$1,000-a-day miracle drug shocks U.S. health care system

Kim PetersonMoneyWatchApril 3, 2014, 8:27 AM

Sovaldi, a new hepatitis C treatment, can cure up to 90 percent of patients within three months. There's just one problem: The drug costs $1,000 a day. That price tag has thrown the biotechnology world into turmoil, as lawmakers and insurance companies complain that Sovaldi's maker is trying to milk desperate patients.

Doctors are understandably finding it hard to pass over a drug that is so effective. As a result, Sovaldi's manufacturer, Gilead Sciences (GILD), is raking in the dough, while its shares have soared 53 percent over the last year. Sovaldi, in fact, may generate the biggest sales ever for a drug's first year. It could bring in a jaw-dropping $7 billion to $10 billion in sales this year alone, analysts say.

There are many sides to the Sovaldi story, and here's how the little pill affects them all:

Patients: There is no vaccine for hepatitis C, and some 3 million Americans are thought to have the virus. Many of them may have been infected through intravenous drug use. Before Sovaldi, patients had to deal with treatments like the injected interferon, which causes such severe flu-like symptoms that many chose to avoid it altogether.

Insurers: Companies being asked to foot the bill for Sovaldi are panicking. One of the hardest hit, Molina Healthcare (MOH), could see earnings drop by 18 percent because of Sovaldi, The Wall Street Journal reports. The head of Molina, Mario Molina, says that if everyone in the U.S. that had hepatitis C were treated with Sovaldi at list price, the tab would run to $227 billion, according to Forbes. To put that in perspective, the amount spent on all drugs in the U.S. is about $260 billion.

Doctors: Physicians are getting pressured to ease up on Sovaldi, but it's hard to pass over the drug when it works so well and has few side effects. Why allow someone to suffer when a cure is three months away?

Gilead: Sovaldi's maker says that even with its high price tag, Sovaldi is cheaper because it cures patients quickly and eliminates a long and expensive treatment using other drugs. Hepatitis C can eventually lead to cirrhosis of the liver and liver cancer.

Taxpayers: More than half of those with hepatitis C are veterans, prisoners, uninsured or on Medicaid, the New York Times reports. That requires taxpayers to pick up the bill.

Lawmakers: Perhaps motivated by the high costs to taxpayers, lawmakers are pushing Gilead to explain why it charges so much. It doesn't help that Gilead is offering Sovaldi in Egypt at a 99 percent discount to U.S. prices, or about $900 for a full course of treatment.

Gilead wants to tier its pricing based on a country's per-capita income. So patients in the U.K would pay about $57,000, Reuters reports, while Germans would pay $66,000 and Americans are paying $84,000.

For now, Gilead has a pretty tight lock on the market, but competitors such as AbbVie (ABBV) are expected to debut treatments later this year. But Congress has no power over individual drug costs, so it's unlikely that all the carping will lead to anything, writes Nathan Sadeghi-Nejad in Forbes. There are plenty of ironies here, not the least of which is that medical innovation is revealing the shortcomings of our health care system.

"The drug is a microcosm of the U.S. healthcare system's structural problems," Sadeghi-Nejad adds. "We want big scientific advances, but are not prepared to handle the costs of a drug so effective and tolerable that every patient wants it at once."

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