CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Cost of Sovaldi Would Not Pose Problems If Elites in the United States Believed in Free Trade

The Cost of Sovaldi Would Not Pose Problems If Elites in the United States Believed in Free Trade

Saturday, 09 August 2014 07:07

The Washington Post treated us to another hand wringing piece on Sovaldi. The deal is that we could virtually eliminate a major disease in 10-20 years if only we were prepared to bite the bullet and pay Gilead Sciences $84k a head for Sovaldi. 

Those are not the only options. Gilead Sciences charges $84,000 for Sovaldi but it doesn't actually cost $84,000 to produce the drug. Generic manufacturers make the drug available in Egypt for less than $1,000 per person and Indian generic manufacturers believe they could produce it for even less. If we allowed people in the United States to go these countries to get treatment, covering the cost of travel for themselves and immediate family, it would be possible to provide treatment for a small fraction of this cost.

If this were done on a large scale it would undermine the model of financing research through granting patent monopolies, however it is long past time that this 16th century mode of financing be re-examined. There is a vast literature in economics on the waste and corruption that results from policies like tariffs that raise the price of products above the cost of production.

In the case of Sovaldi, the patent monopoly has a distortionary effect that is similar to a 10,000 percent tariff. Predictably it leads to a huge amount of corruption, with companies routinely misrepresenting the safety and effectiveness of their drugs. The secrecy that companies rely upon to ensure themselves the ability to capitalize on the value of their research also slows the pace of drug development. Unfortunately the industry is so powerful (it is a major source of advertising revenue for the Post), that it can prevent alternatives to patents from even being raised in public debate.

Comments (13)Add Comment
Coming Soon from Big Pharma: Carpet Bomb Medical Screening of All Americans
written by Last Mover, August 09, 2014 8:53
Up to 75 percent of people who have hepatitis C aren't aware they have it, according to the Centers for Disease Control and Prevention. But baby boomers, who account for about three-quarters of infected Americans, could greatly benefit from Medicare's recent decision to cover hepatitis C screening tests. The screening will help identify 487,000 hepatitis C cases over the next decade, according to the computer model researchers developed.

Sock puppets for economic predators behind the likes of Sovaldi just can't get enough of themselves.

As if health care costs weren't already high enough, they glorify a 10,000 percent price increase because it creates incentives to hunt down and test every last American who can justify the sale of this drug.

To add insult to injury it's pushed as a final cure to wipe out a terrible disease, a shameless attempt to trump up Big Pharma for actually curing a disease rather treating endless chronic problems with never ending sales of blockbuster drugs that don't cure.

Lesson learned. If they can't get a blockbuster through sales, then get it through price. No price is too high as long as it's within willingness to pay.

There is however one important benefit which no one can deny. As drug prices continue to explode, eventually every American can be screened for everything in one sitting as an efficiency move. Big Pharma will leave no stone unturned for huge profits at the margin.

Count your blessings America. You may not afford the treatment or cure, but soon you will have peace of mind, knowing every last disease and ailment harbored within your body - a body fully monetized by Big Pharma from head to toe.
Fairy tales of the 16th century
written by Squeezed Turnip, August 09, 2014 8:53
Patent law, to big pharma, is the goose that lays golden pills. To consumers (let's call them Hansel and Gretel), patent law is the witch in the woods preparing to eat them for lunch, but what does the media say? "The witch has to eat." We need a woodsman to slay the witch holding children hostage as food.
"hand wringing" is exactly it
written by Jennifer, August 09, 2014 9:09
It's not just the Post, but the New York Times. Nearly all these articles run through the same talking points, wow we have this cure but we can we afford it. There has been hardly any discussion of aggressive measures to try to bring the price down now, but more importantly less discussion of how to avoid it in the future. At what point are the American people going to recognize that health is secondary to profit for pharmaceutical companies and we CAN do better?
written by AlanInAZ, August 09, 2014 2:28
The British NHS seems to be playing hardball with Gilead and have said they may not approve treatment because of cost. There was approval for treatment of only 500 of the sickest patients in April but the NICE committee is now asking for more data and have said they are inclined not to approve. Recently the NICE committee(National Institute for Health and Care Excellence) declined to approve a new treatment for advanced breast cancer because of cost. The cost would come down if other rich nations said no until prices drop.
written by urban legend, August 09, 2014 3:18
Rather than trying to junk the patent system in an effort that makes tilting at windmills look prudent, why not concentrate on a compulsory licensing approach for life-saving drugs? Since the drug is a matter of life and death, there is political feasibility for this approach.

The fact that patents have been the method for encouraging inventions for 500 years cuts both ways. It may be outdated as suggested, or it may be time-honored. Is there a serious argument that information technology would have come this far this fast without a patent system? How about automobiles or electricity or communications technology? For that matter, what about the, what, hundreds of life-saving drugs that are now generics?
written by urban legend, August 09, 2014 3:26
Forgot to add this link re compulsory licensing under TRIPS.


