The Wall Street Journal has an interesting blog post on the pricing strategy for the next round of Hep-C drugs:
Sanford Bernstein analyst Geoff Porges wrote that Gilead left AbbVie “less room to start a price war” than some may have expected. How so? Gilead priced the eight-week regimen at $63,000, which means average pricing for Harvoni would be about $80,000, assuming that as many as 45% of the patients with most common form of the virus use the drug for eight weeks.
This is actually less than what most insurers are now paying for Sovaldi, which costs $84,000 for a 12-week regimen, but must be taken with another drug. This pushes the cost to somewhere between $95,000 or so and $160,000…
As Longman sees it, AbbVie should contemplate a $76,000 price tag – or a 20% discount – for the simple reason that its own hepatitis C treatment, which is expected to win FDA approval shortly, is not as convenient….
Theoretically, the plan may not merely decide they prefer the AbbVie drug, but they mandate it, unless there’s some significant reason a patient can’t take it. If plans are willing to do this, the average cost [for hepatitis C treatment] may fall pretty significantly.” As a result, the cost per patient could fall to below $70,000, on average, …
The price per cure just fell again from $150,000 to $80,000, on average, with significantly less side effects.
Insurers and doctors have been “warehousing” non-critical Hep-C patients for the past couple of months as they knew another round of new drugs would soon be approved. The FDA has approved a Gilead Solvaldi cocktail, and now it looks like another drug from AbbVie is getting ready to be approved. There is an interesting discussion about the difference between cost per treatment which is still remarkably high and cost per cured patient which is falling dramatically. We, as a society should be willing to pay a high cost of treatment if that treatment is very effective. The new Hep-C drugs fall into that category while the older Hep-c regimes were much less expensive per patient but far less effective.
The number needed to treat for good outcomes have declined dramatically. So from a social perspective, we’re probably better off at high cost per treatment than lower cost per far less effective treatment.
Now the interesting thing from the insurance company paper-pusher point of view is the formulary changes that a competitive drug to Sovaldi at a lower price point brings about. We know that the marginal cost of production for a new Hep-C full treatment regime is in the low four digits. Sovaldi had a limited monopoly with no near substitutes so they had free
reign rein to name a price and get it. Insurers countered by limiting payments by clinical indicators (severely compromised Hep-C patients without success on other treatments, abstaining from alcohol etc). The existance of a near substitute means insurers can go a preferred pricing route where Drug 1 can have a better cost-share structure from the member point of view compared to Drug 2. That would drive most providers to prescribe mostly Drug 1. It is this ability to somewhat say no that will force pricing down.
The problems are two fold. First, it is not accomodating to individuals whose clinical indicators suggest that Drug 2 is the better choice over the cheaper Drug 1. Secondly, it will remove only a portion of the property rents currently being captured by Gilead, so it is an incomplete answer. As more drugs of the same or better effectiveness and efficiency get approved, and the pool of near subsitutes increases, pricing will decrease a bit more.