Covid-19 Promises a Historic Windfall for Big Pharma Profiteers in a Riskless, Subsidy-Laden Scam
"It is an unprecedented profiteering opportunity, because most everyone on Earth is destined to become a customer of some kind"
On June 29th, 2020, while America remained transfixed by anti-police protests, the chairman and CEO of the pharmaceutical company Gilead issued a much-anticipated announcement. In a breezy open letter, Daniel O’Day explained how much his company planned on charging for a course of remdesivir, one of many possible treatments for Covid-19. “In the weeks since we learned of remdesivir’s potential against Covid-19, one topic has attracted more speculation than any other: what price we might set for the medicine,” O’Day wrote, before plunging into a masterpiece of corporate doublespeak.
The CEO noted a study by the National Institute of Allergy and Infectious Diseases, a division of the National Institutes of Health, showing that Covid-19 patients taking remdesivir recovered after 11 days, compared with 15 days for placebo takers. In the U.S., he wrote, “earlier hospital discharge would result in hospital savings of approximately $12,000 per patient.”
The hilarious implication seemed to be that by shortening hospital stays by four days on average, remdesivir was worth $48,000 a dose. That O’Day might come to such a conclusion was not outlandish. Gilead became infamous a few years ago for charging $84,000 per course of treatment for Sovaldi, a “groundbreaking” hepatitis-C drug. The company’s policies for pricing have more than once prompted congressional hearings, as in the case of Truvada, a drug to combat HIV transmission that was developed in part with the aid of government grants and that earned Gilead more than $30 billion in revenue. Would they try something similar at a time of unprecedented medical terror with one of the few available Covid-19 treatments?
No, as it turned out. Although “we can see the value that remdesivir provides” — i.e., we could have charged $48,000 per dose — Day wrote, “we have decided to price remdesivir well below this value.” He went on to say that to “ensure broad and equitable access at a time of urgent global need,” Gilead had generously decided to place the price for remdesivir at a measly $3,120 per patient.
Investors were bummed. Gilead even undercut the prediction of the Institute for Clinical and Economic Review (ICER), a watchdog that calculated a fair price for remdesivir at $4,500 per course of treatment. When Gilead announced a price below that level, it caused a tremor on Wall Street, as its share price fell. The company had already offended the Gods of Capitalism by donating hundreds of thousands of existing doses of remdesivir to the government. What self-respecting American corporation voluntarily undermines its own market?
Not Gilead, as it turns out, and really, not any pharmaceutical company. What Americans need to understand about the race to find vaccines and treatments for Covid-19 is that in the U.S., even when companies appear to downshift from maximum greed levels — and it’s not at all clear they’ve done this with coronavirus treatments — the production of pharmaceutical drugs is still a nearly riskless, subsidy-laden scam.
Americans reacted in horror five years ago when a self-satisfied shark of an executive named Martin Shkreli, a.k.a. the “Pharma Bro,” helped his company, Turing Pharmaceuticals, raise the price of lifesaving toxoplasmosis drug Daraprim from $13.50 to $750 per pill. Shkreli, who smirked throughout congressional testimony and tweeted that lawmakers were “imbeciles,” was held up as a uniquely smug exemplar of corporate evil. On some level, though, he was right to roll his eyes at all the public outrage. Although he was convicted on unrelated corruption charges, little about his specific attitudes toward drug pricing was unusual. Really, the whole industry is one big Shkreli, and Covid-19 — a highly contagious virus with unique properties that may require generations of vaccinations and booster shots — looms now as the ultimate cash cow for lesser-known Pharma Bros.
“The power of the industry combined with fear is driving extraordinary spending,” says U.S. Rep. Lloyd Doggett (D-Texas), who has been an outspoken and sometimes lonely voice warning about pandemic profiteering. “It all suggests rosy times ahead for the pharmaceutical industry.”
Doggett cautions that the rush for a cure is already padding the bottom lines of drug companies. Take the example of remdesivir, which he describes as having been “pulled off the scrap heap” to become a major revenue-driver. Having failed to be approved as a treatment for hepatitis and Ebola, it is now one of the most in-demand products in the world, and its price isn’t quite so low as Gilead claims.
