U.S. lawmakers ask Gilead to justify hepatitis C drug's $84,000 price

http://www.latimes.com/business/money/la-fi-mo-hepatitis-c-gilead-pricing-20140321,0,3617096.story#axzz2xtKCnWUP

by haswell • 12 years ago

42 41 12 years ago

In a letter to the Foster City, Calif., company Thursday, Rep. Henry A. Waxman (D-Beverly Hills) and two other Democratic lawmakers asked Gilead Chief Executive John C. Martin to explain the rationale for selling Sovaldi for $1,000 per pill.
Previous therapies for hepatitis C helped only about half of patients and had numerous side effects. In comparison, clinical trials of Sovaldi have shown cure rates approaching 90% with far fewer complications.

I think that answers the question

harshreality• 12 years ago

No, it really doesn't. This is yet another magical medical care "retail price" that has little connection to reality.

First, you can be sure that medicare, medicaid and private insurers have negotiated that price down.

Second, Gilead itself offers a coupon to reduce co-pays to $5 per refill for health insurance plans that don't cover the entire cost of the prescription[1], up to 20% of the total cost (so it appears if you have a 20% out of pocket copay for prescription drugs, you pay $30 total instead of $16800).

So, who is paying $84k? If it's like most other medical costs, the answer is only people who don't negotiate the price down first. The important aspect is that by charging $1000/pill retail, they probably get tax benefits from offering it for less, and anyone on a healthcare plan (if such plans still exist post-Obamacare) which caps lifetime expenditures who get the prescription get a good chunk ($84k) taken out of their lifetime healthcare coverage, which the insurer would love.

To get to the bottom of it, it would be good to know: What are the typical prices (definitely average, median, and perhaps various other percentiles) that Giliad gets from these prescriptions? What does Gilead's internal accounting for the drug (separating R&D, advertising, and marginal costs) look like, and what are the tax consequences of inflating the sticker price?

[1] https://www.sovaldi.com/copay-register.aspx

Xenmen• 12 years ago

I suspect there was research conducted by public universities to create this pill, IE that it was publically funded.

The ethics of "I researched this I made this it's mine so you pay what I demand" is one thing. The ethics of collective research, where part or all of the actual labour is conducted by individuals who are working on the public dollar, or while studying (grad students are infamously used for most of the labour in university research), or have no residual income from the results of the research, or a mixture of the above.

If university students did most of the work, is this company then justified for asking this price?

We don't know whether any of this is the case. In our discussion, without additional research, our only metric should be "what are the manufacturing and distribution costs". The public health is the concern, first and foremost.

If, for example, an illness reaches epidemic proportions, it's entirely reasonable for a government to step in and say "it is more important that citizens NOT DIE than that your company makes a profit".

Hepatitis C is not at that stage anywhere in the US to my knowledge. I suspect that this drug just happens to be the straw that broke the lawmakers' back; they're arbitrarily choosing to make this particular drug the battleground for stopping a negative larger.

alexeisadeski33• 12 years ago

Ex post facto.

hardwaresofton5• 12 years ago

While I certainly don't consider it moral to sell such an important drug for so much, governments don't possess the right to force any human to share any knowledge they have developed. As horrible as it sounds, if I develop something, no one should be able to force me to share it (or not share it), especially with threat of force (whether direct or indirect).

I'm not libertarian - just to nip that in the bud.

rurounijones• 12 years ago

I find the whole idea of dealing with this scenario in absolutes as iffy because you can almost always find a grey area.

e.g. Bob has created a vaccine which, he has discovered accidentally, will prevent millions of people dying of X every year in Africa. He has also decided not to share how he made it because he hates black people.

In this situation should humanity just accept his decision? Would force (or threat of) be justified on the basis that the end good outweighs the methods.

Tricky, and I do not know the answer, but I do not think it can be a moral absolute.

dTal2• 12 years ago

I don't think it's a moral question at all - I think it's a pragmatic one. We are presumably agreed that it would be a better world if Bob's vaccine were released to the world, regardless of what Bob thinks. The only question is, what's the best way of getting that to happen? Do we reward Bob for releasing it? Punish him for not releasing it? Hack his computer and nick his research? I think, morally, we'd be perfectly justified in doing all of these things to save millions of lives - the question of what do in the general case merely hinges on what's most effective, carefully considering second-order effects (for example, torturing Bob until he tells you the vaccine formula might work a treat the first time this happens, but next time somebody discovers a vaccine they're gonna keep quiet about it, which is harmful).

