Society makes a deal with drug innovators: in return for providing a period of market exclusivity, they can charge a premium price.  This helps them:

• recover some investment costs
• recoup some of development costs for drugs that failed to make it to the market
• fund early research into new generations of medicines.

At the end of the term of exclusivity, the innovator provides the world with the gift of a new treatment in perpetuity, now made by generics companies.

However, that brings up a question:  What exactly is the fair price of a new drug that transforms the treatment of a disease?

This topic is being currently tested with very public debate about the price of Sovaldi, Gilead’s new treatment for hepatitis C virus (HCV. ) Sovaldi (sofosbuvir) is an oral HCV RNA polymerase inhibitor which, when used in combination with other drugs, over a 12 week term, cures 90% of HCV infections, without the flu-like side effects associated with interferon alpha, the previous standard of care.

In the U.S., a 12-week course of treatment costs $84,000.  This is significant because. in the US, many health insurers have a co-pay policy for pharmaceuticals, so patients with HCV being treated with the drug, must bear some of this cost.

This has resulted in doorstep protests against Gilead and more generally, big pharmaceutical companies. At the same time, Sovaldi is the most successful new drug launch in history, selling $5.7 billion in the first six months.

Justification for the high price of this drug is based on the even higher costs of doing nothing, or failing to treat hepatitis C effectively. While the infection is often asymptomatic, over time it can lead to liver cirrhosis, which can progress to liver failure and liver cancer. Many patients also develop co-morbidities, such as diabetes.

What is also informative is how Gilead is pricing this drug in other parts of the world. The more common situation is where the payer is a national health service, with both the treatment cost and the authorized reimbursement agreed by negotiation between the innovator and the national payer. 

In the UK, the payer is represented by the National institute of Clinical Excellence (NICE), which requested more data from Gilead to justify its proposed $60,000 treatment cost.  Ultimately, in mid-August, NICE wound up recommending the drug.

However, the UK’s policy of using NICE is controversial. Critics allege that it has delayed and restricted access to many new innovative therapies, at least in part.  Supporters say that it allows for better control of the costs associated with novel medicines, and makes pharmaceutical companies focus on truly effective treatments as opposed to “me too” drugs.

The price and cost of Sovaldi, which has the potential to transform the management of a disease, is being actively debated throughout the world, in the context of its overall benefit for society.

For Egypt, which has the highest national prevalence (10-13%) of HCV in its 62-million population, Gilead is proposing a treatment course price of $900 (99% discount compared to the US). This recognizes the issue of HCV infection in Egypt.

The pricing was established mainly to prevent a repeat of the situation which arose with treatments for HIV infections, where several governments sought to ignore international drug patents to manufacture and supply anti-viral drugs at low cost to HIV infected patients.

This suggests that the pricing of innovative medicines depends largely on what the market can bear. By virtue of its disproportionate spending on healthcare, the US generally pays the most for novel drugs (both as a percentage of GDP and in absolute terms). This largesse is funding innovation.

The UK and other national health systems use their collective bargaining muscle to drive the overall cost down both by restricting the price and patient access to the treatment. What we have arguably learnt from the UK is that restricting access to new medicines can lead to poorer outcomes for patients.  

Pharmaceuticals are an obvious target for healthcare cost management, even though they only account for about 10% of overall costs. As a society and as individual patients and customers, we shouldn’t lose sight of the power of pharmaceuticals to transform disease management. We also need a system of fair reimbursement and reward for innovation, and to avoid the perception that the needy are exploited by large pharma to the limits of their ability to pay.  What do you think? Please email editors (kbrooks@rodmanmedia.com) and let them know.

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Kevin Bottomley
Results Healthcare

Kevin Bottomley has over 30 years of experience in pharmaceutical, biotechnology and business advisory companies, involving senior positions in research, business development and transactions. He has previously worked for Pharmaventures, Merck, UCB, Sanofi, Roche Qunitiles and Inpharmatica.