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Gilead’s gaffe leads drugmakers to pledge more openness on price

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(Bloomberg) — Drugmakers worried about a backlash over soaring drug prices are increasingly talking with insurers ahead of time about paying for new therapies that could cost six figures a year.

Companies such as Biogen Inc. (Nasdaq:BIIB), Amgen Inc. (Nasdaq:AMGN) and Sanofi (NYSE:SNY) are wary of the negative attention Gilead Sciences Inc. (Nasdaq:GILD) received over hepatitis C cure Sovaldi, which surprised the industry in late 2013 with its cost — $84,000 for 12 weeks of treatment. The price tag had House Democrats calling for an explanation from Gilead executives, and Gilead was spurned by the biggest manager of drug insurance benefits in the U.S., which backed a rival’s discounted hepatitis C drug instead.

See also: Biogen says Alzheimer’s drug to cost less than $10,000 a month

Insurers and hospitals felt blindsided by the introduction of Sovaldi, which was a “case study of how not to collaborate,” said Betsy Nabel, president of Brigham and Women’s Hospital. The medical center hadn’t planned for the steep price, which also put pressure on the Massachusetts state Medicaid budget for medicine, she said at a conference last week in Boston.

Biogen and Amgen have been in talks with insurers even while their drugs are under development. And Sanofi is contemplating how to work with insurers to determine how pricey gene therapies get paid for.

Before Sovaldi, drugmakers often paid little attention to the impact their products would have on the health care system. Sovaldi was different because it promised a cure in a matter of weeks, creating a potential stampede on private and government insurers as doctors began doling out prescriptions to the 3.2 million Americans living with hepatitis C.

Starting treatment

Gilead said last week that 210,000 U.S. patients have started its treatments for the liver disease since December 2013, and that at least 250,000 will begin this year.

Drug spending in the U.S. rose 13 percent last year, the fastest rate in more than a decade, fueled by hepatitis C drugs like Sovaldi, according to benefit manager Express Scripts Holding Co. (Nasdaq:ESRX).

The public relations fallout over Sovaldi has been a blemish on one of the most successful drug introductions of all time. Foster City, Calif.-based Gilead reported that sales of its hepatitis C drugs doubled to $4.55 billion last quarter, soaring past the average estimate of analysts by almost $1 billion. Still, the stock’s 33 percent climb in the past year has trailed its peers — Celgene Corp. has gained 49 percent and Amgen 42 percent — a sign of the toll that pricing pressure has taken on Gilead investors’ psyche.

Vast improvement

“Gilead has worked — and continues to work — to make sure the medical and the payer communities have the information they need to evaluate the benefit of these new medications,” Amy Flood, a Gilead spokeswoman, said in an e-mail.

See also: $10 copy of Gilead blockbuster Sovaldi appears in Bangladesh

Gilead argues that Sovaldi and a related drug, Harvoni, provide patients with a vast improvement over previous treatments, doing away with side effect-heavy injections and curing the virus with a single pill a day.

“Sovaldi cures hepatitis C, let’s keep that in mind,” Biogen Chief Executive Officer George Scangos said last week. The problem is that Gilead “did not do a good job of introducing it,” he said.

See also: Liver pill maker rakes in sales

Scangos’s criticism is especially stinging because, in addition to being head of a fellow biotech giant, he’s chairman-elect of Washington lobbying group Pharmaceutical Research and Manufacturers of America, which has been defending the increase in drug prices.

Unsustainable burden

Pricing is on Scangos’s mind because Cambridge, Mass.-based Biogen is developing BIIB037, a drug that may slow the progression of Alzheimer’s but is not expected to cure the degenerative disease that affects 5.5 million Americans. If the medicine works, it may be taken for a lifetime, unlike a cure such as Sovaldi.

That means that charging $10,000 a month for BIIB037 — an increasingly common price for cutting-edge drugs — would be an unsustainable burden on the health care system, Scangos said at a conference in Boston.

“If we are not thoughtful about it, it will make Sovaldi look like a blip,” he said.

Amgen, the Thousand Oaks, Calif.-based biotech, is among makers of a new generation of cholesterol drugs that are now in the cross hairs of drug insurers looking for discounts. The medications, called PCSK9 inhibitors, may cost $7,000 to $12,000 a year, and patients could be on them for life, adding significant expense to the medical system, CVS Health Corp. (NYSE:CVS) executives warned in February.

CVS said last week that it will set a high bar for doctors and patients to prove they need the treatments.

Reaching out

With insurers steeling themselves, Amgen is reaching out long before the introduction of its PCSK9 inhibitor, Repatha. In January, Tony Hooper, executive vice president of global commercial operations, said Amgen had already had “a number of dialogues with payers” — involving them even during the process of clinical trials of the drug.

The debate over how the health care industry can absorb the costs of expensive drugs is only going to intensify as new, high-tech cures for rare diseases become available.

David Meeker, CEO of Sanofi’s Genzyme unit, is thinking ahead about how to price novel treatments like gene therapy, where a patient may only need a one-time intervention for a lifetime of benefit. The first approved gene therapy in Europe, for an ultra-rare disease, has a price tag of $1 million. Genzyme works on treatments for everything from childhood blindness to Parkinson’s disease.

“If something works, you can figure out the business model,” Meeker said in an interview. “My point is there needs to be one,” he said. “We need to move this discussion upfront so that we’re not reactive and we don’t get caught in the Sovaldi situation.”

—With assistance from Simeon Bennett in Geneva and Cynthia Koons in New York


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