Actually, I think a lot of political problems are caused by confusing pragmatic issues with moral ones. Patents (IP in general, really) are a great example, with "trade secrets are slowing the economy down, lets provide incentives for publishing them" mutating grossly into "inventors ought to be rewarded for their inventions, at any economic cost".

hardwaresofton5• 12 years ago

I would like to think that the ends do not justify the means... I could give a bunch of ridiculous, overblown examples, but means are pretty important (especially to the people who might be negatively effected)

Xylakant2• 12 years ago

That's an interesting assertion, please elaborate: Why not? The government already forces you to do a lot of things for the greater good of the community. You're forced to pay taxes, you're forced to send your kids to school, you're forced to obey laws, in some countries you're forced to either join the army or do some sort of civil service. You're forced not to share your stash of heroin or your new production method of meth. You're forced not to spread your knowledge of building nuclear weapons.

All of this already exists and is commonly accepted to be a net positive thing. So why can't a government force a company to cut the price of a drug that the company wants to sell. It's not like the company doesn't want to share the drug - they're just aware that this is effectively a monopoly since not other comparable treatment exists. People will pay any price they can afford. This is damaging society since it draws resources from the society to private investors. I don't think it's wrong that the government is asking for a justification - the drug might be extraordinarily expensive to produce, the pill is lined in gold and platinum and has hand-carved inscriptions on it, tailored to the patients need, ... You could also argue that it's good when the company gets to squeeze the market dry since that will encourage others to compete, but how would that benefit society if there's a lot of drugs that nobody can afford.

Just as a thought experiment: What if Fleming, Chain and Florey kept the knowledge about penicillin and charged as much money as they could? Millions of people would have died.

vixen99• 12 years ago

If you force a company to cut the price of a drug you're sending a message to this and other drug companies - 'think carefully before you decide to embark on new research; the development of this promising product may not be in your employees'/shareholders' interests and you're not a charity'.

I guess you're not considering forcing a drug company to manufacture a drug but where does this application of force end? Many would dispute that the examples you quote are net positive.

You may know that NICE is a UK National Health Service committee that regularly votes out expensive drugs where cost/benefit analysis indicates that they cost too much. If they do then patients can pay privately (but I believe the drug would not be administered by the NHS - you have to pay for a re-diagnosis) or (as in reported cases) die. What is a life worth? Depends but it certainly has a fairly modest price attached to it much though we don't like to admit it.

hardwaresofton5• 12 years ago

Well the idea is that as soon as you start having governments making decisions "for the greater good" a lot of not very good things can happen very fast.

It's easy to focus on the positive examples, but when governments start making value judgements, if your values don't line up with the government's you're going to have a pretty bad time.

And yes -- everyone's bringing up that point, but still, that would have meant they were villains. People have the right to be villainous, if they so choose, whether you agree or disagree.

Note- asking for a justification is one thing, forcing them to lower prices is another, and I'm opposed to the latter.

Also, the same decision making body you're hoping will do the net-positive thing has started many wars and done many thinks that are not very conscionable

So let's try a different example: What if the government took a hard line on monitoring every citizen in the US, and enforcing laws with drones, because it would save "millions of lives"? That's less subtle, but the loss of rights that are naturally yours is there nonetheless

pjc50• 12 years ago

.. but patent enforcement relies entirely on the use of "force" against infringers? So I take one of these pills and reverse-engineer it to produce "knowledge" of how to make it, would you prevent me "sharing" that?

This is not a coherent philosophical position.

hardwaresofton5• 12 years ago

I think you might have misunderstood somewhere -- no, they shouldn't prevent you from sharing it.

Correct me if I'm wrong, butI think you're assuming patent enforcement, the patent system, and patents themselves are a good thing. I don't think that's true.The fact that you think you own an idea you thought of is unreasonable, given you cannot guarantee you are the first one to have it, or the last one to have it. Trade secrets make much more sense, if you don't want your secret recipe to get out, don't let it.

girvo2• 12 years ago

Why? Because ex-heroin addicts are lucrative. Look at Suboxone for a perfect example. For what it's worth, Suboxone has helped me, but I pay $30 a week here in Australia, in the USA is literally hundreds of dollars per week for treatment...

