Wall Street is buzzing with anticipation about the first new all-oral drugs for hepatitis C approaching the market. The high rate of HCV infection and dissatisfaction with current treatments have created a potential multi-billion dollar bonanza for drug companies. It’s estimated that Gilead, the frontrunner in this race, will charge as much as $90,000 per patient. With roughly 3 million infected patients currently in the U.S., that’s about $270 billion to cure everyone.
Is this necessary? Or even advisable? Particularly in the case of hepatitis C, payers, physicians, and patients can collaborate to extract huge price concessions from pharmaceutical companies, netting more than $200 billion in savings. All they have to do is acknowledge that sometimes “good enough” is better than “best.” I’m wagering they will, and that’s why my firm, RA Capital, has invested in Achillion Pharmaceuticals, which we believe will compete quite aggressively and effectively on price once they launch their HCV therapy in 2016.
Price competition is going to play a bigger and bigger role in containing healthcare cost, and HCV treatment is one area where such competition won’t have to come at the expense of patient welfare.
An estimated 150 million people are infected with hepatitis C worldwide. All current treatment regimens require long-term, weekly interferon injections with significant side effects. Many patients can’t tolerate those or just don’t want to bother with them. Because the disease progresses slowly, patients can and do wait for years for better treatment choices. Hence the mounting anticipation for the all-oral treatments.
Clearly, being first to market will be a plus. Both Gilead and AbbVie are likely to get approvals around the same time towards the fall of 2014. Gilead’s treatment also appears to deliver the highest cure rate (about 95 percent) and will comprise just a single pill daily for eight to twelve weeks. Abbvie’s regimen has a similar cure rate but requires taking a number of pills twice a day. By 2016, several other all-oral treatments are expected to be approved, including one from Bristol-Myers Squibb and another from Achillion, a small biotech.
Analysts are buzzing about the various characteristics of the new drugs and trying to determine which company has the advantage. All of these combo drug regimens are expected to provide cure rates of 85 percent or better, but there are slight differences in their side-effect profiles, pills per day, treatment duration and cure rates. By most accounts, Gilead offers the “best” treatment and is therefore expected to both charge top dollar and win a majority market share. Its stock has more than doubled in the last year to a $90 billion valuation on high expectations for hepatitis C drug sales.
In business-as-usual mode, U.S. payers would just throw open their wallets and pay whatever it costs to provide the “best” therapy to all the patients who could benefit. But once they start receiving the bills, payers and providers may begin singing a different tune.
Certainly, some patients with advanced disease will immediately require treatment with the “best” drug available. But many patients are still in the early stages of Hepatitis C and will feel no sense of urgency. With at least four competitive “good-enough” all-oral regimens on the market by 2016, payers could … Next Page »
Peter Kolchinsky is a founding partner and portfolio manager at RA Capital Management, a crossover fund investing in healthcare and life science companies. He received a Bachelor’s degree from Cornell University and a PhD in Virology from Harvard University. As noted above, one or more investment vehicles managed by RA Capital has positions in Achillion and Regulus.
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