Egypt and hepatitis C cures — the gift that keeps on giving
by Peter Kolchinsky
Peter Kolchinsky is founder and Managing Partner of RA Capital Management.
November 30, 2023
In 2014, Egypt had the highest prevalence of hepatitis C infection of any country in the world, mostly due to its widespread use of unsterile needles in a long fight against the parasitic disease schistosomiasis. Less than ten years later, the country has astonishingly managed to practically eradicate the virus.
How it did so is a triumph of public health and medical science. And it’s a success that is now beginning to benefit Egypt in new ways: not only is Egypt saving many of its citizens’ lives and a lot of resources that it used to spend caring for people with liver failure, its diplomatic stature has soared as it begins to donate its pills and public health expertise to its African neighbors.
But in covering how Egypt pulled it off and its new generosity – feats only made possible thanks to Gilead Sciences’ miracle HCV cures – the New York Times rewrites a key bit of history that betrays its misunderstanding of global drug pricing (or its outright bias against the drug industry … but I’ll be generous). I’m picking on the Times here but they’re far from the only culprit among the media, politicians, and a bunch of others that ought to know better, and understanding how this really works is important.
Here’s the flaw: The NYT points out that while Gilead charged $1000/pill for its drugs in the US, Egypt “negotiated” their price down to $10 a pill. But the truth is that they didn’t negotiate at all. Egypt had no real leverage with which to negotiate. Some might say that Egypt could have just made the drug, Harvoni, on its own, in violation of Gilead’s patents. But that’s easier said than done; without a transfer of technology, this takes time, knowhow, and funding. Gilead was already making the drug. Making those extra doses was a marginal expense. In the end, Gilead recognized Egypt as a humanitarian crisis and simply helped by providing the drug at a generic-like price. This was essentially a gift from Gilead… and all Americans.
What made that gift possible? The fact that Gilead earns the vast majority of its profits from the US market, which incentivizes innovation that spills over to the rest of the world. Americans provide those incentives by the premiums and taxes they pay for their health insurance; really just the tenth of those payments that actually goes towards branded medicines. Americans’ willingness to pay enough for branded medicines to incentivize their development means that these medicines come into existence in the first place. And while Americans are understandably preoccupied with how those medicines help Americans, there are spillovers that also benefit other countries without any added cost to Americans.
Sometimes that means spillover to less well off countries that need help, like Egypt (and several others where Gilead has helped set up HCV elimination programs), where Gilead’s 99%-off prices enable what one of the Times’ sources called “one of the greatest accomplishments ever in public health.” Gilead’s only condition was that Egypt wouldn’t redirect Gilead’s gift for resale via a black market in the US. And just six months after the Egypt deal, Gilead signed a deal with generic drug suppliers to grant access to cheap HCV drugs in 91 developing countries where hundreds of millions of people suffered from infections and were destined to die from it (liver transplants are not an option for most).
Other times that means spillover to wealthy countries like Canada or the UK that don’t really need the help, but are willing to hold out for lower prices, blowing smoke with willfully flawed cost-effectiveness math that purports to show that curing Hepatitis C isn’t really all that meaningful and so the drugs shouldn’t cost very much – to the detriment of their own citizens’ health. Worst of all, those countries are now undermining the US market by exporting that cost-effectiveness math here, trying to convince us that we shouldn’t value medicines like we do.
It’s like they like to read books they borrow from the library, but instead of just enjoying those books on the cheap, they proclaim that everyone who buys books is a fool. The danger is that, when everyone feels stupid for wanting to own a book and switches to only using the library, then one day everyone in the library will have read what’s there and wonder why there aren’t any new books.
So instead of claiming that with just a little backbone Egypt or any other country could name their price and that the US is the foolish one that overpays because it doesn’t negotiate, it would have been honest to recognize that Egypt got a gift.
Shine a light on the system
When drug companies do good, it’s okay to write about how they do good. The companies in the drug industry actually do a lot of good. That’s not to say that there aren’t examples of awful things that need a light shined on them – as the New York Times has in the case of Purdue and Questcor and Turing.
But just as importantly, we need stories about how the system works. About how insurance-premium-paying Americans, the majority of whom are relatively healthy people who put way more into healthcare than they take out (for now), are creating the incentives that make investment into Gilead’s HCV cures possible in the first place. About who truly incentivized the quest to come up with the drugs that make Egypt’s success possible.
Here are some ideas – feel free to run with them.
