New kind of company takes on the global crisis in drug prices

Jerome Zeldis remembers exactly how he felt when he heard about the $84,000 price tag on a powerful new hepatitis C treatment three years ago.

"I was somewhere between annoyed and outraged," recalled Zeldis, the former chief medical officer of the biotech juggernaut Celgene.

The cost of a 12-week course of Gilead Sciences' drug Sovaldi triggered fierce pushback from insurers, politicians and the public, and helped spark a national debate on high drug prices.

As a physician, Zeldis had cared for hundreds of patients infected with hepatitis C and seen how, untreated, the virus ravaged people's livers. That a high price could bar patients from easy access to a cure seemed unethical to him in the face of a rare public health opportunity to vanquish a disease that afflicts 150 million people globally.

"If we make it affordable ... this epidemic can be cured," Zeldis said. "I want to be bold - I want to treat 100 million people by 2030 - end of story. And there is really no reason why we can't."

Zeldis had been mulling hepatitis C therapies, and he believed it was possible to develop a medicine, sell it for a fraction of the price of Sovaldi and still make money.

So in 2014, Zeldis put $1 million of his own money on the table to co-found Trek Therapeutics, a startup with the mission of creating a novel, affordable hepatitis C treatment for the world.

To attempt to produce an effective and safe treatment at a modest price, Zeldis and his co-founder, Ann Kwong, had to blow up the typical drug company model. The reality of the pharmaceutical industry is that executives answer to investors, not just patients. Creating new medicines is a high-risk, high-reward business in which companies invest huge amounts of money on uncertain payoffs. Shareholders demand extremely high profits in return.

Trek is taking a unique approach. The company is organized as a public benefit corporation - a relatively new type of corporate structure that places public welfare on equal footing with profit. Trek's legal charter requires the board to weigh stockholder interests against the need to "provide therapies for the treatment of infectious diseases that are accessible and affordable."

The company cuts costs by piggybacking on the work other companies have already done to develop and test drugs.

"What they proposed and introduced at the board meeting was quite a revelation, I think, for many of us who had been used to working with major pharmaceutical companies - the idea of a company with a different ethos," said Geoffrey Dusheiko, an emeritus professor of medicine at University College London Medical School who joined the company's clinical advisory board. "Their profit system will be different; they are trying to put access first - and are risking a great deal."

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Trek's leaders are industry veterans with enviable track records in the failure-prone business of inventing new cures. The executive team has collectively launched seven antiviral drugs for previous employers and has deep expertise in hepatitis C. Their newest experiment is in business, not in a test tube: After years of working in established drug companies, they're running a startup on a shoestring.

Instead of hiring a small army of scientists and building an expensive laboratory, Trek is a virtual, 10-person company that operates out of a small incubator space in Cambridge, Mass. The company acquires experimental drugs that typically have been vetted through some degree of human testing.

Trek capitalized on the fact that, for years, drug companies had raced to develop new hepatitis C treatments, which meant there were promising drugs stuck halfway through the pipeline. The availability of these drugs de-risks Trek's job considerably, cutting down on the cost and time of developing molecules from scratch.

Trek has acquired or licensed five drugs so far, of which all but one have been through some human clinical trials. The company contracts with outside labs and clinics for additional testing.

Treatment of hepatitis C typically requires a combination of drugs, which meant that Trek could pluck drugs from different companies and bring them together in powerful new pairings. In fall of last year, Trek began a small clinical trial, using a drug called faldaprevir in combination with an experimental drug called TD-6450 and ribavirin.

Trek hopes to get a medicine on the market in 2020. The company is still in the earliest stages and investors will have a long and risky wait for a return.

So far, the startup has raised $9 million in its initial funding round and is seeking an additional $50 million to fund the large trials needed to push drugs toward approval. That might seem like a lot of money, but in drug development it's pocket change.

One study pegs the cost of developing and launching a drug at $2.6 billion. That work has been critiqued because of questions about the data and the analysis, which was done by a university group that receives funding from the industry. At the other extreme, the nonprofit Drugs for Neglected Diseases Initiative has estimated the cost of developing a drug for diseases that are overlooked because they affect poor people at less than $170 million - a number that can't be interpreted too broadly because critics argue the model won't work for all diseases and it underestimates some costs.

