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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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May 29, 2014

The Price of Sovaldi

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Posted by Derek

John LaMattina has a good post about Gilead, their HCV drug Sovaldi, and the price that the company is charging. Most readers here will be familiar with the situation: Sovaldi has a very high cure rate for hepatitis C, but in the US it costs $84,000 per patient. Insurance companies, in some cases, are pushing back at that price, but LaMattina says to run the numbers, in a question to the head of the insurance trade association:

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?

He didn't get an answer to that one, as you can well imagine. But it's a worthwhile question. There are, I'm sure, hepatitis C patients who die of other things before they ever start costing the kinds of money that LaMattina correctly cites for liver transplants. I don't have those figures, but if anyone does, it's the insurance companies, and they may believe that Sovaldi is still not cost-effective. Or (and these are not mutually exclusive explanations) they may be pushing back because that's what they feel they have to do - that otherwise all sorts of companies will push up prices ever more than they do already.

This is just another illustration of the walls that are closing in on the whole drug-discovery business - fewer drugs, higher costs to develop them, higher drug prices, more pushback from the payers. It's been clear for a long time that this can't go on forever, but what might replace it isn't clear (and probably won't be until the situation gets much tighter). I say that because although drug prices are surely going up, the insurance companies are still paying out. They complain, but they pay. We'll know that the real crisis is at hand when a new drug gets flatly rejected for reimbursement by everyone involved. But will that ever happen in quite that way? Keep in mind that drug companies carefully set their own prices according to what they think the market will bear. Gilead surely knew that their price for Sovaldi would be unpopular. But they probably also figured that it would hold.

Pretty much every other industry does this sort of thing, but Health Care Is Different, as always. I had a crack at explaining why I think that is here: in short, we think about health expenses differently than we think about almost any other expense, and I don't think that's ever going to change. But drug prices will continue to test the limits of the insurance companies to write the checks, as long as those checks keep getting written.

Comments (41) + TrackBacks (0) | Category: Drug Prices | Infectious Diseases


COMMENTS

1. anon on May 29, 2014 8:52 AM writes...

yep, prescription prices are killing america! all 9 cents on the dollar!

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2. Chemjobber on May 29, 2014 8:58 AM writes...

Assuming LaMattina's numbers are accurate (300k for a liver transplant, 40k/yr for a lifetime of anti-rejection drugs), that these numbers aren't tattooed on the inner eyelids of every health care reporter represents a major failure on the part of Gilead PR. Everyone knows Sovaldi's 2 prices ($84,000/treatment, $1k per pill), no one knows the positive tradeoff.

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3. Calvin on May 29, 2014 8:58 AM writes...

Ther issue here is not Solvadi's cost. For a course of therapy it is cheaper than Telaprevir etc even though on a price per pill it's higher. This is due to the shorter duration of therapy with Solvadi.

The problem is twofold.

Firstly it's also being co-precribed with Simeprivir (TMC435) which has a similar pricetag. So that bumps up the price even though it's less than a liver transplant.

But the big problem is cash-flow. Solvadi is being precribed at such a rate that insurers are running into cashflow problems and they know that it this continues they will run out of cash. This is also seriously affecting state run programs. They don't have the cash flow to cover the cost AND pay for everything else.

It's certainly a bit of an unusual problem and I'm sure it will settle down but it is causing a real problem at a reimbursement level. Once the prescribing rate slows down when the warehoused patients have been dealt with it will calm down. It's a rate thing, not a total cost thing. Kinetics versus thermodynamics if you like.

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4. johnnyboy on May 29, 2014 9:02 AM writes...

