Gilead’s 300$ a bottle (900$/12 weeks) announcement for blockbuster anti Hepatitis C drug ‘Sovaldi’ comes at a time when Gilead is under tremendous pressure internationally from both governments and civil society organisations to decrease their exorbitant pricing (see here, here and here). In Part I of this post I described developments in India in relation to the drug. In this post I look at the larger picture and situate Gilead’s pricing decisions in the context of targeted advocacy as well as the existence of and willingness to utilise TRIPS flexibilities that promote public health. Gilead’s announcement and the advocacy surrounding it give us a unique chance to evaluate the tools available to safeguard public health interests in the face of abuse of patent monopolies.
Gilead’s 300$ price comes as a part of its larger policy of differential pricing or tiered pricing for the drug. Price barriers enabled by exclusion rights (patents) lead to an under-utilization of information leading to what is described in economics as ‘dead weight loss‘. Dead weight loss is the welfare losses that occur when people are excluded from using goods despite their willingness to pay being higher than the marginal cost of the good. In the health context, this dead weight loss is represented by deaths and other health losses due to the presence of exclusion rights. The theoretical answer to correcting this loss is perfect price discrimination which means that the patent holder charges each consumer based on her ability and willingness to pay. Differential pricing, thus, is an important direct answer to both the question of access as well the efficiency of the entire patent system. Gilead is using a tiered pricing system for Sovaldi based on the disease incidence and the ability of a country to pay as measured by the WHO categorization as ‘low income’, ‘lower middle income’ and ‘upper middle income.’ India falls into the lower income category along with Egypt, Mozambique and Kenya and hence is receiving the base price of 300$. The pricing in such a system is all the more dependent on an individual government’s ability to negotiate with these companies and this is where advocacy and provisions that promote public health gain importance.
Advocacy in the United States and EU
In the United States, Sovaldi sells at 1000$ a tablet, amounting to 84,000$ for the entire treatment (not including other combination drugs)! Patient advocacy groups and insurance companies have gone up in arms against the company (see here and here). As a large percentage of HCV patients are uninsured, underinsured or even incarcerated, this price also has huge implications for Medicaid, threatening to up the program’s spending by up to 55 billion USD per state according to one report. It is no wonder then that the company has also been facing direct heat from the US government. In early March, certain members of Congress, led by Democrat Henry A. Waxman, wrote a scathing letter to John Martin, CEO of Gilead, demanding a justification for its pricing. More recently in July, the Finance Committee of the US Senate instituted a joint investigation against Gilead. The company is also facing pressure from NICE (National Institute for Health and Care Excellence), the UK regulatory body that assesses the cost-effectiveness of healthcare, who in its draft guidance stated that it is “minded not to recommend” the drug, even though it is selling at a cheaper 57,000$ in the UK. Even more recently, 14 EU countries have joined hands under the leadership of France to resist the high price of Sovaldi.
The Story in Egypt
Egypt was the first country to avail the 900$ price for Sovaldi. With some estimates pegging the infection rate at 14.7% of of the country’s population, Egypt has the worst HCV incidence in the world. It is not surprising then that Gilead entered into rigourous negotiations with the Egyptian government over the price at which the drug was to be made available via government health schemes. By late March, 2014, a 300$ a bottle deal for supply to the Egyptian government for distribution via state sponsored medical schemes in state run health centers was widely reported in the press. The announcement cannot be seen in isolation. It follows the wave of criticism against the pricing of the drug in the USA and the unique advocacy groups and pharma company negotiations at the ‘Hepatitis C Virus (HCV) World Community Advisory Board (CAB)‘ held on 28th February in Bangkok. Attended by 38 activists from 22 countries and 6 pharmaceutical companies, including Gilead, the CAB failed to obtain any tangible commitments from these companies. However, certain proposals were discussed including Gilead presenting a tentative proposal of 350$ per bottle for Egypt . This seems to indicate that it did manage to create an impact in mounting a united defense against extortionate and arbitrary pricing by pharma companies.
The final deal with the Govt did not include putting Egypt on the company’s voluntary licensing list which apart from ensuring that there is not local generic manufacture of the drug, might also mean no import from generic manufacturers in other VL countries. The government thus becomes completely dependent on Gilead for supply. Soon to follow were reports that the Egyptian Patent Office was not going to grant a patent for Sovaldi. While I do not have access to communications between the patent office and Gilead to argue a causal link, did this critical bit of information play a role in the company’s price? Is the company’s deal with the Egyptian government an attempt to counteract the effect of generic participants in the market?
And as for India..
The story in India is slightly different, though it involves similar factors. As mentioned in Part I, Gilead is facing a triple pre-grant opposition on numerous grounds ranging from Section 3(d) to Section 8. Pre-grant opposition proceedings are a relatively rare tool for the stricter enforcement of filters (patent eligibility and patentability criteria) by patent offices. The Indian experience, however, demonstrates its importance, particularly in the developing world context where patent offices are understaffed and ill equipped to handle the huge number of patent applications every year. The potency of this ex ante measure is evident from its very high success rate.
The pre-grant oppositions are not the only threats. Given the extremely high incidence of 12 million patients with HCV in India alone, the threat of a compulsory license (CL) was acute in the event that Gilead did not modify its price. One of the grounds for the grant of a CL is that the patented invention is not available to the public at a reasonably affordable price [section 84(1)(b)]. The IPAB in the Bayer CL case clearly held that “reasonably affordable price necessarily has to be fixed from the view point of the public.“
The pre grant oppositions were significantly followed by the inclusion of India on the company’s VL list for Sovaldi. It also engaged in talks with 3-4 Indian generic companies for the manufacture of the drug for export. Finally, the 300$ price was announced. Do these VL agreements limit the scope for generic manufacture, even if the Sovaldi patent application fails? What are the conditions attached to the 300$ price? Is this limited to government hospitals and health care schemes as in the case of Egypt? These are some important questions that we need to ask when considering the larger context of Gilead’s differential pricing.
The patent system cannot be taken as a free pass for patent holders to abuse their monopoly rights and act in ways that are contrary to public health. TRIPS clearly embodies this when it states that “the protection and enforcement of intellectual property rights should contribute … to a mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare” [Article 7] and creates numerous flexibilities for countries to develop tools that meet their unique needs. Tools such as opposition proceedings and compulsory licensing go hand in hand with large scale advocacy to counteract the ability of large pharmaceutical companies to use their economic position and exclusion rights to set extortionate prices for life saving drugs. The big question now is whether public health advocates, in particular health officials from the government, can weave together these tools to ensure that first, only genuine inventions receive exclusion rights under patent and secondly, that these rights are not abused and balanced against public health exigencies.
 See Scotchmer, Suzanne. Innovation and incentives. p. 36. The MIT Press, 2004.