Undermining Innovation Is Not A Victory: Hepatitis C Drug Center Stage in Global Patent Battle

Thanks to a number of new Hepatitis C drugs (Sofosbuvir Ledipasvir, Ladispavir) the disease is curable for many patients.  While this is an undeniable victory for patients and payers, the innovators who made this possible have been villainized and undermined.   At a time when the public health community should celebrate the tremendous health benefits these breakthrough drugs have brought to patients around the world, they are instead organizing to ensure the destruction of the incentives that made these drugs a reality.  A recent study from the Centers for Disease Control and Prevention estimates that 2% – 3% of the world’s population is living with hepatitis C.  The World Health Organization states that globally an estimated 71 million people have chronic hepatitis C infection and approximately 399,000 people die each year from the disease.

First, the good news!  Sovaldi (sofosbuvir) drastically changed the landscape of this disease for patients and payers.  Therapeutic regimens have evolved rapidly in the past few years, providing patients suffering with Hepatitis C with improved treatment options and delivering significant cost savings to individuals, payers and society.  Gilead’s Sovaldi is a safe, effective treatment that demonstrably adds value to the healthcare system and transforms patients’ lives with a cure for the disease in approximately 95% of all cases.  Sovaldi is safer, more effective, and accompanied by fewer side effects than existing first-line treatments.  Notably, the previous standard-of-care, Incivek costs roughly 20 percent more than Sovaldi.  Moreover, reports indicate that when combined with two other drugs (interferon and ribavirin), Incivek claims a cure rate of no-more-than 80 percent through a 24 week treatment regimen that included significant toxicity and side effects.

As noted in an earlier IPWatchDog post, Sovaldi also has the potential to save money and lives in the long run.  Hepatitis C may result in conditions that are much more expensive to treat: liver cancer, cirrhosis and liver failure.  With a cure rate close to 95 percent and a treatment time of half that required by current therapies, Sovaldi seems very cost effective.  In contrast, studies show that liver transplants can cost $300,000 and then require $40,000/year anti-rejection drugs that must be taken for the rest of the patient’s life.   Such long term savings are only possible through breakthrough innovations that fundamentally change the healthcare system.  Weakening the patent system for modest short-term cost savings will only eliminate the incentives that encourage the investment and risk taking that deliver the monumental healthcare gains that revolutionize treatment options and transform patient lives.  It is a tradeoff that should be eschewed rather than sought after.

Second, the bad news!  While such innovation should be celebrated, rewarded and emulated, instead critics celebrate the dismantling of the intellectual property rights that made the innovation possible.  Ironically, it appears that the critics are never happy.  Critics of the pharmaceutical industry frequently denounce the resources spent for so-called “follow on innovation”, incremental advances, insisting that the industry should focus on truly innovative drugs that significantly enhance or extend life.  Ironically, Sovaldi does exactly what patient advocates and industry critics have been asking for, but instead of acknowledging this as a success, the company has been vilified for their pricing decision.

Fundamentally, this is an issue of price and access.  While drugs – including Hepatitis C drugs – are expensive, it is difficult to justify the criticism heaped upon the Hepatitis C innovators.  In early 2016 The Chicago Tribune published an article on Sovaldi titled, “The same pill that costs $1,000 in the U.S. sells for $4 in India”.  At first glance this appears to readers as appalling.  However, the numbers only tell part of the story.  Let’s dig a little deeper.  The drug costs $1,000 in the US, but only $4 in India – a price differential that strikes US consumers as inconceivable.  At the same time, global critics claim that Sovaldi is unaffordable to patients in middle-income countries.  (The World Bank classifies India as a “lower middle income country”.)   Now for some perspective:  Sovaldi sells for only 3.6% of the income-adjusted price ($110) in India.  Per-capita income in the United States is $58,700 and $6,490 (PPP adjusted for 2016) in India.  That is, while adjusting for income differentials relative to the United States, the drug is sold at a 96.4% discount in India.