For one thing, ICER reported it costs just $10 of raw materials to make each dose of remdesivir. Generic-drug producers in Bangladesh and India were already making a version of it, and their price per course of treatment was $600. Meanwhile, Gilead’s own price for governments around the world — the price it settled on for everyone except American private insurers — was $2,340 per treatment.
Moreover, ICER’s assessment of remdesivir’s price relied significantly on the idea that it would actually help save the lives of Covid-19 sufferers. “If the drug doesn’t impact mortality, and only shortens recovery time,” says Dave Whitrap of ICER, “we figure a course of treatment is worth about $310.”
To recap: Gilead, a company with a market capitalization of more than $90 billion, making it bigger than Goldman Sachs, develops an antiviral drug with the help of $99 million in American government grant money. Though the drug may cost as little as $10 per dose to make, and is being produced generically in Bangladesh at about a fifth of the list price, and costs about a third less in Europe than it does in the U.S., Gilead ended up selling hundreds of thousands of doses at the maximum conceivable level, i.e., the American private-insurance price — which, incidentally, might be about 10 times what it’s worth, given its actual medical impact.
But almost no one cared. A day after the remdesivir price was announced, Donald Trump bought 500,000 doses through September, basically the entire world supply of the drug. There were a few stories in the American press quoting Europeans who seemed startled by the selfishness of the act. “Imagine if this was a vaccine?” Liverpool University’s Dr. Andrew Hill wondered. Mostly, however, the reaction to the U.S. hoarding one of just two drugs shown to have positive effects in treating a civilization-imperiling disease (the other is the steroid dexamethasone) was muted.
Why? As articulated by Trump press secretary Kayleigh McEnany, no sick person will ever see anything like a bill for the real cost of the drug. “The hospitals have to eat the cost of treatment use,” McEnany said. “The patient will not see the cost.”
This sounds great on the surface, but of course, Americans, through their tax dollars, will pay for treatments like remdesivir and for potential vaccines. Recent House and Senate emergency-spending bills allocate as much as $20 billion or more for vaccine development, and another $6 billion for manufacturing and distribution. “The public will pay for much research and manufacturing,” says Doggett. “Only the profits will be privatized.”
Still, because individuals won’t be handed physical bills for pills or shots, nobody balks at prices companies set, if they even know what they are. With remdesivir, “nobody in the Trump administration complained” about price, says Gerald Posner, author of Pharma: Greed, Lies, and the Poisoning of America. “Just as nobody in a Biden administration likely would have complained. Does anybody care?”
It’s surprising, or maybe it isn’t, that all of this is going on during a period of intense political protest. For as much as America is going through changes, many of the dumbest aspects of our political system have remained impervious to reform. There was political will to change the formula for Big Pharma in the early Nineties and in the Obama years, and revolution is in the air now. Just likely not enough to bring drug prices down to a reasonable level.
Profiteering over the coronavirus pandemic is still in the larval stage. The average news reader has heard some enraging stories — a man busted for a $45 million scheme to defraud New York City through phony PPE sales, another arrested for hoarding 192,000 N95 respirator masks and 598,000 medical gloves, a third caught trying to bilk the VA out of $750 million — but the giant-scale gouging will take place later. And it will all be legal.
Soon enough, the infected and uninfected alike will pay any price to try to stave off illness through vaccines and cocktails of expensive treatments. It is an unprecedented profiteering opportunity, because most everyone on Earth is destined to become a customer of some kind — in fact, the United States is already a massive buyer of Covid-19 treatments despite no evidence of efficacy. “We’re in the extraordinary position of spending billions on vaccines before we know if they work,” says Doggett.
Some of the rush to spend money on treatments is driven by a perhaps-unrealistic expectation that vaccines will be available soon, or at all. Dr. Robert Gallo, co-founder and international scientific adviser of the Global Virus Network and one of the world’s leading virologists — he is the co-discoverer of HIV and the developer of the HIV blood test, among other things — worries that the unique characteristics of Covid-19 will make it hard for any traditional vaccine to have “durability.”
