In the first quarter, Sovaldi generated U.S. revenues of $2.1 billion, making it one the most successful drug launches. Many payers and pharmacy benefit managers (PBMs) are highly critical of Gilead’s pricing strategy. Good background in Kaiser Health News’ Who Should Get Pricey Hepatitis C Drugs?
Since PBMs own the largest specialty pharmacies, perhaps there’s a silver lining to Sovaldi’s robust sales. David Larsen, an analyst at Leerink, estimates that CVS Caremark and Express Scripts gained as much as $600 million in revenues from first quarter Sovaldi sales. As he sees it, PBMs “will actually benefit from Sovaldi sales and earnings in 2014."
Read on for highlights of David’s creative analysis. I have also included related comments from George Paz, chairman and CEO of Express Scripts.
BONUS MULTIPLIER
In the first quarter, almost 60% of Sovaldi’s initial scripts were made by mail order and specialty mail pharmacies. Here are the Leerink estimates for the incremental Sovaldi sales for CVS Caremark, Express Scripts, and Catamaran.
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Note that Leerink relied partly on Pembroke Consulting's specialty pharmacy market share estimates, as shown in 2013 Pharmacy Market Share for Specialty Drugs—and the Biggest Players.
Leerink also estimates that due to Sovaldi, all three companies’ earnings per share (EPS) will rise.
OR BUST?
This analysis is especially interesting, because Dr. Steven Miller, Express Scripts’ chief medical officer, has been an outspoken critic of Gilead’s pricing strategy. See his quotes in Weighing Express Scripts’ Drug Trend Forecast Errors, Sovaldi Pricing, and PBMs’ Pricing Control.
George Paz, Chairman and CEO of Express Scripts, addressed the impact of Sovaldi in last week’s first quarter earnings call:
“And we had some early discussions with manufacturers and others about where they were pricing their drugs, and this drug in particular, so we knew it was going to happen. And so we came at this, and this drug, like all other specialty drugs, we do make a profit on them. The question is, what’s our driver? Our driver is to make sure we manage our clients’ trends, because we also make money by doing step therapies and prior authorizations. So our job is to make sure that the drug, when it’s prescribed, is being prescribed at the right time for the right person, for the right utilization.” (emphasis added)The PBMs’ financial benefit is partially offset by any “at risk” Medicare Part D Prescription Drug plans (PDP) claims. Paz indicated that the effect is small, partly because Express Scripts anticipated Sovaldi’s impact.
“And you know, the only area where the drug could hurt us, if you will, would be in our PDP. But that’s a very small piece of our overall book of business. It’s a sizable PDP, but relative to a gross profit and net income, it’s not all that meaningful to the rest of the book. And quite frankly, because of Dr. Miller and his efforts, and knowing utilization trends and where it was going to go, we had a very low price into our product. So it didn’t have a negative impact on our PDP, and it was accounted for appropriately in our PBM results.”Final thought: With all the talk about Sovaldi’s economics, let’s never forget that the drug is a jackpot for people with hepatitis C.
