Intended for healthcare professionals

Analysis

Betting on hepatitis C: how financial speculation in drug development influences access to medicines

BMJ 2016; 354 doi: https://doi.org/10.1136/bmj.i3718 (Published 27 July 2016) Cite this as: BMJ 2016;354:i3718

Re: Betting on hepatitis C: how financial speculation in drug development influences access to medicines

We thank Victor Roy and Lawrence King for pointing out that the acquisition strategies of drug companies magnify development costs and leave the public paying twice. While this is no doubt true – and we entirely agree with the authors’ thesis in this respect – in Gilead's case it is difficult to argue that the either the development costs or the prices of its sofosbuvir-based medicines were driven by the costs of the acquisition of Pharmasset.

Gilead paid $11.1 billion for its Pharmasset acquisition (though goodwill was estimated at only $74.8 million [1] and only $62.4 million attributed to sofosbuvir development over 2009-2011. [2]. Gilead then accounted for almost the entire non-goodwill component as the ‘fair value’ of sofosbuvir.[1]

But rather than being expensed, the $11.1 billion was classified as an intangible asset and is being amortized as such.[3] As long as it enjoys the benefit of this substantial depreciation it cannot be argued that the cost of the acquisition contributed to the costs of Sovaldi and Harvoni - even if that were reasonable. Which it isn’t.

Furthermore, while Gilead’s own R&D expenditure was reported as $1.76 billion in 2012 ($830 million on clinical trials) and $2.12 billion in 2013 ($1.15 billion)[1], its clinical trial costs for sofosbuvir prior to FDA approval would seem to have amounted to less than US$150 million.[4]

That Gilead is returning much of its spectacular profits to shareholders rather than reinvesting in R&D adds insult to injury. We agree that this underscores the need for new organisational and business models for drug development, particularly “de-linkage” mechanisms that quarantine R&D costs from the price of the medicine.

However the suggestion that “mechanisms have been proposed to give health systems greater bargaining power to determine price and value” fails to take into account that such approaches have been applied outside the US for some time – in Australia, for example, for over 20 years, with the result that the Australian Government is able to provide access to direct acting antivirals for hepatitis C without restriction.[5]

1. Gilead Sciences, Inc. Form 10-Q SEC Report For the quarterly period ended March 31, 2012, at http://www.sec.gov/Archives/edgar/data/882095/000144530512001487/gild201... accessed 2 August 2016

2. Pharmasset, Inc. Form 10-K Report for the Fiscal Year ended September 30, 2011, at http://www.sec.gov/Archives/edgar/data/1301081/000119312511311300/d22571... accessed 2 August 2016

3. Gilead Sciences, Inc. Form 10-Q SEC Report For the quarterly period ended June 30, 2014, at https://www.sec.gov/Archives/edgar/data/882095/000088209514000038/q214fo... accessed 2 August 2016

4. Authors’ estimates, based on data from clinical trials cited in FDA evaluation documents and www.clinicaltrials.gov, and using average clinical trial costs as reported in PAREXEL International. PAREXEL Biopharmaceutical R&D Statistical Sourcebook 2012/2013. (Parexel Intl Corp; July 1, 2012): ISBN-10: 1882615972

5. Hepatitis Australia. Australia shows an alternative to rationing hepatitis C treatment. Media release, June 08, 2016. At: http://www.hepatitisaustralia.com/newsarticles/australia-shows-an-altern...

Competing interests: No competing interests

29 July 2016
Ruth Lopert
Adjunct professor
Craig Welch, Director, LWC Policy Consulting Inc.
Department of Health Policy, Milken Institute School of Public Health, George Washington University
1300 13th St NW, Washington DC 20005, USA