"It's been clear for a long time that this can't go on forever, but what might replace it isn't clear."
I don't think anything will need to "replace" it - yes more price pushback is bound to occur in the US, as it does in pretty much every single other country. That doesn't mean the industry as we know it will come crashing down, only that it will no longer have free reign to charge anything it wants for any crappy new product, like it could 15 years ago. It will mean a leaner industry, with smaller and fewer companies. Unfortunate for us as employees, but to be fair we've had a pretty sweet run for a couple of decades, don't you think ? You may say that this industry crash diet is bound to stifle innovation, and maybe it will, though the jury will be deliberating on that for several years to come. What IS apparent to me is that, judging from all the money that is still pouring into shitty single-idea biotechs, idiotic diet pill development, and billions of Big Pharma cash parked and waiting, there is still plenty of money floating around out there for drug development, so I doubt that everything is so apocalyptic as we sometimes feel it is.

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5. AB on May 29, 2014 9:03 AM writes...

Whether Solvadi "saves" health resources is not an easy question for a disease like Hep C. The drug costs will be upfront whilst the realised savings to the wider health system will often be 15 to 20 years in the future. Assuming a 3-5% discount rate on both costs and benefits then the estimated cost-effectiveness is unlikely to be as impressive as many think relative to existing standard of care. Furthermore depending on disease stage it is easy to imagine many physicians warehousing non symptomatic patients until more (non- interferon based) competition comes along and prices are lower.

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6. AB on May 29, 2014 9:04 AM writes...

Whether Solvadi "saves" health resources is not an easy question for a disease like Hep C. The drug costs will be upfront whilst the realised savings to the wider health system will often be 15 to 20 years in the future. Assuming a 3-5% discount rate on both costs and benefits then the estimated cost-effectiveness is unlikely to be as impressive as many think relative to existing standard of care. Furthermore depending on disease stage it is easy to imagine many physicians warehousing non symptomatic patients until more (non- interferon based) competition comes along and prices are lower.

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7. redherring on May 29, 2014 9:04 AM writes...

I think John La Mattina doesn't consider a point that is or would be on the agenda of insurance companies and healthcare systems in general. the longer we leave the more cost we charge on healthcare and social security systems. People that will be successfully treated with Solvadi (or any other life saving drug or any drug) will eventually get sick another time in the future and so on. In my opinion that is the fundamental problem the wealth of the society is not increasing fast enough to cope with the increase in health expenditure.

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8. Dr 13enster on May 29, 2014 9:17 AM writes...

@7: People that live longer pay insurance premiums longer.

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9. Bernard Munos on May 29, 2014 9:31 AM writes...

To #7

There is another take on that. For most people, the bulk of lifetime healthcare costs is incurred in the last year of life. By extending life expectancy -- which we do at the rate of about 2 months per year -- we extend the productive lives of people during which they work and create wealth that enriches society. By living (and working) longer, we can afford more expensive healthcare.

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10. PPedroso on May 29, 2014 9:41 AM writes...

Bernard Munos puts it accurately by placing sovaldi in a new category: Cost-Effective unaffordable drugs.

The problem is that there are 3 million americans (150 million worlwide) that would benefit from the drug immediatelly (versus the small amount that get a liver transplant per year). This would represent 200 billion of investement in a pathology which is almost a yearly budget for the entire US healthcare.

Adding to this the fact that Gilead wants to get its ROI (and by investment I mean the 12 billion for buying pharmasset) as soon as possible, before the competitors reach the market.

This being said, Sovaldi is a helluva drug and if there is inovation that should be rewarded is this one.

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11. Bring the Movies on May 29, 2014 9:46 AM writes...

The insurance companies and Medicare need bargain hard to bring Gilead to its knees. Another reason why we need a single payer system in America.

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12. Bring the Movies on May 29, 2014 9:48 AM writes...

The insurance companies and Medicare need bargain hard to bring Gilead to its knees. Another reason why we need a single payer system in America.

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13. Anonymous on May 29, 2014 9:49 AM writes...

Perhaps a better comparison is with the cost of the previous (less effective, longer duratiuon and much more unpleasant) Hepatitus C therapy, interferon + ribavarin.

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14. CMCguy on May 29, 2014 9:52 AM writes...

