The $84,000 Cure

Apr 23, 2014 @ 10:36am

Earlier this month, Polly Mosendz covered the debate over Hepatitis C drug Sovaldi:

[I]nsurers cannot stand this life saving, revolutionary medication. That’s because it runs $1,000 a day and the average patient requires a 12-week treatment of Sovaldi.That’s $84,000 for one cycle. For patients with a strain that is more difficult to treat, the regiment is 24 weeks. That comes in at $168,000. It is projected to rake in between $5 billion and $9 billion in profits in the United States this year alone. There are an estimated 4 million Americans with Hepatitis C, and 15,000 are killed each year by untreated chronic infections.

Unfortunately, there is not much insurers can do about the price. A comparable drug is not yet on the market.

Dr. Frank Huyler fumes:

The low cost of manufacturing the drug means that it can be sold all over the world. Only the price varies, and that price is set by Gilead executives and protected by patent law and the FDA. At the moment, Gilead has a monopoly.

In poor countries, such as Egypt, they can’t sell many $1,000 pills. But they can sell a lot of $10 pills. So that’s how much Sovaldi costs in Egypt — and Gilead Sciences is still making a profit. Thanks to the FDA, the Egyptian version of the drug can’t be imported.

This sort of blood money is nothing new. But it is among the worst of recent examples; yet another evil act, yet another predation on mostly poor, mostly desperate people, who inevitably will ask taxpayers to save them.

“Blood money?” “Evil act?” I have to say I find that rhetoric appalling.

A miracle drug like this does not appear out of thin air. Developing these kinds of drugs can be hugely risky – so many end up as duds – and extremely expensive. If there were no real return on the few that make it to market, the economic incentives that make them possible in the first place would disappear, along with the drugs. And these drugs really do save lives – as Tim Mullaney, who has Hepatitis C, notes:

After two bouts with cancer, I can check hep C off the list of things that may kill me, thanks to virus-clearance rates of 97% in cases like mine. I’ve had no side effects. Prior therapies had much lower cure rates, and so many complications that patients refused treatment. Including me.

Surowiecki uses the outcry over Sovaldi to discuss drug pricing more generally:

Price restrictions have always been a political non-starter here, but at some point the math of the situation will be hard to resist. According to a study by the research group I.S.I., by 2018 spending on “specialty drugs” like Sovaldi could account for half of all drug spending in the U.S. Furthermore, one traditional argument against price controls is looking weaker: biotech companies claim that prices need to be high to reward risky and expensive innovation, but the fact that they’re churning out drugs and profits so consistently seems to undermine that claim. Biotech, in other words, may become the victim of its own success: the bigger the profits, the bigger the likelihood of regulation.

You might think that this prospect would encourage companies to be more cautious. But, if you assume that price controls are coming, the rational play is to squeeze out all the profits you can now.

I think there’s a trade-off here. Price controls on drugs in existence could make them far more affordable for the healthcare system as a whole. And there is a strong, moral argument for doing that. But the trade-off is that the innovation that occurs outside the NIH – and the bulk of all drug research is done by the pharmaceutical industry – would inevitably suffer. At some point a society has to navigate these two goals – innovation and access. And both matter.

Apr 25, 2014 @ 7:31am

Ctd …

A reader writes:

Hopefully numbers like the price of the hep-C drug will remind us that when it comes to pharmaceuticals, the US is basically subsidizing the rest of the world (and I’m talking to you, countries with nationalized healthcare that negotiate much lower prices than the US).  This is just foreign aid, in another guise, whether it goes to Sweden, France or Egypt.  When we hear about the “efficiencies” and prices of other healthcare systems, let’s remember that part of the reason is coming right out of our pockets.

Another elaborates:

American citizens bear the costs (taxes, military, rule of law, patent system, education of scientists, etc.) of supporting the environment which makes possible the innovation these drug companies achieve.  Then our reward for our collective largesse is that we as consumers get to pay more, by an order of magnitude, for the same drugs than consumers in other countries.  How is that fair?

