FT
You create a drug that cures a hitherto difficult and expensive-to-treat killer disease. How much should you charge for your invention?
Do you price it at a level linked in some way to the cost of development and manufacture? Or should you mark it up for the “value” you believe you are offering the patient — even if that far exceeds what the market may be able to bear?
The drugs industry has little difficulty answering this question. Increasingly it opts aggressively for the value-based approach.
Perhaps the best example is Sovaldi, a recently launched blockbusting treatment for the potentially fatal liver-wasting virus, hepatitis C. Unlike previous drugs, which have nasty side effects and cure only one-third of patients, it eliminates the virus in about 95 per cent of those who take a largely uneventful 12-week regimen.
The snag is the cost. Sovaldi’s manufacturer, Gilead Sciences, has set a list price for that regimen of $84,000. The company says this is justified because it compares favourably with the cost of liver transplants for patients whose condition has degenerated into cirrhosis. But this is a last-ditch treatment applying to only a minority of cases.
More than 3m Americans suffer from hepatitis C, out of an estimated 150m worldwide. Just treating those US patients would cost almost $300bn — a budget-busting sum for creaking healthcare systems.
Sovaldi’s price has of course thrilled Wall Street, and Gilead is now valued at $170bn: more than Merck, the world’s fifth-largest pharmaceutical company by sales. But it has incurred considerable odium among the healthcare systems that must pay. Medicare and Medicaid, two US public insurance programmes, stumped up $6bn for Sovaldi last year (out of the drug’s total $12bn of sales worldwide). The latter now says it has no option but to ration access to the most serious sufferers.
Medicaid’s boss, Jeff Myers, compares Gilead’s conduct unfavourably with those of past drug inventors. “If Jonas Salk had priced the polio vaccine like Gilead, we’d still have polio,” he grumbles. The economist Jeffrey Sachs is even more scathing: “Gilead’s mark-up over costs may be close to 1,000-to-1, probably a world record.”
