The Cynical Connectedness of Gilead's Hepatitis C Pricing and Anti-Diversion Policies

January 16, 2015

Brook Baker is the senior policy analyst for Health GAP, a professor at Northeastern University School of Law and an honorary research fellow at the University of KwaZulu-Natal. He is the NGO Board Member to UNITAID and works primarily on issues of intellectual property, trade and access to medicines.

Brook Baker is the senior policy analyst for Health GAP, a professor at Northeastern University School of Law and an honorary research fellow at the University of KwaZulu-Natal. He is the NGO Board Member to UNITAID and works primarily on issues of intellectual property, trade and access to medicines.

Gilead has announced both the highest recorded prices ever for its direct acting hepatitis C antiviral, ledipasvir/sofosbuvir (Harvoni), and one of the most stringent anti-diversion programs ever devised. The price, highest in the U.S., comes in at a whopping US$94,000 for a 12-week course of treatment, with slightly lower prices in Europe. Before this combo was approved, Gilead charged US$84,000 -- US$1,000 a pill -- for stand-alone sofosbuvir, earning US$8billion to US$10 billion in the first year of sales. This is for a course of treatment that experts have estimated can be manufactured for approximately US$100. In turn, the emerging anti-diversion program requires patients in low- and middle-income countries to physically come to designated Gilead distribution sites to exchange an empty 30-day pill bottle for the next month's supply. This program undermines the physician-patient and pharmacist-patient relationships, patient autonomy, adherence, and confidentiality. The question arises: Are the excessive pricing and the draconian anti-diversion policies related? The answer is, like gold and diamonds all the way to the bank.

Gilead's long-term pricing strategy is even more cynical than it seems at first glance. As the first company coming to the market with a highly effective and safe oral hep C medicine, Gilead had monopoly pricing power, especially for patients seriously ill from hep C and those living with or immediately facing severe cirrhosis, liver transplants, and/or liver cancer. These desperate patients -- and their physicians and insurers -- would pay almost anything to survive the extraordinary costs of thrice-weekly dialysis, liver transplantation, and cancer treatment. Gilead decided to respond to this desperation by charging US$1,000 a pill, essentially saying "pay or die." And many insurers and governments paid, thus the US$10 billion in the first year.

Governments began doing the calculations and realized that these prices were completely unaffordable -- except for the sickest -- and thus state and national governments, even in the U.S., began to ration the drug, providing treatment only for the sickest. At this point, another company, AbbVie, came to the market and nearly matched the Gilead price, but then both companies entered into the next phase of their cynical pricing strategy. They began to negotiate secret deals with larger insurers to discount the price of their hep C medicines but only if the insurers would expand the number of patients on treatment -- essentially the next patients most at risk. Although these prices have not been publicly announced, based on precedent, they are likely to be in the 30% range.

Suddenly, the market is expanding again even as it is being split between oligopolists who indirectly collude on high, quantity-based "discount" prices. Even with these discount prices, all hep C patients will not get treatment -- there will still be rationing, but the patients closest to serious disease progression will finally get a cure. However, the majority of patients who are undetected and asymptomatic will still be untreated and therefore still be transmitting the disease to a new population of future Gilead/AbbVie customers.

Looking into the future, one can anticipate that Gilead and other companies will continue to gradually reduce their hyper-inflated prices in exchange for access to more customers -- and more profits. However, they will not offer an elimination price, an affordable price for the medicine that will spark a huge increase in testing, connection to care, and immediate treatment. After all, a stead crop of new customers makes business sense in the amoral world of corporate unaccountability.

Gilead is following a similar, equally cynical differential pricing strategy in low- and middle-income countries. It is basically negotiating, largely in secret, and charging much higher prices in upper-middle-income countries like Brazil and Turkey and somewhat lower prices in certain poorer and higher prevalence countries like Egypt and India. Once again Gilead hopes that payers -- patients and governments (there are few insurers) -- will pay these high, "discount" prices for the sickest and wealthiest patients. These profits will be reaped for several years, even in countries where Gilead has granted a voluntary license to generic producers, given it will take time for those producers to come to market. As in the U.S. and Europe, Gilead will probably lower prices somewhat to gain access to a larger group of patients treated largely in the public sector. In this regard, it is important to note that Gilead has granted access via its voluntary license to only 91 countries, leaving many of the highest burden middle-income countries outside the licensed territories. This license also keeps the more lucrative private sector to Gilead alone.

So, in sum, Gilead has devised a strategy to extract maximum profits from markets based on a geographic and time-lapse segmentation strategy. It earns the highest profits it can from the sickest people in high- and middle-income countries first, then lowers prices slightly over time to gain access to an expanding pool of slightly less sick patients. Even when other companies like AbbVie enter the market, there are plenty of oligopolist profits to share when there are 150 million-plus people living with hep C globally.

This is where anti-diversion policies come in:They come in to protect these geographic and time-series market segments and future super profits. Gilead knows that the medicines can be made cheaply and that there are huge incentives throughout the supply chain for middlemen to try to divert cheaper medicines to richer markets. Gilead knows that there are sick, but presently excluded, patients who would rather get treated earlier than only after they become seriously ill. Its executives know that there are people who will want to be treated to prevent transmission to others. They know that rationing medicines results in waiting lists of people who might buy medicines more cheaply if they could -- they might even be willing to travel to other countries for cheaper supplies or they might be willing to buy through less formal channels. These health-related patient incentives -- incentives created by cynically pricing medicines that create rationing and wait lists -- in turn create incentives for diversion on a wholesale and even retail scale. Accordingly, Gilead locks down the supply chain, especially in low- and middle-income countries, even to the level of coercing patients to act as the final stopgap against retail diversion.

If governments go along with this staged, cynical price extortion and the unethical treatment of patients, shame on them. The U.S. can't afford this strategy, nor can the EU, let alone low- and middle-income countries. Rationing of hep C cures is already happening in the U.S., the U.K., and elsewhere. Instead of moving toward hep C elimination, we are plodding blindly towards a US$100 billion rip-off of patients, taxpayers, and governments around the world. We are allowing companies to ride roughshod over health rights of patients and to undermine the public health imperative of disease eradication.

Paradoxically, when countries and insurers do decide that they have been forced to ration, the press and some patient groups blame the government instead of demanding government action to defeat this unconscionable strategy. They should be demanding that there be clinical trials to find the best treatment combination regardless of whether the medicines come from different companies. They and activists should be demanding real price drops, real price controls, and ultimately worldwide generic production of the best fixed-dose combination treatments that can end the hep C pandemic by curing everyone with the disease. Don't blame the governments and force taxpayers to create even more obscene pharmaceutical wealth -- make them act in the public interest to ensure access for all at an affordable, disease-ending price.


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