Heisenberg Report

As ‘Bargain’ Remdesivir Pricing Draws Ire, Market Casts Wary Eye At Relentless Virus

“The focus remains firmly on the virus, rather than anything that is happening to the global economy”, SocGen’s Kit Juckes wrote Monday.

Indeed it does, although you can’t neatly separate the two. Asset prices only care about sick people to the extent those folks are either scared, enfeebled, or dead. That’s because people who are scared, enfeebled, and especially those who are dead, do not leave the house to consume goods and services. When goods and services don’t get consumed, corporate profits take a hit and economic activity grinds to a halt.

In other words, there’s a sense in which the opposite of what Kit says is true. That is, the focus remains squarely on the global economy in the sense that the market is desperately attempting to discern whether it (the economy) will be allowed to function properly going forward, or whether pestilence prevention will take precedence as the “great and powerful plague” (to use Donald Trump’s biblical description) refuses to go gently into that good night. These two visuals are a problem:

(Goldman)

At the risk of coming across as callous, those charts “matter” (to the market) more than any visual depicting global cases topping 10 million or any story documenting Brazil’s tragic descent into a chaotic public health crisis.

What the market cares about right now is whether the world’s largest economy is or isn’t headed back into lockdown.

The latest incremental news on the therapeutic front came Monday morning when HHS said the government bought 500,000 treatment courses of Gilead’s remdesivir for American hospitals. Apparently, that’s 100% of Gilead’s projected production for July, 90% of production in August, and 90% of production in September. The cost to hospitals will be “no more” than $3,200 per treatment course.

“Generally, patients do not pay directly for hospital-administered drugs like remdesivir; rather, for Medicare and most private insurers, the drug’s cost is incorporated into payments made by the insurer, such as Medicare paying for the drug through a diagnostic-related group”, the government said.

In a press release, Gilead explained the company’s thinking behind what it says is benign pricing for remdesivir. To wit (and this is a case where it’s worth giving you the lengthy quotes directly from the company):

In the weeks since we learned of remdesivir’s potential against COVID-19, one topic has attracted more speculation than any other: what price we might set for the medicine. This degree of speculation is understandable. Remdesivir, our investigational treatment, is the first antiviral to have demonstrated patient improvement in clinical trials for COVID-19 and there is no playbook for how to price a new medicine in a pandemic. We are aware of the significant responsibility that comes with pricing remdesivir, and the need to be transparent on our decision. After giving this the considerable care, time and amount of discussion that it merits, we are now ready to share our decision and explain how we reached it.

As with all our actions on remdesivir, we approached this with the aim of helping as many patients as possible, as quickly as possible and in the most responsible way. This has been our compass point throughout, from collaborating to find rapid answers on safety and efficacy, to scaling up manufacturing and donating our supply of remdesivir through the end of June. In each case, we recognized the need to do things differently to reflect the exceptional circumstances of the pandemic. Now, as we transition beyond the donation period and set a price for remdesivir, the same principle applies.

In normal circumstances, we would price a medicine according to the value it provides. The first results from the NIAID study in hospitalized patients with COVID-19 showed that remdesivir shortened time to recovery by an average of four days. Taking the example of the United States, earlier hospital discharge would result in hospital savings of approximately $12,000 per patient. Even just considering these immediate savings to the healthcare system alone, we can see the potential value that remdesivir provides. This is before we factor in the direct benefit to those patients who may have a shorter stay in the hospital.

We have decided to price remdesivir well below this value. To ensure broad and equitable access at a time of urgent global need, we have set a price for governments of developed countries of $390 per vial. Based on current treatment patterns, the vast majority of patients are expected to receive a 5-day treatment course using 6 vials of remdesivir, which equates to $2,340 per patient.

Part of the intent behind our decision was to remove the need for country by country negotiations on price. We discounted the price to a level that is affordable for developed countries with the lowest purchasing power. This price will be offered to all governments in developed countries around the world where remdesivir is approved or authorized for use. At the current price of $390 per vial, remdesivir is positioned to achieve the aim of providing immediate net savings for healthcare systems.

In the U.S., the same government price of $390 per vial will apply. Because of the way the U.S. system is set up and the discounts that government healthcare programs expect, the price for U.S. private insurance companies, will be $520 per vial. At the level we have priced remdesivir and with government programs in place, along with additional Gilead assistance as needed, we believe all patients will have access.

I suppose we’re all supposed to thank Gilead now for their generosity in this matter, but suffice to say that is not the reaction the company can expect to receive.

“This is a high price for a drug that has not been shown to reduce mortality”, Dr. Steven Nissen of the Cleveland Clinic said in an email to the Associated Press. “Given the serious nature of the pandemic, I would prefer that the government take over production and distribute the drug for free. It was developed using significant taxpayer funding”.

Peter Maybarduk, a lawyer at the consumer group Public Citizen, is irritated. He called the pricing “an outrage”.

“This is a drug that received at least $70 million in public funding”, Maybarduk remarked. “Remdesivir should be in the public domain”.

Maybarduk voiced similar sentiments last month. “Gilead did not make this drug alone. The public helped make it, and the public has a stake”, he chided.

Predictably, the White House claims Trump secured a bargain price in what HHS Secretary Alex Azar called “an amazing deal”.

“President Trump has struck an amazing deal to ensure Americans have access to the first authorized therapeutic for COVID-19″, Azar said Monday. “To the extent possible, we want to ensure that any American patient who needs remdesivir can get it”.

Gilead said Monday that by the end of 2020, it will have invested some $1 billion to develop and manufacture the drug.

Although market participants remain squarely focused on the US story, there are flare-ups across the world. In the UK, Leicester is looking at the extension of lockdowns, Israel appears to have opened schools too soon, Victoria is facing an outbreak in Australia, New Delhi’s healthcare system is apparently “on the brink of collapse“, and we all know how bad it is in Brazil.

“There are people out there still saying that this is not serious, especially in economies that desperately want to open up, or which still refuse to lock down. They point to lower hospitalization rates and death rates with this second spike”, Rabobank’s Michael Every said Monday.

“Let’s wait a few weeks and see if they follow with a lag once hospitals are overloaded”, he added.