After a rare few months of positive press owing to their work on coronavirus treatments, pharma companies are nearing a fork in the road. On the left, there’s the windfall and prestige that will come with a first-to-market vaccine. On the right, there’s the furor that will ensue should these drugs be priced at a level perceived to be excessive.
Clearly the industry would like to have it both ways — to reap the rewards in terms of reputation and remuneration without leaving too much on the table. There’s likely only one way for companies to toe this line: by laying out the multitude of factors that will go into pricing any such drug, and doing so with a degree of transparency they’ve usually avoided.
They need to have the pricing conversation, and they need to have it now.
For a preview of how this conversation might transpire, it’s worth looking at Gilead’s experience with remdesivir, one of the first antivirals that proved effective in treating COVID-19. In July, Gilead announced remdesivir’s price: $3,120 for private insurance and $2,340 for government insurance. The cost fell within estimates from nonprofit drug pricing group the Institute for Clinical and Economic Review (ICER), which said that remdesivir’s price should fall between $2,520 and $5,080.
CEO Daniel O’Day explained the reasoning behind those prices in a letter, noting the price was “well below” the amount the drug would save hospitals using it to treat patients. He pointed to a study from the National Institute of Allergy and Infectious Diseases, which determined the use of remdesivir reduced hospital stay on average by four days — or about $12,000 per patient in the U.S.
The letter also noted that Gilead had partnered with generic manufacturers in order to supply the drug at a lower cost and that the company was working with the U.S. Department of Health and Human Services to manage allocation to hospitals.
“In making our decision on how to price remdesivir, we considered the full scope of our responsibilities,” O’Day wrote. “We started with our immediate responsibility to ensure price is in no way a hindrance to ensuring rapid and broad treatment. We also balanced that with our longer-term responsibilities: to continue with our ongoing work on remdesivir, to maintain our long-term research in antivirals and to invest in scientific innovation that might help generations to come. As with many other aspects of this pandemic, we are in uncharted territory in pricing remdesivir.”
ICER, for its part, more or less agreed. In late June, the group’s president, Steven Pearson, wrote that Gilead’s pricing of remdesivir “demonstrates restraint and [sets] a promising precedent for future drug pricing during a pandemic… Some will call the amount of profit into question, whereas others will feel that a healthy profit will send needed signals to the life science industry that further investment in what may be a risky development process for additional treatments for COVID-19 is a reasonable business decision.”
None of it mattered. Gilead was still criticized, with some advocacy groups and politicians panning the company for charging for the drug at all. That’s in large part due to the federal funding it received (as did many other pharma companies) to pursue COVID-19 vaccines and treatments.
Advocacy groups such as Public Citizen have estimated Gilead received about $70 million in government funding for remdesivir. That’s why they’re calling on Gilead to provide the treatment for free to American citizens.
“Oftentimes those medicines that are developed are reliant on public support for basic research or even on public contributions later in the pipeline,” says Steve Knievel, access to medicines advocate at Public Citizen. “Far too often, those medicines are priced out of reach for people who need them and put financial strains on health programs.”
Gilead has already tried to head off this argument. The company pledged earlier this year to provide about a million doses of remdesivir to the federal government for free; additionally, the government price came in lower than the private one.
It’s a complicated conversation to have, regardless of the side you’re on. Brian Reid, managing director of the value and access group at W2O, notes that requiring pharma companies who receive government grants to provide drugs for free could stifle future government collaborations.
“In a vacuum, $70 million sounds like a lot, but Gilead has said it is prepared to spend $1 billion this year to invest in this compound,” Reid explains. “The question is: What does a $70 million investment give you versus a $1 billion investment?”
That question might be answered before too long: In late July, the U.S. government announced that it would pay Pfizer and BioNTech $1.95 billion for 100 million doses of a potential coronavirus vaccine. Under the terms of the agreement, Americans will receive the vaccine free of charge.
“The idea that any government fingerprint on anything eliminates companies’ ability to commercialize a product could destroy the ability for industry to collaborate with the government,” Reid adds. [Gilead is a W2O client.]
