Why is PhRMA Defending Gilead's Sovaldi Pricing?

In an article published in The Hill, Lori Reilly, vice president for policy and research at the Pharmaceutical Research and Manufacturers of America (PhRMA), whose job is to develop federal legislative, regulatory and political strategies, defended the pricing of Sovaldi, Gilead's Hep C drug (see "Defending Big Pharma").

Her argument was simply this: "While Sovaldi may cost $84,000 or more for an individual patient’s 12-week treatment, Reilly argues it will save money by decreasing the need for liver transplants for patients whose organs fail."

Let's do the math on Sovaldi, using some numbers from the C. Everett Koop Institute, which may or may not receive funding from Gilead and/or PhRMA:

According to the Institute's data (see Hepatitis C: The Facts):

"The average lifetime cost for hepatitis C, in the absence of liver transplant, has been estimated to be about $100,000 for individual patients. Assuming that 80% of the 4.5 million Americans believed to be infected develop chronic liver disease, the total lifetime cost for this group (3.6 million) will be a staggering $360 billion in today's dollars. Assuming an estimated survival of 40 years, the annual health care costs for the affected U.S. population with chronic hepatitis C may be as high as $9 billion."

Saving $360 billion sounds like good news, right? But does the math add up to a savings for payers; e.g., Medicaid, Insurers, States, and patients?

To save that $360 billion, ALL 4.5 million people with Hep C must be treated because doctors can't determine who among the 4.5 million patients will develop chronic liver disease and who won't. At $84,000 "or more" per treatment, the total cost is at least $378 billion! So it's a wash, more or less. Or is it?

On the one hand, Gilead offers discounts to big payers like Medicaid, so the total cost is likely to be much less than $378 billion to treat ALL Hep C patients.

On the other hand, at such a high cost per treatment, it's not likely that ALL Hep C patients will be able to afford treatment and will opt not to take Sovaldi -- especially those patients that do not have and may never have chronic liver disease. Also, we know that even for treatment of life-threatening diseases, patients often (maybe up to 50% of the time) do not comply with the treatment regimen. This may be even more so for drugs like Sovaldi, which are likely to have serious side effects.

So, as far as saving payers money, the Sovaldi math says "maybe." For payers, "maybe" just isn't good enough from a financial, return-on-investment (ROI) standpoint.

Reilly also argues that drugmakers also need a good ROI: "if drugmakers aren’t able to recoup their research and development dollars for diseases like cancer and Alzheimer’s, new drugs won’t come to the market."

Gilead has racked up $5 billion in Sovaldi sales in the first half of 2014. According to a JAMA viewpoint article, it may have cost Gilead $11 billion to "develop" Sovaldi - this is based on the price Gilead paid to acquire Pharmasset, which discovered and initially tested Sovaldi. If all of the approximately 3.6 million Hep C patients with chronic liver disease in the United States were treated with Sovaldi at current prices, Gilead would net more than $300 billion dollars, or better than a 27-to-1 return on its investment, "suggesting that pricing is inappropriately high."

At the current rate of sales, Gilead will recoup its initial $11 billion investment by the end of the year and Sovaldi will be profitable in 2015. That's about the time that competition may enter the marketplace. So, Gilead decided price not on what the market will bear, but on how quickly it can recoup its investment before it loses market share and is forced to reduce prices.

Why is PhRMA defending Gilead, which isn't even a member organization?

Here's what Reilly says about that:

"Reilly pushes back against congressional leaders who are challenging the rising cost of specialty drugs and want the Department of Health and Human Services (HHS) to negotiate down the price of treatments like Sovaldi in Medicare Part D plans.

"Reilly warns the fight isn’t just about one Hepatitis C drug but future drugs that could save the healthcare system billions of dollars by reducing costs such as chronic care and hospital bills.

"Reilly also says if drugmakers aren’t able to recoup their research and development dollars for diseases like cancer and Alzheimer’s, new drugs won’t come to the market."