The FDA didn't surprise anybody when it approved Gilead's (NASDAQ: GILD ) high-profile hepatitis C drug sofosbuvir in early December. The drug has enjoyed fanfare as the most promising drug in Gilead's pipeline ever since the company picked it up in its $11 billion acquisition of Pharmasset back in 2011. Now, with the FDA's blessing and a market-friendly name in hand, Gilead has an opportunity to make back some of that investment -- but it will have to leapfrog price objections first.
Out with the old, in with the new
Drugs are well known for their clunky, inefficient and difficult-to-pronounce names. So once the FDA gives the go-ahead, marketing teams crunch the data and scour the lists to find names that pass muster with regulators and consumers.
Those names get vetted pretty thoroughly in an FDA black-box process that makes sure companies don't sneak in hints of efficacy or safety. Those names also have to resonate with consumers enough to build a brand around.
Gilead hopes it's found the right formula in christening sofosbuvir as Sovaldi, a geographically neutral name that could stick globally once the drug wins approval in Europe.
Pricing is sky-high, but not as lofty as feared
Gilead also announced pricing for Sovaldi, and payers are happy to see that Gilead settled on a cost south of the rumored $100,000 mark. Still, there's little joy at insurers, given that its $84,000 bill for a course of treatment dwarfs the $15,000 to $20,000 a year they were paying a few years ago for Peg-interferon and ribavirin.
Sovaldi's stiff price tag is also a big jump from the $50,000-a-year price commanded by Johnson & Johnson's (NYSE: JNJ ) and Vertex's Incivek, and Merck's Victrelis. Both of those drugs were recently approved in 2011, and Incivek was the fastest drug ever to reach $1 billion in sales.
Balking at paying
The decision to price Sovaldi higher than Johnson & Johnson's recently approved Olysio, formerly known as simeprevir, was bound to result in push back.
The first shove came from Express Scripts (NASDAQ: ESRX ) . The company suggests that it's willing to substitute lower priced competitors, even if those therapies come with a more unfriendly dosing schedule.
For now, that may prove an empty threat.
No other treatment, including Johnson's Olysio, is as effective across as large a patient pool as Sovaldi. Olysio, despite a solid showing in trials, struggled when treating patients with the Q80K polymorphism, which occurs in 50% of patients with hepatitis C, genotype 1a -- the most commonly occurring genotype in the United States.
That means Express Scripts has to hope AbbVie (NYSE: ABBV ) , with an up-and-coming multi-drug oral cocktail, will be willing to deal. So far, AbbVie's cocktail has enjoyed impressive results, including a 96% cure rate after 12 weeks in its most recent phase 3 trial.
Foolishly creative math
The argument over pricing isn't a new debate for next-generation therapies. That means Express Scripts may be all bark and no bite. After all, hoping that AbbVie or Bristol-Myers will cut a deal to charge pharmacies less may prove a long shot, given that each has invested big money ushering its compound through clinical trials.
That's not to say there big buyers and big pharma can't strike deals behind closed doors. However, Gilead and Johnson's drugs, while more expensive, are also significantly better than predecessors. They cut the treatment time in half, with better outcomes. That suggests doctors and patients will embrace Sovaldi regardless of cost.