Now, the worst news!  The development and pricing of Hepatitis C drugs has re-energized the global fight over biopharmaceutical patents.  As a result, the innovators who have delivered an incredible drug and amazing hope to patients are under tremendous attack.  The efforts are expansive and extend to IP rights is numerous countries.  Please consider:

  • As noted in the international science journal, Nature, in February 2017 alone, no less than five suits were filed in India and Argentina claiming that the treatments for Hepatitis C do not warrant the 20-year patent monopoly that manufacturers have sought in those countries.
  • In December 2017 the National Institute of Industrial Property (INPI) of Argentina rejected a patent application on the sofosbuvir (Sovaldi) prodrug, an essential medicine in the treatment of hepatitis C. The decision opens the door to local production of generic versions of the drug and was described as a “major victory” for patients.  In the short run this may be true – the decision may increase access to generics – but in reality, the decision undermines the incentive to innovate and frustrates the development of future treatments and cures.   The decision in Argentina is symptomatic of a frightening trend: the undermining of the patent system and destruction of the incentives to innovate.
  • In March 2018, Chile’s Ministry of Health announced that there are sufficient public health reasons to support a compulsory license on medicines for the hepatitis C virus and presented a resolution taking the next step.
  • In January 2018, the Colombian government moved to unilaterally lower the prices of Hepatitis C drugs or, eventually, issue compulsory licenses. Importantly, the move could jeopardize the efforts of the Colombian government to join the Organization for Economic Cooperation and Development (OECD), an intergovernmental group of three dozen countries that was created to stimulate economic progress and world trade.
  • In August 2017, Malaysia’s government issued a compulsory license in an effort to offer a less-expensive version of Gilead’s hepatitis C drug and increase access.
  • An October 2017 report by Bloomberg (and here in the New York Times) notes that Initiative for Medicines, Access & Knowledge (I-Mak), has challenged Sovaldi patents in India, China, Ukraine, Argentina, Brazil and Europe.

These nations should be celebrating the discovery of Sovaldi and other revolutionary Hepatitis C treatments, rather than advocating for the destruction of the incentives that made them possible.  The biopharmaceutical companies that develop life-saving medications, cures, and compounds that transform lives, should to be rewarded with favorable pricing and the provision of incentives that facilitate future innovation. In their absence, biopharmaceutical research and development will continue to contract and fewer such breakthroughs will be discovered.

 

The Author

Kristina M. L. Acri née Lybecker

Kristina M. L. Acri née Lybecker is an Associate Professor of Economics at Colorado College in Colorado Springs, and Chair of the Department of Economics and Business. She earned a B.A. from Macalester College, with a double major in Economics and Latin American Studies, and received her Ph.D. in Economics in 2000 from the University of California, Berkeley. Dr.Acri's research analyzes the challenges surrounding intellectual property rights protection in innovative industries: incentivizing pharmaceutical research and development especially on neglected diseases, addressing the difficulties of strengthening intellectual property rights protection in developing countries, battling the problems related to pharmaceutical counterfeiting and the unique nature of protection for biotech therapies. Recent publications have also addressed alternatives to the existing patent system, the balance between pharmaceutical patent protection and access to essential medicines, and the markets for jointly produced goods such as blood and blood products. Kristina has testified in more than a dozen states on the economics of pharmaceutical counterfeiting. She has also worked with US Food and Drug Administration, Reconnaissance International, PhRMA, the National Peace Foundation, the OECD, the Fraser Institute, the Macdonald Laurier Institute, and the World Bank, on issues of innovation, international trade, and corruption.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 21 Comments comments. Join the discussion.

  1. Ternary May 3, 2018 9:30 am

    The total cost of a treatment may be over $ 80,000 according to different sources. That is a number that cannot be found in the above article. It is only mentioned in the article that “The drug costs $1,000 in the US,” but that is not the cost of a complete treatment, it is the price of a single pill. You say that “Per-capita income in the United States is $58,700.” This means that for many people a treatment course will cost more than they make in a year. The production costs of Hepatitis C direct acting antivirals is estimated in an article at https://academic.oup.com/cid/article/58/7/928/413782. The manufacturing costs for a 12-week course of simeprevir (the priciest of the group) was estimated to be between $ 130 -$270.

    I am an independent inventor and a proponent of a strong patent system. However, it seems to me that the pricing of a treatment with HCV DAAs is excessive and can only be achieved by protection under IP law. I will not dispute that inventors/companies need to be able to benefit from their inventions. So, if you produce a cell-phone for $185 and sell it for $185,000 under the protection of patents: go for it, I would say. Though your success will be limited, I predict.

    Clearly, people with Hepatitis C do not have that choice. But their access to HCV DAAs is limited by the high price. Most of the price of the antivirals appears to be pure profit. Of course this backfires. That companies “should to be rewarded with favorable pricing” is not the real issue here. Most people would agree that companies deserve to benefit from an invention. The real issue is how much profit on pharmaceuticals is acceptable before societies start to take action. That point has been reached as we all have experienced.

    You say “Now, the worst news! The development and pricing of Hepatitis C drugs has re-energized the global fight over biopharmaceutical patents.” I would say that this is largely self-inflicted.

  2. Anon2 May 3, 2018 10:00 am

    Great article!

