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[e-drug] The Cynical Connectedness of Gilead¹s Pricing & Anti-Diversion Policies

The Cynical Connectedness of Gilead’s Pricing & Anti-Diversion Policies

Professor Brook K. Baker, Senior Policy Analyst Health GAP, Northeastern U. 
School of Law
January 16, 2015

Gilead has both announced the highest recorded prices ever for its direct 
acting hepatitis C antivirals, sofosbuvir/ledipasvir, and one of the most 
stringent anti-diversion programs ever devised.  The price, highest in the US, 
comes in at a whopping $94,000 for a 12-week course of treatment, with slightly 
lower prices in Europe.  Before this combo was approved, Gilead charged $84,000 
– a $1000 a pill – for stand-alone sofobuvir, earning $8-10 billion in the 
first year of sales.  This is for a course of treatment that experts have 
estimated can be manufactured for approximately $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 relationship and 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, 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 a $1000 a pill, essentially saying “pay or die.”  And 
many insurers and governments paid, thus the $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 US, began to ration the drug, providng 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 treatment – essentially the 
patients most next 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 to 
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 Br
igher 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.  Like in the US 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 to 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 
keep waiting lists of people who might 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 stop-gap against retail diversion.

If governments go along with this staged, cynical price extortion and unethical 
treatment of patients, shame on them.  The US 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 US, the UK, and elsewhere. Instead of moving 
toward Hep C elimination, we are plodding blindly towards a $100 billion 
rip-off of patients, taxpayers, and governments around the world.   We are 
allowing companies to ride roughshod over patients’ rights to health 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 to all at an affordable, disease-ending price.

Brook K. Baker
Senior Policy Analyst Health GAP, Northeastern U. School of Law
"Baker, Brook" <b.baker@neu.edu>

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