Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The Senate Committee on Finance report on Gilead’s pricing of its blockbuster hepatitis C drugs Sovaldi and Harvoni is ominous, promising dark revelations of how the firm pursued profit at patient expense. And it's certainly unflattering to Gilead.

But mostly it just describes how pharmaceutical pricing always works. Little wonder the company’s shares are only marginally lower since the report's release earlier this week. 

A Senatorial Shrug
A fire-breathing report from the Senate Finance Committee barely singed Gilead
Source: Bloomberg
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The report, drawn from thousands of pages of Gilead internal documents, among other material, is an unusually detailed look at how the pricing sausage is made for new drugs, and it's not pretty.

There's plenty of clinical discussion of how to maximize revenue from treatments for a widespread, devastating disease. Gilead looks like it underestimated how its choices would impact patients and mostly ignored the impact on the health-care system. Medicare spent $4.6 billion before rebates on HCV drugs from the beginning of 2015 through June. 95 percent of that was on Gilead's drugs.

The company apparently wasn't swayed by the ethical implications of making a drug so expensive -- in the U.S., Sovaldi costs $84,000 for a 12-week course of treatment, or about $1,000 per pill, and Harvoni costs $94,500 -- that states would refuse to pay for it until hepatitis caused sufficient liver scarring. Its confidence in its pricing power came from the fact that the drugs cure about 9 out of 10 people with the most common type of hepatitis C (HCV) and show promising results in other types.

The impact on poorer patients has been particularly severe. In 2014, 27 state Medicaid programs required that patients get special authorization to access Sovaldi. Twenty-four of those required evidence of liver scarring, and 19 required that it be extremely severe before they'd pay for the drug. Thirty-three states required authorization for Harvoni or AbbVie's competing drug, Viekira Pak.  

In that context, the kind of slide seen below -- from documents Gilead submitted to the Senate's investigators -- doesn't look great. It suggests Gilead considered prices north of $100,000 for both treatments (in the slide, "Wave 1" refers to Sovaldi, "Wave 2" is the follow-up treatment, Harvoni). In the slide, the company weighs higher prices for the drugs against the likelihood of public outrage, activist pushback, congressional investigation and other inconveniences:   

Still, it shouldn't come as a surprise that pharmaceutical pricing is focused on driving revenue above everything else. "Outmaneuvering potential competitors to ensure its drugs had the greatest share of the market, for the highest price, for the longest period of time," as a summary of the report critically describes Gilead's strategy, is how any company approaches a unique product. That's particularly true for products that can cure millions of people of a disease where previous treatments were often ineffective, awful to take, or both. 

This is a singular situation; no previous treatment has enjoyed anything like this combination of price and patient population size -- as many as 150 million people worldwide have chronic HCV. It's also unusual in that HCV progresses slowly, inspiring doctors to tell patients to wait on the release of these drugs to seek treatment, a process known as "warehousing," which further boosted demand. 

This story is less about any unique wrongdoing on Gilead's part than it is about a broken drug-pricing system. That's true not just for old, marginal drugs, but for innovative and important ones. This is much less of a problem in other developed countries. Sovaldi prices disclosed by Gilead to the Senate Finance committee on September 9, 2014, range as low as $50,525 in Canada, and average $58,508.58 in a handful of developed countries:  

$84,000? No thanks
The rest of the developed world got a big discount on Sovaldi's big price tag in the United States
Source: Gilead/Senate Finance Committee

Gilead arguably committed strategic errors. It vastly underestimated the impact of sticker shock, even for drugs that work so well that they're cost-effective over time, even at $1,000 a pill. Payers were so blindsided by Sovaldi's price when it was introduced in late 2013 that they denied many patients access to it. Gilead got more egg on its face after AbbVie's competing drug, Viekira Pak, came out in late 2014, forcing it to take big discounts.

At the end of the day, though, it all worked out pretty well for Gilead. This year, Harvoni and Sovaldi sales together are projected to pass Humira, currently the best-selling drug in the world, according to analyst forecasts compiled by Bloomberg:

Rocket Ship
Despite criticism over its pricing practices, the sales of Sovaldi and Harvoni have been stunning for Gilead
Source: Bloomberg

The Senate report highlights a lack of transparency in the drug-pricing system. Lawmakers are legally forbidden to find out what discounts and rebates drug manufacturers agree to with Medicare and Medicaid. Pretty much no one can find out the real prices different groups are paying in a fragmented market. Medicare Part D, one of the largest single purchasers of drugs in the country, legally can't negotiate with drugmakers. Individuals are insulated from the cost of medication by caps on out-of-pocket spending. In such an environment, it would be financially irresponsible for a profit-seeking corporation not to price new drugs as high as the market can bear.

Even relatively mild steps to remedy the situation are unlikely for a Republican-controlled Congress hostile to the idea of price controls, especially with a free-spending pharma lobby. In that context, it seems a bit unfair to direct outrage at Gilead for a systemic problem. Any other company would likely have been thrilled to do the same thing it did. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Manufacturers are legally required to rebate a significant portion of a drug's wholesale price when selling to government programs. Sizable private payers often negotiate rebates as well. 

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net