Yves here. Even though the proposed remdevisir price gouging, particularly in light of its underwhelming Covid-19 treatment benefit, has already gotten ample bad press, this post explains why the picture is even worse than you thought. Generally speaking, the government funds roughly 30% of Big Pharma R&D. The authors estimate that for remdevisir, the Federal contribution was over 80%.
By Fred Ledley, Professor of Natural & Applied Sciences and Management, Bentley University; Ekaterina Cleary, Lead Data Analyst, Center for Integration of Science and Industry at Bentley University; Zoë Folchman-Wagner Lecturer, Natural and Applied Sciences Department at Bentley University; and Matthew Jackson, Research Fellow, Center for Integration of Science and Industry at Bentley University. Originally published at the Institute for New Economic Thinking website
What is a fair price for Gilead’s remdesivir as a treatment for COVID-19? This has been a burning question in the media and policy circles from the moment Gilead received Emergency Use Authorization (EUA) for the drug as a therapy for COVID-19. Only a few days ago, Gilead set the Wholesale Acquisition Priceof a course of remdesivir for treating COVID-19 at $390/vial for governments of developed countries, approximately $2,340 for a course of therapy, and $520/vial for private insurance companies, or approximately $3,200, for a course.
What goes into setting the price of remdesivir? Public advocates have argued that the drug should be made available at cost due to the public health emergency. Wall Street analysts have publicly pressured Gilead to generate returns on remdesivir similar to its other blockbuster products such as Sovaldi and Truvada. Health economics analyses have estimated the “value-based” price from the clinical and cost benefits of treatment with remdesivir as well as the quality-adjusted value of human life (QALY). The price set by Gilead, in fact, falls comfortably within the range of “cost-effectiveness” reported in the latest update of these estimates from the Institute for Clinical and Economic Review (ICER).
This discussion of how Gilead would price remdesivir begs the question of why this is Gilead’s decision. The underlying assumption is that Gilead can set the price by virtue of having invested in the design of this chemical compound, discovery of its biological effects, demonstration of its effectiveness, and development of processes for large scale production of the drug. Gilead estimates that, by the end of 2020, it will have invested more than $1 billion in the development and manufacture of remdesivir.
Gilead also owns a patent describing the chemical structure of remdesivir and its application for treating Coronavirus infection. This means that the US Patent and Trademark Office (USPTO) found that remdesivir’s chemical composition and its clinical applications were patent-eligible subject matter, novel, not obvious, had utility, that the recitation of the invention enabled use of this compound as a medical therapy, and that the individuals listed on the patent, all Gilead employees, were legally entitled to be listed as inventors. By law, this confers ownership of the product to Gilead for a determined period of time.
Patent law, however, does not capture the full account of remdesivir’s discovery and development. Our recent research shows that the Emergency Use Authorization of remdesivir was enabled by decades of research on both the drug’s biological target and the pharmaceutical chemistry of related chemical structures. Our work also shows that National Institutes of Health (NIH) contributed as much as $6.5 billion to this research.
Modern drug discovery and development begins with basic research on the molecular mechanisms of biology and disease. This research uncovers the processes by which the body grows and heals, how viruses infect human cells and proliferate, and how the body’s immune system responds. Most importantly, this research identifies specific proteins that are actively involved in a disease process or the body’s healing response, and suggests strategies for how a drug might be designed to attach itself to a specific protein and alter its function. Such a protein is termed a drug target.
Typically, decades of basic research are required after a potential drug target is identified until enough is known about its structure and function to successfully develop a drug targeting that protein. Our previous studies suggest that, on average, it takes more than 30 years for such research to mature, and that very few products based on this research are approved before such work reaches a maturity threshold. Similarly, decades of research on different classes of chemical compounds are required to understand how to optimize their pharmaceutical properties so that they can be efficiently developed into safe and effective drugs and manufactured.
Most of this foundational research is funded by the public sector. Our previous work, for example, shows that the NIH contributed more than $100 billion to research underlying the 210 drugs approved from 2010-2016 and more than $200 billion for drugs approved for the full decade 2010-2019.
