Gilead: extortionate prices, corporate vices

by | Dec 20, 2018 | Business

The most expensive drug in Australia, costing taxpayers more than $1 billion a year is Gilead’s cure for hepatitis C. Gilead’s medications rank first, fourth and seventh on the list of the most expensive drugs in the country. We are talking $1.14 billion, or ten per cent, of Australia’s entire $11 billion medication budget going to one US drug company. What sort of company is Gilead? Michael West reports.

Like its Big Pharma rivals, Gilead enjoys large taxpayer subsidies in this country, thanks to the Pharmaceutical Benefits Scheme (PBS), and it doesn’t pay much tax for the privilege of operating in the lucrative Australian market. Yet Gilead is a special case, a ruthless case.

“We are talking so much greed that the bastards, and there is no other word for it, can’t even be trusted to put the proper ingredients into their egregiously expensive products,” says Dr James Freeman, who has helped his patients source a far cheaper cure for Hep C than the $80,000 Gilead charges for a course of pills.

“There are drug dealers on the streets with more honour and better ethical standards. The only difference between the mean streets and Wall Street is that at least on the streets justice would be done.”

DOJ drops lawsuit for dodgy ingredients

Freeman is talking about the scandal over Gilead using illicit Chinese ingredients to cut its manufacturing costs – despite the cost of its pills being a tiny fraction of what the company charges its patients and governments around the world.

Last month, the US Department of Justice dismissed a lawsuit brought by former Gilead employees Jeff and Sherilyn Campie.

The case brought by the Campies claimed the drugmaker hid from the US Food & Drug Administration (FDA) that it bought some of the active ingredients used in its HIV drugs Emtriva, Truvada and Atripla from an unapproved Chinese manufacturer. Jeff Campie was Gilead’s senior director of global quality assurance. He claims he was sacked because he fought the company’s actions.

“The DOJ appears to be trying to give Gilead a ‘Get out of jail free card’,” says James Freeman. “The facts seem pretty simple (and are apparently not even in dispute). In 2007-2008, Gilead illegally used Active Pharmaceutical Ingredient (API) from an unapproved Chinese supplier to save money, that API failed internal quality control testing, but despite this it was still used to make fake generic versions of Gilead’s approved HIV products which were then sold to the US government for around $5 billion.

“They also sacked their global QA manager – Jeff Campie – for what appears to be trying to do his job. Why wouldn’t you just let that slide?”

The Gilead and the taxpayer Odyssey

With the not-so-razor-thin margins of $1000 a pill drugs, is it really so unreasonable to assume first-rate quality for the key ingredient – the API – the bit that makes that pill do its job? asks Freeman.

The reason the DOJ gave for dropping the case was that the discovery process would have been too onerous. But the consequences of not prosecuting this case must surely be to send a clear message to Big Pharma, namely, “Do what you like because, even if we catch you doing the wrong, thing there will be no consequences”. Is that really a sensible message to send?

On a deeper level, this lacklustre regulatory response to corporate malfeasance mirrors the trend globally for regulators and governments to go weak-kneed at the prospect of locking horns with large corporations.

“For a corporation to do this you need near 100 per cent complicity,” says Freeman.  “You need to have accountants go get it cheaper, procurement go okay and source it. Imports go, “Well, we need to fake the origin”, QA to sign it off (despite it failing QA). You could hide it from production, but rotten to the core about sums it up.”

A curious person might ask who the Chief Financial Officer (CFO) of Gilead was in 2007, after all, the drive to cut costs is likely to have came from his department. As it turns out, it was none other than John F. Milligan – the outgoing CEO of Gilead. The company has just announced Milligan’s successor, Roche executive Daniel O’Day, and his annual pay package of $US31 million.

Incidentally, and ironically, the following two paragraphs in the business press enshrine the conflicts of Big Pharma – the tension, that is, between helping patients and helping the company’s share price:

Hepatitis C and HIV medications have long been Gilead’s core franchises, but they have become less dependable sources of growth.

In large part, that’s been because Gilead’s hepatitis C medications have done a good job curing patients and because of patent expiries.

Playing Blockbuster Monopoly

The Hep C medication – obtained by acquisition rather than developed via in-house R&D – is a “blockbuster” drug, a “miracle cure”.

You do have to wonder how Gilead’s behaviour and the decision of the DOJ aligns with the FDA Mission Statement:

“The Food and Drug Administration is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices…”

On this treatment of Gilead, says James Freeman, one could argue the FDA Mission Statement should read:

The Food and Drug Administration is responsible for protecting the profitability of pharmaceutical corporations who will not be held accountable for either their pricing or quality control. Monopoly positions will be sustained by making the entry of affordable generic medication as difficult and delayed as possible, and citizens will be denied the right to try medication sourced less expensively outside the USA.

The FDA has a vital role to play in ensuring safe and effective medications are available to all Americans. Somewhere along the line that vital core focus seems to have been lost.

Gilead in Australia

Gilead’s latest financial statements in Australia show the company paid $11 million in income tax last year, up from $2.8 million the year before, which seems low when considering the other numbers in the accounts, particularly cash receipts. And the sheer magnitude of the costs suggests tax avoidance.

The accounts are hard to figure out, due to massive subsidies and rebates from the PBS. At last balance date, Gilead had $343 million in cash sitting on its balance sheet. Receipts from customers came in at $1.7 billion last year.

The giveaway is the size of the costs. Gilead Sciences Australia only has 66 employees. They cost $16 million. Gilead however managed to rack up total costs of $361 million against $416 of revenue. Auditor EY.

Marketing cost $8.4 million (which seems high as it must not be hard to market a product which everybody knows saves lives). Administration, amid those 66 staff, cost $8.3 million, the mysterious “other” cost $19 million and distribution (which you would think might cost the most) cost the least of the major items at $7.6 million.

Where did the other hundreds of millions go? Transfer pricing on the product. That is, Gilead ramping up the price it pays for buying its pills from its associated companies overseas … from itself.

Biggest cost on PBS

Heart pills, statins, and anti-hypertensives are among the most commonly prescribed drugs in Australia, according to the latest annual figures from NPS Medicine Wise. Despite their common use, none of the most frequently prescribed drugs in Australia appears in the top 10 drugs by cost.

When it comes to sheer cost, nothing matches the $1,000 a pill super-margins of Gilead’s Hep C medicine. In the period from July 2017 to June 2018, the list is dominated by Sofosbuvir and its combinations for the treatment of hepatitis C.

This is the single most critical factor in the spike in the cost of the PBS. Taxpayers can only hope and pray the PBS authorities have got a handle on Gilead.

Gilead top brass still missing despite desperate search efforts

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Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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