(Bloomberg) — Gilead Sciences Inc. may finally be forced to offer a lower price for its $94,500 hepatitis C drug.
The biotechnology company could have no choice but to negotiate its own discounts with CVS Health Corp. and other drug benefit managers, say analysts, after rival drugmaker AbbVie Inc. announced a deal today to block Gilead’s pill Harvoni from a list of medicines covered by Express Scripts Holding Co.
Express Scripts manages pharmacy benefits for about 85 million people in the U.S., while CVS had about 26 percent of the pharmacy benefits market in the U.S. last year, behind Express Scripts, according to the U.S. Department of Labor.
“Does Gilead really want to be blocked from half of the U.S. population?” John Kreger, an analyst at William Blair & Co., said in a telephone interview today. “They would be the most motivated to cut a deal with CVS.”
AbbVie’s deal with Express Scripts flips the power balance to favor insurers and pharmacy managers, who now can pit drugmaker against drugmaker to force price cuts in one of the most expensive classes of medicines in history. AbbVie’s treatment, without the multiyear discount it has given to Express Scripts, costs $83,319 for a 12-week course, or about $1,000 a day.
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The result will be “a domino effect,” said David Bernstein, chief of hepatology for the North Shore-LIJ Health System, as each drugmaker strikes its own deal to be a pharmacy manager’s medicine of choice in return for discounts. Bernstein has worked as a consultant for Gilead and AbbVie.
Gilead shares fell 14 percent to $93.70, the biggest intraday drop since February 2012. The stock had gained 45 percent in the last 12 months as of yesterday’s close.
CVS is in a particularly strong position to extract price cuts on hepatitis C drugs, and the AbbVie deal “puts a lot more pressure on CVS and Gilead to have some sort of agreement,” said Ross Muken, an analyst at Evercore-ISI. By playing Gilead and AbbVie off each other, “CVS could end up with a pretty sweetheart deal here.”
Spokesmen for Gilead and CVS said they had no comment. Other pharmacy managers are watching as well, including Prime Therapeutics LLC, which manages drug benefits for 25 million Americans on various Blue Cross and Blue Shield plans.
David Lassen, Prime’s chief clinical officer, said his company has been “actively in negotiations with both drug manufacturers” and “would be open to the possibility” of giving one of the drugs exclusive access to its formulary for genotype 1 patients.
“We are evaluating all aspects of the opportunity as we speak,” he said. The company will make a decision by mid- January at the latest, he said. He would not reveal details of which way the company was leaning on how to cover the drugs.
Watching and waiting
Catamaran Corp., which controls about 5 percent of the U.S. market, according to the Department of Labor, is watching as well. “We are waiting for Gilead’s response to the current market situation as we continue to establish that available hepatitis C treatments are similar in clinical effectiveness based on independent review,” Sumit Dutta, Catamaran’s chief medical officer, said in an e-mail.
For the last year, Express Scripts threatened to remove Gilead’s pill, Sovaldi, which forms the backbone of the combination of drugs in Harvoni, from its list of covered medicines if an equally effective treatment could be obtained at a lower price. Nonetheless, its rapid decision to give the new AbbVie drug preferred status for patients with the most common U.S. hepatitis C genotype, while excluding the Gilead drugs, was a surprise, Muken said.
“I don’t think anyone thought they would move this quickly,” Muken said. The Express Scripts deal applies to 25 million patients covered by its main formulary.
While the lack of choice is “going to be annoying” for doctors, exclusive deals with pharmacy managers may eliminate much of the paperwork and restrictions that have until now made it hard for physicians to get insurance authorization for the hepatitis C drugs, said Bernstein, the Northshore-LIJ doctor.
Mario Molina, the CEO of Molina Healthcare Inc., said that expensive specialty drugs will be a major cause of health-care cost increases in the next two to three years. The company manages Medicaid plans in 11 U.S. states, covering 2.5 million people.
“We have an obligation to look out for the public interest and not squander it on an expensive drug when there is a more cost-effective alternative available,” Molina said in a telephone interview. “It is certainly a possibility we could pick one or the other of these two drugs as the preferred drug for these patients.”