So much for the potential price war in the hepatitis C market. For now, at least.
AbbVie (NYSE:ABBV) gained Food and Drug Administration approval for its new hepatitis C cocktail, dubbed Viekira Pak, on Friday, and priced the regimen at $83,319 for the 12-week regimen. You'll recall that Gilead Sciences' (NASDAQ:GILD) Harvoni is priced at $94,500 for a 12-week regimen.
But you said there wasn't a pricing war? $94,500 is quite a bit more than $83,319.
Some patients only have to take Harvoni for eight weeks. Since the drug is priced per pill, the cost to treat those patients is only $63,000, substantially less than Viekira Pak. If you take Gilead's estimation that about 45% of patients are eligible for the eight-week course, the average price for insurers is around $80,000, about the same cost as Viekira Pak.
Coincidence? I doubt it. AbbVie has always maintained that it didn't plan to compete on price.
Insurers could require patients eligible for eight-week Harvoni treatments to take Harvoni, and those who would take 12-week Harvoni to take Viekira Pak. If they did that, however, Gilead would just jack up the price of Harvoni so the eight-week treatment was around $80,000.
Can AbbVie win this game?
With cure rates in the mid-90% range for both regimens, it's hard to see doctors choosing Viekira Pak, which requires up to four pills in the morning and two in the evening, over Harvoni, which only requires one pill a day.
Drug compliance is a big issue, and it's certainly easier to take one pill than six. In fact, insurers might be willing to pay extra for Harvoni if they're convinced that the real-world cure rate is higher than Viekira Pak, reducing the number of patients requiring retreatment. We'll have to wait a little while for real-world efficacy, which tends to be lower than the efficacy seen in clinical-trials because clinical trials enroll patients who are more motivated to cure their disease.
The one place where AbbVie might be able to make inroads is in patients with cirrhosis of the liver who have failed previous treatment. Harvoni's label recommends that those patients receive 24 weeks of treatment, while Viekira Pak's label says that all treatment-experienced patients infected with genotype 1b virus, and some treatment-experienced patients infected with genotype 1a virus only, have to take Viekira Pak for 12 weeks.
Gilead is likely offering discounts to insurers for patients who have to take Harvoni for 24 weeks, so there may not be much of a financial benefit for insurers if they require Viekira Pak over Harvoni for patients with cirrhosis of the liver who have failed previous treatment. But from a compliance perspective, doctors may feel the trade-off of six versus one pill justifies not having to remember to take your pills for an additional three months. And patients may see a financial benefit from fewer copays.
Like the sticker price on a car, the list price for drugs is just a starting point for negotiations with insurers. IMS Health estimates that global sales grew by $194 billion from 2009-2013, but off-invoice rebates and discounts increased by $63 billion, tampering net growth by 32%.
AbbVie might have the advantage here since it has a larger arsenal of drugs to offer discounts on than Gilead does. We could see -- or not see, because discounts aren't really transparent to investors -- AbbVie bundling pricing of its megablockbuster Humira with Viekira Pak to get favorable insurance coverage.
Keep in mind that all of this is fluid. While AbbVie isn't willing to compete on price right now, if it has trouble gaining market share, the company can always discount Viekira Pak down the road.