How Gilead “Blew Out the Lights” With Sovaldi

While flipping through my emails recently, I froze before an image that appeared on my screen. An old Rx colleague had sent me a graph, mapping out the 2014 U.S. sales achieved by Gilead’s Hep C drug, Sovaldi. It was stunning. Take a look:

Authored by ISI’s Mark Schoenenbaum, and presented here, courtesy of Drug Channels Institute, it tells us that Gilead’s Sovaldi literally ‘blew out the lights’  in U.S. “specialty drug” sales during its first full year on the market. This remarkable prescription drug will come in somewhere between $10 and $11 billion dollars in sales for 2014. And thinking about the first year performances of other first class, heavy weight “specialty drugs” - like Gleevec,  Avastin, and Revlimid, - Sovaldi’s sales numbers are all the more amazing.

Intrigued, I also wondered how the Sovaldi’s first year might size up against the broader chronic category drugs. So, I pulled up the record of the “King”-Pfizer’s Lipitor. Again, I was stunned.  That world beating cholesterol Rx only turned $1 billion in first year of sales, although at its max sales, Lipitor was turning $13 billion annually.

So, here’s the news: Sovaldi is the new “king” of Rx “first year” sales. Period…And given its limited, “specialty” market, the result is even more impressive.

The Challenges Facing Sovaldi

However, all of this is quite amazing, especially given the formidable opposition forces that lined up against the product’s introduction.

For starters, there was the U. S. Congress which repeatedly attempted to intervene with Gilead’s sales of the product, demanding public explanations for Sovaldi’s $84,000 (U.S.) price tag.

And then there were the unprecedented attacks on Sovaldi by major insurance and PBM companies, (Express Scripts, in particular) claiming that Gilead’s pricing of the product was “unsustainable”, and by implication, greedy.

And, finally, there are several Obamacare State Exchanges, various state Medicaid agencies, and many prisons that are simply refusing to pay for Sovaldi, or at best, have placed heavy restrictions on access to the drug. And why is this? Because, they say, Sovaldi’s cost will annihilate their annual prescription drug budgets which is probably correct.

So, collectively, you would think the net effect of these potent healthcare forces versus a modestly sized firm like Gilead (It doesn’t even crack the top 25 Rx firms) would cause the company to reconsider its Sovaldi pricing. Just common sense, right?

Well, that’s not what happened. In fact, through this entire year Gilead did not waver on its $84,000 (U.S.) price tag for Sovaldi. And, just to make sure everyone got the point, this month Gilead introduced Harvoni - a new, once a day, independent Hep C Rx that achieves 96% ‘cure’ rates in 12 weeks…and priced it at $95,000 (U.S.) per therapy.

The Keys to Gilead’s Success

So, given all that was in front of it, it’s worth asking, how did Gilead pulled this off?  Here’s my theory:

1.     The “Cure” Story

Somehow, someway tens of thousands of Hep C patients, whether covered by public or private insurance programs, or using private loans, or whatever, found a way to access Sovaldi.  And why did this near frenzy occur? Because Sovaldi cures people who have been sick with Hep C for years! And realizing this, Hep C patients all over America are doing whatever they must to obtain this Rx.

And here’s the result so far: 117,000scripts, valued at approximately $10 billion have been prescribed in the U.S. this year.

These sales, especially the Q1 results (see Schoenenbaum’s graph), were a very important moment for Gilead. Those early sales results quickly established the “cure” story in the domestic healthcare mainstream, allowing Gilead to proceed with the rest of their Sovaldi plan.

At the same time, Gilead was obviously looking much further ahead. Today, there are an estimated 3.2 million Hep C patients in the U.S. That means not even 5% of the possible U.S. market has been penetrated by Sovaldi in 2014. In short: Gilead marketing and its current pricing policy for Sovaldi, and now, Harvoni, would appear to have years to go before they start to plateau.

2.     “Cost Effectiveness”

Additionally, Gilead walked right into the middle of an unbelievably favorable, very smart, very trendy American “cost effectiveness” argument that goes like this:

Hep C patients are chronic, high cost consumers of medical care. Their disease tracks on a perpetual downward slope, and even with proper ‘pre-Solvaldi’ Rx care, little improvement can be anticipated.