“You look at the structure of the proteins, and it’s a lot like HIV, because of its glycan shields,” he says, referring to sugars that protect viruses from antibodies. “Antibodies that are glycosylated in this way do not last.” Because of this, Gallo says, he worries that companies might be tempted to declare victory prematurely. He warns that people who put timetables on when treatments might be available — Trump often says things like, “We’re very close,” and press observers like Politico have warned that the administration is sitting on an “October vaccine surprise” — are almost always being disingenuous. “I’ve always said, you don’t have a vaccine until you have one, until you’re sure it works.”
Still, there’s widespread expectation that vaccines are coming — we’ve heard reports about vaccines like AstraZeneca’s AZD1222 supposedly producing good results in trials — and an observer looking on the surface level might conclude that Big Pharma in this crisis is breaking long-standing patterns of exploitation. After all, several of the biggest drugmakers have made public pledges to produce vaccines at cost, including Johnson & Johnson and AstraZeneca. “We’ll do it at no profit,” AstraZeneca CEO Pascal Soriot said. “This is what a successful, healthy pharmaceutical industry can do.”
The problem with these pledges is nobody knows what they mean. In the case of Johnson & Johnson, the company promised to produce vaccines at cost “for the duration of the emergency.” When Doggett and his staff asked what this means, they got no answer. Nor is there any transparency about what terms like “cost” mean, or how the billions allocated for research are being spent.
Add the unique arc of the Covid-19 story — which may require decades of intense, ongoing investment — and gestures like the ones made by Johnson & Johnson and AstraZeneca begin to give off an ominous odor. “You can put about as much faith in their promises as you can in the pitch of any salesperson,” says Doggett.
The Covid-19 disaster will rely significantly upon these corporate drugmakers to not only come up with cures and treatments, but to also create a manageable price for people around the world, since the pandemic won’t be stopped unless the whole world gets treated. “Is Big Pharma going to do the right thing?” asks Dana Gill, U.S. policy adviser for Doctors Without Borders. Citing the historic example of the drugmakers’ reluctance to provide HIV drugs to poor nations, and even the high price of hepatitis treatments like Sovaldi, she adds, “There’s plenty of examples of pharma companies not doing the right thing.”
What guarantees there will be a problem? The central role of the United States, whose dystopia of a medical bureaucracy is God’s gift to pharmaceutical companies.
Every other country in the world has a three-stage process for approving and pricing prescription drugs. Governments first ask if the drug is safe. If the answer is yes, it asks if the drug is effective.
If the drug passes those two hurdles, most governments then ask how much more effective the new drug is compared to existing medicines. [Talk about a monopolist rentier system. How about just legalizing generics, aka free market competition?] This efficacy calculation becomes the starting point for price negotiations, which usually involve threatening to keep the drug out of the country’s state-insured pool of medications if the company does not come up with a reasonable price.
The U.S. either skips or botches these steps. First, there is no regulatory review that determines comparative efficacy. In the U.S., the FDA review ends after the first two steps: Once a drug is deemed safe and effective, it goes on the market.
Then comes the whopper: All FDA-approved drugs must, by law, be covered by Medicaid. This rule dates to 1990 with the creation of the Medicaid Drug Rebate Program. The “grand bargain” that was supposed to be built into this reform concept was that all FDA drugs would be purchased by Medicaid, provided that manufacturers gave the government either the best price available to insurers, or a 23.1 percent discount over the drug’s list price.
This sounds great, except drug manufacturers simply began figuring the Medicaid “discount” into their list-price calculations. If the medical condition is serious enough and the drug has no effective analog [aka if a cheap generic has been outlawed], companies can dictate their price. As a result, we end up with situations like the 2014 Sovaldi episode, in which Medicaid spent $3 billion in a single year just on the one drug, and was still forced to severely ration the medicine, giving it to just 2.4 percent of hepatitis-C patients. Gill notes that only 37 percent of Americans are treated for hepatitis C even now, in part because of the high price of the drug.
The business model for Big Pharma is brilliant. A substantial portion of research and development for new drugs is funded by the state, which then punts its intellectual work to private companies, who are then allowed to extract maximum profits back from the same government, which has over decades formalized an elaborate process of negotiating against itself in these matters.
