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What Price Innovation? The Sovaldi Saga

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The biopharmaceutical industry has been highly criticized for a number of years with respect to the high costs of medicines, particularly for drugs to treat cancer and rare diseases. Physicians and insurers have challenged the benefit of a new drug that might cost tens of thousands of dollars yet only extends life for a few months. This has led to various ethical debates about the value of life vs. the cost to society as a whole.

Continuing down this line of reasoning, industry critics have been challenging biopharmaceutical companies to develop truly innovative drugs, drugs that significantly extend life or which can be shown to add real value to the healthcare system. Naysayers will urge drug discoverers to cease and desist with incremental advances. Rather, they want companies to develop major breakthroughs that don’t just ameliorate disease but even cure it. Anyone who has been involved in drug R&D knows that’s a stiff challenge.

Hepatitis C is a largely asymptomatic disease. It is estimated that three million Americans are infected with this virus, but most don’t know they have it and only 20% seek treatment. However, the virus, which resides in the liver, causes scarring, leads to cirrhosis and patients can then develop liver failure and liver cancer.

Up until recently, treatments for hepatitis C were modestly effective. Patients were given a cocktail of drugs plus injections of interferon for 24 – 48 weeks and cure rates range from 40 – 80%, depending on the severity of the disease. However, these drugs are poorly tolerated, particularly the interferon component which causes flu-like symptoms in patients. As a result, many with hepatitis C often eschew treatment.

However, there is new hope for hepatitis C patients. A breakthrough drug from Gilead, Sovaldi, is a pill that cures hepatitis C in more than 90% of patients in just 12 weeks. Furthermore, it is safer than the older regimens and is roughly 20% cheaper than the older treatments. One would think that the maker of such a wonder drug would be hailed for providing a major medical advance.

Instead, Gilead is being vilified. Why? Because Gilead is changing $84,000 per patient for Sovaldi – $1,000/pill. Those leading the charge against Gilead and Sovaldi are the insurance companies. At the front is Ms. Karen Ignagni, President of America’s Health Insurance Plans (AHIP), the insurance industry’s trade association. In discussing the price of Sovaldi, Ignagni said: “The company in this case is asking for a blank check which, if granted, will blow up employer benefit costs …. and wreak havoc on the federal debt.”

Ignagni recently spoke about Sovaldi and its price at the Financial Times US Healthcare and Life Sciences Conference on May 15th in New York City. During the Q&A session, I asked her the following question.

“Sovaldi is a drug that cures hepatitis C. It actually SAVES the healthcare system money in that it will prevent patients from dying from liver cancer, cirrhosis and liver failure. Liver transplants alone can cost $300,000 and then patients must take anti-rejection drugs that cost $40,000 per year for the rest of their lives. The price of Sovaldi, while high now, will drop, first when competitive drugs in late stage development reach the market and then when the drug is generic. Given all of this, what price for Sovaldi would have been acceptable to you - $60,000, $40,000, $10,000? What price are you willing to pay for innovation?”

Ignagni never answered the price question. Instead, she focused on the innovation part, saying that she has heard for years that high pricing is needed to sustain innovation, yet, innovation is still occurring. She is obviously ignoring the turmoil that the biopharmaceutical industry has been experiencing for the last 15 years - the mergers, the small company closings, and drastic reductions in private investment in drug R&D. Yes, innovation is still occurring, but due to financial pressures, there is a lot less of it happening.

Patients, physicians and payers are rightly demanding that biopharmaceutical companies provide real innovation. To justify pricing, new drugs must: 1) deliver value to the healthcare system; 2) be a major improvement over existing, and often generic, therapies; 3) be safe and well tolerated. Gilead has done all of this with Sovaldi. Yet, insurers are up in arms. It’s no wonder that investors and venture funds are shying away from investing in the biopharmaceutical industry. Even when a major breakthrough occurs, one that provides measurable overall savings, payers like Ignagni don’t want to pay for it. Again, what price are you willing to pay for innovation?