Is Gilead Sciences (NASDAQ:GILD) just a greedy large corporation, or a biotech bringing hope for millions of hepatitis C patients and making a reasonable profit for doing so?
That question has been raging over the last couple of months after Bloomberg reported that the nation's largest pharmacy benefits manager, Express Scripts, could take a hard line with the high costs of new hepatitis C drugs hitting the market. Express Scripts' Chief Medical Officer Steven Miller was quoted as saying that his company could recommend less-expensive drugs that weren't as convenient as higher-priced drugs if there was no demonstrated improvement in outcomes.
Gilead priced its new hep C drug Sovaldi at $84,000 for a 12-week treatment.Does that amount really reflect corporate greed -- or is it a fair price for the value provided to patients?
Any discussion of pricing should include a little comparison shopping. Gilead faces a handful of major competitors with products already on the market for treatment of hepatitis C.
Vertex Pharmaceuticals (NASDAQ:VRTX) gained FDA approval in 2011 for Incivek. While Vertex started off Incivek at around $49,000 per 12-week treatment, the price now stands closer to $66,000. It's probably no coincidence that after gaining regulatory approval for Olysio last November, Johnson & Johnson (NYSE:JNJ) pegged the price of its hep C drug at nearly the exact same level.
Is Sovaldi's 27% premium over Incivek and Olysio warranted? Both newer drugs appear to be superior to Incivek, reflected in a continued slide in sales for Incivek and Vertex's decision to cut positions late last year.
However, Sovaldi also claims a couple of significant advantages over Olysio. First, Gilead's drug won approval for treating hepatitis C genotypes 1 through 4, while J&J gained approval only for genotype 1. Second, for genotype 1a (the most common form of hep C in the U.S.), Sovaldi boasts a 92% cure rate compared to 84% for Olysio.
The market speaks
If we just looked at those comparisons, we could conclude that Sovaldi might be a little overpriced compared to J&J's Olysio but not ridiculously so. Of course, some could also argue that Olysio itself is priced too highly.
The ultimate answer to what price is right, however, can usually be found in the market. If a price is truly too high for the value provided by a product, many buyers will turn to another alternative. So, what is the market saying so far about Sovaldi's price?
Total prescriptions for Sovaldi are coming in higher than analysts predicted -- and not just by a small amount. For the week ending Jan. 17, total prescriptions were 2.8 times higher than consensus estimates. Leerink and ISI Group think that Sovaldi could be on pace to blow away previous sales projections.
Gilead acknowledges it will take a few more months to gain official approval from some payers and PBMs. However, the company says most plans include Sovaldi in their formularies. For now, at least, the market seems to be voicing its opinion that Gilead's price isn't too high.
What sometimes gets lost in the discussion about the high costs of new drugs are the potential costs that could be incurred without those drugs. For example, hepatitis C is the leading cause of liver transplants. In 2011, a liver transplant cost nearly $580,000 on average.
Also, as Express Scripts and other PBMs focus on controlling prescription drug costs, one of their major focus areas is on adherence to medication schedules. Drugs that are more convenient for patients to take tend to have higher adherence rates, thereby lowering overall costs. That could give Gilead an edge in its effort to win support from payers and PBMs with the Sovaldi/ledipasvir all-oral combo on the way.
Is Gilead being greedy by pricing Sovaldi higher than other drugs? Maybe. However, it's also true that the biotech has developed a product that could help pave the way for millions to be cured of hepatitis C -- along with other current and forthcoming drugs from rivals. If the total costs from this all-too-common disease are lessened, I'd say the price is right.