They say they have to charge big prices to pay for the costs of developing the drugs. Profits are income after costs have been subtracted. So rising costs would not be the cause of soaring profits.
Congressional Republicans have blocked attempts to allow Medicare to negotiate lower drug reimbursements of the kind given to private insurance companies.
By Eric Pianin
July 30, 2015
It was a coincidence hard to overlook: The government released a new report on Tuesday projecting rising health care costs for the coming decade while a major pharmaceutical company issued a new earnings report showing extraordinary profits on the sale of new wonder drugs.
While drug spending increased by a modest 2.5 percent in 2013, it surged by 12.6 percent last year according to estimates in a new report on trends in health care costs by the Centers for Medicare and Medicaid Services. One of the major factors was the relatively recent Food and Drug Administration approval of highly effective -- but extremely expensive -- specialty drugs like Sovaldi and Harvoni for the treatment of Hepatitis-C, a potentially fatal liver disease.
Gilead Sciences, the manufacturer of the two new drugs, announced a banner second quarter of sales largely driven by Sovaldi and Harvoni. Gilead reported revenue totaling $8.2 billion, a 26 percent increase above the $6.5 billion in sales a year ago, according to a company financial statement. More than half of that increase came from sales of the two new drugs.
The company says that the U.S. accounted for about 75 percent of the company’s total sales and the remainder came from sales in Europe.
Gilead purchased the patent to the drugs in 2011, and since then has reaped huge profits in the drug market. While the new drugs provide hope to many Americans suffering from the liver disease, they are adding billions of dollars to prescription drug costs for Medicare, Medicaid, the Department of Veterans’Affairs, the federal prison system and other programs and institutions providing health care coverage to the poor, the elderly and veterans.
John Rother, President and CEO of the National Coalition on Health Care, said in an interview Wednesday that the combination of an aging population and skyrocketing prescription drug costs “frankly threaten the sustainability of our health care system as these expensive drugs become more and more prevalent.”
“Gilead is just an example of that, but certainly not the whole problem,” he added.
The California-based drug company has repeatedly defended the cost of its drugs, saying that research and development is very costly and that federal agencies and insurers are saving money in the long term by avoiding the need to finance costly liver transplants. Officials have also said that the company has given deep discounts to major health care providers, including the VA.
The retail cost of the drugs is between $84,000 and $94,500 for a 12-week regimen. The drugs are far ahead of other treatments and procedures in saving lives, but the math works out to be a startling $1,000 per pill for Sovaldi and $1,125 per pill for Harvoni.
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Labor groups and patient advocates have complained about how Gilead and other pharmaceutical companies set prices, citing the more than $300,000 per year price of Vertex Pharmaceuticals’ cystic fibrosis drug Kalydeco and the $150,000 annual price for Celgene’s cancer drug Revlimid. Medicare’s board of trustees recently warned that these costly, breakthrough medications will help drive a sharp increase in the program’s prescription-drug spending over the next decade, raising annual growth to 9.7 percent between 2015 and 2024, from 6.5 percent in the prior eight years.
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