(Adds more details on hepatitis c, analyst comment)
By Caroline Humer
April 17 UnitedHealth Group Inc, the
largest U.S. health insurer, said it spent more than $100
million to cover a pricey new hepatitis C drug from Gilead
Sciences Inc in its first three months on the market,
an amount that was "multiple" times what it had expected.
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
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 the drug.
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 said.
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
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.
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 unsustainable levels.
"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 said.
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
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)