  3. Josh Malone May 3, 2018 10:37 am

    Pharmaceuticals are not special. The public can use the prior art. The inventor can keep his invention to himself or he can charge a billion dollars for it. It is his. If there are no willing buyers that is not a problem. If he has the cure for the disease and won’t share it he might be a sadistic person – throwing away reasearch money so that he can taunt sick people. But there is never only one way to treat a disease. Patients and doctors can utilize treatments that the inventor did not discover. Researchers can discover new (and better) treatments. The inventor fulfilled 100% of his obligations to society by disclosing his invention in the application. This alone is the benefit he provides to society – teaching them his solution. This teaching show others that it is possible and gives them lots of knowledge to guide what to try next.

    Will creative sadists outnumber altruists and capitalists, racing ahead to lock up all the treatments? This is crazy.

    (This comment is directed to a fictitious hypothetical quid pro quo property rights based patent system. A certain nation experimented with such a system for a time with remarkable success, but it was eventually discarded. Modern patent systems are based in franchise, corruption, and centrally planned innovation.)

  4. Herb Glum May 4, 2018 11:02 am

    Just curious, what did it cost to discover, as well as perfect the manufacture and therapeutic regimen of Sovaldi? By therapeutic regimen I am referring to that which has the potential to be a safe, effective treatment for 2% – 3% of the world’s population with Hep C of which an estimated 399,000 people die each year. The one which demonstrably adds value to the healthcare system and transforms patients’ lives in approximately 95% of all cases. Was the cost $100 million, $1 billion, more? And, how many similar drugs has the Initiative for Medicines, Access & Knowledge (I-Mak) developed?

  5. Ternary May 4, 2018 6:01 pm

    Good question all, Herb Glum. A bit of research would have brought you to a Senate report (https://www.finance.senate.gov/imo/media/doc/2%20Introduction,%20Hepatitis%20C%20Background,%20Development%20of%20Sovaldi%20and%20Gilead's%20Acquistion%20of%20Pharmasset%20(Introduction,%20Sections%201&2).pdf)

    The total cost of R&D cited by Gilead (including the $ 65 Million R&D by the much more successful company Pharmasset that was acquired by Gilead) in sofosbuvir-based regimens was $940 million. This amount was recaptured within the first year of marketing the product and is now basically irrelevant to the total market value of the product.

    Gilead was warned for the severe and negative consequences of its pricing. But it went ahead anyway. A role may have been that much lower priced drugs are in the pipeline. So Gilead maximizes its profits in a type of reverse forward pricing.

    As I said earlier in a comment, related to “The development and pricing of Hepatitis C drugs has re-energized the global fight over biopharmaceutical patents.” It is all self-inflicted. And predictably so. People had to pay outrageous prices. Don’t come back now whining that “people do not value R&D.” The two (R&D and pricing), have almost nothing to do with each other in this case. But patent protection does and it has backfired in a dramatic and spectacular way for most of us. Hello, wake up: people don’t like patents!

  6. Anon May 4, 2018 6:15 pm

    Ternary,

    Perhaps one may appreciate that it is ONLY in “Big Pharma” that the “end of term” effect is so much in play.

    Perhaps it is this factor that is a cause (as opposed to a symptom) that generates the pricing decision. If “Big Pharma” were faced with actual competition” and did not depend so much on the out-sized profits of later year “boons,” it might mayhap focus on innovating the innovation process itself and invent new ways of drug development that did not correlate to the “Big Boon” and blockbuster approach. In most all other fields, full patent term reaches a point of diminishing returns based on others also innovating. Sure, in most other tech one could continue to rely on patents for certain products past a given return point, but the focus on new innovation is well underway BEFORE that point.

    As you point out, this is very much a Big Pharma “self-induced” wound, seeing as their expenditures are recouped well early (and one should then be “ready” for the rebuttal that Big Pharma must have such out-sized profits BECAUSE so many drug development projects are busts).

    Here’s a hint that most all other art fields have long faced: you don’t “get to” get away with subsidizing all of your failures with your one or two successes. Such a model REMOVES any impetus to innovate in the innovation process itself, as one BUILDS IN the expectation of development failure.

  7. kenny May 5, 2018 8:18 am

    what the Malaysian government did was to invoke compulsory licencing. It is within our power to do so when required to do so. Although Malaysia is classified as a middle income country, many of the population lived on the verge of poverty what more with ever rising living costs. The generic DAA drugs cost less than 1% of the initial price. Under the initial pricing, almost none of the patients could afford the treatment.
    If the target population cannot benefit from the drug, how can it help to improve lives?

