squibb and Merck are also in the latest stages of development or under review at the FDA. Just don’t bet on seeing a rush to bargain rates soon, says Porges.

First, he notes, AbbVie “would signal it has an inferior product by offering a list price discount, when its regimen has similar, if not marginally superior efficacy to Gilead’s regimen. In addition, a large segment of payers are not price sensitive; therefore, offering an up-front discount would leave money on the table for AbbVie for many large market segments.

“However, AbbVie does have the option to significantly undercut Gilead’s pricing by offering large rebates to price-sensitive payers to gain share from Gilead, and we believe such an outcome is likely in high-control payer channels such as the VA [Veterans Administration], Kaiser, and prison systems.

“The prospect of price-based competition between Gilead and AbbVie is being actively cheered on by payers and pharmacy benefit managers, but in most channels their comments seem based more on wishful thinking by payers and specialty distributors than on any proven method for extracting such discounts from competitors in such situations.”

One real strategy

Most pharmacy benefit managers have a few standard tools to steer patients away from a drug.

They can tier it against preferred therapies, forcing higher out-of-pocket payments on the drugs they want to squeeze out, or require patients to go through less-expensive step therapies before getting a prescription on the costlier treatment, Porges adds.

Millions of patients

But with a superior treatment like Sovaldi, the only strategy they have now is to exclude it from the formulary. That works only if AbbVie can come up with the big discount on its alternative.

While the market has seen plenty of six-figure prices for therapies, the highest priced treatments have been tied to rare diseases. What has payers crying foul, of course, is that the hepatitis C patient population is not rare. It is in the millions.

The Kaiser Family Foundation and Georgetown University said in a recent study that Sovaldi could cost Medicare an extra $6.5 billion next year. But estimates of higher costs have yet to trigger a spike in Part D premiums. The Centers for Medicare & Medicaid Services said recently that it is seeing an effect from Sovaldi’s arrival, but estimated that basic premiums would surge only $1 a month as a result in 2015, rising from a low $32-per-month charge that has remained flat for several years.

Putting on the pressure

Still, continued outrage over the price remains U.S. payers’ best hope of finding relief, using public opinion against a company that has resisted HIV activists for years.

“We think a perfect storm is arising out there,” said Steven B. Miller, MD, a senior vice president and the chief medical officer at Express Scripts, in an interview with the New York Times.

So far Gilead has been weathering the tempest just fine.