Our new paper shows that the discovery and development of remdesivir was no different. The biological target for remdesivir is a protein – RNA dependent RNA polymerase (RdRp) – that copies the virus’ RNA genome into another, RNA copy, an essential step in both viral infection and viral propagation. Blocking this activity with a drug would be expected to curtail the infection. The parent chemical structure for remdesivir is a nucleoside analog (NcAn), a class of molecules that naturally have extremely poor pharmaceutical properties, but have been optimized through decades of research in pharmaceutical chemistry that enables the synthesis of safe and effective nucleoside analog drugs.
We tracked all of the published research on remdesivir’s drug target, RdRp, and parent chemical structure, NcAn through the beginning of the COVID-19 epidemic (December 2019). Then, we determined the amount of funding for this research provided by the NIH. We identified 6,567 research publications on RdRp including 1,263 that had received NIH support totaling $1.9 billion, as well as 11,073 research publications on NcAn, including 2,319 with NIH support totaling $4.6 billion. We also showed that, of the 97 different investigational compounds targeted to RdRp that entered clinical trials as potential therapies for influenza, hepatitis-C, Ebola, or Coronaviruses since 1989, the only three that have been approved, including remdesivir, entered human trials after RdRp research had passed the maturity threshold.
Our data suggests that Gilead’s considerable accomplishment in securing authorization for use of remdesivir in treating COVID-19 represents only the culminating step in a cumulative process of innovation that involved the collective action of public, as well as private, enterprise. While Gilead will likely invest several billion dollars in bringing remdesivir to market, our data suggests that the public sector, in aggregate, has already invested much more.
Patent law and the USPTO recognize the role played by Gilead in the discovery and development of remdesivir. There is, however, no mechanism for similarly recognizing the decades of foundational, basic research that made this discovery possible. The foundation for drug discovery does not rest only on patentable advances, but also theoretical insights, refined details of biological structures or functions, refutation of inaccurate findings, revision of failed experiments, reformulation of essential ingredients, and replication of critical results. Without this diverse and mature body of research, drug development is rarely successful.
Lazonick and Mazzucatohave examined what they term the “Risk Reward Nexus” of innovation and the mechanisms that lead to asymmetrical sharing of risk and reward, not only among individuals and socioeconomic classes, but broadly between the public and private sector. They illustrate this asymmetry with the observation that the “blockbuster biotech drugs that generated huge returns for both big pharma and biopharma companies reflect control over patent rights to the “low-hanging fruit” that became available to these companies in the 1980s as a result of decades of NIH funding.”
Will remdesivir be more of the same?
In an April 30, 2020 letter from Representatives Lloyd Doggett (D-TX) and Rosa DeLauro (D-CT) to Health and Human Services (HHS) Secretary Alex Azar, the Representatives requested “an appropriate accounting of the taxpayers’ investments. … to ensure patients and the federal government are not subject to price gouging….” They note that “Taxpayers are often the angel investors in pharmaceutical research and development, yet this is not reflected in the prices they pay.“ This perspective echoes the observations ofLazonick and Tulum that “the US government has long been the nation’s (and the world’s) most important investor in knowledge creation in the medical field” as well as Mazzucato’s argument that the proper role of government is as the “investor of first resort” in innovation and value creation.
Our work provides some of the accounting requested in the April 30 letter, but it does not answer the question of what would be a fair price for remdesivir. Our findings do suggest, however, that it is not fair for Gilead to determine the price of remdesivir relative to the value it provides to the company or its shareholders, when the public’s contribution to the research that enabled this product is much larger. Rather, our work highlights the critical need for new approaches to valuing all of the intellectual advances that contribute to pharmaceutical innovation and mechanisms for more equitable distribution of the risks and rewards between the public and private sector investments that make innovation possible. Most importantly, as Doggett and DeLauro wrote in their penultimate paragraph, our results emphasize that “The substantial taxpayer investments in COVID-19 pharmaceutical research must be recognized.”