  8. Anon2 May 5, 2018 9:30 am

    When asked how much it “costs” to cause the creation of anything of value, the proper answer in a free society is “it doesn’t matter”.

  9. Ternary May 5, 2018 10:16 am

    Anon2. Seems to me that your “proper” answer is a non-sequitur response to a reasonable question that many of us are confronted with. To create a patent is a significant financial burden.

    However, in the scheme of creating anti-viral drugs, your answer appears to be correct. Pharmasset spent $65 Million to create something of value. Gilead spent $880 Million to come up with bupkes in the same field. Gilead acquired Pharmasset for $ 11 Billion. However, all these amounts are immaterial compared to the profits being made on the drugs in case. Indeed, it doesn’t matter.

    An because it is a free society people are pushing back on a patent system that allow these schemes to be executed.

    I agree with Anon @6 that the economics of Big Pharma are entirely different from other innovative industries. In the public opinion that distinction doesn’t matter. And the resulting current anti-patent atmosphere, which can be partially blamed on Big Pharma, has been cleverly exploited by other incumbents.

  10. Anon May 5, 2018 12:04 pm

    In the public opinion that distinction doesn’t matter

    Why is that?

    In part, it is the snow job that Big Pharma has pulled as to the “woe” of its development costs and the notion that “they should be treated differently” because of human health.

    What it IS, is a “tax”** on everyone else and an excuse to NOT innovate in the process of innovation itself. It is mind boggling to think that had that innovation process itself been left up to market forces and mirrored most all of the other art units (in the existing patent regime), that drug development costs would have been innovated down to reasonable levels, and a plethora of drugs would have been enabled to compete on their own merits.

    ** and this is on top of the “charge US more” basis that Big Pharma attempts to get away with in their business model choice to attempt to defeat natural secondary markets and expand patent rights past any single country’s protection with their “no-exhaustion” political endeavors.

  11. Gene Quinn May 5, 2018 12:44 pm

    kenny-

    Over 95% of the essential medicines as defined by the World Health Organization are off patent. See:

    http://www.ipwatchdog.com/2016/09/12/essential-medicines-off-patent/id=72542/

    What you want is the latest medicines to be available for cheap. If that happens there will be no future medicines. You cannot expect companies to invest the many billions of dollars to create medicines if they are unable to recoup that investment. Wise up! There are literally millions of medicines that are now off patent and can be used virtually free. That is thanks to the patent system.

  12. Anon2 May 5, 2018 1:14 pm

    Sorry Ternary@9

    My statement was not clear.

    It is abundantly important, and it does matter to the drug producer, how much it “costs” to discover, research, and produce something prior to offering it for an exchange of value, since the market will bear only what it will bear, and a people are free to value things in their hierarchy of values however they see fit. So it is not literally the case that the question how much something “will cost” does not “matter”, especially to he who choses whether or not to cause that value to come into existence in the first place.

    For clarity, that after having decided that to proceed with production of a drug, after having created the value which is the actual existence and knowledge of the drug which provides some benefit, and after having been granted proper IP rights in it (the free society is one which is moral and just also), … the actual “cost” does NOT matter for the purposes of setting a price for it by the producer (as long as it is not so low as to create a loss), nor for the purpose of the decision to purchase by the consumer, …

    it matters only what the market will bear (an estimation by the producer) which is the same as what statistically the personal value is to consumers.

    A producer maximizes profit (in a free society) by setting the right price (obviously), while a consumer decides what he/she is willing to pay based on his or her personal priorities (length or quality of life… or health, versus owning or renting a house, staying in a dead end job, buying gadgets, cigarettes or beer).

    Of course private insurance and private charity are always present in a free society in the sense that everyone is free to setup and participate in them insofar as voluntarily those who wish to… actually do so.

    Of course all the above talk, and Ternary it IS a non sequitur
    Literally,
    as society is NOT by ANY stretch economically free.

  13. Ternary May 5, 2018 3:22 pm

    Gene. The issue with Kenny, as I understand it, is not to have medicines “cheap,” but have them affordable. Furthermore, the issue is not to have the medicines “affordable” after patents have expired and the needy patient may have long succumbed to the treatable disease, but have them affordable now when they can cure them. Not an unreasonable request, I would say.

    Gilead acquired a product that could easily have been marketed for the planned $36,000 (still very expensive) by Pharmasset, but instead was priced at the idiotic $85,000 by Gilead. This price change had nothing to do with funding R&D. So, I maintain that this discussion has nothing to do with promoting R&D (the product was already successful past Phase II in clinical trials before acquisition) or adequately compensating an invention based on a strong patent system. The invention (what I understand of it) is very cool and deserving of praise and money. It is an example of planned rational drug design and a promising approach in R&D. So, do it again.

