Can We Afford The Cures Biopharmaceutical Companies Seem Capable Of? Part 1 of 4
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
What Can Be Learned From Gilead’s Sovaldi? Part 1 of 4
The biopharmaceutical industry has come increasingly under fire for the price of certain drugs. A Scientific American headline: The Quest: $84,000 Miracle Cure Costs Less Than $150 to Make, is in reference to Gilead’s hepatitis C cure, Sovaldi (sofosbuvir). This headline demonstrates one of biopharma’s biggest problems — public perception of price gouging. As a result of this and other pricing controversies, Capitol Hill has convened hearings to investigate biopharmaceutical pricing practices. Some seem to think drugs should be priced similar to a pair of jeans (i.e., take all of the costs to manufacture and then add about a 50 percent markup). However, the fallacy of this approach is it fails to account for all of the costs involved in the therapy’s actual development. As the saying goes, nothing is free in this world, and that is certainly true of drug development.
According to a study by the Tufts Center for the Study of Drug Development, the cost of developing a new prescription medicine that gains marketing approval is estimated at around $2.6 billion, almost $2.9 billion when you factor in post-approval R&D costs required by the FDA. Though some question the validity of this drug development figure, even if you take away a few hundred million dollars — developing a new drug is still pretty darn expensive. Continuing on the Gilead example, it is estimated that 3.2 million people in the United States are living with chronic hepatitis C. If Sovaldi was priced as these researchers suggest (i.e., $250, see p. 934, second paragraph) and prescribed to every U.S. citizen currently suffering with hepatitis C, Gilead would pocket $800 million in one year. While this is a lot of money, when you consider Gilead paying over $11 billion to acquire Pharmasset (the company responsible for developing Sovaldi), and if you assume no price increases, zero inflation, and the drug being prescribed to 3.2 million people per year, it would take Gilead nearly 14 years to recoup its acquisition investment, and a little over three years just to break even on R&D. The reality is, when you weigh the price of Sovaldi (probably much closer to $50,000 today) in comparison to the $270,000 cost of living with chronic liver disease for 10 years or $577,100 estimated 2011 U.S. price tag for a liver transplant, it is quite a bargain. The problem isn’t that U.S. citizens don’t want these innovative treatments. The problem is that we, insurance companies, and even big government can’t seem to afford the current price of biopharmaceutical breakthrough innovations. Not long ago I overheard a discussion of biopharmaceutical R&D executives discussing the dilemma. What follows is a behind-the-scenes look at the challenges faced by drug companies trying to develop what are often pricy treatments to meet our unmet medical demands.
What Has Changed?
When this question was posed to one biopharmaceutical R&D executive, they responded, “I think these past two years there’s been a phenomenon that was the straw that broke the camel’s back. We are all blaming price changes, but frankly, this is something that has been maturing for 10 to 15 years.” According to this executive, the idea of increasing drug prices by 10 percent every six months was around long before Gilead. One of the reactions to price increases has been that of, “I’m not going to pay you any more for marginal innovations.” An unwillingness to pay for value and innovation has a domino effect throughout the biopharma value chain, and does affect R&D. The question now seems to be one of prediction. “How good are we at predicting exactly what’s going to happen in the marketplace five or 10 years from now?” asks one executive. “Five or 10 years ago would you have predicted what is happening today with regard to pricing?” In this R&D heads view, biopharma is in a very dangerous position of having to justify pricing based on costs, because this opens up industry to others determining what is a fair return. “We are in an innovation based industry that actually gives away its assets after eight to 10 years. Disney still gets royalties from Mickey Mouse’s [first animated in 1928] copyright some 90 years after it was first ‘invented,’” she says with incredulity. “We are in a very different dynamic, and I don’t think we have our heads wrapped around how to react to this.”
What Can Be Learned From Gilead’s Sovaldi?
While many continue to debate how much is too much to pay for a drug, what can’t be debated is what Sovaldi signifies. “From my point of view,” says another head of R&D, “Gilead did something we can expect to see much more commonly — movement away from developing drugs to manage chronic diseases, and entry into an era of cures or single treatments.” One of the challenges Sovaldi presents is the immediate up-front costs associated with it upon market entry. “It is certainly not the biggest evil that ever happened. This is a drug which cures a once incurable disease. Personally, I think holding up Gilead and Sovaldi as an example of where we went wrong to be a bit strange. I think there are other better examples of companies pushing up prices on products that have been around for years, and do so just because they happen to be the only company that make it. As we enter an era of developing one-off treatments that last for a very long time, we can expect these to come with very high price tags.” But this executive thinks the biggest innovation wasn’t necessarily Sovaldi, but figuring out how to do an HCV culture and measure that in-vitro. “That was the breakthrough that made it inevitable that there would be more drugs,” he shares. “With the advent of genetics we can expect further waves of innovation, which our healthcare system has to be ready for. Until recently [Sovaldi] type of drug development has been the stuff of science fiction, but it’s getting real.”
Another R&D head had this to say regarding lessons learned from Gilead. “One of the biggest challenges for us, especially with all the discussion that’s going on about pricing, is this question about high up-front costs. There’s reason to believe that one time or short course treatments of chronic diseases are going to increase in the future. While I certainly agree that we need to be value based, when you aren’t in a single payer system, the value 10 years down the road is real life to someone other than the person who paying the bills [i.e., the insurance companies]. If we can’t come to grips with this in a logical way, we will have a problem that will negatively affect future waves of innovation.” According to this executive, there aren’t a lot of secrets anymore. For example, more than one company has been competing in the hepatitis space. “When breakthrough products get their Phase 2 data, word spreads rapidly. That’s something you have to think about in R&D. Yes, you have to differentiate, and you have to innovate. But if all goes well, you may have a year or two edge on the competition, rarely more than that.” While the speed of innovation has driven up R&D costs, so too has increased demand for post approval research that goes well beyond what was required a decade ago. While this executive believes predicting the future to be difficult, especially with regard to pricing and access, this is something all biopharmaceutical companies need to improve upon. “Those who predicted what would happen in oncology and rare diseases with biosimilars five or 10 years ago, in terms of how they are invested are reaping the rewards now. If we just assume that all those issues or up-front pure payments will be the same 10 years from now, chances are we will be wrong. Figuring out how to do research now to address the environment of the future is a real challenge.”