Our story starts in 2009 with a flop. The biotech firm Gilead Sciences had hoped its antiviral compound, Remdesivir, would treat Hepatitis C. It did not work.
Ebola though gave it a second life. After an experimental antiviral treatment cured a very ill American physician in 2014, clinicians realized that Remdesivir was also a possibility. But again, it did not quite work out. When compared to three other Ebola drugs, Remdesivir came in last. Still, it was on the table when the search for a Covid-19 remedy began.
Through September, the Gilead prices are non-negotiable because they sold most of their supply to the U.S. government. The government will charge $3,120 for a five-day course of treatment and, for one dose, $520. But, depending on the recipient, the numbers will vary.
How to judge their pricing decisions? ICER (the Institute for Clinical and Economic Review) has some answers.
First, they suggest we look at total cost and marginal cost. As you would expect, total cost involves production, distribution, and future efficacy trials. Marginal cost is very different. With marginal meaning extra, we just focus on what one extra pill costs them. To calculate marginal cost, we can subtract the total cost for pill #2 from the total cost for pill #3.
When pricing Remdesivir with these two approaches, we wind up with huge price swings. If cost recovery is the goal, then it makes sense to charge approximately $1600 for a 10-day course of treatment. Meanwhile, marginal cost moves us to as little as $1 to $60 a dose. However, when we include Gilead’s 2020 expenses, then prices moves to somewhere between $100 and $160 a dose.
In addition to total and marginal cost, we can base the price on the efficacy of the drug. If Remdesivir has a mortality benefit and shortens treatment time, then price could somewhere between $4580 and $5080. The glitch here is that no mortality benefit has been proven yet. With no mortality benefit, the price plunges to $310.
A viable Covid-19 treatment can enable more economic activity. It also could diminish our fear of the disease. Furthermore, the market expects a price in the vicinity of $5,000 so anything less could be viewed as fair. Pulling down price, we have the generics that India and Bangladesh produce.
Our Bottom Line: The Market
I have heard people say that a life prolonging drug is so important that government should determine its price. Responding, economists say that is precisely why we need the market. After September, when the U.S. government’s non-negotiated price is no longer valid, we might have the opportunity to see what the market says.
My sources and more: The articles I discovered on Remdesivir were perfect complements. The Hill had the history, the NY Times and The Washington Post conveyed the general pricing ideas and ICER had the detailed analysis. (Our featured image is from Telemundo39.)