Another adds:

For patients with a strain that is more difficult to treat, the regiment is 24 weeks. That comes in at $168,000.” Or $1,680 in Egypt – wouldn’t it be more cost effective for insurers to send US patients to “rehab” in Egypt?  That price difference is enough that building a residential clinic from scratch, and flying all of the patients first class to Cairo, is likely to be more cost effective than treating them here.  There is something economically perverse about that.

Update from a reader:

To the reader who suggested sending US patients to rehab in Egypt to take advantage of lower drug costs: It won’t work for the same reason we can’t all take advantage of lower costs of more run-of-the-mill drugs in Canada. It’s not as if Canada has a cornucopia drug supply. Canadian pharmacies buy the stuff from U.S. manufacturers. If the purchasing behavior of a large portion of the U.S. customer base migrated to another country, the drug companies would know, and they would adjust their pricing or their shipping policies.

Medical tourism can work for the individual when there is incentive for individuals to participate (ie, the cost is out of pocket. My daughter had excellent emergency dental work done while studying in Ghana, good enough and cheap enough that if I needed major work done on my mouth, I might consider a long vacation to Accra -because I don’t have dental insurance.) But it is problematic for an institution as large as an insurance company, and it certainly can’t work for a nation.

Apr 26, 2014 @ 12:35pm

Dissents Of The Day

A reader quotes me reacting to Huyler:

“Blood money?” “Evil act?” I have to say I find that rhetoric appalling.

Wow, Andrew, you really started to move to the right lately. So you think $1,000 versus $10 is not blood money? Basically what you are saying is that it is OK for US to finance this whole drug business because based on all recently published facts we pay the most, double in most cases, than the rest of the world. So we are financing this with huge deficits and 30M+ uninsured who cannot get any of these life-saving drugs. And to you it just requires re-balancing? These prices make no sense.

And many drugs are not invented in the US by “starving” PhDs and CEOs; many come from Europe, and they still cost a whole lot more here. This is not about re-balancing. This is about our healthcare system that stinks and makes no sense. And you seem to defend it.

I wrote back: “I’ve always had this position. I’d be dead without the evil drug companies.” The reader follows up:

I certainly can appreciate the struggle you have been dealing with. I myself suffer from multiple sclerosis, and while MS is not as deadly as HIV, I have been taking three big drugs over the last 12 years and all of them cost at least $25K a year.

And then I look at prices in Europe, and they are half that. And two out of three came from Europe. This is why I strongly believe our healthcare system finances the world and CEOs bonuses, which are not that small. We are the only ones who continue to pay astronomical prices.

Are the companies evil? I did not say it. But what they do to the USA is evil. We basically have Medicare for the rest of the world and pay for the difference. And everyone but regular citizens make money. In return we get high insurance premiums. There is absolutely no relationship between prices here and Europe.

Another reader, who “works in consulting in health economic modeling,” also goes back and forth with me:

You say that Dr. Huyler’s outrage at the $1,000 a day pricetag is unjustified and that this revenue supplies future drug development. While I have mixed feelings on this argument (pharma companies throw out this response every time, I don’t know whether I believe it anymore), I have another question for you: what is a fair price? It’s currently $1,000 a day; what about $2,000? $10,000?

You get my point. Assigning a “fair price” requires assessing the value of the product, which I don’t see in these articles. And I believe this is something the UK health system gets right; the National Institute for Health and Care Excellence (NICE) performs reviews of pharmaceuticals and their potential value. The panels of experts review the data, including how cost-effective the drug is, and arrive at a decision whether to recommend the drug.  The FDA, on the other hand, only considers whether the drug is effective.

And how innovative is Britain’s drug sector? The engine for innovation is in the US private sector. The reader responds to those points:

Are these companies located solely in the US? No, they’re all multi-national. Yes, the original research to find it was done in the US (New Jersey, I believe), but how much of these profits go back to that specific step of the drug development process?

