Gilead’s Not Really Going To Be Allowed To Profit From Remdesivir

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Gilead’s stock jumped when the drug remdesivir was first shown to actually have some effect against coronavirus or Covid-19. Some thought that it was going to make a fortune for the company and in short order too. After all, who wouldn’t like to own the only known drug to have any effect against a global pandemic?

At which point, well, not so fast. For, as I said at the time, there will be political implications here.

My reading of the current febrile state of play is that no Covid-19 treatment will be viable at anything very much above manufacturing cost. The political head of steam about drug pricing is already at a pretty high pressure. With economies closing down left and right, GDP likely to fall 30% and all that I just can’t see that the above arguments about development costs are going to work at all.

So, assume that this new drug works. In fact, assume that any new drug or treatment does. I have a very strong feeling that the people who develop it aren’t going to be allowed to make much money out of it.

One of two things is going to happen. The developers themselves will, noting the politics of the issue, agree to sell it at around cost, or to licence it freely and for a low royalty. On the grounds that if they don’t then compulsory licences, likely on worse terms, will be imposed upon them.

Or, if they don’t do that then compulsory licences will be imposed upon them upon those bad terms. Yes, I know, this leaves us back with the public goods problem of how to entice people into doing drug development but that’s often enough the way politics works.

As it happens, that is roughly what has happened – option 1 there:

Shares of Gilead Sciences Inc. were down 1.2% in trading on Tuesday after the drugmaker listed on its website five generic drugmakers that will produce remdesivir, its experimental COVID-19 treatment. The non-exclusive voluntary licensing agreements are with Cipla Ltd. Ferozsons Laboratories Ltd. FEROZ, , Hetero Labs Ltd., Jubilant Life Sciences Ltd. and Mylan MYL, to manufacture remdesivir in 127 countries.

The important part of the announcement?

Drugmakers Mylan, Cipla, Ferozsons Laboratories, Hetero Labs and Jubilant Lifesciences will manufacture remdesivir for distribution in “low-income and lower-middle-income countries, as well as several upper-middle- and high-income countries” that face health-care obstacles amid the coronavirus pandemic, the company said.

The deal is “royalty-free” until the World Health Organization says the Covid-19 outbreak is no longer a global health crisis or “until a pharmaceutical product other than remdesivir or a vaccine is approved to treat or prevent Covid-19, whichever is earlier,” the company said.

Sure Gilead will make good money out of the drug, After all, they are keeping the US and some other high income countries for themselves. And there will be money to be made – in royalty payments from these five – once there’s another treatment on the market or the emergency has passed. But it just isn’t going to be the goldmine that being able to charge a proper price for the only drug known to work currently would be.

This is rather why the stock prices hasn’t risen, in fact is off just a bit, since I mentioned this point. No, not because I mentioned it, but rather because it’s obvious to anyone paying attention – a group including the management of Gilead.

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Charles
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Charles

I think there is no good reason why Gilead should be prevented from getting a modest royalty, and given the large number of people that need treatment, even a dollar or two per person would produce a decent sum. However, there’s a much bigger problem. Remdesivir just isn’t very good. The studies so far show it makes a difference – but only by speeding up recovery by about three days, not by making recovery more likely. That looks like quite a small effect (though obviously long term studies might show that the faster recovery meant further benefits later), so only… Read more »

Spike
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Spike

“Speeding up recovery by about three days” seems like an improvement over treating symptoms and hoping, which is where we are now. The question is not whether Gilead should get a “modest” royalty, or a royalty acceptable to a majority. The question is why it cannot name its own terms; that is, why our achievers are not free.

The size of the marketplace and the availability of effective competing products is a continual challenge for Gilead, and for everyone in a free market.

Charles
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Charles

Gilead should not be able to name its own price because there is no competition and hence no free market. This is because we have created an artificial limit on copying the drug in the hope that this stimulates research. A natural free market is self-regulating (which is why it works so well), but an artificial one can go wrong in extreme circumstances which require the artificiality to be adjusted. A global pandemic is just such an extreme circumstance as the importance and urgency are outside what the artificial market was designed to handle. We need to ensure the level… Read more »

Spike
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Spike

We have created an artificial limit on copying the drug, but no limit on SOLVING THE PROBLEM. You note that the artificial limit (the patent) was to stimulate research, but your desire to manage Gilead’s profit will obviously retard research (at least on the next epidemic). You must believe you (or Boris? Trump?) can pick the exact right balance. The “extreme circumstance” was artificial, based on models whose poor quality was discussed here, and on hospitals overflowing, not on the mere discovery of a new disease. Your desire to reward Gilead enough – but not too much! – works worse… Read more »

Charles
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Charles

The death figures show that the extreme circumstance is entorely natural. And in a true free market there is no intellectual property rights, so hardly any drugs or vaccines as they all have to be paid for by charity. You cannot just engineer an aritificial market and then assume you’re so perfect that you have chosen the exact best way to do it at first attempt.

If Gilead make a billion pounds from their research instead of two billion, that will in no way inhibit research on the next big problem.

john77
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john77

Remdesivir probably *does* reduce the death rate. A reduction was observed in the trial but it wasn’t large enough to be “statistically significant” (which is code for saying that the odds on the observed data being observed if it has no impact are longer than 19 to 1 against).

Charles
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Charles

It possibly does, but it’s very unlikely to make much of a difference, given that the effect was not statistically significant in the small studies done so far. It’;s quite possible that if you treated 100,000 patients you would find that it saved 1000, but since that’s only 1% it would have been too small an effect to see in a small study. Whether it’s worth using a treatment depends on the balance between effectiveness and costs (both monetary and things like side-effects). If it’s otherwise harmless and costs $10 per patient, it would be well worth while, but if… Read more »

john77
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john77

Agreed. Gilead is licensing it for a pittance to several generic drug companies to sell it in poor countries for something like the $10 you suggest or even less. There are over 4 billion people in those countries so saving 1% (probably a little bit more) would mean tens of millions of children having parents instead of being orphans.
In rich countries Gilead wants to get paid – surprise! In rich countries thousands of people will pay $100 or $200 for a drug that improves their chances of survival by a few %