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Why this $84,000 drug costs just $900 abroad

Gilead Sciences, under fire for pricing a new hepatitis C drug at $1,000 a pill, has discount agreements with a number of health insurers, a company executive said in an interview.

The medication, Sovaldi, has a list price of $84,000 for a 12-week course of therapy and is seen as a breakthrough in the treatment of the serious liver disease.

It has been shown to raise cure rates and cut treatment time with fewer side effects than older medicines, but critics maintain that a price of $1,000 each is too high for an easy-to-make pill needed by millions of Americans.

On March 20, Democratic lawmakers led by California Representative Henry Waxman asked Gilead to explain the price tag, and a meeting with the company is scheduled for next week.

Health insurers and state Medicaid programs for the poor are pushing for further discounts, fearing a multibillion-dollar pricetag from treating most hepatitis C sufferers with Sovaldi and similar new medicines likely to be approved in coming years.

Gilead shares have dropped 9 percent in the last week on concerns over the pushback on drug pricing. The news has also weighed on other biotechnology companies that are banking on their ability to command high prices for new treatments.

``It's the volume (of patients) payers are looking at here. It's not the price,'' said Gregg Alton, Gilead's executive vice president, corporate and medical affairs. ``A lot of them are looking for a discount, but I think the real issue here is how many patients they now have in their plans that need hepatitis C treatment.''

The Centers for Disease Control and Prevention estimates that about 3.2 million Americans are infected with hepatitis C, a liver-destroying virus transmitted through blood.

If each were treated with full-priced Sovaldi, the cost would be $269 billion. Gilead already provides a mandated discount off its list price to U.S. government health plans and insurers at about 23 percent.

Alton said the company has deals for ``supplemental discounts'' for government-funded agencies such the Veterans Administration and the Department of Defense, on top of the 23 percent. He would not provide details.

He said the VA, which accounts for about 10 to 15 percent of the hepatitis C population in the United States, has been ``proactive'' in recognizing the need to treat the disease, which can lead to liver failure and necessitate liver transplants.

He estimated that patients eligible for Medicaid, the government-funded health plan for the poor, account for another 10 to 15 percent of Americans with hepatitis C.

Alton singled out health maintenance organization Kaiser Permanente for taking action to secure Sovaldi, also at a discount, for its patients.

``We have an arrangement with Kaiser that works very well for both of us,'' the Gilead executive said. ``They recognize that if they make the investment today, they get all the benefit.''

He said that is because many Kaiser patients stay for many years with the organization known for quality, integrated care, even into retirement when they qualify for a managed Medicare plan. So Kaiser's upfront investment treating hepatitis C will pay off years later by averting future costs of liver disease.

Kaiser officials were not immediately available for comment.

But many traditional insurers can't rely on the same kind of stability among their policyholders, who tend to switch health plans more frequently, meaning they cannot be sure of the same savings over time.

``One of the challenges we have with some insurers is that the benefits may not come to them,'' the Gilead executive said.

``No matter how we price this product, the benefits and the savings are going to come later.''

Alton also sees the concerns over a deluge of patients demanding immediate treatment as unlikely to materialize.

``Most of the patients are not diagnosed, and many aren't seeking care currently,'' he said. ``This is going to take some time.''

ISI Group analyst Mark Schoenebaum noted on Friday data showing that new prescriptions of Sovaldi had dropped 5 percent in the past week. He estimated that Gilead's 2014 U.S. sales of Sovaldi, which was approved by the Food and Drug Administration late last year, will total as much as $9 billion even if it sees no new prescription growth.

- By Reuters

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