UnitedHealth: New hepatitis C drug costs far more than forecast

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 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 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 expected."

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.