Perhaps no other biopharma company has a tougher decision to make
right now than Gilead Sciences does on the pricing of COVID-19 drug
remdesivir amid a public health crisis. It’s not exaggerating to say the
entire pharmaceutical industry’s reputation hinges on the company’s
next moves.
Now, one Wall Street analyst is voicing his support for Gilead,
arguing the Big Biotech shouldn’t be pressured to price remdesivir too
low or be penalized for making a sizeable profit along the way.
“If you are going to war, or preparing for war in a capitalist
country, you have to let business make money out of the process or
business won’t work,” SVB Leerink’s Geoffrey Porges wrote in a Wednesday
note to investors, quoting former U.S. Secretary of War Henry Stimson
during World War II.
The COVID-19 pandemic is indeed a war against a pathogen, as the
disease had infected over 7.4 million and claimed more than 417,000
lives globally as of Thursday morning.
Underestimated by cost-effectiveness analysis
What kind of a sticker price for remdesivir is acceptable? Around
$5,000 per course, in Porges’ view. That was roughly the same as the
$4,460 that
drug cost watchdog the Institute for Clinical and Economic Review
(ICER) came up with recently for the drug to be deemed cost-effective.
That price was reached on very stringent pharmacoeconomic standards,
Porges noted. It’s based on the criterion of $50,000 per
quality-adjusted life-year gained, rather than the more commonly applied
$100,000/QALY or $150,000/QALY thresholds.
What’s more, the ICER analysis dismissed R&D and capital
investment costs, arguing Gilead already got its money back by selling
megablockbuster hepatitis C drugs. During a recent conference call with
investors, Gilead CFO Andrew Dickinson said the “potential range” of
investment in ramping up remdesivir development and manufacturing could
reach $1 billion in 2020 alone.
ICER also based its calculation on an outside study that
estimates
the manufacturing cost of the drug is $10 per 10-day course, though
Dickinson recently told Porges the actual number is “an order of
magnitude greater than” that. Consumer advocacy group Public Citizen is
calling for a manufacturing cost recovery price of $1 per day.
In addition, ICER used hospital medical costs of hospitalization for
non-COVID pneumonia, “which likely underestimates the cost of care for
COVID pneumonia, with likely longer hospital stays, greater complexity,
highly infectious nature and isolation requirements,” Porges said.
He noted that those medical costs also don’t account for other
secondary economic effects such as loss of productivity, though he
acknowledged that adding those factors in would push up the drug’s price
and create a “massive burden” on society. Instead, “[p]ricing at a
proportion of medical costs saved would be a terrific deal for payers
and consumers,” he said.
A recent study in
Health Affairs
by researchers at the City University of New York found the median cost
of a hospitalized COVID-19 patient during admission was $14,366.
Another report, by America’s Health Insurance Plans,
estimates
that the hospital cost per non-ICU patient is about $11,000, and the
cost could exceed $30,000 for each person admitted into intensive care.
For context, remdesivir has shown it can cut the duration of hospital
stays by 30% compared with placebo. Shaving 30% off an average cost of
$15,000 means a $5,000-per-course price for remdesivir is fair,
regardless of potential benefit on post-hospital costs and other
individual benefits, Porges argues.
Negative impacts from distorted pricing
The technical analysis aside, Gilead should be allowed to make money
off remdesivir from a societal perspective, according to Porges.
Compared with the $5.5 billion Gilead spent last year in R&D and
external deals, the $1 billion investment in remdesivir represents a
large proportion of its capital allocation. For 2019, Gilead reported
operating cash flow of $9.1 billion. After paying investors dividends
and upgrading its physical assets, only $2.4 billion was left for any
unplanned portfolio development.
“Were it not for this investment in remdesivir, Gilead could perhaps
be investing more capital into developing their oncology franchise, or
in expanding other aspects of their antiviral or hepatology franchises,”
Porges said.
Granted, Gilead has a social obligation to develop remdesivir to help
fight a deadly disease, but it shouldn’t be punished for doing that
when it could potentially enjoy better profitability elsewhere, he
figures. High pricing pressure and “absence of the expectation of any
profit” could discourage further investment in COVID-19, Porges said.
Anti-infectives and non-COVID vaccines are already attracting
increasingly less interest, as cash is being allocated to high-return
oncology and rare diseases. Taking away the profits such investments
could reap is, as Porges put it, “exactly the wrong signal to send to
industry participants if we are trying to encourage the development of
such medicines and the expansion of the industrial capacity to amount
rapid responses to events such as COVID-19.”
Large companies such as Gilead may be able to absorb the cost of a
zero-profit program, and some have suggested the rewards for the
development of COVID treatments will be non-financial but rather
reputational. However, Porges finds such goodwill difficult to value and
hard to count on. Even if it materialized, it could lead to a slippery
slope where regulatory and commercial favoritism is given to the
company.
What’s more, biopharma companies shouldn’t be singled out in response
to COVID-19, Porges contends. Admittedly, scrutiny on the pharma
industry comes from years of distrust—Gilead itself was lambasted for
high pricing on hepatitis C drugs Sovaldi and Harvoni. But the same
expectations of zero profit aren’t being applied to developers of
diagnostic kits, to manufacturers of protective gears, or to grocery
stores that are supplying necessary household supplies during lockdown.
Some large drugmakers have come out to say that they will provide
COVID medicines or vaccines at zero profit. As Porges sees it, these
statements were made in the heat of the crisis “obviously done to
capture public and political favor.” Such behaviors, namely announcing
pricing before a product’s profile is understood, “distorts” both the
internal incentives and other investors’ motivation to continue to
finance the area.
All things considered, pricing for COVID-19 products “should reflect
some proportion of the value they will create,” Porges said. Even that
approach will still be a “special situation” for a pandemic. For
remdesivir, the $50,000/QALY ICER used to reach the $4,460 price is
already a tighter standard utilized for a public health emergency.
https://www.fiercepharma.com/pharma/gilead-should-be-allowed-remdesivir-real-pricing-and-sizeable-profit-covid-19-says-analyst