This work was supported by grants from the National Biomedical Research Foundation and the Institute for New Economic Thinking to Bentley University
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A rapid search in Pubmed using “viral RNA polymerases” (this is not exactly RdRp, RNA-dependent RNA-polymerases but will yield mostly RpRd research). Yields 2 articles published in 1955, about 13.000 cumulative papers by 1980 and a bit more than 152.000 papers cumulative until today with a peak in publications observed in 2013-2014 at about 6500 papers per year. Of course most of these will not be directly relevant to the development of viral RpRd inhibitors but many, directly or indirectly will have had some influence on this. Many of the papers might be funded partially or totally with NIH resources and many others might be funded by some many other US and, importantly, non-US institutions. If we can say this, taxpayers around the world have somehow collaborated in the funding of research on viral RdRp. I have my own modest contribution to this with a few nucleotide sequences of RdRp of some plant-infecting viruses. If you think this is totally irrelevant to the issue, think twice because it is the identification and characterization of many different RdRp(s) what helps to identify motifs that can be targeted by drugs. Much of the information is redundant of course and a lot of it wouldn’t have been necessary to the development of the drug (so, my own results weren’t really relevant to the case). In the part of the nucleoside analogue development, some more basic research in organic chemistry must have helped the development of the drug. Not to forget, other relevant information would be obtained by research in other RNA polymerases that we don’t want to be inhibited very much by the drug.
It is certainly true that Gilead has harvested in it’s patent the results of several years of more or less basic research done by many scientists around the world and funded with public money in the US and some many other countries. One can conclude the way the patent system has been designed as a ‘winner takes it all’ strategy. When the stakes are high this can result in enormous transfers of wealth from all to a few.
“all to a few” That is true unless a political decision is made otherwise.
The system as it exists is itself the result of political decisions.
Small business owners should want Medicare For All if they want a fighting chance for a return to “normal”.
1 They don’t have to worry about employee healthcare.
2. Their customers don’t have to worry about huge bills from getting sick for going out.
If we allow the American dollar suck death care to continue like normal then the drag it places on the economy will mean that reopening and returning to normal never happens
Absolutely Ignacio. Great point. It makes me proud to think that we humans have a universal sense of concentration. It’s pretty incredible. And Gilead (I think because profit oriented companies are forced to live and die by the sword of capitalism) is being way too much of an opportunist at this point. There’s certainly reason to reward any corporation that puts itself on the line for final refinements and production of a drug – but if that research has been in the pipeline for decades the corporation who gets the profit should have a very balanced claim. And it is quite possible to do the balancing; it’s no big deal. It sounds like just another example of shareholder greed when shareholders have become the free-riders on the rest of us for literally decades of progress. It is almost always that the “public” who does the long term dedication, all the big digs, all the concentration scientifically – and also so voluntarily and cooperatively – who achieves the breakthrough. It make profiteering not just obsolete – it makes it almost abhorrent.
I love it were else can you invest tax payer money and then the corp. owns the patent. What world.
There is this:
https://www.gilead.com/purpose/advancing-global-health/covid-19/voluntary-licensing-agreements-for-remdesivir
But don’t think it is because of the goodness of Gilead’s heart. Just more price discrimination so it can make money in the US and other wealthy countries, AND make money in less wealthy countries…
Though a quick google still reveals it is $53 a vial.
Price discrimination indeed. My Econ professor this year showed how conventional price discrimination modeling is wrong and leaves room for companies to gain even more profit by charging abnormally high prices (even above monopolist pricing) in one place (the US here) while charging a lower than market will allow price in other places (Egypt, India, and Pakistan in your example) so long as there’s assurance they will be aloud at their lucrative price. Not only are our tax dollars being fleeced for profit but the size of price gauging is beyond what most economic models would even consider. Probably why their argument in the reverse is for “R&D” and not mere supply demand. Health insurance companies, gov, and hospitals all play a role in allowing such prices to be paid in full and the only one who can stop it, the gov, has relinquished its leverage to do so to phony patent laws and interpretations.
Agreed.
The only bit I’m confused about is what is conventional price discrimination modeling? I would have thought that conventional modelling would assume the ability to price higher than monopolist pricing. The whole point is to try to capture as much demand as possible while also being able to charge the individual as close to their marginal willingness to pay as possible. (If they could get it granular, individual by individual companies would love it!)
Though even non monopolists engage in price discrimination. Child/student concession prices is one example, and that form of price discrimination is seen as a positive. (Much poorer marketing to call it an ‘working adult’ surcharge!)
