A New Look Behind the Pricing of a $1,000 Pill
By Azzi Momenghalibaf
When Gilead Sciences launched its new hepatitis C drug Sovaldi at $1,000 per pill in 2013, and then charged even more for the follow-up combination drug Harvoni, it sparked public outrage and forced unprecedented rationing of these life-saving medicines. The costs and widespread need overwhelmed patients, insurers, and government coffers. Why were these prices so high?
Last week, the U.S. Senate Finance Committee concluded an 18-month investigation that gave us the ugly answer. Lead Senators Ron Wyden and Chuck Grassley, Democrat and Republican respectively, found that Gilead “pursued a calculated scheme for pricing and marketing its hepatitis C drugs based on one goal: maximizing revenue, regardless of the human consequences.”
Gilead knew that its pricing would deny access to its cure to the vast majority of the three million Americans living with hepatitis C. And it didn’t care. “Let’s hold our position … no matter the headlines,” wrote Gilead’s executive vice president for commercial operations in an internal email disclosed by the Senate investigation.
The investigation also debunked one of the most common myths on which the pharmaceutical industry relies: that high prices are needed to spur innovation and recoup investment in research and development. It found that R&D costs did not factor into Gilead’s pricing at all—and neither did its $11 billion outlay to acquire Pharmasett, the company that developed the active ingredient behind the hepatitis C medicines. Rather, the company set the price based on what they thought they could get away with, balancing public outcry against profit maximization.
The public would be even more upset if it realized that drug companies were not even the primary investors in the risky R&D that drives innovation. (The companies spend far, far more on marketing). As much as half of biomedical R&D is actually paid for by the public. American taxpayers in particular are the greatest contributor to biomedical R&D, investing $30 billion annually in the National Institutes of Health (NIH). Much of the R&D behind Sovaldi was financed by the NIH and other public institutions.
What’s most troubling, however, is that a lack of any limits on pharmaceutical profit seeking means that the United States pays the highest prices for medicines of any country in the world. A course of Sovaldi, for example, priced at $84,000 in the United States, is available for less than $900 in India and Egypt, and between $46,000 and $53,000 in France, Germany, and the UK. Though U.S. taxpayers have already paid to develop these kinds of new drugs, companies like Gilead have patients pay again, at vast markups, in order to receive them.
To add insult to injury, drug companies routinely shirk their public responsibilities and avoid paying their fair share of taxes in the United States. The recent Pfizer–Allergan merger is a clear example. As for Gilead, after grossing over $12 billion in 2014—over 70 percent of that through sales in the United States—it is also dodging billions in U.S. taxes by filing its profits overseas.
For those of us working to improve pharmaceutical pricing policy and make medicines affordable for all, the Senate Finance Committee’s findings on hepatitis C come as no surprise. We have seen the same kind of price gouging of patients with cancer, multiple sclerosis, and other illnesses. As a leading lobbying force in Washington bound by few constraints, the pharmaceutical industry’s arbitrary price setting and extreme profiteering is the rule, not the exception.
As Senators Grassley and Wyden highlighted on Tuesday, their investigation of Sovaldi is emblematic of a much larger problem. In the build up to next year’s U.S. presidential election, voters may start to have their say. Candidates Hillary Clinton and Bernie Sanders have responded to a worried electorate by beginning to put forward proposals for reform. The public now has an opportunity to demand approaches that rein in the pharmaceutical industry’s monopoly over who gets what medicines and at what price.
“Let’s not fold to advocacy pressure in 2014,” a Gilead executive urged after Sovaldi’s release. Perhaps 2016 will force the company to a different resolution: one that better recognizes the needs of patients.
After all, when it comes to developing new medicines, the taxpayers have already paid.
Correction (December 8, 2015): The names of the political parties to which Senators Ron Wyden and Chuck Grassley respectively belong have been corrected.
Azzi Momenghalibaf is a senior program officer with the Open Society Public Health Program.