Sovaldi is having one of the most successful drug launches ever, and could generate $1.5 billion in its first quarter on the market. A week ago, a group of Democrats in the U.S. House of Representatives including longtime drug industry gadfly Henry Waxman wrote a stern letter to Gilead asking it to explain the high cost of the drug. This led Ana Gupte, who covers managed care for Leerink, to take a look at the effect to the expensive new drug on companies she covers. She found that for some companies treating patients with Sovaldi could hurt earnings per share by as much as 10%.
“If all the currently 9% eligible for Sovaldi were to receive the drug,” Gupte writes, “the price tag could be as much as $27B with over $8B in fully insured Managed Care. The major brunt is being experienced by Medicaid, Commercial and the Dual Eligibles with significant potential consumption by the newly insured with ObamaCare.”
The managed care companies Gupte looked at: CalifornaMolina Healthcare (MOH) , a California-based provider of Medicare services and, more recently Affordable Care Act plans; Healthnet (HNC), another California managed care player; Centene (CNT), a big managed care firm based in St. Louis; WellCare Plans (WCG); Wellcare Health Plans (WCG) in Tampa, FL; Universal America Corp. of White Plains, N.Y.; and insurance giants Wellpoint, , , and .
From Leerink Analyst Ana Gupte: How insurers are affected by the launch of Gilead’s Sovaldi.
Something Gupte doesn’t mention, but that I think is striking, is that these are very much the same companies that are involved in the rollout of the Affordable Care Act, and that greater involvement in the ObamaCare expansion, both through the expansion of Medicare and participation in the exchanges, may make things harder for companies when it comes to Sovaldi costs. That may provide a motivation for the government to look for ways to curb Sovaldi’s growth; it certainly provides a motivation for these companies to try to minimize the amount they pay for this new hepatitis C drug.
There’s a strong argument, from the perspective of the larger health care system, that Sovaldi’s price is fair. According , it costs more per pill than Vertex’s Incivek, but is used for less time and is nearly twice as likely to result in patients being cured of the hepatitis C virus, which can cause liver failure. But in cases where a new, effective drug is launched, insurers are always going to worry about patients coming out of the woodwork. The classic example is heartburn, which was treated far less often before AstraZeneca launched Prilosec, which was very effective and became the best-selling drug in the world. With hepatitis C, these worries are increased because Gilead is looking to launch an all-oral pill containing Sovaldi which would replace the injections currently given to treat the virus, which have unpleasant side effects.
Gupte quotes the chief executive of Molina Healthcare, Mario J. Molina, saying that it may not make sense to rush to treat hepatitis C patients. “If you’ve got a patient who is advanced and has liver disease and is about to get a liver transplant, it makes sense to give treatment,” Molina says. “…[W]hat do we do about everybody else? If everyone in the U.S. with hepatitis C were treated with Sovaldi at its list price, it would cost $227 billion compared with the estimated $260 billion spent a year in the country for all drugs.”
One possibility is that the plans will seek to have hepatitis C treatment “carved out” of their plans — that they won’t cover it. Another big question is what will happen with competing drugs. AbbVie and Enanta have a regimen that requires many more pills, but seems to also be effective. Merck seems on track to launch an all-oral combo, too. Could there be competition on price? To biotechnology investors, that’s a key question, because one of the things drug companies have going for them is an amazing amount of pricing power. If drug prices drop, that’s bad for biotech and pharma.
How did Waxman wind up going after Gilead? It turns out it’s a previously scheduled meeting. Get the full story from at Bloomberg v. https://storify.com/ArmstrongDrew/how-the-gilead-letter-from-waxman-happened