Thursday, March 12, 2015

Pharma industry fact of the day

Jeff Sachs illustrates the problem with the current patents regime by pointing to the example of Gilead Sciences' block-buster drug to treat Hepatitis C virus (HCV), sofosbuvir, sold under the brand name Sovaldi. He writes,
In December 2013, the Food and Drug Administration approved Sovaldi, and another formulation, Harvoni, which is sofosbuvir used in combination with another drug. Gilead set the price for a 12-week treatment course of Sovaldi at $84,000, amounting to $1,000 per pill. Gilead set the price of Harvoni at $94,000... In the first year of marketing, Sovaldi and Harvoni are already blockbusters, reaping a remarkable $12.4 billion of market sales in 2014, more in just one year than the $11.2 billion price that Gilead paid in January 2012 to buy sofosbuvir from a biotech start-up named Pharmasett. 
The real story is not about Sovaldi's pricing, exorbitant as it is, but that of its development. Sofosbuvir was developed by a team of biochemists led by Professor Raymond Schinazzi at Emory University using National Institute of Health (NIH). In fact, NIH even financed the Phase I and II of its clinical trials. As Sachs writes,
Prof Schinazi set up Pharmasset Inc. as a Delaware corporation in 2004 as his business to develop sofosbuvir and hold the patents on the new prospective drug. Pharmasset raised around $45 million in a 2007 IPO and used those funds and others to supplement the R&D. According to the company's SEC filings, the total Pharmasset R&D on sofosbuvir up through 2011 totaled around $62.4 million. In January 2012, with an eye on sofosbuvir, Gilead paid $11.2 billion to purchase Pharmasett. Schinazi pocketed an estimated $440 million for his shares in Pharmasett... The total private-sector outlays on R&D were perhaps $300 million, and almost surely under $500 million, meaning that the decade-long R&D outlays were likely recouped in a few weeks of drug sales. 
And about its real cost of production,
According to researchers at Liverpool University, the actual production costs of Sovaldi for the 12-week course is in the range $68-$136. Indeed, generic sofosbuvir is currently being marketed in India at $300 per treatment course, after India refused to grant Gilead a patent for the Indian market. In other words, the U.S. price-cost markup is roughly 1,000-to-1!
And Gilead's patent on Sovaldi runs until 2028. Talk about long-term rent-seeking! And it is no surprise that others are following suit. Pharma firm AbbVie (which sells autoimmune disorder drug, Humira), recently purchased cancer drug maker Pharmacyclics for an astonishing $21 bn. Pharmacyclics' only marketed product is Imbruvica, a treatment for chronic lymphocytic leukemia and two other rare blood cancers, which was approved in 2013 and is considered a major breakthrough with massive commercial potential.

Update 1 (16/05/2015)

From Peter Singer,

One drug, Soliris, costs $440,000 per patient per year. In contrast, GiveWell estimates that the cost of saving a life by distributing bed nets in regions where malaria is a major killer is $3,400. Given that most of the lives saved are those of children, who even in developing countries have a life expectancy of at least 50 years, this equates to a cost of $68 per year of life saved. Should we really be valuing the life of a person in an affluent country at more than 6,000 times the value of the life of an impoverished child in a developing country?

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