When Gilead Sciences (NASDAQ:GILD) won approval last winter for its game-changing hepatitis C drug, Sovaldi, healthcare payers recoiled at Sovaldi's $1,000 per pill pricing. Express Scripts (NASDAQ:ESRX) offered one of the loudest voices of disapproval, calling out Gilead Sciences' price decision as "unsustainable" and indicating that Gilead Sciences' short-term pricing may prove to be a long-term mistake.
Dealing a blow
"Never before has a drug been priced this high to treat a patient population this large, and the resulting costs will be unsustainable for our country," said Express Scripts' chief medical officer, Steve Miller, in a statement made in April. "The burden will fall upon individual patients, state and federal governments, and payers, who will have to balance access and affordability in way they never have had to before."
Express Scripts is a pharmacy benefit manager, or PBM, that works for insurers and other healthcare payers to manage drug programs, including drug-price negotiations, drug fulfillment, and patient adherence, and if its comments last April sound like a warning to Gilead Sciences, it was a warning that the company has now made good on.
Though AbbVie's sticker price for its recently-approved genotype 1 hepatitis C drug, Viekira Pak, is not much lower than Gilead Sciences' Sovaldi price, Express Scripts was able to negotiate an undisclosed price cut and thus will offer Viekira Pak as its exclusive genotype 1 hepatitis C treatment for patients covered by plans relying on Express Scripts' preferred formulary drug program. That move could dent sales of Gilead Sciences' hepatitis C drugs, which totaled more than $8.5 billion during the first nine months of 2014.
What does this all mean?
Express Scripts' decision means that doctors of genotype 1 hepatitis C patients covered by Express Scripts' formulary will be directed to prescribe Viekira Pak instead of Harvoni or Sovaldi. Genotype 1 is the most common variation of the disease in the United States, accounting for roughly 70% of all hepatitis C cases. Those patients with other genotypes of the disease will still be able to receive Sovaldi, but the drug will likely only be easily available to those with advanced stages of the disease.
As drug prices have climbed, Express Scripts has seen demand for its services increase over the past few years. As a result, Express Scripts provides services that address the needs of millions of Americans, including 25 million people who are served through plans that will be affected by Express Scripts' decision to bar Gilead Sciences' hepatitis C drugs.
Since roughly 1% of Americans have hepatitis C and roughly 70% of them are diagnosed with genotype 1 variation of the disease, the decision to exclude Gilead Sciences from Express Scripts preferred formulary affects about 175,000 of the 3.2 million people with hepatitis C in the United States. That works out to being about one and one half times larger than the number of people that Gilead Sciences has treated with its hepatitis C treatments through the first nine months of 2014.
More risk ahead?
Although Express Scripts' decision seems to affect less than 10% the hepatitis C patient population, investors shouldn't take the move lightly. That's because other PBMs, including CVS Health, have yet to weigh in on how they'll handle Gilead Sciences' and AbbVie's competing drugs. Additionally, since many hepatitis C patients are covered by cash-strapped state Medicaid programs, it will be important to see how Medicaid payments play out for these drugs too. As a result, it's unlikely that we've heard the last on this issue.