Gilead Sciences, in a self-described effort to do “the right and responsible thing,” may have just set a precedent its industry peers will come to resent.
In picking a price for the Covid-19 drug remdesivir that is, in the words of CEO Daniel O’Day, “well below” its actual value, Gilead said it was prioritizing “broad and equitable access” over company profits.
Gilead’s choice, by far the most closely scrutinized drug pricing decision in recent industry history, was stark: plaudits or profits? A low price would win positive attention and provide a nudge to pharma’s basement-dwelling reputation. A high one would assuage investors, who are concerned that Gilead’s investment in remdesivir — estimated at $1 billion this year alone — will never generate a return.
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While I won’t second guess Gilead’s undoubtedly agonizing decision around resdemivir pricing, at a broader industry level, I am not convinced that we should be thinking about drug pricing as a binary choice between serving more patients and making more profits. In fact, the power of PBMs and insurers has reached a point where pricing drugs lower may in the end result in greater profits (due to higher volumes), and conversely aggressive pricing may not lead to profits. The case of the PCSK9 antibodies is salutary in that respect: both Amgen and Sanofi/Regeneron priced their products too high, leading to draconian access restrictions that meant neither company was helping many patients AND neither company was generating much profit. So the challenge for us in industry is to find a better balance, where our products are profitable (after all, we are businesses not charities), and not priced so high that access becomes overly restrictive.
It is also worth remembering that Gilead is probably in a position to not make much (if any) profits on resdemivir precisely because it makes sufficient profits on other products. In the end, drug companies have to generate a reasonable return across their portfolio, but many individual products are not profitable and are cross-subsidized by other, more profitable products. And no, the drug industry does not make excessive profits. In fact, looking at return on equity (in essence the profits generated compared to how much shareholders have invested in a firm), biotech badly lags most other industries, and Pharma is around the average ROE (http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/roe.html). If biotechs and Pharma companies fail to generate a reasonable return for their investors, investors will take their money elsewhere, and the R&D that has fueled progress across so many diseases will grind to a halt.