Gilead Sciences Inc. ended the speculation Monday when it announced its no-bargaining price for remdesivir for all governments of developed countries where the drug is approved or authorized as a treatment for COVID-19.

At $390 per vial, the government price will add up to $2,340 per five-day treatment course, which is expected to be the common treatment regimen. Given the complex U.S. pricing system that requires a discount for government programs, the list price will be higher – $3,120 per five-day course, or $520 per vial – for commercial payers in the U.S. The Foster City, Calif.-based company said it would provide assistance as needed to ensure patients have access to the drug, which is the first antiviral to demonstrate patient improvement in COVID-19 trials.

For countries in the “developing world,” Gilead said it is working with generic companies to provide lower cost versions of the antiviral.

It’s not just the uniform price that’s worth noting; it’s also Gilead’s newfound openness in explaining and justifying its pricing up front. RBC Capital Markets analyst Brian Abrahams observed that Gilead “appears to have done a more careful job of articulating the rationale for pricing than in the past.”

Gilead Chairman and CEO Daniel O’Day was front and center in the discussion Monday, appearing on a TV morning news show and issuing a rare open letter about the pricing. “There is no playbook for how to price a new medicine in a pandemic,” he said in the letter. “We are aware of the significant responsibility that comes with pricing remdesivir and the need to be transparent on our decision.”

O’Day said Gilead set the fixed price for developed countries well below remdesivir’s value “to ensure broad and equitable access at a time of urgent global need.” The price is discounted to a level that’s affordable for developed countries with the lowest purchasing power, eliminating the need for country-by-country price negotiations, O’Day said. And for once, the price to the U.S. government is no higher than what other developed countries will be paying.

Below expectations

Remdesivir’s price falls below many expectations, especially in the U.S. Last month, Evercore ISI analyst Umer Raffat used a model based on antibiotic pricing to predict a likely U.S. list price of about $4,000 for remdesivir, with a net price of $3,000 per five-day course.

At the same time, the Institute for Clinical and Economic Review (ICER) released its initial analysis of remdesivir pricing, using two different models that produced a huge variant in price. Under a “cost-recovery” scheme, which considers the minimal costs of producing a course of the treatment, a five-day course would be $5, ICER said. However, under the traditional cost-recovery model, which looks at the incremental health benefits and costs within the health system, that same course of treatment would be reasonably priced at $4,500.

ICER updated that analysis last week, raising its estimates considerably for the cost-recovery benchmark price and presenting it as a range, with a maximum of $1,600 per 10-day regimen – or $160 per day. The update incorporated assumptions regarding Gilead’s 2020 development expenses, the uptake of remdesivir and consideration of early examples of real-world generic pricing.

For instance, ICER noted that Beximco, a Bangladeshi company, had announced a pricing range of its generic remdesivir for patients treated in that country from about $590 to $710 for a 10-day treatment course, with discounted prices offered to the government. Two India-based companies, Hetero Labs Ltd. and Cipla Ltd., were planning to launch their generics for use in India at prices between $390 to $780 for a 10-day course. (Hetero and Cipla both announced licensing agreements with Gilead last month. Under the terms, both companies can supply remdesivir in 127 countries, including India.)

As part of the update, ICER increased its cost-effectiveness benchmark price to a range of $4,580 to $5,080, citing new peer-reviewed data on remdesivir. But it also looked at a new scenario analysis assuming the likely use of dexamethasone in standard of care for COVID-19. Under that scenario, the benchmark price range for remdesivir would drop to $2,520 to $2,800, ICER said.

Doing things differently

Normally, Gilead bases its pricing on the value a drug delivers, a practice that has led to harsh criticism of its pricing for hepatitis C and HIV drugs. In this case, O’Day suggested the value of remdesivir is at least $12,000 in the U.S., based on the first results from an NIH trial showing that the antiviral shortened hospitalized patients’ recovery time by an average of four days. In the U.S., the earlier hospital discharge translates into a savings of about $12,000 – and that doesn’t include the direct value to the patient, O’Day said.

However, “we are in uncharted territory in pricing remdesivir,” O’Day said. “Ultimately, we were guided by the need to do things differently.”

Although lower than expected, the remdesivir price announced Monday still doesn’t sit well with critics who think that because U.S. government funding helped support the development of the drug, especially when it was first being explored as an Ebola treatment, taxpayers shouldn’t have to pay more than the actual cost of manufacturing it.

Claiming that the federal government provided at least $70.5 million toward remdesivir’s development through grants and clinical trial assistance, consumer rights advocacy group Public Citizen said the drug should be in the public domain and that, at a price of $1 a day, Gilead could manufacture the antiviral at scale with “reasonable profit.” That price ignores the upper bounds of ICER’s updated $160/day cost-recovery estimate.

Public Citizen’s argument also ignores that the federal investment in remdesivir amounts to just 7% of the cost of developing the drug and the manufacturing innovations needed to shorten the one-year production time to six months. And it ignores the cost of future development for a broader use against COVID-19 and the limited window of use remdesivir may have once SARS-CoV-2 vaccines are available.

Beyond 2020

“By the end of this year, we expect our investment on the development and manufacture of remdesivir to exceed $1 billion … and our commitment will continue through 2021 and beyond,” O’Day said. The company already has donated 1.5 million vials of remdesivir worldwide, with 40% of those doses being distributed in the U.S.

Outside of Japan where it was approved last month on the exceptional use pathway, remdesivir is currently available in the U.S. and other countries largely via emergency use authorization or compassionate use programs for patients hospitalized with severe COVID-19. That means Gilead still has the cost of pursuing full approval of the drug across the globe.

The drug company also is investing in exploring the broader use of remdesivir in COVID-19 – in earlier stages of infection, in outpatient settings, in an inhaled formulation, in various patient groups and as part of combination therapies.

A price of $1/day would not cover manufacturing costs and enable Gilead to recoup its ongoing investment, let alone realize any profit. On the other hand, at the price set Monday, remdesivir could be a blockbuster drug – for a short time, according to the RBC’s Abrahams.

Gilead is expected to produce 1.5 million doses of remdesivir in the last half of the year. That’s enough for a five-day course for 300,000 people. If two-thirds of those doses are monetizable at $2,340/course, remdesivir could generate $2.3 billion in global revenue this year, Abrahams said.

However, remdesivir’s blockbuster years could be short. “The fundamental value creation opportunity for remdesivir in the out years remains limited, given the likelihood of ultimate development of a vaccine (or herd immunity) [and] the likelihood other therapies will produce similar or greater benefits perhaps with more convenient administration,” Abrahams said.