Financial Speculation in Drug Development Inflates Costs, Decreases Access to Medicines

Recent research in The BMJ posits that when pharmaceutical companies acquire promising drug compounds through late-stage bidding wars that escalate “development costs,” and then turn around and charge exorbitant prices that primarily benefit stockholders, rather than fund further research, the public pays twice: by funding the pivotal early research and then paying for high-priced medicines. 

The researchers focused on the curative, pricey, and, consequently, often-rationed hepatitis C drug Sovaldi (sofosbuvir; Gilead Sciences), to highlight “an industry-wide pattern” of acquisitions and buybacks by major pharmaceutical companies. 

“To maximize growth in earnings, large companies like Gilead often enter expensive bidding contests to acquire companies with promising compounds,” Victor Roy, PhD and Lawrence King, PhD, both of the department of sociology at the University of Cambridge, UK, wrote. “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.”

According to the study, in 2011 Gilead Sciences acquired the start-up Pharmasset, which emerged from an Emory-based lab that had received funding from the National Institutes of Health and the US Veterans Administration, for $11 billion—after a bidding war boosted the company’s value by nearly 40%.

“The cost of this late-stage arms race for revenues has become part of the industry justification for high drug prices,” the researchers write.

Although Pharmasset had considered a market list price of $36,000 for sofosbuvir, Gilead more than doubled it to $84,000 when the drug was ready in 2013. Internal deliberations, according to the study, included “how much health systems could bear.” In 2 years, the company had pocketed more than $35 billion in revenue from hepatitis C drugs—nearly 40 times what both Gilead and Pharmasset had spent in development.

Last year, Gilead announced that $27 billion of those profits would go toward “share buybacks,” a financial move in which a company buys its own shares to ramp up the value of the remaining ones for shareholders, according to Dr Roy and Dr King. In contrast, Gilead increased research investment between 2013 and 2015 by $0.9 billion, to reach a total $3 billion.

Such a cycle has diminished the public health potential of sofosbuvir and other wonder drugs, according to the study.—Jolynn Tumolo