How Should Prices for Prescription Drugs Be Set?

Last year, the FDA approved a new drug for treatment of hepatitis C, Sovaldi®, made by Gilead Sciences, Inc (Gilead). It entered the market in 2014. According to reports,  Sovaldi is highly effective. A 12-week course of treatment cures hepatitis C in most patients. Gilead’s price: $1,000 per pill, $84,000 to complete a course of treatment. Announcement of the price sparked outrage and a Senate Finance Committee investigation. On July 11, 2014, Senators Charles Grassley (R-Iowa) and Ron Wyden (D-Ore.), the committee chair, sent a letter to Gilead demanding documentation of its pricing methodology and copies of financial statements, filings with the Securities and Exchange Commission (SEC) and all aspects of Gilead’s 2012 acquisition of the original developer, Pharmasset, Inc.

Senators Grassley and Wyden noted several facts that caused concern:

  • Pharmasset’s final filing with the SEC reported total research and development costs of $176.7 million from 2009 through 2011 and attributed $62.4 million directly to Sovaldi.
  • Gilead’s advertising and expenses grew from $116.6 million in 2011 to $216.2 million in 2013.
  • Gilead is seeking approval to market Sovaldi in combination with other drugs, which will increase the cost of treatment.
  • Gilead is allegedly planning to sell the drug overseas at highly discounted prices; for example, a course of treatment in Egypt will reportedly cost $900, a 99 percent discount from the list price in the United States.
  • Of the 27 physicians who developed the treatment guidelines issued by the American Association for the Study of Liver Disease and the Infectious Disease Society of America, 18 disclosed either a direct or an institutional financial relationship with Gilead. Gilead also provided funding to both organizations and a collaborating partner, the International Antiviral Society USA.
  • 30,000 patients in the U.S. underwent treatment with Sovaldi in the first quarter of 2014.
  • About 3.2 million residents of the United States have hepatitis C, of whom 1.8 million are incarcerated and more than 100,000 with the diagnosis are enrolled in Medicare Part D. If 25,000 of the Medicare beneficiaries were treated, Medicare Part D spending would increase by $2 billion.

One commentator noted that the total cost of treating hepatitis C with Sovaldi is far less than the lifetime cost of treating a patient with AIDS. She suggested that the objections to the price are the result of pent-up demand and the need to pay the entire cost over a short period of time.

Extraordinary Income

For the three months ending June 30, 2014, Gilead reported income from sales of Sovaldi alone at $3.48 billion. The National Coalition on Health Care (NCHC), which called the price “unsustainable and abusive” before the earnings report was released, suggested that Gilead has “some room” to drop the price. Both the NCHC and the Pacific Business Group on Health called for stakeholders to work together to arrive at fair, sustainable prices that reward innovation.  Gilead has not acted on the suggestion, however.