Coronavirus drug cost – Ignore critics. Here’s why the price is right

Last week, Gilead Sciences announced that it would sell a five-day course of its coronavirus drug, remdesivir, for just over $3,100. The antiviral, currently the only medication proven to speed recovery from COVID-19, received FDA approval in May.

Some Democratic lawmakers and policy experts attacked remdesivir’s price as soon as it was announced. They claim that Gilead could sell the drug for as little as $1 per dose – and that the higher price reflects nothing more than the pharmaceutical company’s desire to capitalize on the crisis.

That critique makes little sense. Even some of the drug industry‘s most prominent critics have acknowledged that remdesivir’s price is fair, as the value it delivers could end up being a lot higher than its price tag. Further, selling innovative drugs for pennies would starve companies of the funding they need to develop the next generation of cures.

Remdesivir was initially developed by Gilead with the hope that it could defeat Ebola. It failed to do so but showed promise against SARS and MERS, both of which are also caused by coronaviruses. The drug works by blocking the enzyme that enables the novel coronavirus to replicate.

Early research shows the drug helps patients with “moderate” cases of COVID-19 recover quicker than they otherwise would. Patients who took remdesivir for five days were 65 percent more likely to improve on a seven-point scale, where one means “death” and seven means “not hospitalized.”

Another study sponsored by the federal government found that the drug accelerated hospital recoveries by four days. Gilead estimates that remdesivir would save the U.S. health care system $12,000 for every four days of hospital costs it eliminates.

Given the drug’s benefits, and the potential savings for the health care system, Gilead’s proposed $3,100 price is eminently fair. The Institute for Clinical and Economic Review – a group that sets cost-effectiveness thresholds for new drugs and is generally critical of the pharmaceutical industry – admitted that Gilead “made a responsible pricing decision.” ICER concluded that Gilead could reasonably charge up to $5,080 for a 10-day course of remdesivir.

Nonetheless, critics have denounced remdesivir’s price tag. Some have pointed to an earlier ICER assessment, which said Gilead could recoup its costs by selling remdesivir for just $1 per dose. Public Citizen, a progressive advocacy group, claims that price is justified because the federal government invested $70 million in remdesivir’s development, largely by funding early-stage research and clinical trials. As such, it claims taxpayers have already paid for the drug.

Such assertions ignore the economics of drug development. On average, it takes $2.6 billion and over a decade to bring a single new drug to market. Seventy million dollars is a lot of money – but it’s less than 3 percent of the cost of the average drug’s development cost.

We can often trace the origin of a successful drug back to government-funded basic research. But the story of drug development is often one of failure. Just 12 percent of promising experimental compounds that enter clinical development garner FDA approval. So drug companies rely on a handful of successful drugs to recoup the costs of their failures and fund future research.

If the government set drug prices or seized patents to give away drugs for free – two policies that have recently gained ground among Democrats – drug development would grind to a halt. No investor would fund such risky research if the chances of recouping their outlays were null. Without adequate funding, it would take even longer to develop a successful new drug than it does today.

Imagine what our COVID-19 response would have looked like without a well-funded research ecosystem. The science behind remdesivir would likely still be languishing in some government-funded lab. And our hope for an effective vaccine by early next year would be little more than a pipe dream.

Thankfully, that’s not the reality we live in. Those calling for Gilead to cut remdesivir’s price misunderstand economics and health care alike. Giving drugs away for free may seem like a smart move in the short term. But it would harm patients for generations to come.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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