Blockbuster Drug Boycott? What ESI's Sovaldi Threat Means to Big Pharma

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Bill Coyle
Bill Coyle

Pharmacy benefit manager Express Scripts (ESI) recently threatened to form a coalition of customers and network members that would drop coverage of Gilead's much-heralded, yet costly, hepatitis C drug Sovaldi once viable competition arises. ESI's announcement sparked conversations throughout the US pharma industry, especially among companies coming to market with specialty drugs in the next one to two years, namely:

1. What concerns does ESI's stated position raise for the pharma industry?

2. How should manufacturers react?

First, recognize that Sovaldi is a paradigm shift in the treatment of hepatitis C. Relative to pre-Sovaldi regimens, the oral drug enables a shorter course of therapy (12 weeks instead of 24 weeks), good tolerability and a higher rate of sustained viral response, or SVR (up to 90%), which is essentially eradication of the hepatitis C virus (HCV) from the patient's body.

The impact of SVR to patients is essentially a cure. They no longer need to worry about the debilitating and deadly liver disease that will eventually manifest itself in HCV-positive patients. For some patients, Sovaldi enables an all-oral regimen, avoiding injections and significant side effects. In the future, Sovaldi will likely be featured (pending approval of a new drug) in all-oral regimens for even more patient subtypes.

Given the downsides of pre-Sovaldi, interferon-containing regimens, many doctors and patients elected to watch and wait, deferring therapy until such time that the virus was no longer indolent. Thus, pent-up demand for a better therapy awaited Sovaldi. Given the advantages of the drug and the pent-up demand, launch has been very successful, and the patient volume coupled with the well-publicized price has created significant budget pressure for payers.

It is fair to say that neither Gilead nor payers anticipated the magnitude and speed of the drug's ultimate uptake. Market analysts were certainly bullish regarding Sovaldi's prospects, as was Gilead, evidenced by its $11-billion deal to acquire the asset and complete its development. However, the launch has outstripped market expectations.

Payer outcry, characterized by ESI's attempt to build an anti-Sovaldi coalition, is clearly driven by payers' financial predicament. The actuarial estimates and budgeting that help them set premiums surely did not anticipate this spike in HCV spending, thus their tough spot. Employers may attribute escalating expense to poor budgeting and planning by their plans and pharmacy benefit managers, thus weakening payer relationships with their customers. Nonetheless, ESI's reaction raises important industry questions.

What are payers willing to reward and pay for, if not breakthrough therapies?

Payers want great drugs—showing superiority in head-to-head trials versus standard of care, and delivering meaningfully better outcomes for patients. Payers want drugs that help avoid other costs down the line, such as the high costs associated with HCV-induced liver cirrhosis or cancer, and ultimately the need for transplantation. Sovaldi delivers on these fronts.

Further, data suggest that Sovaldi may even offer a lower cost per cure when compared with existing regimens (see the Mount Sinai study). If payers are unwilling to pay for such drugs, or band against manufacturers that make such drugs, where does pharma go from here? One could argue that even at a price-point 20% to 30% less, Sovaldi would still have created budget issues for payers—is that Gilead's responsibility to manage?

Can pharma change how it charges for such drugs?

On its face, nearly everyone would agree that better products should command price premiums. But when that premium—coupled with strong uptake—significantly impacts payer financials, can pharma help? Perhaps. Risk-sharing agreements that essentially refund a drug when it doesn't work could be a path forward.

In the case of Sovaldi, that might not offer much relief to payers—the drug appears to work a high percentage of the time. Pay-over-time agreements could help, too. The key issue for payers is that they collect premiums and pay claims on a plan-year basis. A one-time-use drug like Sovaldi creates a huge uptick in spend, but perhaps only for one to two years before it normalizes and most of the pent-up demand is satisfied.

What if such manufacturers capped the payers' exposure on a per-member-per-month basis, and collected payment for “over the cap” spending in subsequent years? This could help payers address their short-term needs and better balance with premiums.

Can pharma help payers plan better?

As mentioned above, the budget spike of a successful new drug is what makes payers' lives difficult. How can pharma get out in front of such issues? Perhaps more proactive budget planning with payers is an option. This is a double-edged sword: preparing payers with in-depth information about what to expect on the demand and price side may very well incite aggressive management. It is also difficult for pharma to have such conversations in a compliant way for drugs that are not yet approved. This is surely an area where pharma, payers and regulators can work together to find a better way to work in advance of launch.

What are the implications for pharma companies planning launches of high-cost, breakthrough therapies?

From a pharma company's perspective, large payers essentially signaling one another via the press to block a particular drug or retaliate against a particular company is quite worrisome. Additionally, pharma companies are quite limited in what they can say about pre-launch drugs, and even post-launch to some extent. However, ESI in this case has essentially deemed the next-to-market, as-of-yet-unapproved HCV drug as its preferred product.

All this means pharma must get out in front of such issues with increased focus on a few fundamentals:

1. Proactively message on the payer (and system) relevant benefits of their drugs.

2. Proactively plan with payers for potential budget busters, including consideration of alternative payment schemes.

3. Proactively plan, even for first-in-class drugs, for the future competitive landscape and its impact on access and pricing.

It may be that even innovative, first-to-market, high-value drugs need to consider how to use pricing and contracting levers before competitors even come to market.


Bill Coyle is a principal with ZS Associates in its Princeton, NJ office.
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