

U.S. lawmakers ask Gilead to justify hepatitis C drug's $84,000 price - haswell
http://www.latimes.com/business/money/la-fi-mo-hepatitis-c-gilead-pricing-20140321,0,3617096.story#axzz2xtKCnWUP

======
beloch
It's a common misconception that prices are even remotely related to costs.
They're primarily based on what the market will bear. As it turns out, thanks
to the american health insurance system, the market will bear truly shocking
prices!

For comparison, in Canada's healthcare system drugs are bought in monolithic
purchases by the government health board. While you can sell pills at $1000 a
pop to patients who face serious illness without them, I can guarantee you
that Gilead is not going to be able to sell their pills for $1000 a pop to a
government agency. Canadians are going to be paying a _lot_ less for these.
Why would Gilead agree to selling their pills at a cut-rate in other nations?
The market there won't support it, and being locked out of an entire nation's
market is bad for business.

~~~
wyager
>It's a common misconception that prices are even remotely related to costs.

They're not related to production costs; they're related to the cost of
researching drugs in the future. That is, prices determine what pharma
companies will be able to do later on.

Not saying I agree with that, but that's how it is.

~~~
boomlinde
According to the IFPMA, on average, a sixth of all sales in the U.S.
pharmaceutical industry revenue is spent on R&D. To put things in perspective,
according to WHO, this is roughly half of what they spend on marketing.

[http://www.ifpma.org/fileadmin/content/Publication/2011/2011...](http://www.ifpma.org/fileadmin/content/Publication/2011/2011_The_Pharmaceutical_Industry_and_Global_Health_low_ver2.pdf)
[http://www.who.int/trade/glossary/story073/en/](http://www.who.int/trade/glossary/story073/en/)

------
chime
Politics aside, this is such an interesting market dynamic from the economics
point of view. In a competitive market, pharmaceutical manufacturers would all
compete on making the same drug at the cheapest price. But patents make this a
Government-granted monopoly. On the demand side, patients would like to buy
the same drug from the cheapest vendor but because of insurance agencies, do
not even see the full cost of the drug individually. This lack of pricing
information, combined with the demand for medicines being inelastic (and also
not following the law of diminishing returns), makes the demand curve
completely vertical.

While the insurance agencies could negotiate with drug makers for competitive
prices on similar drugs, they are also competing with the Government-backed
insurance entities like Medicare which have vastly different incentives.
Clearly lawmakers and budget-conscious bureaucrats would like to get the best
price from the drug makers but given a near perfect inelastic demand curve and
a monopolistic supplier, there is absolutely nothing they can do.

Since Government granted this very monopoly for the sake of encouraging
innovation, any attempt to revoke IP rights that threaten the monopolies'
entire business, will be met with extreme resistance. Is it better for the
consumers to be in a monopoly market where a necessary medicine costs twice
the annual per capita income or risk being in a competitive market where no
such medicine might exist if the IP right advocates are to be believed?

Aligning the incentives for all entities properly in this market is not
straightforward, especially if you consider US and the rest of the world as
being indirectly linked. Gilead knows they can charge $84,000 in the US
because of their monopoly. This makes it possible for the rest of the world to
get the same medicine cheaper. What remains unknown is, without US being such
a cash-cow for pharmaceuticals, how would the rate of innovation in drug
formulation change? If Merck, BMS, Pzifer, and J&J can't charge what they
want, will pharmaceuticals and India and China take over and create new drugs?
Manufacturing drugs is a minor variable cost. Question is, will the fixed cost
to create new drugs be made by others? If so, why isn't it being done already
at the same scale?

------
bayesianhorse
Healthcare always has this double-headed character of "Extortion" vs "Saving
the World".

Developing these medicines is incredibly risky and incredibly valueable for
society. Therefore it is very hard to argue with high prices when society is
indeed making a profit (in its utility curve, not neccessarily in linear
currency). The drug saves lives, and we would be willing to pay this price.

But healthcare also is a responsibility for society, which means we do have to
regulate prices to avoid the extortion character. Otherwise, in a hundred
years, health care will "extort" 90% of the profit the rest of the economy
makes, because almost every human prefers to live rather than die.

