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What Is a Hepatitis C Drug Worth?

The founder of the company that discovered the Sovaldi hepatitis C drug, which has been listed with a cost of $1,000 for a single pill, says that it’s fairly cheap to make the basic ingredients for this well-regarded new medicine. It may cost only about $1,400 to manufacture a 12-week supply, or 84 pills, of the key ingredient in Sovaldi, excluding the costs of manufacturing plants, solvents, formulation, encapsulating and marketing.

That’s the estimate that Raymond F. Schinazi, a founder of Pharmasset Inc. and a noted infectious-disease researcher at Emory University, put forward in a paper published in December in the journal Trends in Microbiology.

By now, Gilead Sciences Inc., which bought Pharmasset in January 2012 for $11.4 billion, may have brought down the production cost further, Schinazi said in a recent interview. “It could be even less than that,” Schinazi said.

Pharmaceutical companies have long experience with making pills, with some products having been made in large scale for more than a century.

“Even aspirin, but they still charge you a significant markup for that,” Schinazi said. “With new drugs like Sovaldi, or sofosbuvir as we used to call it, the company needs to recover its investment in research.”

Gilead has argued that spending for Sovaldi now will save programs such as Medicaid and Medicare and the Department of Veterans Affairs on future health costs, because people whose hepatitis C infections are treated with the drug will not need future treatment for serious liver damage or organ transplants.

The nonprofit AIDS Healthcare Foundation has accused Gilead of “unbridled greed,” and some activists have pointed to the high price that Gilead paid for Pharmasset as a reason for Sovaldi’s pricing. Schinazi, who said he has no stake in Gilead, says there was a “bidding war” for Pharmasset with the aim of capturing Sovaldi. The drug, intended to be combined with the generic ribavirin, is considered a breakthrough in hepatitis C treatment.

There’s little consensus about how much it costs to develop drugs, with estimates ranging as high as $1.7 billion for a new product.

Pharmasset, though, had an accumulated deficit of about $325 million for its roughly 13 years as an independent company, a time in which it worked on several other potential drugs in addition to advancing Sovaldi as far as testing in patients, according to a filing with the Securities and Exchange Commission.

“We were very efficient, extremely efficient. We have a lot of experience,” said Schinazi, whose other biotechnology ventures included Triangle Pharmaceuticals, which Gilead bought in 2003.

But Schinazi stressed that biotechnology of all sizes, startups such as Pharmasset and giants like Gilead, face long odds in their work with Sovaldi. The high prices charged for the products that make it to market compensate for failures unknown to most of the public, he said.

“There’s a whole cemetery full of drugs that have failed in this particular class of compounds, a huge cemetery. You have got to look at that,” Schinazi said. “We got a bit lucky but we also did amazingly good science.”

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