So government exercising its compulsory licensing authority (if it has the necessary laws in place itself) negotiates a deal for a drug for a rare disease to assure it is at least reasonably affordable while reasonably compensating the patent-owner for its costs and research investments. What's the fundamental problem with that?
Coming Up With $250 Billion is a Problem
written by Dean, August 09, 2014 3:45
Urban Legend,

the reason for concern is that patent monopolies create an enormous unnecessary expense. Even if we could get a compulsory license in the U.S. it would still involve a lot of pointless legal work and a huge legislative battle. And, in the case of developing countries, compulsory licenses continues to be a major source of dispute. Very few have been issued and the U.S. often threatens countries with retaliation if they do issue them. And, our newest round of trade deals are designed to further restrict the use of compulsory licensing.

As far as innovation in the absence of patent protection, if you have heard of the Internet, the U.S. military, or closer to the topic, the polio vaccine, you wouldn't ask the question. of course we can have successful innovation with alternative mechanisms. There is no argument anywhere that the patent system is more efficient, just that the pharmaceutical industry has more power.

In terms of tilting at windmills, I work under the assumption that people would rather pay less for their health care so that they have more money in their pockets. If they can go to India and be treated at a modern facility and save $60k after covering travel, I suspect lots of people will want to do that. Of course most people don't pay their health care costs directly.

Insurance companies or state or federal government programs do. So we just need some insurers or state governments who are prepared to save a huge amount of money by thumbing their nose at the insurance industry. I know that most of the people in positions of responsibility at these institutions are not terribly original thinkers and complete cowards, but it doesn't seem absurd to imagine that at least one of them might have an iota of a common sense and a fragment of a backbone.
Skip Compulsory Licensing!
written by John Parks, August 09, 2014 4:24
Skip Compulsory Licensing!

Just in the US, a 3.5 million patient pool x $80,000.00
a pop plus the rinse and repeat for those that have to start over for not completing the full regimen looks like a starting base price quarter of a trillion dollars to me.

The Supremes by a 5-4 margin approved imminent domain so
let's call it a national emergency, take the property, and pass it around to 3.5 million recipients. The real beneficiaries will be the American taxpayer who will not have to pony up another250 billion dollars, and THAT is just a start.

Give Gilead a fair 30% profit for their 15 billion and call it square.
Too many articles
written by sd, August 09, 2014 11:45
I am too cynical and am feeling as if there is a layer of manipulation going on and so mow am beginning to wonder if Gilead is laying the groundwork of a marketing campaign. The next step would be to give Solvadi away similar to the polio vaccine. Think of the massive PR boost the company would receive. Why, is the question.
The case against patents, Urbsn Legend
written by Squeezed Turnip, August 10, 2014 9:38
Listen to this interview (one month ago ) on NPR, with Boldrin and Levine [url= http://www.npr.org/blogs/money...st-patents

Patents are slightly less destructive than constructive. In other words, a waste of time.
Dyac, link corrected
written by Squeezed Turnip, August 10, 2014 9:48
Sadly even those who should know better
written by LiveFreeOrWatchTV, August 11, 2014 1:01
...are not taking this up. I've been reading The Incidental Economist as a number of guest bloggers have been discussing cost vs effectiveness, even covering Sovaldi, that don't even touch on the subject of patent monopoly. Can anything else be seriously debated without starting here? Jeesh.
written by urban legend, August 11, 2014 3:36
The Boldrin and Levine article is certainly excellent and provocative, and I think I endorse every one of their specific proposals to reduce the reach and strength of the patent laws. I totally agree it is being abused, as is copyright law dominated by the entertainment industry However, the Burkean residue in me says to go very carefully to the point of completely abolishing a system that has an 800 year or so history, and that is so deeply ingrained in the public's understanding of the process of invention.

I can imagine a President in a State of Union address saying, while trying to start a process of building public support, "Too many huge corporations are abusing the patent system and costing consumers large amounts of money, so we need to adopt major reforms," a lot more than "Too many huge corporations are abusing the patent system and costing consumers large amounts of money, so we need to abolish the patent system." The resistance to such a radical step will be enormous, extremely sophisticated and international in scope, and without proof that no academic paper will ever be able to provide, it will be impossible the public outcry necessary to overcome that resistance. Reforms will be hard enough, but defending largely indefensible and anti-consumer turf is a more difficult effort as well. Even with pharmaceuticals, proposals to take it out the system completely will likewise be met with massive, sophisticated, heavily-funded and international resistance. The pharma industry will run ads scrolling thousands of important drugs that have been developed in the last century under the patent system. Economists will counter with counter-factual explanations why all those drugs would have been developed under a different system. Regardless of who is right, who do you think will win?

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.