You also avoided the key question: why is it $1,000/day, other than “because they can charge that”? Without digging too deeply, it looks like California did something along those lines (pdf):

For many comparisons with the previous standard of care, we estimate that the incremental cost required to achieve one additional SVR [Sustained virologic response] with newer treatment regimens is greater than $300,000. While the cost per additional SVR” is not a common measure of cost‐effectiveness in the literature, the costs per SVR generated in this analysis are generally higher than those previously published for telaprevir versus PR ($189,000),118 alternative regimens of PR versus standard PR therapy ($17,000‐$24,000),119 and even highly active antiretroviral therapy in HIV patients ($1,000‐$79,000)

Another quotes me:

“But the trade-off is that the innovation that occurs outside the NIH – and the bulk of all drug research is done by the pharmaceutical industry – would inevitably suffer.” You are repeating “factoids” that you have apparently encountered somewhere – factoids that are dead wrong. I’m in the drug industry, so don’t dismiss me as a crank.

The reality is that much of the seminal work that leads to breakthrough drugs is not done by the drug industry but rather research supported by NIH. Just one example that is especially relevant to you – AIDS drugs. The fundamental work that resulted in the discovery of these drugs and their eventual development by companies such as Merck and Abbott was actually funded by the NIH. Where the US government screwed up was giving sweetheart deals so that drug companies that ended up doing the clinical development that resulted in a successful filing to the FDA. The US taxpayer should have gotten more in return.

Yes, the fundamental basic research was done by the NIH. But you think we’d have the variety and sophistication and constantly innovating treatments without the private sector’s profit incentive? Another combines two threads:

In this post, you say, “But the trade-off is that the innovation that occurs outside the NIH – and the bulk of all drug research is done by the pharmaceutical industry – would inevitably suffer.” But in a post also published that morning, you quote Madrick as saying:

Similarly, [economist Robert] Gordon called the National Institutes of Health a useful government ‘backstop’ to the apparently far more important work done by pharmaceutical companies. But Mazzucato cites research to show that the NIH was responsible for some 75 percent of the major original breakthroughs known as new molecular entities between 1993 and 2004.

So which is it? I warrant that NIH does little drug development work, which is quite expensive, but in terms of basic research and background work, NIH does the lion’s share (and removes a lot of the risk) for Pharma … and then government foots the bill for the massive costs of new pharmaceuticals.

Again: major original breakthroughs do not equal specific treatments for specific drugs through clinical trials to FDA approval. Both the NIH and the US private sector matter. Another adds:

The public interest doesn’t end with NIH’s basic research. Pharma ends up wasting R&D talent and money on heartburn or hair-loss that could otherwise go to cancer or diabetes research. If the US took the social good into account when negotiating a fair margin, we could use our considerable market clout to incentivize companies to produce far more cures for diseases like Hep C, and less in the way of new-and-improved Viagra, or some twisted-molecule version of Lipitor that has virtually the same clinical outcomes.

I think expecting the market to do all of this is as foolish as expecting the government to distort the market and get better results. I know I have a bias here, but it is the bias of someone with a major health challenge. This system has performed miracles in a manner not seen elsewhere in the developed world. I don’t want to change it much.

Apr 28, 2014 @ 2:39pm

The $84,000 Cure, Ctd …

A reader writes:

I’m a pediatrician with a background in healthcare consulting prior to med school, and I’m with you on drug costs. People take this view like it’s “blood money” because the companies sell it for $10 in Egypt. That’s not blood money; that’s charity.

Screen Shot 2014-04-27 at 12.53.49 PMFor all the innumerable flaws in our healthcare economic model, we are the engine of pharmaceutical development. The fact that the US market will bear those costs drives funding for essentially everything, such as, for instance treatment for Hep C (which is not really a disease of the rich and famous, and will never have much sales volume in the US).

