Sovaldi: Bane or Blessing?

In 2013, the Food and Drug Administration approved a new hepatitis C drug marketed under the brand name Sovaldi. This drug, developed by Gilead Sciences, is a specialty medication taken once-a-day along with other antiviral meds. Sovaldi is reportedly effective in curing 89% of patients infected with the hepatitis C virus in as little as 12 weeks.

Hepatitis C (hep C) is a chronic infectious disease affecting the liver. It is the leading cause of liver transplantation and is frequently asymptomatic for many years. It can ultimately lead to cirrhosis progressing to liver failure, liver cancer and also life-threatening gastric varices. An estimated 150-200 million of the world’s population are infected with the virus. Over 3 million infected individuals reside in the United States alone.

The virus was discovered in the 1980’s and had only a 5% cure rate. Subsequent treatments for hep C were developed with a cure rate of about 50%. This treatment included weekly injections for up to 48 weeks often with serious side effects. The side effects were sometimes so severe that treatment had to be discontinued.

The development of Sovaldi is yet another example of an incredible medical breakthrough with the potential to improve the lives of millions. It is remarkable that a disease with only a 5% cure rate three decades ago is now almost 90% curable!

So what’s the catch?

Sovaldi costs $1,000 per pill with an average treatment regimen costing an estimated $84,000! To put this in perspective, if every person infected with hep C in the United States were treated with a regimen including Sovaldi the costs would approach $300 billion! That is equivalent to what is spent to cover all other prescription medications used in the United States combined!

Gilead Sciences has been the focus of criticism and heightened scrutiny on the pricing of this revolutionary medication. Sources indicate the cost to manufacture is significantly less than the $1,000 per pill price tag. The drug is also reportedly available outside the United States at a substantially reduced price.

Questions loom as to how the Company can justify this pricing structure particularly when the majority of patients infected with hep C are in a population where Medicaid and state funding bear the bulk of the costs. Gilead contends the cost of Solvaldi is priced in line with the average cost of other hep C treatment regimens. They also argue their cure brings savings to the overall cost of health care in the long term.

As with all medications, the pricing of a drug does not lie solely in the cost of manufacturing. Substantial investment is made in research and development. Gilead reportedly paid over $11 billion to acquire the company that developed this medication before bringing Sovaldi to market.

It is a double-edged sword balancing corporate profits against true medical breakthroughs that can cure or manage serious diseases. If pharmaceutical companies did not stand to profit from the creation of these life-saving drugs what incentive would there be to take the substantial risks to create them?

Gilead is not the only drug manufacturer with cutting-edge cures for hep C.   Merck is currently developing a drug reported to be 100% effective in curing all strains of hep C in less time than the Gilead pill.   As with Gilead, Merck acquired another firm which developed the drug being used in the development of their cure at a premium price of $3.85 billion. No information is available yet on how much the Merck pill will cost.

In summary, billions of dollars in profit have been made and will continue to be made on specialty medications used for the treatment of serious conditions such as hep C, cancer, multiple sclerosis, H.I.V. and cystic fibrosis.

As a society, how do we balance corporate gains against the substantial costs that strain our health care payer systems?   Where is the middle ground between returning shareholder value and improving and saving the lives of those afflicted with serious health conditions? The discussion around the high cost of medications like Sovaldi will undoubtedly continue and be articulated again and again as new and even more expensive specialty meds continue to be created.

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About Rick Ewers

Mr. Ewers is an analytical consultant providing financial analysis, vendor evaluations, market & compliance analysis, as well as national industry trending for group employers.

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