Intended for healthcare professionals


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

BMJ 2016; 354 doi: (Published 27 July 2016) Cite this as: BMJ 2016;354:i3718

A focus on acquisitions and buybacks

Mr. Alton’s response fails to address our main argument: the financial environment in which Gilead operates drives a cycle of late-stage acquisitions, blockbuster sales through high prices, followed by significant distribution of profits to shareholders via buybacks instead of research. John Milligan, Gilead’s current CEO, captured this in a recent earnings call with investment analysts: “For us it’s fairly simple. We have the flexibility to do both things; that is, return shareholder value through stock repurchases and dividends and of course continue to be opportunistic in M&A” (1). In the first half of 2016, Gilead spent $9 billion in share buybacks (almost triple their entire R&D budget from last year), with pressure mounting from the financial community to pursue a late-stage acquisition (2) (3).

We now respond to each of Mr. Alton’s claims.

(1) Gilead’s medicines have treated more than 1,000,000 people in 2.5 years.

This represents a small fraction of those diagnosed and less than 1% of those infected globally. Along with scaling-up health delivery capacity, the affordability of these breakthrough medicines remains a central challenge as evidence of rationing persists (4)(5).

(2) No public funding supported Pharmasset or Gilead in sofosbuvir’s development

We documented the role of private finance in our original article. However, long-term funding from the National Institutes of Health was crucial to all Hepatitis C drug development. During the 1990s development efforts stalled as scientists could not grow the virus in cell culture. The publicly developed replicon tool helped overcome this barrier. Furthermore, Ray Schinazi of Emory University received long-term funding from the NIH and the Veterans Affairs Administration (VA) to provide the scientific basis on which he founded Pharmasset. He continued to receive a salary from the VA during his time with the company (6)(7). Both the company commercializing the replicon (Apath) and Pharmasset received over $2 million from the NIH in small business funding (8) (9). Though the award amounts are small compared to later capital investments, these early stages contain a high level of uncertainty that can repel private investment. Public funding serves as an important signal to crowd-in venture capital (10).

(3) Gilead took a substantial risk by purchasing Pharmasset because there was no Phase II data on genotype 1, the most prevalent type of Hepatitis C

First, Mr. Alton himself states that early research and clinical trials have the greatest failure rates. Our point is not that late-stage acquisitions contain a complete absence of risk, but that large companies use them as a risk-reduction strategy. Second, Gilead’s own modeling before the acquisition anticipated a high probability of success and executives expressed confidence in the early genotype 1 response data (11, pg. 858 – 863). Gilead’s willingness to escalate their bid for Pharmasset by 37% in the weeks leading up to the acquisition reflects this confidence (11, pg. 16-17). Gilead’s head research and development official echoes our point: “Philosophically, we prefer to wait for more certainty and pay more money, which is what we did with Pharmasset, rather than getting something cheap with uncertainty” (12).

(4) Sofosbuvir cannot be viewed in isolation, as the industry spent $50 billion developing treatments for Hepatitis C for a 1.9% success rate in approved drugs

First, the data behind the $50bn figure is not presented, so readers cannot verify its sources and how it was derived. Second, what proportion went towards pursuing pivotal early-stage science? Or did an escalation in anticipated profits induce late-stage racing on similar compounds and speculative acquisitions? We documented, for example, three late-stage acquisitions that cost $17 billion. A widely cited study (13) chronicles the falling rate of innovation efficiency in the industry (billions of dollars spent per drug approval since the 1950s). This should be understood in the context of average profit margins in the pharmaceutical sector that are more than 4x that of other industries since 1995, based on the Fortune 500 list (as we highlight in Figure 1 of the original article). These trends cast doubt on the extent to which profit incentives are tightly linked to efficiencies in innovation.

