UnitedHealth is the first insurer to quantify its
costs to cover patients using Gilead's new Sovaldi treatment, whose
$84,000 price tag has spurred a national outcry over the rising
costs of specialty medicines.
UnitedHealth shares fell nearly 4 percent on Thursday and shares of
rivals WellPoint Inc and Aetna Inc fell 3.8 percent and 3.4 percent,
respectively, as investors weighed what their potential costs could
be as well.
The disclosure indicates that industry-wide, insurers spent $1 to
$1.5 billion on treatments in the first quarter, Goldman Sachs
analyst Matthew Borsch said in a research note.
U.S. drug regulators approved Sovaldi in December, the first of a
handful of ground-breaking hepatitis C treatments that are expected
to be on the market in the next few years.
Sovaldi has been shown to cure most patients of the liver-wasting
virus with few side effects, but health officials, insurers and
Medicaid directors are balking at the cost. The national cost of
treating even two-thirds of the estimated 3.2 million people with
the virus could reach $200 billion.
This has focused scrutiny on U.S. drug prices, which outstrip the
rest of the world. Biotechnology shares were already in the midst of
a selloff when U.S. lawmakers asked on March 21 for Gilead Sciences
to explain the price for the Sovaldi treatment.
Since then, shares of Gilead have lost more than 7 percent as
investors feared that regulators and insurers would pressure the
company to restrain prices. It pulled other biotech stocks down in
tandem and the Nasdaq Biotechnology Index has dropped nearly 14
percent since March 20.
Some doctors and health officials say the drug's cost must be viewed
in comparison to spending on treating liver disease or on liver
transplants, which can be more expensive and may not prevent a
relapse in hepatitis C.
Daniel Schumacher, chief financial officer of the group's
UnitedHealthcare division, said the spending on Sovaldi could begin
to moderate after the first big wave of patients are treated with
He did not disclose what it had anticipated spending on the
hepatitis C drug but said the cost "is a multiple of what we had
Because Sovaldi is widely viewed as a breakthrough in treating the
liver-wasting virus in typically as few as 12 weeks, many doctors
had waited for the drug before prescribing treatment to patients.
"What we're seeing is ... higher pent-up demand as there were more
patients that were warehoused leading up to the launch," Schumacher
UnitedHealth saw increased spending levels due to Sovaldi in its
Medicaid, Medicare and commercial businesses during the first
quarter of 2014, he said. A Gilead spokeswoman declined to comment.
Schumacher said the company is working with state Medicaid
directors, whose agencies could bear much of the cost because they
cover a disproportionate share of people with the virus, and expects
to be reimbursed at some point.
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State Medicaid directors are pushing Gilead for discounts, but it
so far has refused to give much ground. Medicaid receives at least a
mandatory 23 percent discount from pharmaceutical makers, but states
can negotiate for more cuts. Some insurers, such as pharmacy benefit
manager Express Scripts Holding Co, has said it will use anticipated
products from AbbVie Inc and Merck & Co as price leverage with
UnitedHealth said its quarterly profit was cut by 35 cents a share
due to costs and taxes related to President Barack Obama's
healthcare law, more formally known as the Affordable Care Act, and
government cuts to private Medicare funding.
The hepatitis C cost is one of several new pressures UnitedHealth
said it has an eye on this year including commercial premium prices
in several markets. In New York, which is also a large market for
WellPoint, it said new competitors were underpricing at
"This is really the first look of anyone operating under the full
brunt of ACA-mandated cuts and sequestration and you have to revise
your thinking a little bit," CRT Capital analyst Sheryl Skolnick
UnitedHealth, a small player on the Obamacare exchanges created by
that reform law in 2014, said that it had a "bias" towards expansion
in 2015. Insurers must submit new plans and rates to the federal
government by the end of June if they want to participate.
The company's quarterly results slightly beat analyst expectations.
UnitedHealth said net profit was $1.1 billion, or about $1.10 per
share, compared with $1.2 billion, or $1.16 per share a year
earlier. Analysts had expected first quarter profit of $1.09 per
share, according to Thomson Reuters I/B/E/S.
UnitedHealth stuck by its previous forecast for 2014 earnings of
$5.40 to $5.60 per share and said it sees revenue growth of about 5
percent to $128 billion to $129 billion.
(Reporting by Caroline Humer; editing by Michele Gershberg, Chizu
Nomiyiama and Cynthia Osterman)
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