------
girvo
Why? Because ex-heroin addicts are lucrative. Look at Suboxone for a perfect
example. For what it's worth, Suboxone has helped me, but I pay $30 a week
here in Australia, in the USA is literally hundreds of dollars per week for
treatment...

Anyway, a lot of us will pay anything to manage our disease, and so we do. I'm
lucky, I avoided any infections before I got clean, but a lot of others
weren't. It's great they've managed to come up with something to help them,
but what's the point if no one can afford it? They'll literally kill people,
for profit and profit alone.

~~~
ryannevius
It's a stretch to say they'll "kill people." It's more that they just won't be
helping people as much as they could be. But then again, how many people in
this world actually do that?

~~~
girvo
Hepatitis can be fatal, Hepatitis C is the worst out of the lot. Current
treatments leave a lot to be desired, but this new drug has a 90% cure rate
(existing is more like 50%). So yeah, people will die who wouldn't have, if
they could've afforded this.

------
afsina
This is a long debate and I think there is no easy answer. There is an article
about expensive drugs (targeting rare diseases):
[http://www.technologyreview.com/featuredstory/520441/a-tale-...](http://www.technologyreview.com/featuredstory/520441/a-tale-
of-two-drugs/)

Also recent bayer-india case makes things more complicated:

[http://www.reuters.com/article/2013/03/04/us-india-bayer-
idU...](http://www.reuters.com/article/2013/03/04/us-india-bayer-
idUSBRE9230LC20130304)

------
jacquesm
I find it funny to see this on the same front page as the one where the
tarsnap founder is being told how he can make lots of money.

You can't have it both ways folks, either you charge 'by value' or you charge
'by cost'. If you follow the advice of 'charge as much as the market will
bear' for medication you get this situation, if you follow the cost+ model and
apply it to backup you get tarsnap (assuming you know enough about medicine to
come up with the medication and enough about crypto and assorted bits and
pieces of computer programming to be able to create a secure backup service).

Applying charging by value to tarsnap and cost+ to medicine is telling people
that they should go and study ethics, and business people are notoriously bad
at ethics.

As long as medicine and money are intricately involved (and as a motivator,
money seems to be doing a pretty good job) you'll have excesses like these.
Life is literally priceless and we're addicted to it, what better product than
one that costs little to produce and has a 90% chance of improving the chances
of the taker afflicted with some horrible disease to prolong their lives. It's
any marketeer/greedy s.o.b'es wet dream.

That's all the justification they'll ever need.

------
fennecfoxen
Well. How many researchers and managers were paid how many 5-to-6-figure
salaries over how many years? How much other equipment and raw materials were
used or purchased? What was the chance of success?

If the answer is Small or most of it came out of public funding, that's
ridiculous. If the answer is Big and that mostly came out of some rich guys'
pocket... then the justification is "we want rich guys to gamble on developing
medicines for profit, so that over time we accumulate more medicines in the
world, especially since patents expire."

~~~
chime
Gilead bought
[http://en.wikipedia.org/wiki/Pharmasset](http://en.wikipedia.org/wiki/Pharmasset),
discoverers of the $84k drug for $11B in 2011. So that's one place to start.

------
biff
Well, it's like Jonas Salk said: you can't patent the sun.

Clearly somebody has realized that's a fixable situation.

------
jliptzin
Maybe they can also open an inquiry into why water costs $5 / bottle at
airports

------
alexeisadeski3
I'd rather US lawmakers have to justify themselves.

------
alexeisadeski3
That which is not necessary is prohibited.

------
QuantumChaos
>In a letter to the Foster City, Calif., company Thursday, Rep. Henry A.
Waxman (D-Beverly Hills) and two other Democratic lawmakers asked Gilead Chief
Executive John C. Martin to explain the rationale for selling Sovaldi for
$1,000 per pill.

>Previous therapies for hepatitis C helped only about half of patients and had
numerous side effects. In comparison, clinical trials of Sovaldi have shown
cure rates approaching 90% with far fewer complications.

I think that answers the question

~~~
Xenmen
I suspect there was research conducted by public universities to create this
pill, IE that it was publically funded.