Other pharma companies racing to develop COVID-19 vaccines and treatments have similarly attempted to get ahead of the argument. Several vaccine makers pledged to sell the vaccine at cost; others added the caveat that they will sell it profit-free only as long as the public health emergency persists.
Such preemptive explanations could ward off what has historically been one of the biggest criticisms of pharma: that the industry doesn’t adequately explain its pricing practices.
“The reality is that [talking about pricing] wasn’t the standard for a long time. Companies might have hummed a few bars about the importance of innovation, but that was all,” Reid says. “We now live in an era in which companies have an obligation to explain their approach. There’s not a single model for that.”
There are several approaches pharma companies take. Some, including Gilead, explain how the use of a given drug offsets other healthcare costs, such as time spent in a hospital. Others highlight the amount of money and work that went into the development of a drug. Still others frame the discussion in terms of the value a drug provides, whether by improving quality of life or by reducing what they might spend over a lifetime treating a condition.
“Exactly which path companies pick is less important than picking a path and letting folks know where you stand,” Reid stresses. “Companies that have been loud about pricing and are doing this effectively have reaped some benefit. But the industry’s silence on this, stretching back decades, hurt everyone reputationally.”
It goes without saying that, during a high-stakes election year, legislators are keen to be heard on issues around drug pricing. In July, Senate Democrats penned a letter that laid out proposals to ensure a coronavirus vaccine would be safe, effective and accessible. Instead of relying on pharma companies to set lower prices — or pressuring them to do so — the legislators proposed that the government provide the vaccine at no cost. They said the government should use its purchasing power to negotiate a lower price for the drug, and then distribute it.
“This would also prevent pharma companies from reaping massive profits from taxpayer investments that largely insulate the companies from risk,” the letter noted.
Other lawmakers introduced bills to limit the price of COVID-19 treatments and vaccines. Rep. Janice Schakowsky (D-IL) and Sen. Elizabeth Warren (D-MA) introduced a pair of bills in June that would establish an office to ensure pharma companies provide COVID-19 drugs and other products to “federal, state, local and native health programs at no cost, and to consumers in the commercial market and other international entities at cost.”
Political pressure around drug prices has historically been a drag on pharma’s reputation. While such pressure is rarely easy to parry, the companies who have done so effectively have both explained and attempted to address systemic issues that contribute to high drug prices.
“The math may be complicated, but the fundamental arguments are not,” Reid notes. “What patients are paying out-of-pocket is related to questions about insurance companies and their benefit design. That’s how we end up having a lot of finger-pointing and talk about middlemen.”
He adds that if pharma has failed in this effort, it hasn’t been for a lack of trying. “There has been an extensive effort to educate stakeholders, policymakers and journalists about how the system interacts,” he continues. “If it’s not affordable to patients, then there’s a breakdown in the system. Explaining systemic issues is really the holy grail.”
Which brings us back to the reputational damage wrought by high drug prices. Although patients rarely end up paying list price for their drugs, the optics of such large price tags have proven detrimental in the past — and they aren’t going to get any better amid a global pandemic.
During the first half of 2020, pharma impressed at least some of the naysayers. Between January and May, the industry’s reputation spiked by 20 percentage points, up to 60% positive overall, according to The Harris Poll.
The surge had everything to do with the pandemic. According to the May poll, 70% of respondents said their view of the industry was bolstered by its response to the coronavirus pandemic, 57% noted the industry’s efforts toward developing a vaccine and 56% pointed to the work around treatments and testing.
But those gains could prove fleeting if pharma botches the pricing conversations likely to follow in the wake of Gilead’s experience with remdesivir. As therapeutics and vaccines move closer to market, demands around pricing will inevitably make their way into the news cycle. Should companies price these products ambitiously or fail to transparently disclose the factors that influenced their decision-making, it could all be for naught.
However, pharma is riding high for now. “The actual viral pandemic plays into the industry’s strengths,” Reid says.
“We’re developing drugs. This is what we do and this is where we shine.”