I always struggle with how Heath Care payers and Insurance company complain about the high costs of drugs and profits of pharma manufacturers when the real aim is only want to protect their own profit margins. In most case use of drugs are cost effective treatments relative to other types of care, particularly long hospitalization, but as drug companies/pricing are an easy target critics are inclined to focus on that factor and not the many others that also contribute to overall expense. Wholesale Pharmacies and Heath Insurance companies appear to manage to thrive in the current system.

Simultaneously I am not entirely comfortable with how most drugs are priced being on what the market will tolerate however appreciate that without being able to create large returns there is little incentive into continued attempts for innovative drug R&D.

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15. fluorogrol on May 29, 2014 9:58 AM writes...

Never mind the price, has there ever been a drug brand name so frequently misspelled?

'Solvadi' seems to be the most common, but I've seen a couple of others too.

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16. annon too on May 29, 2014 10:00 AM writes...

I know someone a MD who's an Infectious Disease specialists who works for a large health care organization. The total number of their Hep C cases exceed 10,000 patients. So, if they have to pay the advertised price for Solvadi (likely there's a negotiated discount) the total outlay in the US would be in excess of $840,000,000!

Of course, not all will otherwise have liver transplants! And once this initial backlog of patients is treated, hopefully many will be free of Hep C, and hence the future numbers paid by this organization for the drug will substantially decline.

No question that a drug like Solvadi has been desperately needed, that most Pharma companies would salivate at the thought of holding the patent and marketing for such a treatment, and that it is needed, that it has to be used, that it's a "breakthrough drug". Nonetheless, this puts some real-life numbers on the an impact cost to healthcare payers by this new drug.

Nonetheless, this puts some real-life numbers on the an impact cost to healthcare payers by this new drug.

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17. BariTony on May 29, 2014 10:22 AM writes...

Derek, your'e missing something critical from your analysis.

Sovaldi is a prescription that is taken orally. That means it's usually going to be covered under the prescription drug benefit, not the medical benefit. The prescription benefit is usually a carve-out in most insurance plans, meaning the medical benefit provider isn't paying for prescription drugs. Saving money on a liver transplant, or any other comorbidities, is irrelevant to the payer providing the prescription benefit, since it's the payer providing the medical benefit that gets to pay the $300K cost of the liver transplant. In these cases, the prescription benefit doesn't have any incentive to avoid cost - otherwise, they'd be out of pocket $84K in order to save the medical benefit provider money.

Theoretically, paying the price tag for Sovaldi could save the prescription benefit payer in the long run if it means they don't have to pay for the transplant rejection drugs long term. But this is complicated as well. Many of these drugs are administered via IV or injection, so these don't get distributed through the traditional prescription drug channels, but rather through specialty pharmacies. This benefit is often another carve-out, so it may be yet another payer who picks up the cost for these drugs. However, even if the specialty pharmaceuticals are covered through the prescription benefit, who actually pays depends on the site of care. If they are administered in a health care facility, these drugs are usually covered through the medical benefit (this is referred to as the "buy and bill" model, where the HCP purchases the drugs in advance and keeps them in stock. When they are administered to a patient, the patient is charged for the cost of the drug and the administration). To get around this (and collect a professional fee for administration), some HCPs require the patient to "brown bag", or pick up the drug from the specialty pharmacy (where it gets covered under the prescription drug benefit), and bring it to a doctor's office or infusion center (where the HCP charges the medical benefit for administration).

There are even more caveats, but I think you get the gist..

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18. Ian on May 29, 2014 10:29 AM writes...

@16: With healthcare spending up at $3tr what are a billion bucks this way or that?

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19. Redherring on May 29, 2014 10:32 AM writes...

@8 & 9,
uhm... that would probably explain why in the US there is a constant decline in % of the population with a decent health insurance plan

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20. biotchtoreador on May 29, 2014 10:37 AM writes...

@3 "But the big problem is cash-flow. Solvadi is being precribed at such a rate that insurers are running into cashflow problems and they know that it this continues they will run out of cash."