    And what did Gilead do with its enormous profits? Fund expanded research into new products? No, it bought back $ 10 billion in shares in 2016. And it is on the look-out for another acquisition.

    This is why many people agree that a patent is a “public right” or “franchise” bestowed upon the patent owner by the government. So, when society decides that this “public right” is being abused, society pushes back by limiting the rights. That is what has happened. I feel, that as an independent inventor in an unrelated field I am being punished by the conduct of some of Big Pharma.

    Almost all of us on this blog agree on the value of doing an invention and the need to compensate the inventor/investor. What we see little of on this blog is the, sometimes extreme, anti-patent attitude. Many young, very well educated, people do not like patents at all. They believe that the marketplace should determine the success of a product. (wherein marketplace is a catch-all for price/quality/availability/usefulness/novelty). A patent is viewed as an unreasonable distortion of the market. It is easy to discard such views as unrealistic. But I am impressed by the commitment of these people who freely contribute their (often high quality) work to Open Source or other venues. I do not agree with them. But I understand why anti-patent feelings live in society and how these anti-patent feelings are often enhanced by some Big Pharma operations and the arguments made to defend some of these practices.

  14. Anon May 6, 2018 11:08 am

    Many young, very well duped (and lacking application of actual critical thinking), educated, people do not like patents at all. They believe that the marketplace should determine the success of a product. (wherein marketplace is a catch-all for price/quality/availability/usefulness/{and other NON-innovation competition factors})” – as they have been led to believe by the propaganda of Big Corp.

    There, Ternary, I have corrected your statement for you.

  15. Ternary May 6, 2018 9:20 pm

    Anon. You did not correct “my statement.” You merely editorialized my observation.

    On Big Pharma. I personally find this whole situation with Gilead distasteful and I am wondering why specifically this example was used to defend “favorable pricing” for pharmaceuticals under protection of a patent system. Nevertheless, I believe that inventors and their investors should be fairly compensated for inventions and be adequately protected against infringement. Including Big Pharma. This story has nothing to do with that, as well documented in the Senate report.

  16. Anon May 6, 2018 10:16 pm

    Yes Ternary, or did editoriaize your observation, and in so doing, I have corrected your statement.

    As I stated.

    That it so editorializes does not preclude it from correcting.

    “And yet it turns”

    😉

  17. Ternary May 7, 2018 12:28 pm

    “The meaning of a statement (sentence) is its method of verification.” Old-style raw logical empiricism. We need more of it nowadays, as the article demonstrates. You cannot correct my registration of what others say by inserting your own comments.

  18. Anon May 7, 2018 12:46 pm

    Yes, actually, Tenrary, I can.

    And I did.

    Any time someone says anything, veracity can very well be a factor and an opportunity for correction.

  19. Ternary May 7, 2018 11:36 pm

    In Tractatus Logico Philosophicus by Ludwig Wittgenstein, last and final statement (number 7): “Whereof one cannot speak, thereof one must be silent.” (I quote this in a methodological sense of course, not to prevent people from speaking their mind).

    You were not at the conversation I had with these people. You cannot verify what was said. So you cannot correct my registration of the event. (aside from the fact that you do it anyway). There is no logical or empirical reason to doubt what was said (though you obviously disagree with what was reportedly said). Your correction of my summary of a conversation is not based on logical reasoning or refuted by empirical data. In the context of logical empiricism your statement is neither a logical (a priori) nor an empirical (a posteriori) proposition and is methodological nonsense (well, according to logical positivists anyway).

    We are getting seriously off topic here, sorry Gene. But I would enjoy seeing an article if KSR would withstand a scientific methodological analysis (spoiler alert: NO). The last word on our discussion is for you Anon.

  20. Anon May 7, 2018 11:53 pm

    It is not doubting what was said so far as to doubt the veracity of the meaning of what you report. I am sure that you report WHAT was said, but WHAT was said was still wrong, and very much correctable (your proper response would be, simply, “Thank you.”

    Your attempt to catalogue my comment is the opposite of veracity (no matter how deep you dig).

  21. Anon May 8, 2018 8:25 am

    Ternary, I have a feeling that you are confusing veracity and accuracy (and want to think that somehow I am questioning merely the accuracy of your “report”). I am well aware that the accurate report that you repeat is merely the accurate reporting of an incorrect view.

    I have provided a correct view – regardless of – nay, in fact because of – your accuracy in repeating the incorrect view that your statement reflected.

    You dig deep – but dig in error with your entire methodological/a priori/a posteriori attempt to spin out from my correction.

    “And yet it turns.”

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