Why Lower Profits From Gilead's Wonder Drugs Are Good News for Taxpayers
Policy + Politics

Why Lower Profits From Gilead's Wonder Drugs Are Good News for Taxpayers

REUTERS/Jacky Naegelen

With consumers and federal and state health care providers reeling from the staggering cost of expensive miracle drugs for treating the deadly hepatitis C virus, Congress has been under pressure to either rein in pharmaceutical companies’ prices or provide increased government funding to cover the expanding costs.

State Medicaid officials recently turned to Congress for assistance in meeting the fast-rising demand for the drugs, which can cost as much as $95,000 for a 12-week treatment. Many state officials worry about the implications of a recent federal court ruling in Seattle that Washington state’s Medicaid system must rescind a year-old policy limiting the treatment only to patients with the most severe cases of hepatitis C infections.

Related: Medicaid Spending Could Soar After New Ruling on Hepatitis Drugs

The Department of Veterans Affairs and the federal prison system, meanwhile, have repeatedly complained that the new drugs were blowing holes in their budgets. And a recent government report showed that Medicare spending to treat the liver disease that causes more than 19,000 deaths a year more than doubled -- from $421 million to $864 million -- between November 2014 and March 2015, just as the first of the new drugs was entering the market.

While congressional action is unlikely until long past the November election, market forces are at play that have begun to moderate the prices of the critically needed drugs.

Gilead Sciences, the California-based manufacturer of two of the most expensive hepatitis C treatment drugs, Sovaldi and Harvoni, reported on Monday that second quarter revenues from sales of the two drugs fell about 19 percent to $4 billion from $4.9 billion in the same period last year. That decline forced the company to scale back its 2016 product sales forecast by nearly $1 billion, to a range of $29.5 billion to $30.5 billion.

The company gave as the reasons enhanced competition from rival hepatitis C drugs and “intensifying pricing pressures,” according to reports. In short, after dominating the market with the breakthrough treatment for the past two years or so, Gilead is coming under intense competition from other companies that will likely force them to bring down their list prices.

Related: Budget-Strapped States Are Rationing Hepatitis-C Drug Treatment

Consumer advocates and Medicaid officials have long said that more competition was needed to bring down the prices of state-of-the-art prescription drugs used in the treatment of hepatitis C, cancer, heart problems and other high-risk illnesses. “Yes, this is competition at work that benefits patients, payers, and the economy,” said John Rother, president and CEO of the National Coalition on Health Care. “We need to do more to promote competition for high-priced drugs.”

Gilead Sciences was the first pharmaceutical company to enter the field beginning in December 2013 with Sovaldi and Harvoni. The two drugs have generated tens of billions of dollars in global profits thanks to retail prices of $1,000 and $1,200 per pill, or between $83,000 and $95,000 for a full treatment.

The company and its top officials have long come under attack for price gouging. A December 2015 Senate Finance Committee report that closely examined Gilead’s pricing strategy concluded that the company designed its hepatitis C drug pricing and marketing strategy “to maximize revenue with little concern for access or affordability.”

Since 2014, however, the Food and Drug Administration has approved competing drugs with similar cure rates from AbbVie, Merck and Bristol-Myers Squibb. The arrival of these new drugs put pressure on Gilead to grant generous discounts to consumers and major health care providers in many cases.

Related: Is Medicaid Denying a Life-Saving Cure Based on Cost?

AbbVie’s Viekira Pak has the same effectiveness as the two Gilead drugs and costs $83,320 for a 12-week treatment – which puts it at the low end of what Sovaldi and Harvoni costs on a retail basis. However, Merck’s new Zepatier drug costs $54,600 per 12-week treatment, considerably below Gilead’s prices.

More recently, the FDA approved another Gilead hepatitis C drug with even greater effectiveness and versatility that is noticeably less costly than the company’s two other drugs. The new drug, called Epclusa, will cost $74,760 for a 12-week course of treatment, or roughly $890 per pill, according to the company.

Matt Salo, executive director of the National Associations of Medicaid Directors, said that while the pressure on Gilead to moderate its drug prices is an important development, state Medicaid officials around the country are coming under enormous pressure to expand coverage of the costly drugs to practically anybody seeking it.

“When you move from a monopolistic catbird seat to being one of many competitors, then yes, prices are going to come down and the dynamic change is quite a bit,” Salo said in an interview Tuesday. “We especially saw that when Merck hit the field with their product, which I believe they consciously priced to be significantly lower than the list price for the Gilead drugs.”

Related: Wonder Drugs Blow a $1 Billion Hole in VA’s Budget

However, even with lower drug prices, he added, the states may have no choice but to greatly expand their coverage of hepatitis C drugs to all comers. That would force state officials to seek cutbacks in other health care services, such as dental care for adults.

Medicaid provides coverage to more than 72 million low income and disabled Americans. In a letter to lawmakers on Capitol Hill, Salo’s group said recently that “No issue in recent memory has challenged this mission like the introduction of curative therapies for hepatitis C,” a pervasive public health threat that affects more than three million Americans.

In recent years, about three in five state Medicaid programs have imposed tough restrictions on millions of low-income patients and veterans seeking reimbursement for treatment of the often-deadly disease to try to hold down the cost. But if the Washington state federal court ruling eventually impacts states throughout the country, Medicaid programs will have to make deep cuts in other areas to accommodate the flood of new applicants for the treatment.