Gilead arrives at a reasonable price for their Covid-19 drug

(or at least, they found a number that doesn’t infuriate everyone.)

author: Kevin Curran PhD

published: June 30, 2020

Pricing a drug is more art than science.

Pricing a drug in the middle of a global pandemic is more like abstract art. There is no rule book.

In the United States, the Food and Drug Administration (FDA) determines whether a drug should go to market, however, the FDA makes no rules or guidelines towards the pricing of the drug. Pharmaceutical companies are free to set their price wherever they see fit.

Depending on the scenario, a company could price the drug based on:

1. the cost of research, development and manufacturing
2. the value the drug provides to the patient and to society
3. the maximum amount the market could possibly pay for the drug

All three of these strategies are employed. The third strategy may be the most common and it is certainly the most heavily critiqued.

The second option is referred to as value-based pricing. I think this strategy makes the most sense.

It means we use clinical trials to determine exactly how much health benefit a drug delivers to a sick person. Once the drug’s health value is determined, the pharma company sets their price accordingly. If a drug delivers minimal health benefit yet introduces considerable side effects then the drug should be attached to a small price tag.

Remdesivir was the first drug to demonstrate a clear benefit to Covid patients. The NIAID trial demonstrated that Covid patients spent four fewer days in a hospital when treated with remdesivir. On average, treated patients were released after 11 days as opposed to 15 days for an untreated group.

In early May, the FDA authorized emergency use of the drug.

Gilead, the parent company of remdesivir, has been donating free drugs to hospitals. Now, it is time to start paying for the drug. Gilead just released their pricing structure.

• Gilead will charge between $2,340 and $3,120 for a typical course of treatment.
• Some government insurance programs in developed nations will pay the smaller number. Medicare and private insurance within developed nations will pay the larger number.
• Developing nations will receive the drug at a severely reduced price (details here). Generic companies in India are already pricing generic versions of remdesivir.

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How much value does remdesivir deliver?

Value can be tricky to quantify.

Gilead points to the four fewer days spent in a hospital and they cite an estimate that these four days would cost $12,000 per patient. Each day in an ICU or regular hospital in the US is incredibly expensive (2-6K/day). So, that 12K estimate seems reasonable for the cost of four days. This means, the healthcare payers (private insurance, Medicare) are paying 3K for remdesivir but saving on the 12K hospital cost. And of course, the patient sees direct value as their health improves four days sooner.

Another route to determine value is to use the QALY system. Without going into details, I will point out that ICER, an influential and independent drug price watchdog group, set a price based on remdesivir health value and this number is in line with Gilead’s pricing structure. ICER set a value-based range of $2,520 to $2,800 per remdesivir treatment.

In summary, it does appear the price of remdesivir (2-3K per patient) has been set within the range of delivered value.

Additional consideration: the taxpayer contribution towards a drug’s development

Most drugs are the result of decades of work from many organizations. Publicly funded laboratories often provide key research that allows for the final version of a drug. Other times, government departments (i.e. NIAID) provide funding for the clinical trials that allow a drug to be tested for safety and efficacy.

A fair drug pricing system would take these public funding contributions into consideration. Ultimately, the taxpayers provide the capital for these government programs. Pharma companies should be mindful and transparent about the amount of taxpayer contribution for each drug on the market. For example, if the vast majority of funding for a drug’s development comes from taxpayers or charities, then perhaps this drug should be sold for a marginal cost.

Let’s consider taxpayer contribution to remdesivir.

We know that Gilead received 70 million for NIAID funding on the Covid trial. The question then becomes, what percent of the total Gilead investment was this taxpayer contribution. Gilead has publicly stated, by the end of 2020, they will have sunk 1 billion into remdesivir. If these numbers are accurate, then the taxpayer contribution to remdesivir is less than 10% of the total investment made by Gilead. 

In my mind, a 10% percentage of total investment should not preclude Gilead from arriving at a reasonable, value-based price. That said, it is reasonable to ask (demand?) that Gilead acknowledge the 10% taxpayer investment by including a discounted price for Medicare, Medicaid or some other large government insurance program.

Additional consideration: prices paid by developed nations help subsidize prices in developing nations

It seems Gilead has established a functional system to license out their drug to generic companies. The plan is … these international generic companies will distribute the drug to low income nations in an affordable manner.

Gilead entered into a series of licensing agreements that give five generic drug manufacturers the rights and information needed to make remdesivir. The agreements permit Mylan, Cipla, Hetero Labs, Jubilant Life Sciences and Ferozsons Laboratories to distribute the drug to 127 countries, most of which are classified as low- and lower-middle income. Gilead said the licensees will set their own prices for the generic remdesivir they produce, and won’t have to pay royalty fees… ~ BioPharma Dive

How large is the price reduction offered to low income nations?

Each generic will sell at a different price. Cipla, for example, has stated they are selling remdesivir at 100 mg for $66. Most treatments require 600 mg, so the price for a full dose would be $360. As mentioned above, the high end price in developed nations is $3120, so this generic pricing offers almost a ten-fold reduction from the price offered in the US. That’s a steep drop in price right out of the gate. It goes without saying, that this stratified pricing facilitates a more even distribution of the drug across all nations. I think most reasonable people will agree that broadly distributing an effective drug throughout the world is itself a form of value.

I think its fair to add in this global distribution value when considering the 2-3K price paid by developed nations.

Okay, those are my thoughts on what I think is a very important topic.

Remdesivir is a good drug and it represents a good starting point towards treating Covid. But, if we want to pull out of this pandemic tailspin, we will need a handful of great drugs and at least one excellent vaccine. Onward.

Kevin Curran

Twitter: @biologycentury