Dr. Andrew Hill and his team from the Department of Pharmacology and Therapeutics, University of Liverpool, publish an article in prestigious Oxford Journals about how much it actually costs to manufacture modern Hepatitis C drugs on a large scale. The results might be very surprising, especially for people who were at the time paying $80,000 for 12-week treatment with Sovaldi.
Production cost of Hepatitis C DrugsWhen a pharmaceutical company discovers a novel drug, as was in the case of Sovaldi and company Gilead Sciences, the price that patients have to pay for it is substantially larger than the manufacturing cost for that drug. This is largely expected; a pharmaceutical company has to cover the costs of research and development, marketing, quality control and so on from the sales of the medicine.
Breakdown of pharmaceutical company costs (2012) *Source: www.nature.com
In the case of Hepatitis C drugs, the production costs have no relation to the final cost of drugs like Sovaldi, Harvoni, Daklinza and Zepatier. Nonetheless, HIV drugs, which are very similar to Hepatitis C drugs, are being produced and sold at very low prices to more than 10 million of patients in third world countries. Dr. Andrew and his team tackled a question of how much would it cost to treat a Hepatitis C patient if we take into the account only the production costs.
Production cost of Sofosbuvir, Daclatasvir, Semiprevir - DAA (Direct Acting Antivirals)The core of every drug is the API - active pharmaceutical ingredient. Hepatitis C is being treated with the use of 2 to 3 different APIs - we can also refer to them as direct acting antivirals (DAA). For example, the most basic modern Hepatitis C treatment includes Sovaldi with sofosbuvir as DAA and ribavirin which is by itself a DAA. Harvoni, for example, is a single-pill regimen that contains 2 DAA - sofosbuvir and ledipasvir.
The minimal cost for a therapy of Hepatitis C can be determined by determining the cost of production of these direct acting antivirals. Dr. Hill calculated how much does the production of sofosbuvir, daclatasvir and semiprevir regimen costs, based on how difficult it is to synthesize these direct acting antivirals and what is the dosage needed for a standard treatment.
What is more, the formulated cost was based on the premises that at least 1 million patients per year need to be treated. This means that the production of sofosbuvir and other molecules can be done in bulk and economy of scale can drive down the costs dramatically. For instance, pound per pound the production of lets say 10 tons of sofosbuvir is much more cost efficient than the production of 1 kg of sofosbuvir.
The Liverpool team also accounted for the margin that is needed to make pills out of synthesised DAA - in their models, this margin was 40% of the cost.
Production cost of Sofosbuvir for standard 12-week treatmentThe results are somewhat surprising; while Gilead charges $80,000 for a single treatment with sofosbuvir, the majority of direct acting antivirals production cost was calculated to be between $0.2 and $2.1 per gram. For 12-week treatment, taking 400 mg of sofosbuvir per day, a Hepatitis C patient will take a total of 33.6 grams of sofosbuvir during the course of his or her treatment.
This brings the cost of sofosbuvir production for one treatment at $68-$136, or about $1 per pill. The current market price for a single 400 mg sofosbuvir molecule is about $1,000. Looking purely from this perspective, Hepatitis C treatment manufacturers like Gilead Sciences or AbbVie have a 100,000% margin on every pill they produce; and they produce millions of them every day.
This also explains why it is still financially reasonable for originator companies to approve the production of generic version of Hepatitis C drugs. Such treatment, primarily made by Indian pharmaceutical companies, cost about $1000. There is still a hefty 1,000% margin attached that is shared between the originator company (Gilead, AbbVie) and Indian pharmaceutical company actually making the pills.
Production cost of Daclatasvir for standard 12-week treatmentDaclatasvir is a key ingredient in Daklinza, produced by Bristol-Myers Squibb. Treatment of Hepatitis C with Daklinza in the US costs a total of $63,000. But how much does the production of daclatasvir really costs?
Dr. Hill and his team at University of Liverpool determined that the production cost of daclatasvir for a 12-week treatment is only $10-30$. This is approximately how much a very good pizza costs; however, Bristol-Myers Squibb is pricing it beyond a price of a brand new Mercedes.
Production cost of Semiprevir for standard 12-week treatmentSemiprevir is a direct acting antiviral in Janssen's Olysio. The production cost of the semiprevir was found to be $130–$270 for the standard treatment.
This might be a substantial cost for a production of an active molecule; however, it cannot compare with the actual price at which Janssen is marketing Olysio - $66,360.
Why are Hepatitis C patients paying over $50,000 for treatments that can be produced for less than $100?In short, it is how the current pharmaceutical industry operated. Pharmaceutical companies have much flexibility as far as pricing is concerned; especially the originators where their drugs are basically the only such drugs available - it is an effective monopoly.
Officials from companies that produce Hepatitis C drugs often argue that the high prices of Hepatitis C treatments are based on the potential costs on alternative treatments. In this case, alternative treatment for Hepatitis C patients is a liver transplant which costs about $250,000 in the US. Namely, the cost of production of sofosbuvir, daclatasvir and other DAA has nothing to do with price on the shelf. Even if the whole regimen would cost less than $1 to produce, the pharmaceutical companies would most probably still price the medications above $50,000.
'$100-$250 per Hepatitis C treatment is feasible'Dr. Hill and his team predict that in 15 years the prices of Hepatitis C production might come down because of the large-scale manufacturing. In theory, this could make Hepatitis C treatment available to patients in low-income countries. However, it is important to understand that the final pricing of a product is not primarily determined by its costs of production, but by interests of pharmaceutical companies for profit and the willingness of patients to succumb to higher prices since their lives are at stake.
Turn to FixHepC Buyers ClubA good news is that large-scale manufacturing is already bringing the cost of Hepatitis C direct acting antivirals down. The production costs are not as low as $100-$250 yet but with the courtesy of Dr. Freeman of FixHepC Buyers Club, you can avoid paying tens of thousands of dollars for the medications. The Buyers Club provides you with the direct acting antiviral drugs equally capable of curing Hepatitis C as Sovaldi, Harvoni, Olysio, Daklinza and so on, for a fraction of the cost. You can check the prices of sofosbuvir, daclatasvir, ledipasvir here.
This is what Dr. Andrew Hill had to say about the profits in Hepatitis C treatment area. "Gilead has already sold over $32 billion of two hepatitis C treatments in just over two years, with profit last year of $18 billion. The continued profit projections for the oral hepatitis C drugs are staggering, and stand in no relation to what it costs to make these drugs."