Where the consumer is still able to gain some form of consumer surplus (albeit minuscule if done right). This is done by charging almost up to the demand price a monopolist would. But the pharma companies have enough leverage, in the sense the hospitals and health insurance companies will pay almost any and pass it on to the consumer who has no say, that they can charge far beyond the price even a monopolist would (not subject to conventional demand), allowing them to take any Gain the consumer could get from purchasing the drug. Literally charging more than the willingness to pay. They then avoid doing it (discriminating to this extreme) in other countries and charge a lower price than they could to avoid global regulatory backlash. It’s especially bad when it’s being done to things that should be a public good like medicine/healthcare.
http://mrpricing.com/price-discrimination/
this^ is what most are taught, but in reality they can extract far more money by charging above the demand price. Therefore rendering economic models trying to explain drug pricing doing so with their hands tied.
I believe the real percentage of public support for basic R&D is far greater than 30%. The 80% figure sounds a lot more accurate. I did read Mazzucato’s book ‘The Entrepreneurial State.’
If you want to know where big pharma spends most of its money, just turn on the TV and count the ads for drugs.
Some drug pushing is legal.
From wikipedia:
No doubt it will be wheeled out again with the next viral threat,to equally unspectacular result.
The fair price for this drug is 0. It should be free for all patients.
Politicians, for the very best ROI!
Patients paying more than wholesale price. I believe I read 3900. Contrast that with 50 bucks for HCQ. I believe dexamethasone is also cheap.
Of course HCQ is more effective for those who are not seriously ill while dexamethasone and remdesivir are for those with more serious illness. The latter does not reduce mortality while dexamethasone which was used in China but restricted in US/Europe most likely does.
The conflicts of interest between public health and big pharma are so significant they may be criminal when treatments are withheld or slandered because they are not profitable enough.
Research dollars paid for by the public doled out by public health first consider potential profits rather than improving public health. They wont fund the study of cheap generic drugs used to treat other illnesses because there is no profit in it. And when they do its only so they can sabotage the results by using excess dosage or treating the wrong patients where they know it wont be effective (like those with serious lung damage being given HCQ).
All drug prices should be negotiated and approved by government to be sold in US like in every other country, especially when almost every new drug is based on research paid for by government. But the corruption is so vast dont hold your breath.
In other news, the Sun rises in the East and sets in the West. Also, grass is green, water is wet, and the sky is blue.
So, I guess that the vampire squids of modern economics are still alive and very well fed.
At least they haven’t made it a requirement for all the excess people to report to the local abattoir for processing into sellable bits like fertilizer, blood meal, and cattle fed
The Chinese get the state to do that risky and costly, research and the development to keep them ahead.
The US does the same, but just keeps quiet about it so it doesn’t spoil the narrative.
“The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were advanced by the Defense Department. Tesla’s battery technologies and solar panels came out of a grant from the U.S. Department of Energy. Google’s search engine algorithm was boosted by a National Science Foundation innovation. Many innovative new drugs have come out of NIH research.!”
http://time.com/4089171/mariana-mazzucato/
The US state takes the risks, and pays all the costs of developing new technology, and then hands it to the private sector to take the profit.
Europeans just fall behind in technology as they have legislation preventing state aid.
The Europeans are taking the neoliberal ideology far too seriously.
Wise up.
Private companies don’t like taking the risks, and shelling out the costs, necessary to develop new technology, which may never have a successful commercial application; the state has to do it.
Oh, I thought Elon Musk designed developed and built the Space X rockets in his garden shed.
“The Telegraph” recently revealed UK civil servants drafted most of the legislation for the EU preventing state aid.
In the UK we take the neoliberal ideology far too seriously.
Free markets and free trade will bring us all prosperity.
Did you mean ten years of austerity?
Something had gone seriously wrong, not that anyone noticed apart from me.
Remdesivir was developed for Ebola but it didn’t work. Gilead had a huge stock of it that it was going to have to throw out due to expiration dates – it made this in 2014 for the Ebola panic that never came in the US.
Remdesivir doesn’t work against Coronavrus either they’re only pretending it does. That’ why the pricing is being set where it is – to recoup their investment in bulk Federal Goverment buy that will then be quietly thrown out. It’s just racketeering.