In Praise of the $1,000 Pill

Biotech Finance

There has been a lot of ink spilt in my industry in the past year about the astronomic rise in drug prices. The exploits of a boyish former-hedge fund manager who raised the price of a drug 5,000% when he was running Turing Pharmaceuticals and Canadian company Valeant (that is doing the same thing but on a smaller scale) have made headlines. With the presidential election underway candidates are keeping drug price concerns top or mind.

But there is a big difference between what companies like Turing and Valeant, that are essentially buying up older drugs with small markets and few competitors to increase the prices, and what innovative biopharmaceutical companies are doing.

The ‘$1,000 pill’ label was first ascribed to Gilead’s hepatitis C drugs Solvardi and Harvoni. These innovative therapeutics cure Hep C in up to 98% of patients. Before discounts or rebates the cost of a course of treatment is approximately $84,000 over 12 weeks, or about $1,000 a pill. But it’s a cure for a chronic disease that couldn’t be cured before.

We can’t lose track of how much of a game changer this is. And now cancer immunotherapies are coming on the market that have the ability to significantly increase the lifespan of some cancer patients. If you were heartened to learn that Jimmy Carter had no sign of cancer after being diagnosed with metastasized brain cancer six months earlier, you should know that that outcome was the result of Keytruda, an innovative and expensive cancer immunotherapy.

There is a sea change afoot in the way we treat some of the most vexing diseases, but as is often the case the markets need time to catch up with technology. Drug pricing is one of the most convoluted parts of the dysfunctional U.S. health care market which makes matters worse.

Most industry watchers expect that the payment model for these break-through therapies will change dramatically. Rather than an upfront payment for $98,000 for a bottle of pills at CVS, payments for high priced but curative drugs will probably be structured as an annuity where payments are made over time and only for as long as benefits last. While the idea of a mortgage for drugs sounds ridiculous and offensive, it is actually consistent with the evolution of U.S. healthcare economics where all payments will be results based.

I realize this is cold comfort to patients seeking these treatments today who are confronted with six figure costs. But in the big picture, what we are seeing today are merely growing pains.

There is an ad running for Obdivo stating the drug gives patients “the opportunity to live longer.” In FDA sanctioned ad-speak, that’s a statement no drug maker could make before, and it always makes me stop and catch my breath and think, look what we’ve been able to do!

So for my part, to paraphrase Dr. Strangelove, I’m going to stop worrying about drug prices and learn to love the $1,000 pill.


Subscribe for notifications of new posts, and occasional other news from KMA & Company.