Sovaldi Report

Diffusion of Technology Generations – Sovaldi Report

Question 1: From the Sovaldi documents, identify the overlapping generations, including the next generation drug (Harvoni) from Gilead.

Gilead bough two drugs to market to cure HCV (Hepatitis C):

* First Wave: Sofusbuvir (drug) is synonymous with Sovaldi

* Second Wave: Next generation drug: Sovaldi + Ledispavir = Harvoni

Baseline for Sofosbuvir: Gilead used the prices of Incivek & Victrelis as baseline to price sofosbuvir (Incivek required inferon; so did sofosbuvir; but Harvoni did not)

Next generation drugs:

Competitor drugs for Sovaldi:

* J&J’s Simeprevir (Olysio)

* Second wave all drug combination developed by AbbVie (later launched as Viekira Pak)

* Second wave drug daclatasvir, developed by Bristol-Myers Squibb

For genotypes 2 & 3:

* Existing: For genotype 3 patients, only existing treatment was 24 weeks of pegylated interferon & ribavarin

* Sofosbuvir would be the only DAA with FDA approval until July 2015 when Daklinza would be approved

Question 2: Reconstruct Gilead’s EVU calculation for Sovaldi from the information. Pinpoint the sources of value to the third-party payer.

Assumptions:

1. The reference product is Incivek. Assume that Incivek is primarily used by Genotype 1 patients. From Page 33 of the case, Gilead used the prices of Incivek and Victrelis as baselines and evaluated how to price sofosbuvir at a premium to existing therapies.

2. Third party payers were involved.

EVU_X = (PP_Y + SC_Y + PPC_Y) – SC_X – PPC_X + NB_X

PP_Y is the purchase price of Incivek (existing drug) that Gilead used as its baseline price. From the case, (Page 33), the purchase price of Incivek = $55,275

SC_Y are one-time costs incurred by the patient for consuming Incivek. In this case, no such explicit costs have been mentioned. So let us assume that SC_Y = 0.

PPC_Y are post-purchase costs like maintenance/on-going treatment, etc. not included in the...