This is correct, and also shocking. That Solvadi was highly likely to be approved has been well-known for at least 2 or 3 years, as has the prevalence of HCV (recall arguments of 'warehousing' HCV patienst after Incivek was approved....). This strikes me as a monumental failure that insurance companies, whose business is mitigating risk in healthcare, seem to have completely missed this.

Capitalism has a perfect solution for this kind of clear stupidity. It shouldn't mean that Uncle Sam get stuck with the bill for this misstep, but rather that the insurance company execs responsible should lose their jobs, and investors who didn't adequately research what they were buying lose their capital.

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21. lynn on May 29, 2014 11:00 AM writes...

@BariTony - even though transplant rejection drugs [immunosuppressives] are generally large and do not obey Lipinski rules, they are indeed taken orally.

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22. NJBiologist on May 29, 2014 11:38 AM writes...

@3 Calvin et al--I thought all US insurance carriers were required to make arrangements with reinsurance carriers in order to prepare for liabilities exceeding cash reserves. Is this not true for prescription coverage providers?

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23. exGlaxoid on May 29, 2014 1:02 PM writes...

If the cost is so high, why don't the insurance companies just buy Gilead and then lower the drug price? Ultimately, the insurers and Gilead should talk and negotiate a discount based on volume. Since the cost of goods is not a big issue, the best solution is to create a lot of volume and then lower the cost per person.

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24. The Aqueous Layer on May 29, 2014 2:01 PM writes...

If the cost is so high, why don't the insurance companies just buy Gilead and then lower the drug price?

Gilead's market cap is $127B+, that's why.

LaMattina makes a great point that the public bemoans Pharma for charging a lot for incremental advances rather than cures. Well, they came up with a cure for a large percentage of people with HCV and now people complain that it costs too much.

Damned if you do, damned if you don't.

If you've got HCV and think you can out-live the patent life on Sovaldi, take that risk and wait until it goes generic. 10 years from now that's what folks will probably do, which is why everyone wants to recoup their costs in the next few years.

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25. antiviral on May 29, 2014 2:04 PM writes...

um, what's gonna happen when hep C becomes resistant to it?

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26. The Aqueous Layer on May 29, 2014 2:10 PM writes...

um, what's gonna happen when hep C becomes resistant to it?

Given that all of the treatments are a combination of several antiviral compounds, it's unlikely that this will happen.

Now that HCV is screened in the blood supply, the number of people contracting it in developed nations will continue to drop, which is also why Pharma wants to strike hard and fast. Their paying patient population will continue to shrink from this point forward...

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27. CMCguy on May 29, 2014 2:25 PM writes...

Of course seeing that Germany cost of Sovaldi treatment at $66K and UK's is $57K due to price controls makes US higher burden frustrating however just like Biotech Deal Dollars in press releases I know there are often huge discrepancies between the manufacturer suggested price and what anyone pays in the real world.

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28. MORALguy on May 29, 2014 4:43 PM writes...

Watching the arguments drug makers use to defend the high prices using an alternative-cost-based logic, you can easily tell that the whole industry is too obsessed to quit playing with the obsolete pricing tactics, which is bound to be proved short-sighted in the end. The embarrassing situation drug makers face today is just one more example of the loss of a life-saving promise fondamental and the dearth of vision of the industry's future. Think about a seemingly far-reaching comparison: if iPhone was introduced using a Sovaldi logic, it could have been priced at $ 1,000 because of the hundreds of dollars saved each year through user's productivity increase...Fortunately, a visionary as Steve Jobs would't let this happen while as long as the visionaries in pharma have not shown up, the industry will been seen suffering the legacy syndrome with no surprise.

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29. Anon on May 29, 2014 7:40 PM writes...

@MORALguy
No, the reason Apple didn't charge $1000 per phone is because they knew that if they could get manufacturing costs down they could sell a lot more $400 phones than $1000 ones, as the consumer base would grow with a drop in price. That is not true for Sovaldi. Apple also didn't invest the same amount of money into their technology as Gilead/Pharmasset. Heck, there were already touch screen phones on the market in 1993. Apple just modified the concept to make the user interface more intuitive and had a HUGE marketing machine. "Apples to Oranges" would be an understatement.