They come up with these drugs, and price them (often highly, I’ll admit) based on what the market will bear. They then essentially give it away in countries where the market will not bear that (Egypt) or sell it in bulk volumes to healthcare systems who negotiate a better rate with their size (Europe). It’s only our fractious and ridiculous healthcare system that prevents us from negotiating better rates a la Canada and our Euro friends.

Then people like to heap abuse on Pharma for coming up with boner bills and hair regrowth formulas. They do this in utter ignorance of HOW those drugs were discovered. For example, Viagra? Anti-hypertensive research, erections being a unanticipated side effect. Rogaine? Anti-hypertensive research (hair growth is a side effect). Latisse? Glaucoma treatment (with a side effect of sexy eyelashes).

These drugs came out of treatment research, and have the added benefit of making people happier. There is almost no original research (only refinement) going into any lifestyle drug besides male birth control (which I would argue is a FANTASTIC public health drug) and female arousal (which is a bit more ambiguous).

Sure, the prices look like highway robbery. But so many of these drugs fail miserably, either not working, or for less tolerable side effects than glorious eye lashes. And they all cost insane amounts of money to research, and even the failures advance science. Not to mention the financial awards really incentivize research into practical applications of new discoveries in university and public labs. It’s a lot easier to take a risk in an academic setting with the possibility of a pot of gold at the end of the rainbow.

Another refocuses on the pill that started the thread:

A little context on Sovaldi, as I happened to be discussing this last night with a friend who works at Gilead in San Francisco (the same company that makes Truvada). Gilead paid $11 billion to Pharmasset just for the molecule that the Sovaldi drug is based on. That was before developing and marketing the drug, getting FDA approval, and everything else that goes into making a drug fit for distribution. An eleven figure outlay just to start the process of hopefully developing a drug.

Another reader:

The issues around drug pricing are real. However, Sovaldi is a relatively poor place to pick a fight. The drug will make a significant and legitimate impact on the Hepatis C virus (HCV). The clinical data have been impressive, and it has already spurned on competition from other pharmas. For example, a collaboration between AbbVie and Enanta has yielded a regimen that is as impressive as Sovaldi (and arguably a tick better in certain subsets). They are filing for approval and expected to be on the market. They’ve also signaled that they will undercut Sovaldi’s price tag. In this situation, the market is working as it should, triggering competition, innovation, and pricing pressure.

Also, for these types of small molecules (rather than biologics), I wish that those outraged by the prices would acknowledge one long-term outcome: these drugs will eventually go generic. When they do, the cost of “curing” HCV for the population as a whole will drop significantly. That’s a good place to be, in my opinion. Gleevec, a relative wonder drug for a form of leukemia, is due to go generic very soon. The only impact on society will be a decrease in costs.

As for the view that these companies are gouging patients and society through drug prices: perhaps, as I can’t necessarily confirm or deny. However, I do believe that society is willing to accept high prices initially, provided that they are part of a pact wherein the manufacturer uses the profits for new and novel initiatives. In the case of Sovaldi, the drug maker Gilead has not violated that pact. As you know, they’ve been a long-time leader in the development of novel HIV drugs. And now they appear to have taken those profits and made a large impact in the lives of those with HCV.

But another proposes a different means of innovation:

Why can’t we have an medicinal X-Prize?  Granted, the sums required would be much larger.  But how hard would it be for our own government, or preferably a consortium of developed countries, to pitch in and structure a competition along the lines of “first company to develop a cure for ___ disease will receive a lump sum payment of $5 billion, and the second company will get $2 billion.  Entry into the contest requires developing company to release into the public domain any and all patent rights associated with the treatment.”