Anyway, a lot of us will pay anything to manage our disease, and so we do. I'm lucky, I avoided any infections before I got clean, but a lot of others weren't. It's great they've managed to come up with something to help them, but what's the point if no one can afford it? They'll literally kill people, for profit and profit alone.

ryannevius• 12 years ago

It's a stretch to say they'll "kill people." It's more that they just won't be helping people as much as they could be. But then again, how many people in this world actually do that?

girvo2• 12 years ago

Hepatitis can be fatal, Hepatitis C is the worst out of the lot. Current treatments leave a lot to be desired, but this new drug has a 90% cure rate (existing is more like 50%). So yeah, people will die who wouldn't have, if they could've afforded this.

naterator• 12 years ago

They'll literally kill people, for profit and profit alone.

And how many people would they be "killing" if they had decided to not develop the drug at all because there is no chance of making money? Should they have done it out of the kindness of their heart? It may be disgusting to you that that is the truth, and then perhaps you should be petitioning your government to replace the industry with public institutions, but that is the current reality.

fennecfoxen2• 12 years ago

Well. How many researchers and managers were paid how many 5-to-6-figure salaries over how many years? How much other equipment and raw materials were used or purchased? What was the chance of success?

If the answer is Small or most of it came out of public funding, that's ridiculous. If the answer is Big and that mostly came out of some rich guys' pocket... then the justification is "we want rich guys to gamble on developing medicines for profit, so that over time we accumulate more medicines in the world, especially since patents expire."

chime2• 12 years ago

Gilead bought http://en.wikipedia.org/wiki/Pharmasset, discoverers of the $84k drug for $11B in 2011. So that's one place to start.

chime2• 12 years ago

Politics aside, this is such an interesting market dynamic from the economics point of view. In a competitive market, pharmaceutical manufacturers would all compete on making the same drug at the cheapest price. But patents make this a Government-granted monopoly. On the demand side, patients would like to buy the same drug from the cheapest vendor but because of insurance agencies, do not even see the full cost of the drug individually. This lack of pricing information, combined with the demand for medicines being inelastic (and also not following the law of diminishing returns), makes the demand curve completely vertical.

While the insurance agencies could negotiate with drug makers for competitive prices on similar drugs, they are also competing with the Government-backed insurance entities like Medicare which have vastly different incentives. Clearly lawmakers and budget-conscious bureaucrats would like to get the best price from the drug makers but given a near perfect inelastic demand curve and a monopolistic supplier, there is absolutely nothing they can do.

Since Government granted this very monopoly for the sake of encouraging innovation, any attempt to revoke IP rights that threaten the monopolies' entire business, will be met with extreme resistance. Is it better for the consumers to be in a monopoly market where a necessary medicine costs twice the annual per capita income or risk being in a competitive market where no such medicine might exist if the IP right advocates are to be believed?

Aligning the incentives for all entities properly in this market is not straightforward, especially if you consider US and the rest of the world as being indirectly linked. Gilead knows they can charge $84,000 in the US because of their monopoly. This makes it possible for the rest of the world to get the same medicine cheaper. What remains unknown is, without US being such a cash-cow for pharmaceuticals, how would the rate of innovation in drug formulation change? If Merck, BMS, Pzifer, and J&J can't charge what they want, will pharmaceuticals and India and China take over and create new drugs? Manufacturing drugs is a minor variable cost. Question is, will the fixed cost to create new drugs be made by others? If so, why isn't it being done already at the same scale?

jliptzin• 12 years ago

Maybe they can also open an inquiry into why water costs $5 / bottle at airports

beloch• 12 years ago

It's a common misconception that prices are even remotely related to costs. They're primarily based on what the market will bear. As it turns out, thanks to the american health insurance system, the market will bear truly shocking prices!

For comparison, in Canada's healthcare system drugs are bought in monolithic purchases by the government health board. While you can sell pills at $1000 a pop to patients who face serious illness without them, I can guarantee you that Gilead is not going to be able to sell their pills for $1000 a pop to a government agency. Canadians are going to be paying a lot less for these. Why would Gilead agree to selling their pills at a cut-rate in other nations? The market there won't support it, and being locked out of an entire nation's market is bad for business.

wyager• 12 years ago

It's a common misconception that prices are even remotely related to costs.

They're not related to production costs; they're related to the cost of researching drugs in the future. That is, prices determine what pharma companies will be able to do later on.

Not saying I agree with that, but that's how it is.

coderaptor• 12 years ago

But, in the end, still market-bearable costs. Maybe we'd see a reduction of the costs of doing research if there weren't so much tax-payer and insurance money involved today.

boomlinde• 12 years ago

According to the IFPMA, on average, a sixth of all sales in the U.S. pharmaceutical industry revenue is spent on R&D. To put things in perspective, according to WHO, this is roughly half of what they spend on marketing.

http://www.ifpma.org/fileadmin/content/Publication/2011/2011... http://www.who.int/trade/glossary/story073/en/

icelancer2• 12 years ago

Do you also understand that those countries get access to these drugs because American taxpayers and health consumers subsidize the cost of the drug?