(5) Gilead set the price based on several industry-appropriate considerations (wide-ranging consultation, “neutral price” for a substantially superior treatment in-line with Pharmasset’s approach, significant discounting, and the value it represents to patients and health systems)

First, given the limited response space, we refer readers to the U.S. Senate Investigation report (11) which offers a differing interpretation, particularly with regards to Pharmasset’s valuation and projected pricing (pg. 18-22), as well as the purpose of Gilead’s engagement with various stakeholders (Section 3, beginning on pg. 29). Second, Mr. Alton’s main argument is that Gilead’s pricing approach was based on comparing their new therapy against the price of the prior standard of care, which was also highly priced in this case. We acknowledge this approach and the therapy’s cost-effectiveness, but point to the potentially avoidable conundrum that it created: a pricing level previously applied to a much smaller patient population was applied to a large patient pool (all Hepatitis C patients). (14)(15) Evidence from the Senate report show that Gilead anticipated the budget pressures and access restrictions this would create, with a chart (linked below) demonstrating their evaluation of potential reactions of various groups (including the U.S. Congress) at different price points. This has been partially mitigated for publicly-financed health systems, as Mr. Alton highlights, via discounts and rebates from the list price. However, evidence of access limitations remain in many health systems. Ultimately, the value of these therapies is maximized for patients and health systems when they are affordable and accessible, regardless of disease stage.

Chart link:

In conclusion, we return to our central argument: long-term pricing power in the hands of large companies is used to primarily fund a cycle of late-stage acquisitions and share buybacks (see Fig 2 in our original article). As breakthroughs in drug development rely on long-term early-stage capital (both public and private), the consequences of the prevailing model invites a search for improvements and alternatives for innovation and affordable patient access.

(1) Gilead Sciences. FQ1 2016 earnings call transcripts. S&P Capital IQ. 26 April 2016.
(2) Gilead Sciences Announces Second Quarter 2016 Financial Results. 25 July 2016. Available at:
(3) Silverman, E. As hepatitis sales decline, Wall Street wonders what Gilead will do for its next act. STAT. 26 July 2016. Available at:
(4) Iyengar, S., Tay-Teo, K., Vogler, S., Beyer, P., Wiktor, S., de Joncheere, K., & Hill, S. (2016). Prices, Costs, and Affordability of New Medicines for Hepatitis C in 30 Countries: An Economic Analysis. PLoS Medicine, 13(5), e1002032.
(5) Dying at These Prices: Generic HCV Cure Denied. Treatment Action Group and Mèdicines du Mondes. July 2016. Available at:
(6) Roy, V., & King, L. (2016). Betting on hepatitis C: how financial speculation in drug development influences access to medicines. BMJ, 354, i3718.
(7) Cohen, J. (2015). King of the pills. Science, 348(6235), 622–625.
(8) See pg. 24 in Gilead Sciences: Price Gouger, Tax Dodger. July 2016. Americans for Tax Fairness. Available at: (For further insight into Schinazi and Pharmasset’s NIH grants, see
(9) Apath. Company profile 2016.
(10) Keller, M. R., & Block, F. (2013). Explaining the transformation in the US innovation system: the impact of a small government program. Socio-Economic Review, 11(4), 629–656.
(11) The Price of Sovaldi and its Impact on the US Healthcare System. US Senate, Committee on Finance. December 2015. Available at:
(12) Cash-rich Gilead hits acquisition trail. Financial Times. 2015. Dec 7.
(13) Scannell, J. W., Blanckley, A., Boldon, H., & Warrington, B. (2012). Diagnosing the decline in pharmaceutical R&D efficiency. Nature Reviews Drug Discovery, 11(3), 191–200.
(14) Silverman, E. Hepatitis C Drugs are Cost Effective but Affordability is Another Matter. The Wall Street Journal. 17 Mar 2015. Available at:
(15) Chhatwal, J., Kanwal, F., Roberts, M. S., & Dunn, M. A. (2015). Cost-Effectiveness and Budget Impact of Hepatitis C Virus Treatment With Sofosbuvir and Ledipasvir in the United States. Annals of Internal Medicine, 162(6), 397–406.

Competing interests: No competing interests

09 August 2016
Victor Roy
Doctoral Researcher
Dr. Lawrence King, Professor of Sociology and Political Economy, University of Cambridge
University of Cambridge
Cambridge, UK