Now, those numbers are huge. But let’s say it costs $10 billion in prize money to get that Hepatitis C drug.  Considering that 350,000 people a year die of the condition, that’s about $14,000 per life saved. In just a year. Even in the United States, the number is 15,000 annual fatalities with an estimated 2% of the population carrying the virus (according to the Wiki machine).  What is the cost to our healthcare system of a couple million people needing decades of medical surveillance and intervention for an untreated condition?  What is the cost to our economy of many many people being less able to work and contribute?  Somebody smarter than me could run the actual numbers, but even if we just focused on the costs to the US economy and let the rest of the world ride for free, I’d be surprised if the ROI wasn’t massively positive.

Another adds:

After paying out the prize money, the U.S. government would demand any other country that wanted to use the drug pay a % of the prize equal to the country’s percentage of GDP.  At a quarter of the world’s economy, the U.S. could end up paying as little as $5 billion of the $20B prize.

(Photo: A Solvadi pill)

Apr 30, 2014 @ 3:32pm

Ctd …

A reader remains unsatisfied with the Sovaldi discussion:

I can appreciate the gratitude you feel towards the pharmaceutical industry whose anti-retrovirals Screen Shot 2014-04-27 at 12.53.49 PMdrugs saved your life. They saved my life too. However, the fact that the status quo has done great good does not mean that things could not be better.

Sure, research and development of drugs is expensive. But I would like to read your views on studies like this one suggesting that the pharmaceutical industry spends twice as much on marketing as it does on R&D. Also, I would like to see you grapple with the conflict between pharmaceutical companies’ responsibility to maximize shareholders’ profits, and the ethical responsibility to maximize human welfare. They are clearly often – many would argue always – in direct conflict.

Again, I appreciate the gratitude you feel towards the pharmaceutical companies. But I don’t think that gratitude requires an unconditional support of the status quo in the pharmaceutical industry. I would like to see you grapple more with the ethical conflicts and human costs involved.

My support of the drug companies’ innovation is not unconditional. In fact, it’s constantly derailed by some of the worst practices of those very drug companies. Over-aggressive and sneaky attempts to extend patents, heavy marketing of not-so-vital drugs, lobbying to ensure that the balance between the free market and the moral demands of healthcare is always tilted toward profits: I could go on. But my deeper point is a capitalist one: if the only incentive for curing people was human benevolence, I’d be dead and countless others would be suffering. A free market tries to harness human selfishness for the greater good. And maintaining that balance is what we need to do. Broad-brush condemnation of the private drug sector doesn’t help us with that balance. Another reader notes:

Here is an interesting look at the issue in Forbes. Basically, if every person suffering from Hep C in the US took this drug, Gilead would generate $227 billion in revenue. In comparison, the entire frigging drug industry in the US booked $260 billion in revenue last year. That right there is a sign that market forces have absolutely nothing to do with Gilead’s pricing. This is pure extortionary pricing. I completely understand that there are different aspects to consider for this one issue, but there is really no rational, defensible, quantitative way to justify the current price of Sovaldi … a price, by the way, that by itself will restrict access to this drug for many who need it.

But another defends Sovaldi:

I’ve been following this story on your site and around the web pretty closely, as I work for a consultancy that (in part) specializes in pharmaceutical price setting. We didn’t work on US launch pricing for Sovaldi, but the press reaction has stirred quite a bit of attention around our offices.

Our analysis shows that the price of Sovaldi should have actually been higher. The drug sets a new standard for both efficacy and safety (and has a significantly shorter duration of treatment), and is potentially even better than the competitor drugs coming to market over the next few years. The crux of the problem is that Sovaldi is so effective and so tolerable that many more patients than expected want to initiate treatment immediately. For years, insurance payers have taken for granted that doctors “warehouse” patients who do not have HCV advanced enough to warrant treatment. Patients are streaming out of such “warehouse” queues, and that doesn’t even account for the >50 percent diagnosed population in the US.

So we see that the drug is clinically far superior to standard options that are priced at comparable or even higher levels, but as a result is having a huge impact on insurance risk pools. Is it really fair to tell a manufacturer that they shouldn’t price their breakthrough drugs at parity to inferior competitor drugs that have gone without a negative press reaction for years? The story here isn’t that manufacturers are gouging consumers for a life-saving product, but actually that our drug benefit insurance schemes are simply not equipped to give sick patients drugs that they need when a honest-to-goodness breakthrough comes out.


