Another Viewpoint on the $84,000 Cost of Sovaldi
Sovaldi reportedly cures 90 percent of patients with hepatitis C in 12 weeks of treatment. Gilead, the company that invented it, is charging $1,000 a pill for it which works out to about $84,000 per course of treatment in the U.S. No other treatment comes close to working as well.
Rather than considering whether profiting from this breakthrough will stimulate new discoveries and methods of production, as well as liberate millions of people from a deadly disease, critics are all about the money. They charge that the pricing will increase the federal debt, destroy employer health plans, and lay waste to the health insurance industry.
If these people had been in charge when insulin was first introduced in the early 1920s their nostrums probably would have ended up killing a lot of diabetics. Insulin was given away when it was first produced, but by the end of 1922, Lilly could no longer afford to do so. It began selling the drug to specialists at cost and using the money to expand production. Over time, ways were found to increase yields and arrangements were made to process the entire Canadian supply of beef and pork pancreas.
Thanks to continuing improvements, in 2006 dollars the retail price per 100 units of insulin in Toronto fell from $119.27 in June 1922 to $2.43 in 2006.
Worldwide, the quantity demanded was much higher than the quantity supplied. Christopher J. Rutty writes that at the time, the cost for the average diabetic was about $1 a day in Toronto. With an average annual income in Canada in 1923 of almost $500 a year, most diabetics would spend “close to half of their entire income just on daily insulin injections” if, of course, they could obtain it.
With the average annual money income for individuals in the United States estimated to be roughly $40,563 in 2012, a course of Sovaldi would equal about two years of average money income. In 1922, 4 years of insulin treatment would have consumed about 2 years of average income.
In 1922, commentators still worried more about patients than government expenditures with the result that newspaper reports were concerned with how the needs of the world’s diabetics would be met. Fortunately, incentives were properly aligned, the price system was left alone to send the proper signals, and hardworking people managed to find ways to meet the demand for insulin.
Even so, diabetes remains an expensive disease. A 2010 estimate put the lifetime cost of a 14 year old newly diagnosed Type 1 diabetic at $130,000. Compared to this, the $84,000 cost of lifetime cure for a hepatitis C sufferer is a bargain.
The bargain looks even better when one considers the costs currently incurred treating hepatitis C as a chronic infection. As John LaMattina points out in Forbes, Solvaldi
…actually SAVES the healthcare system money in that it will prevent patients from dying from liver cancer, cirrhosis and liver failure. Liver transplants alone can cost $300,000 and then patients must take anti-rejection drugs that cost $40,000 per year for the rest of their lives. The price of Sovaldi, while high now, will drop, first when competitive drugs in late stage development reach the market and then when the drug is generic. Given all of this, what price for Sovaldi would have been acceptable to you — $60,000, $40,000, $10,000? What price are you willing to pay for innovation?
$130,000 is the lifetime cost of a diabetic? I never knew.
$1000 dollars a pill sounds pretty rough when you say it like that, but when 84 of those bad boys save your life I bet no one complains.
Unless it takes the rest of your life to pay it off.
so in 86 years the price dropped to 2% of its former value, interesting…
was this the only insulin provider at the time(or one of the very few out there)?
When I first heard about Sovaldi and the uproar that Gilead was receiving from shocked public health advocates, I thought the advocates were rather naïve. If you have something that was hard to develop, costing perhaps $1 billion to discover; and this drug could cure an incurable, chronic infection that cost thousands and thousands to treat. IF this drug could potentially prevent liver failure, liver cancer and cirrhosis of the liver, why would you give it away for pennies a dose?
For the sake of argument, let’s suppose I invent a teleporter (like on Star Trek) that could transport people from hubs in one location to hubs in another location. Suppose a network of teleporter hubs (probably connected to airports) costs $1 billion to assemble. What would I price that service at? Hint: I would price it similar to what an airline ticket costs with a premium for convenience and speed. If my costs were much lower than airlines, I might discount the cost compared to international flights to build market share. Even if it only cost me $1 per trip to teleport passengers, I certainly would not sell the service for $1.10 per trip.
While I agree with what you are saying.
Is that a little apples to oranges? There are other ways to travel: Planes, trains, and automobiles.
But there is no other cure for Hepatitis.
It’s not like they are paying extra for some premium service (like your teleporter) it is the only service.
I can guarantee Gilead took into account the alternatives when it priced its drug. If the alternative is long term maintenance with competing drugs that are not terribly effective — which often leads to liver failure, liver cancer, and cirrhosis — then the price of a truly scientific advance will be priced relatively high until the patent runs out. On the other hand, if the new drug was only marginally effective and no better than the old drugs, then the critics might have a little more reason to complain.
Gilead didn’t develop it, they purchased it from a startup for about $11 billion. So some portion of the cost which Gilead must recoup has nothing to do with drug development but rather purchasing the right to the profits from that drug development. No one knows how much it costs to develop drugs, but drug companies suggest that the price is around $1-2 billion. So patients are paying a premium so that the profits can go to Gilead rather than the company that actually did the innovation.
The other existing treatments for Hep C are admittedly terrible. The side effects make the person feel like they have a bad flu for months, and the success rate of the treatment isn’t great. While the treatment takes several months, it is an “all or nothing” approach.”
