Controversy surrounding the pricing of Gilead Sciences’ (GILD) blockbuster hepatitis C virus (:HCV) treatment, Sovaldi, does not seem to end. The latest act in this episode came when two members of the U.S. Senate Finance Committee, including its chairman Ron Wyden, issued a letter to the biopharmaceutical company asking to justify the high price of the treatment in the U.S. We note that the drug, which is available in the U.S. since December last year, costs $84,000 for a 12-week treatment period.
What the Letter States
The senators in their letter stated that the methodology used by Gilead to arrive at such a high price for the treatment remains cloudy particularly if one considers the patient population. Incidentally, HCV affects a sizable population in the country (many of whom are in the low income group). The letter voiced concerns about the excessive load on the payors of healthcare Medicaid and Medicare exerted by the steep Sovaldi price in the U.S.
The senators further stated that the U.S. government’s spending on other programs including healthcare costs for HCV infected prisoners would escalate dramatically due to Sovaldi’s exorbitant price. The lawmakers said that the cost would increase further for HCV patients requiring Sovaldi treatment for more than 12 weeks. The lawmakers also the rationale behind the hefty discounts offered on Sovaldi prices in other countries such as Egypt.
As per the senators, the original developer of the drug, Pharmasset, had planned to sell the therapy for only $36,000 per round of treatment. We remind investors that Gilead gained access to Sovaldi through its acquisition of Pharmasset in early 2012.
Multiple Documents Wanted
The lawmakers, while launching an investigation on Sovaldi’s high price in the U.S., asked the company to furnish a host of documents within the next two months to assist in investigations. The documents wanted include those related to Gilead’s purchase of Pharmasset and costs associated with the development and marketing of Sovaldi, among others.
Price Concerns Expressed Earlier
Criticisms regarding Sovaldi’s high price tag in the U.S. are not new. In March this year, Gilead received a letter from the Congress’ Committee on Energy and Commerce expressing concerns about the pricing of the drug (read Gilead Down on Sovaldi Price Issue). The letter from the lawmakers not only impacted Gilead’s stock price adversely but also triggered a selloff in biotech stocks. We however do not expect such an extreme reaction this time. All the same, we expect investor focus to remain on updates regarding the latest controversies surrounding Sovaldi’s pricing.
Gilead carries a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare sector include The Medicines Company (MDCO), Biogen Idec (BIIB) and Celgene Corporation (CELG). While The Medicines Company and Biogen are Zacks Ranked #1 (Strong Buy) stocks, Celgene holds a Zacks Rank #2 (Buy).
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