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negotiate dramatically reduced prices, awarding the lowest bidder the privilege of selling the first line treatment. The small percent of patients who fail that regimen could then cycle onto the best and presumably most expensive one.
This approach is extremely simple and convenient for patients, compared to today’s regimens that can take up to a year and require injections with many side effects. Indeed, this is similar to the way doctors usually prescribe antibiotics, moving to the more expensive options only after the cheaper ones have been exhausted.
After all, every one of these drugs represents a huge improvement over current therapy. They are all “good enough” to cure most patients. And, assuming that the first-line drug could be negotiated down to as low as $10,000, each patient who responds to the cheapest drug (most will) would save the system as much as $80,000 compared to using the best drug first. By our calculations, the cumulative savings nationwide would be as much as $200 billion in the U.S. alone over the next decade. Similar savings await other nations.
Certainly companies deserve to be rewarded for tremendous breakthroughs like the new hepatitis C drugs. And many on Wall Street are incredulous that drug companies will lower their prices. Indeed, large pharmaceuticals companies don’t have a strong track record of offering deep discounts even in the face of significant competition. For example, there are many drugs approved for multiple sclerosis yet the prices for these only go up each year.
But hepatitis C is a big market and a certain type of company could still do quite well charging even $10,000 per patient. The 3 million patients in the U.S. alone could net $30 billion of sales, which might be modest for Gilead shareholders but would be a windfall for a company as small as Achillion, whose market capitalization is less than 1 percent of Gilead’s valuation. So even if having Gilead, AbbVie, and Bristol-Myers on the market is not enough to spark a price war by 2015, payers will likely get a discounted offer they can’t refuse from Achillion in early 2016.
To some, the idea of using merely “good enough” drugs will seem offensive. It’s a point of pride for Americans that patients come first and doctors have the freedom to prescribe the best regardless of cost. Even if this American healthcare fantasy were true, when the most expensive route to a cure is merely more convenient than the least expensive drug regimen, are those extra billions of dollars worth it? My bet is that private and public insurers will both be taking a much closer look at scenarios like this one, cutting wherever they can reap huge savings without harming patients.
Besides, if $90,000 were offered directly to patients, what would they chose? My guess is that most would buy the cheaper drugs, get cured for less, and put the massive savings towards countless other necessities.
If only reimbursement worked that way.
Hepatitis C has proven to be surprisingly easy to cure and we will soon see multiple “good enough” drugs on the market, which makes it easy for payers and providers to negotiate down prices on behalf of patients, employers, and taxpayers. Just as oncologists have started to push back against high drug prices, others will begin taking a stance against exorbitant spending, especially for mere convenience.
After all, our definition of “best” has left us with the priciest healthcare system in the world, but not always the best outcomes. HCV treatment is one textbook example of how mindlessly sticking to our old ways will have spectacularly expensive consequences.
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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