To avoid the cost and uncertainty of challenging behemoth drug companies in the American market, Trek plans to focus on middle-income countries where new hepatitis C drugs have been slow to roll out, such as nations in eastern and central Europe. If they are successful at finding a new balancing point of profit and access - a true "if" - they hope their example could inspire companies working on other diseases to experiment with similar pricing models.

"That's exactly why, when Trek organized, we became a benefit corporation," said Robert Hindes, Trek's chief medical officer, who helped develop Sovaldi. "So we would have the option of not charging as much money as we could charge, or make as much money as we could make, but to take other factors into consideration - so we could set the price that was consistent with our mission of affordability."

Ann Kwong, chief executive of Trek, said the team is working on health economic models to find the right price, based on need and ability to pay, for each country it could distribute to - although they haven't named where they'll start yet.

"We can go into different countries, such as Romania and say, 'This is how much this disease is going to cost you over the next X years; for a fraction of that, you could cure these people and avoid that future cost,'" Kwong said.

Trek's leaders are also in a race - existing drugs are already making their way into these countries, and Trek doesn't expect to have a drug on the market for at least three years.

Large drugmakers also are taking steps toward providing treatments in developing countries at lower costs - and the net price of existing hepatitis C treatments has fallen because insurers have been able to strike deals for deeper rebates from drugmakers. Because Sovaldi's price has received so much attention and scrutiny, drugmakers have also priced their hepatitis C drugs aggressively to compete on price - for example, when Merck introduced a new drug early this year, it priced it well below competition in an unusual move.

Gilead has agreed to make its hepatitis C drugs available as a generic in 101 countries. A spokesman said the company is working with payers - including governments and health insurers - and cited a recent scale up of treatment in Poland to enable 3,500 patients to be treated per year. (A recent study estimated there are 231,000 people infected with the virus in Poland, with most unaware of the disease.)

Bristol-Myers Squibb licensed its hepatitis C drug, Daklinza, to the Medicines Patent Pool, a United Nations-backed organization that makes the drug available as a generic drug to 112 low- and middle-income countries. A spokesman said the company employs tiered pricing in low- and middle-income countries that takes into account how many people have the disease and the country's ability to pay.

AbbVie said that its hepatitis C drug regimens are approved and accessible in more than 70 countries, including most in central and eastern Europe.

A Merck spokeswoman, asked about access to its drug, Zepatier, in low and middle income countries said the company was "working on securing market approvals."

The nonprofit Drugs for Neglected Diseases Initiative has also partnered with an Egyptian company, Pharco Pharmaceuticals, to test a new drug combination that could sell for less than $300 in low- and middle-income countries.

Trek's business model is based on the idea that these approaches are incomplete. They will provide piecemeal access, Kwong argues, but will leave millions untreated.

Danny Edwards, a research program manager at the Access to Medicine Foundation, which ranks and evaluates how well pharmaceutical companies provide their drugs in low and middle income countries, said it was a reasonable strategy.

"I think middle-income country markets present a real business opportunity. You can design access-to-medicine strategies which are commercially sustainable at the same time," Edwards said.

Trek will face other challenges, too, including regulations, uncertainty about how fast other companies' drug prices will drop as competition increases, and the need to show physicians and governments that their drug works as well as pricier options.

Among the most common reservations outside experts expressed about their model was the worry that the medicine Trek is developing might be inferior to other hepatitis C treatments.

"I would hope we could develop a regimen that I would be perfectly comfortable using with my patients, to cure their hepatitis C," said Camilla Graham, Trek's vice president of medical and government affairs and a physician at Beth Israel Deaconess Medical Center in Boston. " I don't like the idea we'd create an inferior regimen for poorer people."

In September, the company announced that all 16 people in a small trial had reached undetectable levels of virus after 12 weeks on their drug combination. That's far from the kind of large randomized trial that precedes a drug's approval, but it is an encouraging sign.

David Rein, a director of the public health analytics program at the University of Chicago's National Opinion Research Center, said that the effort seemed like an intriguing way to work within the current system for developing drugs.

"I've heard of a lot of other approaches that I think are completely unrealistic in the context of our current health care system," Rein said. "This actually seems like it would have a chance."