More On Solvadi® -- And "Sustainable" Pricing: Thanks Go To My Anon. Commenter(s)

My readership (as a group) may well be the smartest, most well-informed bunch of health care policy followers (and, based on my stat-logs -- to no small extent, policy-makers) around. It is a privilege to hear from them. This is exhibit A for that idea. But I'll lay out my punch-line first: Gilead must voluntarily reduce prices on its wonderful Hep C cure called Solvadi^®. If it does not, Congress will do so, for CEO Martin. Now to the story.

An series of anonymous commenters -- in response to my post on the record breaking Solvadi^® Hep C launch -- pointed us all to the subsequent Bloomberg/BusinessWeek item more generally on the topic of pharma and device pricing in the US.

While I may not agree with all of the good doctor's analysis -- in this BusinessWeek perspective -- the vast bulk of it rings true. Especially the part of it in which he considers that Gilead paid $11 billion to acquire Pharmasset in 2011 -- which in turn, led to the launch of Solvadi. We do know that the original drug candidate mentioned as a primary impetus for the Pharmasset deal -- clanked. That is, it failed to meet expectations. However, Gilead's CEO John C. Martin (now a billionaire!) was wise enough to buy the whole company, rather than license rights to a specific project. And that is why his company now has a product that -- in its first full quarter on market -- shattered the previous best ever launch numbers -- for a first full year (that record belonged to Vertex's Incivek^®, BTW). [As a side note -- I will happily admit that it turns out that I was just dead wrong -- back in November 2011 -- when I wondered aloud whether Gilead was overpaying for Pharmasset -- at three times projected five years out (2016) sales; or ten times current sales. Those projections were for a different pipeline candidate -- the one that clanked.]

No, it is now likely that Gilead will have received not just cash net revenues -- but pure after tax profits (also in cash) -- equal to the entire 2011 $11 billion purchase price it laid out for Pharmasset, within 20 months, from Solvadi sales alone, at this clip. So sometime in September of 2015, Gilead will (if nothing changes) have recouped every bit of all the development costs on Solvadi -- and all the OTHER candidates Pharmasset held at merger time. That alone suggests the good doctor, Robert Pearl, MD, is spot on -- with this bit of snark:

. . . .How does drug pricing work? It’s hard to say. Pharmaceutical pricing is opaque. Drug manufacturers aren’t asked to quantify their costs or compare them to projected sales and profits. Business school students learn that the price of a product isn’t determined by what’s reasonable but what the market will bear. A wide array of drug pricing examples would indicate that pharmaceutical and medical device companies hire a lot of business school graduates. . . .

Compounding the high price of many medications is the reality that patients in others countries don’t pay nearly as much as those in the United States. The reason is that most governments across the globe regulate drug prices. To date, the U.S. Congress has prohibited the practice here.

The result is that drug sales in the U.S. subsidize a disproportionate share of a drug company’s research costs and contribute to much of the company’s margin, regardless of where in the world it is headquartered. If we want our businesses to be globally competitive, this needs to change. . . .

Quite so. And the continuing implementation of the ACA of 2010 is doing so. With UnitedHealth, the insurer, saying it paid out $100 million in Q1 2014 alone -- just for covering Solvadi -- it is clear that the pricing of Gilead's wonder drug will have to come down. If not, pretty soon, system wide in the US -- Solvadi will represent something like 10 per cent of all covered payouts, from government and private insurer payors.

That model cannot work -- even if there are four million people with Hep C covered by various plans. What of all the cancer patients? What of the AIDS/HIV patients? In the not too distant future, and in a very real, non-metaphorical sense -- what Gilead's Solvadi "eats," from the US payor universe -- will literally have been "taken from the mouths" of these other diseased patients. And that is a result we should not countenace. Hep C is no more worthy a disease-state than cancer or HIV/AIDS. Said the other way, a cure for Hep C should not push HIV/AIDS sufferers, or cancer survivors, down -- on the food chain, of reimbursement.

It is time for Gilead to voluntarily cut price on Solvadi. This, from a dyed-in-the-wool free market capitalist: me. Sometimes pigs get slaughtered, right? Bulls and bears are fine -- but pigs? They get slaughtered. And all the gleaming long blades being brandished -- on Capitol Hill, and in the halls of Congress -- are now being diligently sharpened -- by the insurance company lobbyists. Pay heed, CEO Martin. [The connection to Merck here is that it too will have a next gen Hep C candidate in the space by mid 2016.]