Gilead Sciences (NASDAQ:GILD) recently got its hepatitis C drug Harvoni approved by the Food and Drug Administration and announced that it would cost $94,500, substantially more than the $84,000 that wholesalers pay for Sovaldi, one of the two components of Harvoni.
Price gouging? Not really. This infographic tweeted out by Gilead Sciences says it all.
Sovaldi isn't approved to be used on its own for patients infected with genotype 1 virus. They have to take Sovaldi with Roche's Pegasys or Merck's (NYSE:MRK) Pegintron and a generic drug called ribavirin. When you add the cost of Pegasys and ribavirin, Harvoni is actually cheaper than Sovaldi.
The eight-week discount
Many patients will get a substantial discount off the $94,500 price tag because they have to take Harvoni for just eight weeks. The FDA recommends that patients who are new to therapy and have viral RNA less than 6 million IU/mL take Harvoni for only that long. In the clinical trial that compared eight versus 12 weeks of Harvoni treatment, 59% of patients fell into that category.
The old regimen of ribivarin with Pegasys or Pegintron only cured about half of the patients, so there are quite a few patients who won't qualify for the eight-week-treatment regimen. But as soon as the doctors work through that backlog, most of the patients will be newly diagnosed and the number of patients using Harvoni for eight weeks should approach 60%. At that rate, Gilead is making a little over $75,000 per patient.
That's still a lot of money
It's true that most drugs that treat ailments afflicting millions of Americans don't cost $75,000 per year. But most drugs aren't cures.
A drug like AstraZeneca's (NYSE:AZN) cholesterol-lowering drug Crestor, for instance, costs a fraction of Harvoni, but patients are going to be taking it for the rest of their lives. Add up each of those years, and it's easy to see the drug costing tens of thousands of dollars per patient.
You also have to factor in the savings to the healthcare system. Many hepatitis C patients left untreated will eventually get liver cancer or cirrhosis that can lead to liver failure. A liver transplant cost a lot more than $75,000.
Finally, there's the hard-to-quantify benefit from a lack of side effects. Pegasys and Pegintron cause flu-like symptoms. Harvoni's all-oral treatment avoids those side effects and keeps patients from having to inject themselves.
But there's still uproar?
Even though it's possible to justify the current price of Harvoni, people are still complaining about it. The real problem isn't the price itself, but a combination of the price, the number of patients, and the fact that payers have to cover the full cost of treatment in a matter of months. It makes for rough budgeting for insurance companies and Medicaid programs.
"They are not prepared to cover the cost even at $63,000," Steven Miller, the chief medical officer of pharmacy benefit manager Express Scripts (NASDAQ:ESRX), told The New York Times.
If Gilead Sciences isn't willing to budge on price, it appears that insurance companies and Medicaid programs are going to limit access to keep their budgets from being blown up by heavy use of this much-needed medication.
As long as those patients are eventually treated with Harvoni as their disease progresses, restrictions won't be a major problem for Gilead Sciences. Unfortunately the biotech has competition coming from AbbVie (NYSE:ABBV), Bristol-Myers Squibb (NYSE:BMY), and others, which could capture some of those patients. The competition could also try to undercut Harvoni's price.
Gilead might need a new infographic soon.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Express Scripts and Gilead Sciences and owns shares of both companies. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.