On December 22, 2014 Express Scripts (ESRX) announced to the public that it had reached a deal with AbbVie (ABBV), the maker of Viekira Pak® used to treat Hepatitis C (HCV), that would make the drug the exclusive option for Genotype 1 Hepatitis C patients within the Express Scripts National Preferred Formulary (which covers approximately 25 million Americans according to ESRX).[1] Making Viekira Pak® preferred and excluding Sovaldi®, Harvoni®, and Olysio® sent shock waves around the health community and even did a little damage to drug manufacturer Gilead (GILD) which dropped 14% on 12/22 and another 3.7% on 12/23.[2] The drug pricing debate has been escalating for months since the approval of the Gilead drugs when Express Scripts cited the price of Sovaldi® the culprit to skyrocketing costs of care.[3] The ESRX-ABBV deal draws “first blood” in an upcoming war over drug prices and the objective of today’s post is to shed light on how this pharmacy benefit sausage is made.

Why so high? (Or should I say: Why are we suddenly paying attention to drug prices?)

On December 6, 2013, GILD announced the Food and Drug Administration (FDA) approval of Sovaldi®(sofosbuvir) 400mg once daily for the treatment of HCV genotypes 1, 2, 3, or 4 infection. Also in this announcement came a shocking figure, the Wholesaler Acquisition Cost (WAC) for a 28-count bottle of Sovaldi® in the United States would be $28,000.[4] In response to the cost of Sovaldi® and potential impact this price would have on Medicaid and Medicare budgets, members of Congress sent a letter to GILD demanding the methodology used by GILD to establish Sovaldi’s pricing. Then a few months later, the US Senate Committee of Finance sent GILD a letter requesting copies of all presentations, financial analyses and supporting documents related to the Gilead-Pharmasset merger (since GILD acquired the company that originally developed Sovaldi®) and also to provide a list of all countries where Sovaldi® will be marketed and the corresponding planned price for each country.

One of the most interesting facts in this case is that the previous “breakthrough” HCV therapy Incivek®(telapravir) was also in the $100k/year range but the effectiveness of Sovaldi® practically destroyed sales of the drug and ended up causing Vertex Pharmaceuticals to halt sales of the drug.[5] What happened to the free market? I thought the way this was supposed to work is that competitors in the same market would duke it out and inevitably lower prices for the consumer, but the financial outlook for Vertex with Incivek® was so bad that it was better to pull the plug altogether.

Still there seems to be no answer to the question: Why are these drug prices so high?

GILD stands behind the prices with the policy position statement: “The price of Gilead’s hepatitis C treatment reflects the significant clinical, economic and public health value of these drugs, and is comparable to, or in many cases less than, the cost of older, less effective regiments.” Using this logic, it would seem that GILD could have gone higher with its innovative drug line, right? If Incivek® was less effective and cost an estimated $189,000 per cure, one could make the argument that GILD low balled its new cash cow.[6] So why was $1,000/pill the magic number? Shareholders of GILD would definitely want to know if Sovaldi® and Harvoni® were priced too low. What is the rationale for drug pricing? Is it the same as the economic price determinants that make “as seen on TV” specials just 3 easy payments of $29.99? What makes a 12-week treatment to cure an American case of HCV worth “3 easy payments of $28,000” when it is a fraction of the cost outside the borders of our country?

Why was a line drawn in the sand over HCV?

The “Drug Price Wars” have been raging on for many years, however, the general public has little to no visibility to the winners and losers of each battle. The private third-party managed care system in the United States creates an added layer of opaqueness to healthcare prices, as the negotiators of prices for medical or drug costs also have a fiduciary duty to increase shareholder value for their investors. A savvy patient (or investor) may ask, “Why is Express Scripts launching public attacks at Gilead when other drug manufacturers have had high prices for years?” Did internal negotiations between ESRX and GILD go south and they were unable to reach a typical rebate agreement or were unable to purchase the GILD drugs at a lower price for the ESRX owned mail-order pharmacy Accredo?[7] Inquiring minds want to know…

Who decides what is “affordable” to the patient or the health system?