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30. as2o3 on May 29, 2014 11:10 PM writes...

@28, 29: The iPhone did and do cost close to $1000 in most parts of the world...

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31. Anon on May 30, 2014 12:46 AM writes...

"What price are you willing to pay for innovation?" is a revealing question because different social and economic players should answer it in different ways, and these players have different roles in drug price setting. The relative importance of these players also varies between countries.

The political answer to the question (i.e., from someone who governs health systems) is probably "I would pay the absolute minimum necessary to avoid an unacceptably low level of investment in future drug R&D."

Given the fact that it is the prospect of future profits in the US that determine many R&D investment decisions, most small countries in the world could take individual national decisions to pay nothing for innovation, without having an appreciable impact on the amount of innovation that was likely to happen in future. Had, 15 years ago, the Greeks or Belgians decided not to reimburse expensive anti-virals, the world would still have Solvadi.

There is a similar situation for the reimbursement decisions of individual US health insurance companies. If any single company refused to reimburse an expensive drug, it is not clear there would be a dampening effect on R&D investment today. Thus, no single decision maker in any single US health plan has the future of innovation in his or her hands (not should they).

Thus, most people involved in drug-specific reimbursement or pricing decisions are not in a position to either pay for, or not pay for, innovation. Instead, they are paying for access. It is the threat of loss of access that supports the price of medicines. US health insurance companies need to provide access to recruit patients, and most national health systems need to provide access to avoid unhappy voters.

Patents and market exclusivity are the tools that attempt to translate access-related pricing power into a social good (i.e. innovation).

Therefore, "What price are you willing to pay for innovation?" is an irrelevant question to address to a health insurance company. It is an irrelevant question for most national health systems. It is an excellent question to address to US politicians.

An excellent question for the drug industry is "To what extent are you prepared to deny access to medicines to exercise your patent-based monopoly?"

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32. Wilbert Waterbury on May 30, 2014 1:09 AM writes...

Because of the cost insurers are not covering all HCV patients, only the later stages. Is anyone watching the other factors that take people out of the statistics when they die from other diseases caused by an HCV weakened immune system? I don't see any estimation of this cost in equations. Is $84K++ per critically ill patient better than $10K per all HCV ill patients. They won't get any more rich by treating everyone at an affordable rate today. Do they wait so that the disease isn't eradicated and they have a longer. Do they have even a shred of conscience?

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33. Wilbert Waterbury on May 30, 2014 1:16 AM writes...

Because of the cost insurers are not covering all HCV patients, only the later stages. Do they think the stage 2 & 3 inflicted do not suffer? They certainly do. Is anyone watching the other factors that take people out of the statistics when they die from other diseases caused by an HCV weakened immune system? Since death doesn't cost much then I guess this is irrelevant. Not! Is $84K++ per critically ill patient better than $10K per all HCV ill patients. They won't get any less rich by treating everyone at an affordable rate today and ahead of their competitors. Do they wait in order that the disease isn't eradicated so that they have an indefinte payback? Do they have even a shred of conscience?

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34. tts on May 30, 2014 3:18 AM writes...

#8 & #9: living longer doesn't necessarily mean you'll be more productive or even that you'll be able to get a job paying minimum wage or any job at all.

I've watched a lot of people get forced into early retirement + poverty the last 10 yr or so even without major health crises effecting the budget, just paying the mortgage or rent was nearly impossible for many. Quite a few lost their house...but not before pouring tens of thousands of their savings into a losing proposition during the bubble on a 'asset' that was supposed to fund their retirement. I see that situation getting worse not better as the cost of living continues to rise while wages stagnate or drop and retirement funds are short changed or even non-existent altogether.

Most Americans have less than $25k in savings and have a yearly household (dual income) of less than $56k. 75% of Americans have a yearly household income of $90k or less.