Thanks for defending my industry.  I admit I’m biased, and certainly my industry does some stuff that makes people unhappy.  That said, $84K to be CURED of Hep C is a bargain.  When I first saw the news I thought, well, $84K a year to stay alive is maybe a bit steep … but no, this is $84K to be CURED.  My industry doesn’t do a lot of curing.  This drug is a miracle, and those don’t come cheap.

Another looks at a different medication:

My 7-year-old daughter was diagnosed with asthma a few years ago and given a rescue inhaler. Recently the prescription ran out and we called to have it refilled. The pediatrician insisted on seeing her, then prescribed her another inhaler, a daily use corticosteroid – which costs twice as much as the original rescue inhaler.

Never having heard of this particular medication before (QVAR), I googled it and came across a Consumer Reports study noting that the drug is now 92 percent more expensive than it was in 2009, in part because of the FDA’s decision to ban CFCs – a ban which the pharmaceutical industry itself lobbied for.

I’m sorry. This absolutely qualifies as fleecing, as greed.

The NYT did a deep dive into the subject of asthma drug pricing as part of its “Paying Till It Hurts” series last October. Meanwhile, a reader raises the issue of waste:

I’m speaking as someone who worked for years in a firm that was hired by many large pharma companies to help make their internal processes both effective (i.e., defect-free, without rework) and efficient (i.e., not wasting physical, human, or financial resources).  Processes ranged from clinical trials, to marketing campaigns, to production of the active pharmaceutical ingredient.

You cannot begin to imagine the sheer amount of waste involved; it is truly, truly mind-boggling. For years, these firms resisted process improvement efforts (such as Lean and Six Sigma, popularized by Toyota and GE, respectively) in part because the FDA neither rewarded such efforts nor punished the lack of them, and in part because they did not see their activities as “processes” that could be tuned up. I remember first hearing about one firm’s method for analyzing adverse events from their products. So appalling was this description that when I got home, I checked to ensure that the meds I was taking for a chronic condition weren’t made by that company.

I agree that the cost of drugs needs to cover what it takes to bring them to market, and that not all research will result in a salable product. But consumers should not be paying for gross inefficiencies that are relatively easily fixed.

I’m not going to disagree with that. Lastly, a reader wants to clear up some confusion about the NIH:

I work in pharmaceuticals (specifically, early stage startup, not big pharma) and am very familiar with the relationship between academic-/NIH-funded research and industrial drug research and development. The NIH funds very basic research that allows us in industry to then discover and develop new drugs. There is no debate around this, and anyone in a pharma company will agree.

However, NIH funding, with rare exceptions, doesn’t even discover new drugs, let alone develop them. Typically, NIH funding will allow an academic researcher to identify a novel aspect of biology and associate it with a disease state. Pharma usually picks it up at this point by verifying the research, running chemical screens to identify potential drugs, and then modifying the potential drugs to the point where they are safe and efficacious. It is then that a drug will enter clinical trials. The entire process just to get to a clinical trial can take four to eight years and cost millions of dollars. The clinical trials are where the real money and time are spent, of course, but there is a substantial investment by a drug company prior to this that is easily overlooked.

I’m not defending drug pricing; I think we have a long way to go in terms of demonstrating value for money spent. But this is intertwined in healthcare costs itself and drug companies are responding to market pressures. I do however want to dispel the belief that the NIH funds academic research that discovers drugs, and then drug companies take it away and charge an arm and a leg. Drug companies assume the vast majority of the risk and the investment to both discover and develop new drugs.

(Thumbnail image: Electron micrographs of the Hepatitis C virus purified from cell culture. Courtesy of the Center for the Study of Hepatitis C, The Rockefeller University. Via Wikimedia Commons.