When consumers decide on eating at a restaurant, the question of “affordability” certainly comes into play for the average household. When dining out, we know exactly what is coming out of our wallet for a cheeseburger or a crab cake (for my Maryland friends). However, a patient with Hepatitis C prescribed a new therapy may or may not know exactly what dollars are exchanging hands and what wallets are being used for the tab. This is where the healthcare price debate should focus if we want to make progress in reforming our system.

Let us take the case of AbbVie’s new drug Viekira Pak® and a hypothetical HCV genotype 1a patient within the Express Scripts National Preferred Formulary (DISCLAIMER: This information is not public and the following case is my own personal speculation). According to the press release and package inserts of both drugs, this patient will not be able to get Gilead’s Harvoni®, a once daily pill for genotype 1a HCV treatment naïve patient, but will be required to start on AbbVie’s Viekira Pak®, a 4 pill/day regimen (two ombitasvir/paritaprevir/ritonavir pills QAM, one dasabuvir BID) plus ribavirin for 12 weeks. As a patient, instead of 1 pill a day, I need to take up to 6 pills a day. Why would any prescriber or patient want to take 6 pills a day over 1 pill a day? So what is the tradeoff? According to ESRX, lower cost since AbbVie has discounted or rebated its way onto the ESRX formulary. Also, the high cost of Harvoni® is forcing some payers to only approve the drug in the most severe patients, whereas ESRX claims this lower cost option will open up the access to patients in early stages of liver disease with HCV. The only figure the public currently sees is that AbbVie set the price for Viekira Pak® at $83,319, a mere $10k less than the ~$94k price for Harvoni® and virtually the same price as Sovaldi®.[8] So what sort of deal did ESRX and ABBV agree to? Will a rebate pass directly to the employers? Will the employer be able to audit or verify that they receive the majority of the benefit of this “lower price” alternative?

Back to the question from the patient or provider viewpoint, why use Viekira Pak® which seems more complicated? If costs were the same (without rebates, they virtually are) then how on earth could AbbVie gain market share against the Gilead therapies? Hopefully this lightbulb just went off in your head: AbbVie may need this deal more than Express Scripts! With this exclusive contract, AbbVie has just forced providers who see Express Scripts patients to prescribe their drug, regardless of what their clinical preference is. That seems a lot easier than hiring a ton of beautiful sales reps to travel the country armed with free lunch and package inserts.

Another caveat, ESRX has thrown in an additional requirement that ALL patients receiving this drug treatment must use Accredo specialty pharmacy, which is a wholly-owned subsidiary of ESRX. Well that is interesting…the mandatory self-referral of patients by the payer to its own subsidiary opens up another can of FTC-related worms. Will the profit generated by sales to Accredo help offset costs? How much does Accredo stand to make in this deal and did it have any impact on ESRX’s decision to deal exclusively with ABBV?

In the end, payers must figure out ways to pay for these high cost drugs that a percentage of patients could greatly benefit from. Stay tuned as we continue this discussion and dive further into the Drug Price Wars.

[1] Express Scripts and AbbVie Make Hepatitis C Cure Available to Millions of Patients in Need. Press Releases. Express Scripts Investor Information; December 22, 2014.

[2] Gilead Sciences Inc. CNN Money; December 29, 2014.

[3] U.S. Spending on Hepatitis C Medications to Skyrocket 1,800 Percent by 2016. Press Releases. Express Scripts Investor Information; April 8,2014.

[4] U.S. Food and Drug Administration Approves Gilead’s Sovavldi(Sofosbuvir) for the Treatment of Chronic Hepatitis C. Press Releases. Gilead Sciences; December 6, 2013.

[5] Weisman R. Vertex to stop selling hepatitis C drug Incivek. The Boston Globe; August 12, 2014.

[6] Levin J. Costs of Telaprevir-based Triple Therapy Including Adverse Event Management at the Mount Sinai Medical Center, NY $189,000 per SVR. Presented at the 64th Annual Meeting of the American Association for the Study of Liver Diseases. Washington, DC; November 1-5, 2013.

[7] Herper M. Inside the secret world of drug company rebates. Forbes; May 10, 2012.

[8] Humer C. Express Scripts drops Gilead hep C drugs for cheaper AbbVie rival. Reuters; December 22, 2014.