Express Scripts assembling anti-Sovaldi coalition to shut out Gilead hep C drug

Express Scripts CMO Steven Miller

Express Scripts ($ESRX) and Gilead Sciences ($GILD) are playing a high-priced game of chicken. At stake is the fate of Sovaldi (sofosbuvir), Gilead's high-priced hepatitis C pill, and the future of hep C treatment in the U.S. Not to mention the future of Sovaldi rivals from AbbVie ($ABBV), Bristol-Myers Squibb ($BMY), and more.

As Bloomberg reports, the pharmacy benefits manager, which handles drug reimbursement for a big chunk of the U.S. private insurance market, says it's forming a coalition to refuse to use Sovaldi after a competitor hits the market, perhaps as early as this fall. The $84,000 drug is simply too expensive for payers to bear, Express Scripts CMO Steven Miller told the news service.

"What they have done with this particular drug will break the country," Miller said (as quoted by Bloomberg). "It will make pharmacy benefits no longer sustainable. Companies just aren't going to be able to handle paying for this drug."

It's the latest--and most serious--salvo against Gilead and its breakthrough drug. Other payers and PBMs are scrambling for ways to keep the lid on spending for Sovaldi. Some say they'd like to limit treatment to the sickest patients. Express Scripts itself is reportedly asking doctors to hold off on treating their patients--if appropriate--till rivals hit the market and presumably drive the price down. Medicaid plans are asking states to fund costly hep C treatment separately, outside their usual drug-coverage contracts.

Gilead has said that Sovaldi is priced appropriately. After all, it boasts a high cure rate, and that will cut down on pricey complications of hep C, including liver transplants. So, while it's a tough pill to swallow up front, payers will be thanking Sovaldi later--at least that's the idea. And to be fair, the cost of Sovaldi is something of a straw that's breaking the camel's back. It's one of many very expensive specialty drugs that have hit the market over the past several years.

The problem for Gilead is twofold: Millions of patients have hepatitis C. Unlike rare disease meds and expensive cancer treatments, Sovaldi is essentially a mass-market drug. The cost of treating that group of patients will be huge. If every patient was treated with Sovaldi, Miller says, that would cost $300 billion, more than the U.S. now spends on all prescription meds. And taxpayers would be footing a hefty chunk of that bill.

And then there's the drug's amazing performance on the market. It's on track to be the most successful launch ever, with up to $10 billion in sales expected just this year. To put that in perspective, the best-selling drug in the world, Lipitor, peaked at $12 billion, but only after years on the market.

Consider the optics. At that rate, Gilead would have all but recouped the $11 billion cost of buying Pharmasset, which initially developed sofosbuvir, by the end of this year. The company has spent big money to continue developing the drug, but still, its entire R&D budget for 2013 was $2.12 billion. Actually manufacturing the pills isn't an expensive endeavor. So, the pricey price--justified by cost savings down the line or not--simply looks bad.

So, the PBMs and other payers have that card to play. They can tag Gilead with money-grubbing and sound patriotic doing it. Sovaldi will "break the country?" PBMs to the rescue. But let's not forget that Express Scripts, PBMs and insurers are motivated by bottom-line pressure, too. Analysts are predicting big hits to insurer earnings from Sovaldi spending this year.

Let's say payers can hold off the tide of hep C patients seeking Sovaldi till competitors hit the market. Will that hoped-for price competition actually materialize? Will payers really choose one hep C drug regimen to cover and shut out all the rest?

ISI Group analyst Mark Schoenebaum is skeptical. These companies know they have solid new products. They're not me-too drugs asking for higher prices. They're honest-to-goodness game-changers for the disease.

"[T]his plan by the PBMs requires that the drug companies 'play ball,'" said Schoenebaum, who has been cheering on Sovaldi's rapidly mounting sales projections, in an investor note Tuesday. If Gilead's competitors don't offer "truly meaningful price discounts," then there's less justification for nixing coverage of the others.

And that means branded drugmakers still have plenty of power in hep C, despite all the pressure. "[T]he future of hep C pricing still appears to be largely in the hands of the branded drug industry," Schoenebaum contends.

So who blinks? Express Scripts and its brethren appear to be steadfast in their quest to control hep C treatment costs. That's not going to change in the near term. We won't know, really, till later this year, when rival companies get the word on approval from the FDA--and tell the world their prices.

- read the Bloomberg story

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