These high priced drugs + care are simply unsustainable and something is going to give because not only is the money not there right now there will be even less money in the future available to spend on it.

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35. Dan on May 30, 2014 8:00 AM writes...

Just FYI, from a commercial point of view Solvaldi is now the fastest launch of all time racking up over US$2bn in four months (ish). There is an element however of pooling of patients so sales next year may actually be less than this year.

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36. Jim on May 30, 2014 12:35 PM writes...

There's actually a recent paper that estimates the yearly US expenditures for treating HepC at $6.5 billion (with 3.2 million patients, that's roughly $2000/patient/year). Liver transplants would account for roughly 10% of this cost, assuming $300,000/transplant, and that 30% of the transplants are for HepC. Not insignificant, but not close to being the driver of costs either. Also, the estimate for the current average lifetime cost of treating a patient with HepC was $64,000 (which assumes patients live with disease for 30+ years).

So there is no way you can argue that charging $84K results in a cost savings or even cost neutrality. You'll need to be around $15,000 for that.

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37. Post transplant on May 30, 2014 1:25 PM writes...

I am 8 1/2 years post transplant for cryptogenic cirrhosis. No hep c.
A transplant patient loses 3-5 years of his functional life plus medication complications.
I would have mortgaged my home if I could have been able to avoid a transplant.

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38. Meagain on May 30, 2014 3:53 PM writes...

Why doesn't Gilead offer a money back guarantee if a patient does not reach a defined SVR duration or is actually 'cured'. They could sort out the specifics, but that would really be standing behind your product. Not to mention create much needed good faith.
I expect the payers would like that and they could work on negotiating a more standardized global price structure. From what I have heard the competitor molecules coming through development do not match up quite as well on risk/benefit, so Gilead would likely still be the go to HCV med.

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39. Meagain on May 30, 2014 3:55 PM writes...

Why doesn't Gilead offer a money back guarantee if a patient does not reach a defined SVR duration or is actually 'cured'. They could sort out the specifics, but that would really be standing behind your product. Not to mention create much needed good faith.
I expect the payers would like that and they could work on negotiating a more standardized global price structure. From what I have heard the competitor molecules coming through development do not match up quite as well on risk/benefit, so Gilead would likely still be the go to HCV med.

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40. Anonymous on May 30, 2014 3:55 PM writes...

Gilead are simply adding an option that wasn't there before, without taking any of the original options away, so why shouldn't they charge what they like for it? If you don't like their option at the price they offer then don't choose that option, and stick with one of the original options. But don't expect to have your cake and eat it when someone comes along and offers you cake. The problem with society these days is its sheer sense of entitlement, especially when it comes to healthcare, even when people don't take responsibility for looking after their own health.

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41. Meagain on June 3, 2014 1:12 PM writes...

What I haven't yet seen in this discussion of HCV drugs and pricing is an acknowledgement of patient population dynamics. The number of patients eligible for treatment are currently sizeable, but very much limited in terms of duration of opportunity. In fact, while working in the HCV field at a former company, I distinctly recall we frequently used to describe the HCV patient population as akin to 'a pig passing through a snake'… A bolus of people with a beginning and an end to their numbers that will reach a peak, sustain for a while and then largely subside (kinda like the population dynamics of the 'baby boomer' generation, but with a steeper drop off).

To me this is more about economics and return on investment for a company that sees a limited window of opportunity. Lets face it, apart from IV drug users, the very sporadic healthcare needle stick/tattoo scenario and vertical transmission during childbirth, there are not very many new cases of HCV infection these days. Most with progressive disease who are eligible for Sovaldi were infected prior to testing of the blood supply, so transfusions are not a big source of new infection. The rate of sexual transmission is virtually non-existent, so its quite different from HBV and HIV.

Apart from the fact that Sovaldi does appear incredibly effective and safe, it seems more to me like sheer opportunity in the face of knowing one’s target population (kudos to Gilead for taking the chance on it).
That being said, we wouldn’t be having this discussion if the drug was only marginally effective. This is a game changer.

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