The patent running out in 20 years is an interesting point. If that happens, then this is less of an issue because Hep C usually takes about 20-30 years to cause cirrhosis or cancer. However, it is not uncommon for drug companies to get 20 year extensions for their patents by finding other uses for the drug, either by using it to treat something else or by pairing it with another drug or by purifying the active enantiomer. In this way, some drugs stay patented for decades more than they should. Some examles: http://www.ncbi.nlm.nih.gov/pubmed/23048110
http://io9.com/5865283/three-sleazy-moves-pharmaceutical-companies-use-to-extend-drug-patents
It’s always amazing to me that liberals complain about the costs of medicine and potential impacts on the debt when it comes to saving people’s lives, but have no regard for the purely wasteful spending that they support in almost all other areas of government.
Clearly, research and development cost money. But, look at the benefits! Innovation saves lives, and becomes cheaper over time. Here’s a good video illustrating the point: http://www.youtube.com/watch?v=l9u2UU6-wlk
There are two issues here that need to be highlighted.
First, Sovaldi is charging lower prices in other developed countries based roughly on differences in per capita GDP. So, German patients will pay about 30% less than U.S. patients because Germany’s per capita GDP is about 30% lower. I know of no other product or service outside of drugs that is priced this way. It strikes me as not just unfair and unreasonable but obnoxious.
The second issue is that there are 150 million people infected with Hepatitis C worldwide including 3 million in the U.S. I don’t know how many of these actually have symptoms as the disease takes many years to manifest. I do know that there are “only” about 6,000 liver transplants done in the United States each year. Even at $500K each, that works out to $3 billion. To treat all 3 million Hepatitis C patients with Sovaldi at $84,000 per course of treatment would cost $252 billion for the drug alone. That doesn’t include the cost of ancillary treatment. The $1,000 per pill price tag compares with a manufacturing cost of roundly $1.50 to $2.00 at most.
While I agree that drug development costs a lot of money and there are plenty of failures, I think this drug is priced well beyond what it would take to make Gilead Sciences more than sufficiently profitable to attract investors’ capital to sustain future drug development. Hopefully, competition from new Hepatitis C drugs will drive the price down and soon.
Gilead is acting as a price discriminator and it is discriminating by per capita average national output. Lots of things are sold by price discriminators–producers of movie tickets, electricity, airline seats, and restaurant meals all charge different prices based on age, time of day, or buyer characteristics.
Obamacare mandates that different people pay different prices for the same insurance policy. Gilead is doing a crude means test in pricing its drug and selling it for less to people with lower incomes. People praise companies that do this for malaria drugs or vaccines. Why is it so bothersome in this case?
In 2009 an estimated 16,000 acute Hep C infections were reported in the US according to the CDC. Although 3 million are estimated to be infected, not all of them will develop chronic disease. At a $100,000 per person, that’s $16 billion.
The Solyndra subsidies are estimated to have cost taxpayers about $500 million. Head Start, a completely ineffective program according to numerous studies, cost $7.8 billion in 2012. Sugar subsidies cost about $2 billion. The cell phone give-away Obamaphone program spent $2.2 billion. Ending subsidies for hugely expensive light rail systems and bike paths could probably make up the difference.
Given these numbers, I think the feds can afford to cure Hep C. The private sector probably could too given proper health reform–it spends $2 billion on chewing gum.
People buy most products and services because they want to. They buy healthcare services, tests, procedures, and drugs because they have to. That’s a critical difference, I think. Also, I don’t think different prices charged at different times by hotels, airlines, hotels and restaurants is price discrimination. I would call it yield management or capacity management. It’s not the same thing. Health insurers that charge different people different prices for the same policy based on age are pricing based on the expected medical claims incurred by each age group. The premium charged reflects approximate differences in the cost to serve each group. I don’t call that discrimination either.
As for subsidies and ineffective government programs, those are political decisions. Changing them depends on who wins elections though I find that even conservatives seem to like most wasteful programs that benefit their constituents and help to get them elected. It’s only the other guy’s programs that they’re against.
Back to Sovaldi, if Gilead Sciences could demonstrate that it would reduce aggregate healthcare costs net of the cost of its drug, I wouldn’t have a problem with it. Indeed, if it cured Alzheimer’s instead of Hepatitis C, it would probably be a bargain at twice the price.
in my view cost should be in between 20,00 to 30,00 dollar. One need to pay for innovation. At the same it must match the financial capabilities of the patients.
With regards
N P Singh
“Cost per pill” is an absolutely asinine (and virtually useless) metric of cost when the drug is actually a CURE for the disease. If Gilead were to reduce the potency of each pill by 100 times and reduce the “cost per pill” to $10, would that somehow be better? Or if they were to consolidate the entire treatment regimen into a single pill which cures the disease in one dose, would that somehow be worse just because of a higher “cost per pill”?
Yet, ironically, after such enormous public backlash over this meaningless “per pill” price, it would not surprise me at all to see drug companies “gaming” the system going forward, intentionally splitting their dosages into smaller (and cheaper) pills which provide the illusion of less cost while keeping the total cost to the customer exactly the same (and making it more inconvenient for their customers to take them).
One of the greatest drugs of our age is aspirin which daily saves lives and eases pain for hundreds of millions if not billions of people a year. If we were to use the same analogy the author used in this article we would be justified to price aspirin hundreds if not thousands of time higher. Then there is the issue of over use of silver bullets as we have seen with antibiotics. Since Hep C is so prevalent among many subcultures in our society and the chance for reinfections so great, aren’t w looking at the real possibility of developing a drug resistant strain if we provide widespread treatment to early stage and non-chronic cases. I do not propose that profit be eliminated for drug manufactures but it seems reasonable that lower level of profit would be appropriate. Besides when one company develops such a goldmine product, other companies rush with “me too” copies to get in on the profit wasting valuable time and money on duplicate therapies when it could be better spend on other issues