Scarcity is on the side of the drug Remdesivir, but only for now © REUTERS

What price a treatment for a virus that has left more than half a million dead and is claiming another 3,000-plus lives every day? 

Gilead, the US pharmaceutical group behind remdesivir, this week came up with its answer: $2,340 for a five-day course. It was lambasted on all sides, even as governments scrabbled for supplies. “Too high,” squealed public advocacy groups. “Too low,” harrumphed buyside analysts.

Pricing drugs is a tricky business. If you adopt the supply and demand model that works with London mansions you fall into a moral quagmire. If you follow in the footsteps of mass producers of clothes and food by calculating a sticker price based on cost plus margin, then you ignore hefty R&D costs.

Remdesivir is a case in point. The cost of production, including marketing and a “small” profit — but excluding R&D — gives a cost of $10 for a 10-day course, calculates the non-partisan Institute for Clinical and Economic Review. Pricing adopted by a few generic companies — allowed in poorer countries under UN rules — offers a fairer measure. Beximco of Bangladesh and two Indian companies are pricing their generic versions of remdesivir at $60-$70 a vial; depending on severity and dosage that comes to about $300-$800 per treatment. Egalitarian cross-subsidising means private clinics will probably pay more. 

That would get nearer to recouping at least some of Gilead’s 2020 $1bn-plus R&D spend on the drug. Gilead’s latest estimate is for sales of 2m treatments this year. A back-of-the-envelope calculation would add an R&D cost of $500 per treatment in 2020.

Another novel way of funding R&D — pioneered by the UK’s NHS to incentivise a search for superbug drugs — is for Netflix-style subscription payments for research into drugs that offer little immediate commercial benefit. This could be a useful model for high-cost, low-return drugs.

For now, Gilead’s preferred pricing formula reflects the implicit value provided. On this basis — and preliminary results from a study on hospitalised patients with Covid-19 — that would be at least four days’ reduction in hospital time worth, in the US, $12,000.

Scarcity is on the side of remdesivir, but only for now: there are 700-plus (recruiting and non-recruiting) treatments on phase 2 and 3 trials, according to the WHO’s database. Ditto necessity: a pandemic can support higher prices than would be stomached in better times. To many, it will still seem like surge pricing.

The Lex team is interested in hearing more from readers. Please tell us what you think of remdesivir pricing in the comments section below

Get alerts on Drug prices when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article