Write about the real drug price negotiation that happens in the US market. Competition between Gilead and Abbvie and Merck has driven the price of HCV drugs down by more than 70% in the US – before any of those drugs have even gone generic. Once they do go generic, prices will fall further, likely to that 99%-off price enjoyed by Egypt.
Write about how drugs’ list prices aren’t the prices most insurers (including Medicare) pay for drugs. The coverage of anti-obesity drugs has been rife with list-price-as-the-real-price errors, and it’s here that I tip my hat to the Times for this piece about the list-to-net price bubble for those drugs.
Write about who gets the best access to medicines in the world. That’s American union members. They negotiate excellent coverage in their contracts, and the healthcare system generally works very well for them. Write about that negotiation. To people with good insurance, the biopharma industry is a source of comfort and cures. Most Americans actually say they can afford their medicines precisely because their insurance works for them.
Write about how when an insurance plan refuses to cover a drug someone needs, it’s actually the fault of the insurer not doing its job – not somehow the fault of the biopharma company that at great risk and expense invented the medicine in the first place. Because as Mark Cuban’s pharmacy has made clear, generic drugs can be very cheap, but insurance plans can sometimes mark them up 100x and make them feel unaffordable.
Write about how some insurance plans are designed to inflict unnecessary financial pain on the people who need care at any one time through high out-of-pocket costs, under the guise of “skin in the game.” Who fakes cancer to joyride chemo? Who fakes diabetes to enjoy daily insulin injections? Why is there any copay for a medicine your doctor prescribes and your own plan authorizes as appropriate? Let's not pretend that out-of-pocket costs are anything except a way for insurance to trick people into thinking they are covered until they get sick and then discouraging them from getting treatment. That's cruel. Write about that.
Write about how biomedical innovation requires insurance… it always has and always will. You can't expect a company to both invent its medicines and then immediately sell them at generic-like prices. The drug industry invests $200B into R&D every year. That R&D has to be incentivized. The key to affordable innovation is to lower what patients pay in the form of out-of-pocket costs, like the $2000 out-of-pocket cap for Medicare Part D drugs in the Inflation Reduction Act.
Speaking of the IRA, maybe write about how Medicare has long relied on the plans it contracts with to negotiate drug prices. Or why pre-IRA, the law said Medicare couldn’t “interfere” in that process. Because Medicare has a monopsony, and any buyer with a monopsony can just dictate prices. No one would work for any customer who could just dictate what they would pay after the job was done, and neither will investors who fund R&D. Neither will any pharma board allow profits from today's drugs to be redirected into R&D to make medicines that Medicare can just price as it likes once they are made.
They will redirect those profits to dividends. When you write about how those dividends go back into the pockets of Wall Street investors – write about how “Wall Street” includes all the retirees whose 401(k)s are partially invested in the drug industry and public sector pension plans that invest for teachers’ retirements. There’s no greed here. There’s just ordinary people not wanting to squander their retirement funds.
Write about how it’s magical thinking to imagine that price controls won’t shut down the flow of new drugs. Or how, had the US long ago declared that it would pay as little as Europe for treating HCV, we wouldn’t have HCV cures and you wouldn’t be writing about this Egyptian miracle.
But countries burdened by diseases like malaria can’t count on spillovers from the US. There’s virtually no need for better malaria treatments in the US because we simply have almost no malaria. Are developing countries left to fend for themselves? No. The US, both our government and private citizens, helps by contributing to the WHO which contracts with GSK to develop a malaria vaccine that, much like Harvoni in Egypt, won’t generate much profit but does utilize considerable industry expertise funded thanks to decades of developing and selling valuable medicines profitably in the US. Let’s write about that.
Just about everything good that the drug industry does is a spillover from America’s willingness to incentivize the drug industry to stay in the R&D business. That’s a hell of a story.
Write about how, given the rising cost of hospital care and lost productivity, not paying for treatments and cures is almost certainly more costly in the long run than paying for them today, as Francis Collins notes in his moving op-ed about the US’s own failure to eradicate HCV. In his words, “It’s costing us taxpayers much more to live with hepatitis C than to cure it.”
Anyone who has ever had their health restored or preserved by a medicine can be grateful for the drug industry, its investors, doctors, insurance plans, all premium-paying people (which is nearly everyone), the basic science funded by the NIH, whoever invented the patent system, and those like Senators Hatch and Waxman that helped shore it up. We should understand and appreciate this remarkable framework that taps human ingenuity to compete to produce such advances.
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