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.


Copyright © 2015 Remedy Health Media, LLC. All rights reserved.

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Reader Comments:

Comment by: William Padilla (Grants Pass,Ore) Thu., Jul. 2, 2015 at 5:49 pm UTC
Wow! Was diagnosed with. HIv in 1988 and HEP C in 1995. ACT-UP played a big part in shaking up Big Pharma,and drawing attention to corporate greed. We need again
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Comment by: Chao Chen (Boston, MA) Thu., Jun. 4, 2015 at 2:44 pm UTC
I think there should be patient group collecting death certificates for those who died from hep C. Send it to Gilead every month. They can view this a moral pressure, or business opportunity.

People should understand this company is for profit and nothing else.
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Comment by: Anne Marie (Minnesota) Thu., Feb. 5, 2015 at 4:54 pm UTC
Wow Mr. Barrett, you must work for Gilead so I don't even think it is appropriate for you to post a comment. I should think you'd be ashamed, which is exactly what Gilead should be for this pricing. We are weary of hearing about the R&D costs, most likely Gilead bought a patent cheap from a public university research system that developed the chemistry. The only justification for this pricing is that Gilead executives need a 50K sq ft home because how can you expect to live with 25K sq ft? There's a special place in hell for you guys and your greed.
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Comment by: Mark Barrett (California) Sun., Jan. 25, 2015 at 2:37 am UTC
Can be manufactured for $100? Did you not take into account the 11 billion USD (yes billion) to acquire the drug from Pharmaset, as well as probably another billion for all the further research, clinical trials etc.? I think they are just breaking even about now.

Why don't you go ask Abvie (the only really competitor at this point) what they are doing for the poor? At least Gilead is offering it at a 99% discount to about 90 countries through a special deal to offer a generic (like they did with the best HIV meds), and I see that India is even trying to circumvent that with some bogus patent lawsuit so that they can steal the formula.

I think you need to take a much deeper look at what is a very complex matter.
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Comment by: Tim Sanders (Reno, Nv. ) Fri., Jan. 23, 2015 at 3:04 pm UTC
Perhaps BodyPro thinks this is an exceptional case of Big Pharma price gouging. It is not...it is the norm. As most people know, we in the U.S. pay far more for necessary pharmaceutical treatment than almost any other country. An early but often repeated example is the first line of treatment for HIV infection, AZT. AZT was developed in the late50's and 60's as a cancer treatment. It proved to be toxic and was removed from the list of treatments for cancer and shelved. That is until AIDS came along. Then it was taken off the shelf after Burroughs-Wellcome (now Smith-Kline-Wellcome) found it has an anti-viral property and prevented some replication of the HIV virus but not all replication. All research and development costs of the drug had been recouped from TAXPAYER subsidies offered by the U.S. government to ALL pharmaceutical companies in research and development of a drug. AZT was fast tracked by the FDA in treatment for HIV and received approval in less than 2 years. It was then administered to those infected who could afford the 8-10 THOUSAND USD that it cost for a year's supply. Unfortunately for those 10's of thousand of people who took AZT in the late 80's and early 90's, they unwittingly were being used as guinea pigs in the administration of dosages for humans. For some still unknown reason, the FDA allowed dosages that were far and away above those dosages that had already been proven toxic on cancer patients. Many thousands died of toxicity from over dosing by their doctors treatment which was dictated by the FDA and Burroughs-Wellcome. Why would any thinking medical or pharmacological entity or individual human possibly think that starting a drug at excessive levels of dosage would be prudent, especially with AZT's already proven toxicity to human in cancer trials? Here is just one of hundreds of examples of the corruptness and inhumanity of our medical system, to include the FDA, Big Pharma and the AMA (doctors) in general who stood to benefit $$ wise.
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Comment by: K S Hamilton (Palo Alto CA) Mon., Jan. 19, 2015 at 6:26 pm UTC
It's a good thing the polio vaccine put on sugar cubes & fed to us in elementary school was "affordable" i.e. free or we'd all have gotten polio! 'Course lots of us now have Hep C & may not be able to afford treatment...but hey what the heck...win some, lose some
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Comment by: Todd Nolan (Chicago, IL) Sat., Jan. 17, 2015 at 6:52 am UTC
It's rare and refreshing to read a take even more cynical than my own, albeit slightly. "The majority of patients who are undetected and asymptomatic will still be untreated"? This appears to be wrong, at least for the US ("undetected" doesn't even make sense in this context). Major insurers are already agreeing to treat all patients with chronic HCV. Rationing pretty much ended with the arrival of Viekira and Harvoni. And it's worth noting the cost-per-cure is actually lower now than in the days of interferon. As for low-income countries, they have the moral and legal ability to throw Gilead's patents out the window and make their own generics if demanded by reasons of public health or basic humanity: India has just shot down the sofosbuvir patent as a matter of fact.
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