Politicians Shouldn’t Question Drug Costs But Rather Their Value. Lessons From Soliris And Sovaldi.

Originally posted on Forbes


It is not too surprising to see politicians now suddenly jumping on the bandwagon and expressing outrage over the cost of new drugs. Sovaldi, a drug that essentially, cures hepatitis C, has been the subject of numerous news stories focused on its cost – $84,000 for a twelve week course of treatment.Rather than reacting to this medical breakthrough with applause, many have attacked Sovaldi’s maker, Gilead, for charging this high a price despite the fact that this drug is more effective, safer, and cheaper than existing drug regimens used to treat hepatitis C. This furor has sparked Senators Wyden and Grassley to probe all of Gilead’s expenses, from the acquisition of Pharmasset (originator of Sovaldi) to the costs of the development program in order to embarrass Gilead publicly and perhaps shame them into lowering Sovaldi’s price.

These Senators and other politicians have little grasp on the intricacies of drug research and development. Sure, they know R&D is difficult and expensive. They might even appreciate that the entire process, from coming up with the initial idea to getting FDA approval, can take 15 years. But they have little idea as to how and why drugs prices are determined. Do patients or physicians really care how much a company spent in the discovery and development of a new medicine? What they want to know is whether the drug works and, relatively speaking, is it safe. The same can be said of payers. Again, they could care less about R&D expenditures. They are much more concerned with the impact the drug will have on their balance sheet.

Similarly, biopharmaceutical companies try to elicit sympathy by talking about how many projects fail. The industry works on the cutting edge of medical science, looking for novel compounds to prove or disprove medical hypotheses. This is difficult and often frustrating work. Far more projects fail than succeed. Thus, in justifying the high cost of new drugs, companies will cite figures showing that billions of dollars need to be invested across a portfolio of programs to get one new drug approved. Indeed, for a biopharmaceutical company to survive, it has to be profitable. It must provide a return on investment for its shareholders. However, patients, physicians, and payers don’t shed tears over a company’s litany of failures. The belief is that companies should be rewarded for success, and not for “nice tries”.

Thus, in the minds of patients, physicians, and payers, the pricing of drugs should have little to do with the expense of biomedical R&D, nor should it be associated with recouping R&D investment. Pricing should be based on only one thing – the value that the drug brings to healthcare in terms of:
1) saving lives;
2) mitigating pain/suffering and improving the quality of life for patients;
3) reducing overall healthcare costs.

Ok, if one were to take that position, how do new, expensive drugs stack up in terms of delivering value? Are they worth the prices being sought by the companies that sell them?

The most expensive drug in the world is Alexion’s Soliris, which is used to treat a rare form of anemia and also a rare kidney disorder. Alexion charges $440,000/year per patient. This price is really not related to the R&D costs needed to bring this drug to the market. Yet, private insurers and national health agencies in Europe willingly pay for this drug. Why? Because the costs of caring for patients with these conditions can run into millions each year. Soliris, even at this high price, actually saves the healthcare system money because using it results in dramatic decreases in other healthcare system expenses generated by these patients.

What about the drug that has gained Congressional interest, Sovaldi? Here’s a drug that cures hepatitis C and, in doing so, prevents the downstream consequences of hepatitis C patients contracting liver cancer or needing a liver transplant. Rather than questioning Gilead’s management on the R&D costs generated in Sovaldi’s development, Senators Wyden and Grassley should be asking the following questions.

1) How does this compound compare with existing hepatitis C treatments in terms of efficacy and safety?
2) How expensive are these other treatments?
3) Without this drug, how many patients with hepatitis C will die?
4) How many patients with hepatitis C will contact liver cancer or will need a liver transplant if their disease remains uncured?
5) Without Sovaldi, what would be the ultimate cost to the healthcare system to treat the resulting cases of liver cancer and liver transplantations?

If these Senators do this, they will find that even at $84,000 per patient, Sovaldi is well worth the expense. Its value is generated not by the R&D costs incurred in its discovery and development, nor in the years or time and money invested at exploring other approaches to hepatitis C cures that didn’t work. Its value comes from saving lives and ultimately saving the healthcare system millions. When it comes to drug pricing, to paraphrase a former president: “It’s the VALUE, stupid!”