Gilead Sciences ($GILD) has been lambasted for the $84,000 price put on its hepatitis C med Sovaldi, but that is far lower than the $115,000 per regimen cost it considered. Gilead weighed a price range of $50,000 to $115,000 for the hep C cure and then landed on a price right in the middle that would not leave too much money on the table but wouldn't be so high as to make the patient and public backlash intolerable.
These are some of the conclusions from an 18-month Senate investigation report compiled from 20,000 company documents that was released today by Republican Sen. Charles Grassley and Democrat Sen. Ron Wyden, The Washington Post reports. For his part, Wyden said the report showed "it was always Gilead's plan to max out revenue, and that accessibility and affordability were pretty much an afterthought."
The report pointed out that much of the cost of paying for the drugs falls to programs paid by taxpayers and that the cost of the drugs has dramatically strained government programs.
Gilead has taken issue with that characterization and the conclusions. Gilead spokeswoman Michele Rest told The Philadelphia Inquirer that "Gilead responsibly and thoughtfully priced Sovaldi and Harvoni." The company said that 600,000 patients have been treated by Sovaldi or its higher-priced follow-up Harvoni and that it has programs to help uninsured patients get the drug.
As University of Michigan business professor Erik Gordon pointed out to the Inquirer, "Gilead is not a quasi-public, quasi-charitable organization. Nobody should be surprised that a for-profit firm seeks to maximize its revenue from the projects that are successful."
While just informational, the report comes in the midst of growing public clamor over rising drug prices and alleged price gouging by some companies that is putting pressure on the industry to make changes. With growing evidence that consumers hold pharma responsible for rapidly increasing drug prices, candidates for president from both political parties are now discussing the issue, with different ideas about how to limit the pricing leeway that drugmakers now enjoy.
One thing the report suggests is that the cost of research and development, often thrown up by the industry as the driver of costs, was not the key factor in deciding on a price. Instead, Gilead figured there was pent-up demand for its superior treatment that was more easily taken and tolerated and that could cure many people of a difficult and potentially fatal condition. And for such treatments, it knew it could extract a premium from the market.
The company also wanted to establish a floor for the next wave of drugs, the report says. It priced combo treatment Harvoni, which can treat a broader range of patients with hep C, at $94,500. Gilead also calculated just how much patient advocacy groups would yell. At the higher end of the cost range it considered, Gilead decided the backlash would get to be too much. "High levels of advocacy group criticism and negative PR/competitive messaging could be expected at $115K and it would be increasingly difficult to manage at these levels," one document read.
But Kevin Young, Gilead's executive vice president for commercial operations, urged his colleagues in one email to "not fold to advocacy pressure in 2014," Young said. "Let's hold our position whatever competitors do or whatever the headlines."
The report lays out some of the impact to Medicare and Medicaid that has come from Gilead's willingness to hold its position. In the first 18 months after Sovaldi's FDA approval, Medicare spent nearly $8.2 billion before rebates on Sovaldi and Harvoni, and monthly spending increased more than sixfold, it says. Gilead's prices and its unwillingness to discount it initially resulted in state Medicaid programs drastically limiting whom they would allow to get the hep C treatments, paying for just 2.4% of more than 700,000 Medicaid patients who might have benefited. Once AbbVie ($ABBV) brought out its competing treatment, Viekira Pak, some states followed the lead of some private payers and struck exclusive deals with AbbVie in exchange for deeper discounts.
The Oregon Health Authority told Senate investigators that the predicted cost of covering the hep C drugs for half of the 10,000 Medicaid patients who could benefit from them would have more than doubled the $600 million annual budget it had for all drugs the previous year. Oregon decided instead it would cover just 500 patients a year for the first 6 years.