As their disease progresses, these patients reach a point where a liver transplant is necessary. This is because the Hep C virus eventually destroys the liver. A liver transplant costs about $650,000 in its first year. This does not include the costs of possible rejection, and other complications going forward. 

Therefore, application of a full 12 week therapy of Sovaldi, at $84,000 per patient, is a very cost efficient solution. Once the therapy is concluded, chances are the spending for the treatment of that Hep C patient is essentially over. 

In sum, using Sovaldi is a logical medico/economic solution for patients with Hep C.

This “cost effectiveness” story has led many public and private payers to grit their teeth and approve the use of Sovaldi for their Hep C patients – even though the product’s fiscal impact has the potential to wreck their short term Rx budgets.

3.     Smart Business Decisions

Once the “cure/cost effectiveness” stories were publicly established, how did Gilead utilize this potent information? Surprisingly, and interestingly, the firm appears to have decided to do nothing with it. Apparently, once these facts were firmly settled within the Hep C community, the Gilead essentially saw no gain in publicly arguing this point, and chose to go silent in the U.S. on Sovaldi’s pricing issues.

However, in foreign markets, Gilead rapidly moved ahead to address concerns over the pricing of Sovaldi.  Today, Gilead has a series agreements in place that range from $300 for a full course of Sovaldi under an authorized generic agreement in “low income” countries like India - to an $840 per therapy deal in the “middle income” countries like China, Brazil, and Turkey.  Even in the G-20 countries, including nations like U.K., Canada, Germany, etc., Gilead is offering 45% discounts versus the U.S. price.

So with foreign pricing issues “neutralized”, and the economic/medical bona fides of the product firmly established in the U.S., Gilead was free to charge what the domestic market would bear.  And so far, that unfettered pricing has worked out unbelievably well.

4.     Management Conviction Decision and Crisp Coordination between Gilead Operating Units

I think another key to Sovaldi’s 2014 success was the courage of conviction that Gilead’s management demonstrated in the face of the early pressure they received from some of the most intimidating healthcare forces in the nation (see above). Especially in Q1, and likely in Q2, holding to Sovaldi’s pricing just could not have been easy. But they did it.

Additionally, Gilead’s management apparently was able to maintain close, critical coordination between all of their international & domestic Sales, Marketing, and Public Affairs operations during this period of enormous challenge and public scrutiny. It’s rare that such unified corporate effort actually works, but it clearly did in this case.

And finally, let’s talk about Gilead’s corporate “luck” in all of this. Just as the outrage over Sovaldi pricing seemed to be fading, Gilead management quietly moved forward and announced the introduction of Sovaldi’s “follow on” product - Harvoni. And let’s be clear. This Rx is not a “me too”. Amazingly, Harvoni is an even more effective drug than Sovaldi, and, so, was priced at an even higher price of $95,000 per therapy.

Right.  Marketers can only dream about this scenario, much less have the luck to actually make this type of thing happen in the middle of an originator drug’s cycle.

New Marketing Approach?

It’s worth asking, is this remarkable, record setting performance by Gilead based on some new approach to Rx drug pricing & marketing?

Probably not. It’s even possible that several of the elements that came together…The incredible “cure” news on the product…A patient population that seems able to find a way to pay for the product, no matter what…and the amazing “cost effectiveness” arguments…could theoretically happen again for some future Rx.

On the other hand, I do think Gilead showed us some very innovative thinking.

Specifically, once satisfied that the Hep C community knew about the product, the apparent determination by management to go “silent” on the domestic pricing issue, while rapidly tamping down foreign concerns over the pricing of the product with dramatic discounts was both gutsy and new.

And, in fact, you might also argue that these two actions, in combination with the other above factors, may well have enabled Gilead to keep its very powerful domestic opponents at bay…in both the public and private sector…while giving the company a clear path to sell the heck out of Sovaldi in the U.S.

So, as we close out 2014, no matter how you slice and dice this story, I think you would have to agree that the Rx industry has witnessed something quite special this year.  It’s very likely that Gilead’s amazing first year sales record with this product will stand for years.  And that, Gilead, indeed, “blew out the lights” with Sovaldi.