[Ip-health] How Gilead Priced Its $20 Billion Blockbuster

Elizabeth Rajasingh elizabeth.rajasingh at keionline.org
Fri Dec 11 06:55:05 PST 2015


By Robert Langreth
December 10, 2015

>From the start, the miracle drug was expected to carry a high price tag:
$36,000 to treat each patient.

Over the two years leading up to the medicine’s 2013 launch, Gilead
Sciences Inc. executives and advisers inched the number higher, to about
$65,000, then to $81,000, then to $84,000 -- or $1,000 a pill for the
12-week treatment -- as they homed in on a price that was just below where
they thought insurers would add significant restrictions for the
breakthrough hepatitis C remedy.
One Gilead vice president indicated in an e-mail that he knew the company
was courting controversy. “Let’s hold our position whatever competitors
do,” he wrote, “or whatever the headlines.”
They misjudged the reaction from insurers, but the pill, Sovaldi, and its
successor, Harvoni, became two of the fastest-selling drugs of all time.
The pharmaceutical industry has come under criticism for high prices of
medicines in the U.S. but has rarely divulged what goes into deciding how
much drugs will cost. The results of a Senate investigation by Democrat Ron
Wyden of Oregon and Republican Charles Grassley of Iowa provide a glimpse
into the process at one company. The senators released only some of the
20,000 pages of documents provided by Gilead.
Gilead officials “were fully aware” that higher prices for Sovaldi would
put the treatment out of reach for many, Wyden said last week during a
press conference in Washington.


Gilead, in statements, said it disagreed with the Senate report’s
conclusions and that it tried to set a price that would allow broad access
with minimal restrictions. It also said it’s now offering steep discounts
to government programs and some insurers.
Yet Sovaldi’s introduction was what started the latest backlash over
soaring prices for drugs to treat hepatitis, cancer, multiple sclerosis and
other diseases. After Sovaldi’s launch in December 2013, dozens of state
Medicaid plans limited access to the medicine. And Gilead’s pricing was
noted Wednesday in a hearing of the Senate Special Committee on Aging.
Gilead said it didn’t consider research and development expenses in pricing
Sovaldi or Harvoni. Instead, it examines prices in “the existing market
that we are entering,” spokeswoman Michele Rest said.

Setting a Benchmark

According to the Senate report, Gilead saw Sovaldi as the company’s chance
to set a price benchmark for future hepatitis drugs. That included Harvoni,
which launched in October 2014, combining Sovaldi and another Gilead
compound at a price of $94,500 for 12 weeks. Sovaldi and Harvoni have been
among the fastest-selling drugs in history, with $20.8 billion in combined
U.S. sales since Sovaldi was approved.
Sovaldi can cure the liver-wasting virus in 90 percent or more of patients
when used in combination with other drugs. It was a breakthrough compared
with older regimens that had a lower success rate and came with side
effects such as flu-like symptoms or anemia.
It’s precisely the sort of drug that should be rewarded with high prices,
said Craig Garthwaite, a health economist at Northwestern University’s
Kellogg School of Management.
“They are providing a lot of innovation and should be compensated for it,”
Garthwaite said.

$11 Billion Deal

Gilead obtained Sovaldi in its $11 billion acquisition of Pharmasset Inc.
in 2012. Before that deal was announced, Pharmasset had been considering
charging about $36,000 per treatment, according to one Securities and
Exchange Commission filing that Pharmasset made after the agreement with
Gilead was disclosed.
Gilead said its pricing approach was “consistent” with what Pharmasset
planned to do.
The drugmaker said that its review of Pharmasset’s materials indicates that
Pharmasset planned to price Sovaldi-containing drug cocktails at a cost of
no less than the standard of care at the time, $72,000 per treatment, Rest
said. Pharmasset had assigned a “placeholder price” of $36,000 for Sovaldi
and another $36,000 for a second antiviral drug, for a total of $72,000,
she said.

Sales Projections

Three days before the Gilead deal was announced on Nov. 21, 2011,
Pharmasset adviser Morgan Stanley made a presentation to the board and
projected $6.5 billion in peak sales for Sovaldi based on the $36,000
figure, according to the Senate report. But Gilead’s adviser on the deal,
Barclays Plc, was assuming a price of $55,000 to $75,000, according to a
presentation the bank made on Nov. 13, 2011, that was released in the
Senate report. Barclays and Morgan Stanley both declined to comment.
The sale was completed in January 2012. Later that year, Gilead Executive
Vice President Kevin Young referenced a potential price of “$58k vs. $65k”
in a presentation, according to the Senate report. Young, who retired from
Gilead last year but remains an adviser, didn’t respond to telephone
At one meeting, Gilead officials considered Sovaldi’s high cure rate and
how it could justify a retail price of $82,000 to $121,000, according to
the Senate report. Then, in a 90-minute session on May 10, 2013, there was
a presentation from three officials from IMS Consulting Group, according to
the report. Based on a survey of insurers and Medicaid plans, IMS suggested
an “acceptable” price range of $80,000 to $90,000, according to the report.
IMS Health Holdings Inc. confirmed that it was a consultant to Gilead on
Sovaldi but declined to comment on the specifics of the Senate report.

Influencing Future Drugs

Four months before the launch, Senior Vice President Jim Meyers briefed
Gilead’s board.
“We have to get most of the way there in the initial pricing,” Meyers said
in the Aug. 1, 2013, presentation. He talked about a range between $70,000
and $90,000, and said that the decision would have a big influence on how
much Gilead could charge for future drugs, according to the report.
As the FDA’s decision neared, Gilead prepared for an internal meeting when
the final price would be set. Beforehand, on Nov. 18, 2013, Young e-mailed
top executives and recommended a price of $27,000 for a 28-pill bottle, or
$81,000 for 12 weeks.
Gilead didn’t provide documentation explaining the eventual bump-up to
$84,000, the report said. The final decision was made by the global pricing
committee, a group of top executives including Chief Executive Officer John
Martin, President John Milligan and research head Norbert Bischofberger.

Expecting Complaints

Gilead was aware activists might complain. One group with whom company
officials met, the Fair Pricing Coalition, had asked Gilead in October 2013
to cap Sovaldi at $60,000. In an e-mail the next month that Gilead provided
to Senate investigators, Young wrote, “Let’s not fold to advocacy pressure
in 2014.”
There was pressure, especially from the nation’s biggest manager of
pharmacy benefits, Express Scripts Holding Co., which serves as a
gatekeeper for prescriptions dispensed to millions of Americans.
“They thought they were pricing it appropriately. We thought they were
taking a premium,” said Steve Miller, Express Scripts’ chief medical
Last December, Express Scripts excluded Gilead’s Harvoni from its main list
of covered drugs. It favored a competing medicine from AbbVie Inc. that it
said offered a significant discount.
In January, Gilead cut its own discount deal with CVS Health Corp., which
agreed to favor Gilead’s drug to the exclusion of AbbVie’s.
Those deals have brought down costs. Michele Rest, the spokeswoman for
Gilead, said in an e-mail that the company offers discounts on Harvoni to
the VA and Medicaid plans of more than 50 percent. And Gilead said in
February that it expects U.S. discounts on its hepatitis C drug franchise,
Sovaldi and Harvoni, to rise to an average of 46 percent this year from 22
percent in 2014.

Elizabeth Rajasingh
Perls Research and Policy Fellow, Knowledge Ecology International
1621 Connecticut Ave. NW, Suite 500
Washington, DC 20009
elizabeth.rajasingh at keionline.org | 1-202-332-2670

More information about the Ip-health mailing list