The ethics of "I researched this I made this it's mine so you pay what I
demand" is one thing. The ethics of collective research, where part or all of
the actual labour is conducted by individuals who are working on the public
dollar, or while studying (grad students are infamously used for most of the
labour in university research), or have no residual income from the results of
the research, or a mixture of the above.

If university students did most of the work, is this company then justified
for asking this price?

We don't know whether any of this is the case. In our discussion, without
additional research, our only metric should be "what are the manufacturing and
distribution costs". The public health is the concern, first and foremost.

If, for example, an illness reaches epidemic proportions, it's entirely
reasonable for a government to step in and say "it is more important that
citizens _NOT DIE_ than that your company makes a profit".

Hepatitis C is not at that stage anywhere in the US to my knowledge. I suspect
that this drug just happens to be the straw that broke the lawmakers' back;
they're arbitrarily choosing to make this particular drug the battleground for
stopping a negative larger.

~~~
alexeisadeski3
Ex post facto.

------
hardwaresofton
While I certainly don't consider it moral to sell such an important drug for
so much, governments don't possess the right to force any human to share any
knowledge they have developed. As horrible as it sounds, if I develop
something, no one should be able to force me to share it (or not share it),
especially with threat of force (whether direct or indirect).

I'm not libertarian - just to nip that in the bud.

~~~
Xylakant
That's an interesting assertion, please elaborate: Why not? The government
already forces you to do a lot of things for the greater good of the
community. You're forced to pay taxes, you're forced to send your kids to
school, you're forced to obey laws, in some countries you're forced to either
join the army or do some sort of civil service. You're forced not to share
your stash of heroin or your new production method of meth. You're forced not
to spread your knowledge of building nuclear weapons.

All of this already exists and is commonly accepted to be a net positive
thing. So why can't a government force a company to cut the price of a drug
that the company wants to sell. It's not like the company doesn't want to
share the drug - they're just aware that this is effectively a monopoly since
not other comparable treatment exists. People will pay any price they can
afford. This is damaging society since it draws resources from the society to
private investors. I don't think it's wrong that the government is asking for
a justification - the drug might be extraordinarily expensive to produce, the
pill is lined in gold and platinum and has hand-carved inscriptions on it,
tailored to the patients need, ... You could also argue that it's good when
the company gets to squeeze the market dry since that will encourage others to
compete, but how would that benefit society if there's a lot of drugs that
nobody can afford.

Just as a thought experiment: What if Fleming, Chain and Florey kept the
knowledge about penicillin and charged as much money as they could? Millions
of people would have died.

~~~
vixen99
If you force a company to cut the price of a drug you're sending a message to
this and other drug companies - 'think carefully before you decide to embark
on new research; the development of this promising product may not be in your
employees'/shareholders' interests and you're not a charity'.

I guess you're not considering forcing a drug company to manufacture a drug
but where does this application of force end? Many would dispute that the
examples you quote are net positive.

You may know that NICE is a UK National Health Service committee that
regularly votes out expensive drugs where cost/benefit analysis indicates that
they cost too much. If they do then patients can pay privately (but I believe
the drug would not be administered by the NHS - you have to pay for a re-
diagnosis) or (as in reported cases) die. What is a life worth? Depends but it
certainly has a fairly modest price attached to it much though we don't like
to admit it.

~~~
Xylakant
You're arguing market forces and I mentioned that in my post. The parent
argues using moral and I don't think that there's a moral argument to be made.

I'm very careful when people try and argue using market forces since the
market in pharmaceuticals is heavily regulated anyways. There's a lot of
examples where market forces go against the greater good of the community and
the pharma market is a prime example. It's a common occurrence that drugs get
modified slightly and then resubmitted to extend the patent period and the
modification does not make the drug statistically significantly more
effective. This is in line with market forces - it's in the interest of the
company and the shareholders, but it's completely opposed to the interest of
the community and to the idea of the patent system (your monopoly ran out,
your research cost have been paid back). Should the government step in or let
the market forces rule?

