Tuesday, 10 November 2015 23:40

The Real Development Cost of Sofosbuvir

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So Big Pharma's argument about pricing goes like this:

We spend a lot on R&D so we need to make a lot back when we find a winner.

Now with Pharmasset we can look at the balance sheet immediately prior to Gilead's purchase. At the time the sunk capital cost (accumulated deficit) was $324 million. That's a lot of money, but nothing like the $7 billion valuation in the market (20x) or the sale price of $11 billion (33x).

That $324 million represents almost the ENTIRE development cost of this medication. There would have been another $50 million for the Phase 3 trials. Call it $400 million all in.

With some 613,000 people treated to date at around $50,000 per person the return is already north of $30 billion. That is 60 x the sunk cost in 3 years.

To treat the entire US population would be north of $200 billion. That is 500 x the sunk cost.

I believe Big Pharma takes big risks and has a right to big profits. The investors in Pharmasset got a 20 x + return and took almost all the risk. That does not seem entirely unfair. Gilead on the other hand took very little risk and is already sitting on 3 x at the price of 185,000,000 of our fellow citizens of the world being unable to access treatment and 500,000 a year perishing of a treatable disease.

If we are happy to live in a world where the cure for cancer is invented but only the super rich can afford it then that's fine.

If however we want to live in a world where patient lives balance patent rights we probably need to start thinking about how we provision decent, but not indecent profits and pricing practices.

Read 105973 times Last modified on Wednesday, 02 December 2015 15:25

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