DanBC• 12 years ago

That is a myth put about by pharmaceutical company interest groups.

http://www.citizen.org/publications/publicationredirect.cfm?...

fennecfoxen2• 12 years ago

It's a common misconception that prices are even remotely related to costs. They're primarily based on what the market will bear.

In a free market with low barriers to entry and low transaction costs, prices are very much related to costs: the price of a thing is the same as the marginal cost of the last unit of a thing produced. This market is also an efficient market.

You may note that the market for treatment of a particular condition has some pretty steep barriers to entry - patents and lots of research and FDA approvals. IT IS NOTHING LIKE AN EFFICIENT FREE MARKET.

In this case, it sounds like they more or less have a monopoly on the treatment, and will charge whatever price maximizes their profit. (This may be multiple prices, if they can do effective price discrimination: charge more to customers able to pay more, less to customers able to pay less.) So yes. "Whatever price the market will bear" indeed.

Postscript. To some extent this is the idea behind a patent on anything: Spend money doing research / design! Receive monopoly pricing power in return! Society gets to use it at will N years later!

drewcrawford• 12 years ago

"low barriers to entry" is as best as I can tell an arbitrary phrase that means whatever you want it to mean.

For example, a movie industry with the "lowest barrier to entry" would be a legal system where I can take The Hobbit from New Line Cinema, copy it, and sell it to consumers at industrial scale. As far as I can tell, not even the Pirate Party advocates for such a system.

Whenever somebody says "low barriers to entry" inevitably what they mean is "low enough that Big Bad Company is in trouble, but not zero". And while I support the sentiment, and to a significant extent, the policy, I fail to see how arbitrarily adjusting the barriers to entry to a different value because I don't like who is benefiting from it right now is anything other than picking winners and losers, which is a very un-free-market thing to do.

throwaway2048• 12 years ago

People will pay any price they are capable of to not die. This is what makes many of these situations so morally outrageous.

biff• 12 years ago

Well, it's like Jonas Salk said: you can't patent the sun.

Clearly somebody has realized that's a fixable situation.

afsina• 12 years ago

This is a long debate and I think there is no easy answer. There is an article about expensive drugs (targeting rare diseases): http://www.technologyreview.com/featuredstory/520441/a-tale-...

Also recent bayer-india case makes things more complicated:

http://www.reuters.com/article/2013/03/04/us-india-bayer-idU...

bayesianhorse• 12 years ago

Healthcare always has this double-headed character of "Extortion" vs "Saving the World".

Developing these medicines is incredibly risky and incredibly valueable for society. Therefore it is very hard to argue with high prices when society is indeed making a profit (in its utility curve, not neccessarily in linear currency). The drug saves lives, and we would be willing to pay this price.

But healthcare also is a responsibility for society, which means we do have to regulate prices to avoid the extortion character. Otherwise, in a hundred years, health care will "extort" 90% of the profit the rest of the economy makes, because almost every human prefers to live rather than die.

alexeisadeski33• 12 years ago

That which is not necessary is prohibited.

alexeisadeski33• 12 years ago

I'd rather US lawmakers have to justify themselves.

jacquesm• 12 years ago

I find it funny to see this on the same front page as the one where the tarsnap founder is being told how he can make lots of money.

You can't have it both ways folks, either you charge 'by value' or you charge 'by cost'. If you follow the advice of 'charge as much as the market will bear' for medication you get this situation, if you follow the cost+ model and apply it to backup you get tarsnap (assuming you know enough about medicine to come up with the medication and enough about crypto and assorted bits and pieces of computer programming to be able to create a secure backup service).

Applying charging by value to tarsnap and cost+ to medicine is telling people that they should go and study ethics, and business people are notoriously bad at ethics.

As long as medicine and money are intricately involved (and as a motivator, money seems to be doing a pretty good job) you'll have excesses like these. Life is literally priceless and we're addicted to it, what better product than one that costs little to produce and has a 90% chance of improving the chances of the taker afflicted with some horrible disease to prolong their lives. It's any marketeer/greedy s.o.b'es wet dream.

That's all the justification they'll ever need.

U.S. lawmakers ask Gilead to justify hepatitis C drug's $84,000 price

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