How big are these giveaways? Since the 1930s, the NIH has spent about $930 billion in research. Between 2010 and 2016, every single drug that won approval from the FDA — 210 different pharmaceuticals — grew at least in part out of research funded by the NIH. A common pattern involves R&D conducted by a small or midsize company, which sells out to a behemoth like Gilead the instant its drug makes it through trials, and obscene prices are set.
This was the case with Sovaldi, for instance, which Gilead acquired when it spent $11 billion in 2012 buying out original developer Pharmasset, which had worked on a line of hepatitis drugs. Within five years, Gilead earned more than $58 billion on a line of hepatitis treatments it won in the Pharmasset deal.
This same pattern seems likely to hold with Covid-19 treatments, only the cycle of exploitation will be accelerated. “It’s a microcosm of a larger broken system, in which you have an R&D system that’s profit-driven rather than people-driven,” says Gill. “These problems existed before Covid-19, and now the U.S. is pumping billions of taxpayer funds into these companies, in most cases with no strings attached.”
Those billions are going to a handful of pharmaceutical companies participating in the Trump administration’s Operation Warp Speed, the stated aim of which is to deliver 300 million doses of Covid-19 vaccine by January 2021. On March 30th, the Department of Health and Human Services announced $456 million in spending for a Johnson & Johnson vaccine program. On April 16th, it announced $483 million for Moderna, a company that (this is not a joke) has never once successfully brought a drug to market. AstraZeneca got $1.2 billion for its vaccine program on May 21st. On June 1st, Emergent BioSolutions won $628 million to provide manufacturing for vaccines. On July 7th, Novavax cashed in, with $1.6 billion for vaccine development. Toward the end of July, the Trump administration announced a deal with Pfizer and the German firm BioNTech to spend $2 billion on 100 million doses of a vaccine. One of these companies is likely to develop the drug that allows the world to go back to normal, and the heroism of those researchers is going to be overshadowed by a profiteering system that rewards their bosses instead of them.
Indeed, the Pfizer deal surprised some, because it seemed to be priced at just $19.50 per dose. But experts estimate that when all is said and done, the same drug will sell overseas for about half that cost. As one Democratic Hill staffer puts it, “They’re making sure that the U.S. pays the highest possible price.”
The Trump administration has tools at its disposal that it could use to lower prices. The Bayh-Dole Act of 1980 gives any agency that funds research leading to a patent to use “march-in rights” to give out licenses to other manufacturers, if, among other things, the patent holder has not done enough to meet the “health or safety needs” of consumers. The president could also employ a federal law called Section 1498, which essentially allows the government to ignore patent rights in an effort to lower prices. Such rights have been invoked before, such as when Bayer cut prices of the anti-anthrax drug ciprofloxacin after the Bush II administration threatened to use that authority (ironically, current Trump HHS Secretary Alex Azar worked under Bush during that time).
“Taxpayers are the angel investors in pharmaceuticals,” says Doggett. “Any other investor would demand a stake in the outcome.”
To date, Trump has shown no interest in invoking either power. He recently signed four related executive orders that ostensibly would lower prices of generics through several means, including allowing importation from Canada and forcing Medicaid to buy drugs at the same prices that other countries pay. One Democratic aide called it “interesting” — but it was amusing to hear Pfizer CEO Albert Bourla complain that Trump was ushering in “socialized medicine.”
The casual follower of this story is probably best served understanding the Covid-19 crisis less as a historic boondoggle (that’s more likely to be found in the financial bailouts) and more as an all-out war by industry lobbyists to retain a system that is already sociopathic and grotesquely anti-competitive in the face of intense public pressure during the pandemic. To be sure, companies like AstraZeneca and Pfizer will end up making a giant pile of money from vaccines and therapies. This is particularly the case because of the somewhat eccentric nature of the disease.
“We might need several vaccines,” says Whitrap, echoing a sentiment suggested by numerous scientists, that the best course ultimately might be a cocktail of different antibody-producing techniques that will have to be administered in an overlapping strategy, perhaps with regular booster shots.
Add the fact that treatment of the already-infected will involve combination therapies (like remdesivir with dexamethasone, to begin with), and the endgame for pharmaceutical companies might be years if not decades of doses that will have to be stockpiled in enormous quantities everywhere on Earth.
