Betting on hepatitis C: how financial speculation in drug development influences access to medicines Victor Roy and Lawrence King argue that the acquisition strategies of drug companies magnify development costs and leave the public paying twice—for research and high priced medicines Victor Roy doctoral researcher, Lawrence King professor of sociology and political economy Department of Sociology, University of Cambridge, Cambridge, UK Sofosbuvir based medicines have marked an important breakthrough for patients with hepatitis C infection, offering cure rates of over 90%. The virus is a leading infectious killer globally, disproportionately affecting vulnerable groups such as people who inject drugs or have HIV/AIDS. 1 Even after discounts offered from a US list price of about $90 000 (£70 000; €80 000) per three month treatment course, however, the cost of these drugs, manufactured by Gilead Sciences, has challenged government budgets and led to rationing. Sofosbuvir’s pricing has been at the centre of a global debate over the affordability of prevailing systems of drug development, and the US Senate conducted an 18 month investigation into Gilead’s pricing strategy and its consequences for health budgets and patient access. 2 One argument for the high prices has been that the curative drugs represent a major advance in value to patients and health systems. They are indeed more cost effective than many expensive medicines that provide only marginal benefit. Yet the company’s ability to charge high prices ultimately relies on monopoly protections via patents, which the industry has long argued are necessary to encourage costly research and development. Critics, however, charge that these costs are exaggerated. 3-5 We use the case of hepatitis C to highlight another dynamic missing from the debate: the financial model driving large companies and their shareholders. To maximise profit, large companies like Gilead enter expensive bidding contests to acquire companies with promising compounds. Subsequent profits are then directed back to shareholders rather than invested in early stage research. This speculative cycle propels the prices of medicines and impedes affordable access for both current and future patients. Bringing sofosbuvir to market During the 2000s, a small start-up called Pharmasset emerged from a publicly funded laboratory at Emory University to develop sofosbuvir, the backbone compound behind the new class of curative hepatitis C therapies. 6 Raised primarily from venture capital and eventual stock based financing, the company’s total reported research and development spending (2003-11) in US Securities and Exchange filings was $271m for sofosbuvir and other failed compounds. 78 From this total, Pharmasset reported $62.4m specifically for developing sofosbuvir from preclinical research to phase II trials. 6 At this stage, Pharmasset identified a future budget of $125.6m for taking sofosbuvir through phase III trials and FDA approval, bringing the compound’s total past and projected development costs up to $188m. 6 Phase II trials of sofosbuvir showed a more promising cure rate than Gilead’s in house prospects. 9 In anticipation of an annual $20bn market in coming years, Gilead acquired Pharmasset for $11bn in November 2011 using cash from previous profits and new debt. 10 Gilead gained approval for sofosbuvir by December 2013 after completion of four phase III registration studies and with the help of the FDA’s accelerated approval pathway. 11 The company has since combined sofosbuvir with a series of in-house protease inhibitors (ledipasvir in Harvoni, for example), aiming to create a single oral regimen that shortens treatment from 12 weeks to under eight weeks for some patients. Though Gilead has not shared the costs of its failed compounds and previous in-house research, the company reported aggregate costs of $880.3m to the US Senate for sofosbuvir based clinical trials from 2012 to 2014. 12 Costs of speculative acquisitions Gilead’s function as an acquisition and regulatory specialist in drug development for hepatitis C reflects a strategic preference shaped by financial concerns. In an April 2015 earnings call, then chief executive John Martin reinforced this approach to Gilead’s investors: “We typically like things where we can have impact on phase III and where we can accelerate those products either into the approval process or into greater indications after the approval process.” 13 Gilead’s preference is part of an industry-wide pattern. A 2014 study found that companies Correspondence to: V Roy vr260@cam.ac.uk For personal use only: See rights and reprints http://www.bmj.com/permissions Subscribe: http://www.bmj.com/subscribe BMJ 2016;354:i3718 doi: 10.1136/bmj.i3718 Page 1 of 5 Analysis ANALYSIS