It’s almost impossible to imagine a pharma company giving up on a patent. The impossible can happen, as it did in August 2014, when Vertex Pharmaceuticals gave up on Incivek, its flagship hepatitis C treatment. “This decision has been taken in view of available alternative treatments and the diminishing market demand for Incivek,” read a letter to prescribers, and there could be no doubt in the minds of the recipients exactly what those “alternatives” were. Gilead’s Sovaldi had arrived, irreversibly changing the HCV landscape.
Sofosbuvir, the active pharmaceutical ingredient of Sovaldi, was discovered by Pharmasset, which had been acquired by Gilead Sciences [GILD] for $11 billion in November, 2011. Gilead had made a name for itself in innovative antiviral compounds, having developed Tamiflu (a flu treatment drug), Viread (an HIV antiretroviral), and Truvada (a first-of-its-kind HIV prophylactic, which prevents new infection). Sovaldi has proven to be an excellent acquisition, offering vastly improved outcomes versus Incivek, the previous standard of care.
Solvadi’s approval by the FDA should have been a triumphant moment for the whole healthcare community: a debilitating, chronic disease could now be functionally cured. Instead, multiple countries have rejected Gilead’s patent, payers have refused to cover it, and the company has attracted the attention of congress. What went wrong?
Figure 1. Approximate expected outcomes for a sample population of HCV infected individuals. Statistics retrieved from CDC.gov.
Hepatitis C is a chronic disease for most who are infected. It may remain asymptomatic for years before slowly and steadily worsening: it can devolve into hepatic cancer, liver transplants, or death. Each stage of the disease is costlier and more debilitating than the previous one, a significant drain on patients and payers alike. In the US, nearly 75% of the infected population is either unaware of the infection, or is aware but not in treatment, as shown below.
Figure 2. The 3.2 million HCV infected Americans, divided by awareness of their infection status, and whether or not they were seeking treatment. All data sourced from 2012 (prior to the introduction of Sovaldi).
The number of people infected with HCV is estimated to be 3.2 million in the US, a fraction of the 130-150 million infected worldwide. Infection rates rose throughout the 1970’s and 80’s in the US to a peak of 240,000 in the face of high rates of IV drug use, unprotected sex, and an inability to detect the virus in donated blood. Needle sharing programs and better detection methods have lowered the infection rate to a reported 30,000 or fewer per year, though many of those infected are unaware of and, therefore, not reporting it. For those aware, Incivek’s side effects made it dangerous to take in advanced stages of the disease, and unappealing to people whose symptoms were not yet severe, leaving the drug with a treatment population substantially smaller than the total number of infected, as shown in Figure 2.
Recently, the cost of treating HCV has come under severe criticism. Historically, a course of Incivek cost $49,200, augmented typically by a $30,000 course of pegylated interferon and Ribavirin (pegIFN/RBV), for a total cost of approximately $80,000, which the healthcare system bore the cost without complaint.
Figure 3. The cost of treating all currently living HCV infected Americans, versus treating all new yearly infections. Total Medicaid spending 2013 is included for reference.
Sovaldi’s instant popularity differentiated it from previous HCV treatments. Sovaldi’s first five weeks showed prescriptions triple that of Incivek in its first five weeks. Sales in the first year totaled over $10 billion, almost making back the $11 billion Gilead paid for Pharmassat, the company that developed Solvadi. Yet, at that total sales number, only ~100,000 patients, a fraction of the total treatable population of 3.2 million, have had the drug prescribed. To treat the entire market, Sovaldi would cost $365 billion dollars, a sum comparable to total Medicaid spending for 2013, as shown in Figure 3. By comparison, it would cost only $3 billion to treat all new HCV infections per year.
Typical defenses of Sovaldi’s price state that the drug delivers savings in the long run, in the form of fewer dollars spent on care for end-stage patients. Yet payers like Medicaid, CVS Health [CVS] and ExpressScripts [ESRX], who would stand to benefit if that were the case, are the loudest protesters of the price. Who is correct?
Figure 4. Estimated lifetime medical costs for a hepatitis-C patient, with Sovaldi and Incivek as treatment options, and a case of no treatment.
Both are correct, as it turns out, though neither side is telling the full story. Sovaldi does eliminate downstream medical costs, cutting them to a third of those paired with Incivek and less than a tenth of those who never receive treatment, as shown in Figure 4. The difficulty comes in the timing of costs. Specifically, the cost of Sovaldi or Incivek is paid completely up front, whereas the cost of treating symptoms is spread across a patient’s lifespan. State Medicaid plans were not prepared for the first wave of patients on Solvadi, and will need to expand substantially if they hope to treat even a fraction of the total. Any state expecting price relief in the form of AbbVie’s [ABBV] recently approved Viekira Pak, a comparably effective alternative, were no doubt disappointed to hear that the prices of both drugs are essentially identical.
To cope, many states have implemented restrictions, including rationing the drug to those with cirrhosis, in an attempt to keep costs down. Unfortunately, they also are guaranteeing that pre-cirrhotic patients will progress to more expensive stages of the disease when, finally, they will be eligible for Solvadi. Consequently, payers are minimizing the cost effectiveness of the drug, moving the incremental cost effectiveness per quality life year added from a reasonable $9,700 to an astonishing $284,300 (as shown in Figure 5). However private insurers are unlikely to find an argument based on long-term savings persuasive, when average patients switch health care plans multiple times over the course of their lives. What should be an easy call becomes a grisly game of ‘hot potato,’ with the loser responsible for treating a near dead patient at a very high cost.
Figure 5. Comparison of incremental cost effectiveness ratio (ICER) estimates for two potential use-cases of Sovaldi, and dialysis, an expensive and commonly covered treatment for a variety of conditions. Source: ARK Investment Management LLC.
Even as Gilead and competitors continue to roll out similarly priced formulas, the situation is unlikely to improve on its own. Without substantial increases in funding or a price drop, patients with both private and public insurance will continue to accrue symptom management costs, until they meet their insurer’s sickness threshold. The price of the drug ensures that it will remain all but unavailable to the uninsured, which comprise the majority of many hepatitis-C patients. No one can doubt the medical efficacy of Gilead’s cure, nor the savings that instant, universal treatment has the potential to offer. But the sad reality of the American healthcare system means that a potential public health miracle has been stifled by short term thinking and bureaucracy.