This will be worth many billions to firms like Gilead, but the more important win for these companies is staving off efforts to end the monster-subsidy system built into the grant-to-patent process that is suddenly in plain view because of this disaster.
The early days of the pandemic provided ominous clues on these fronts. In March, Gilead had the stones to apply for an “orphan” designation for remdesivir, which would have given it a seven-year exclusivity window, tax breaks, waived FDA fees, and other commercial advantages.
The orphan designation was created in 1983 to provide an incentive for drug companies to develop treatments for rare disorders that affect comparatively small numbers of people, like Wilson’s disease or familial hypercholesterolemia — horrific diseases that are a major challenge to treat, but don’t offer drug companies a potential significant windfall if they develop a cure. Under the law, companies can earn orphan designation for a drug if it’s intended for treatment of fewer than 200,000 Americans.
Gilead applied for orphan perks before there were 200,000 sufferers of Covid-19 in the United States, but everyone knew this was no rare disease. Such a brazen effort to try to get the government to hand over tax credits and help squeeze out generic competitors through the use of a law designed to bribe pharmaceutical firms into developing cures for financially unpromising diseases was crude, but effective. The FDA granted the request! (Gilead did not respond to requests for comments on this story.)
Public Citizen called the move “outrageous,” and so did Bernie Sanders (well, Bernie said “truly outrageous”), and there was enough of a backlash that Gilead rescinded its own request on March 25th.
The Gilead orphan example, however, was indicative not only of the pharmaceutical companies’ thinking, but also of the political climate. Big Pharma has been extraordinarily adept at lobbying and keeping effective control of Congress. In 2003, Congress passed the Medicare Prescription Drug act, a bill pitched as a way to reduce drug prices that became a titanic industry handout.
The Bush-era law included a notorious anti-competitive provision barring the government from using its purchasing power to negotiate with companies. Much of the bill was written by Louisiana Rep. Billy Tauzin, who retired from the House shortly after it was passed and took a $2 million-per-year Thank You for Smoking-style plum job from the trade group PhRMA as the drugmakers’ Spokesperson for Evil.
A few years later, when a popular young politician named Barack Obama ran for president and won the White House promising to lower drug prices through reimportation and bulk negotiation, Tauzin and his crew met repeatedly with the new leader. At the conclusion of those meetings, the Obama administration took those proposed reforms off the table.
“The pharmaceutical companies are clearly nondiscriminatory in the political sense,” says Doggett. “Their political power is incredible.”
In March, we saw a dramatic demonstration, when the first $8.3 billion emergency-spending bill made its way through Congress. The bill included a provision inserted by Democrats that would have limited the intellectual-property rights of companies developing vaccines the government thinks are priced unfairly. Industry lobbyists not only managed to kill that provision, they also got another one inserted that protected the industry from having the approval of drugs delayed if the product is overpriced. “They couldn’t even hold off those two clauses,” Posner says.
For Posner, who has written extensively about Big Pharma, the spectacle of Democrats pounding the table for an end to price gouging is more like Kabuki theater. A few scattered members, like Doggett, will make elaborate demands, but in bills that have no hope of passing. Meanwhile, pharmaceutical companies always seem to get what they want. Posner points to the swine flu vaccine in the Gerald Ford years, when companies like Sharp and Dohme (Merck) refused to help develop vaccines unless they were guaranteed profits and shielded from liability.
Ultimately, the swine flu vaccine was a fiasco, resulting in a number of horrible side effects, including as many as 450 cases of the degenerative nerve disease Guillain-Barré.
The taxpayer ended up paying for the swine flu vaccine coming and going, through guaranteed profits at the front and outlays for piles of lawsuits from victims on the other side. Nothing like that has happened with Covid-19, but the same pattern of major concessions won upfront, mixed with what amounts to guarantees of profit, is present.
“It’s a rip-off,” says Posner, comparing the olive-branch “no profit” promises by vaccine-makers to the free samples handed out by heroin dealers. In the lifesaving drug business, once you’re in the door, the rest is just counting money. And with Covid-19, the counting has already begun.
Source: Rolling Stone