Gross Profit
Should you read Capitalizing a Cure before you die, or should you die first?
A book review by Jon Shaffer
Victor Roy, Capitalizing a Cure: How Finance Controls the Price and Value of Medicines. University of California Press, 2023. 245 pp. Open Access.
On August 16, 2022, Ashish K. Jha, the White House COVID Czar said that the government should “get out of the business of [providing free vaccines, treatments, and tests]” for COVID and instead hopes that “in 2023 you’re going to see the commercialization of almost all of these products.”
When the public sector "gets out of the business" of producing the sole product providing meaningful protection in the midst of a pandemic, we know that private corporations will happily crank up prices (to the tune of 4000%, thanks Moderna). But Moderna isn't alone.
In the new book Capitalizing a Cure, which is available late January 2023, physician-sociologist Victor Roy exhibits how the financial-sector takeover of the pharmaceutical industry enables pharma executives to extract every dime of profit they possibly can, the dead be damned. After all, they’re just doing their jobs.
Through an in-depth case analysis of the advent and pricing of a cure for hepatitis C, sofosbuvir, Roy reveals the pharmaceutical company corporate playbook that enabled Gilead to price sofosbuvir as the most expensive drug in human history: more than $84,000 for the three month regimen.
Gilead’s obscene pricing strategy has had deadly results. In response to Gilead’s pricing, “US state-run Medicaid programs instituted “eligibility requirements” that limited the treatments to those in the most advanced stages of disease. Patients faced delays and denials.” Texas has nearly universally denied Medicaid recipients access to the drug until as late as 2018, despite nearly half a million people currently sick from hepatitis C in the state.
Rationing sofosbuvir has been widespread: “At least thirty-three states, including states with large numbers of hepatitis C patients, such as California, Texas, and New York, restricted patients by the stage of their liver disease, giving access only to patients with advanced fibrosis. Many states also required that patients be alcohol and drug free in the month (or even the six months) leading up to treatment.” The poor, the especially sick, and many stigmatized populations, such as the incarcerated and people who use drugs, were often last in line.
Roy shows in exquisite detail why big pharma’s extreme price gouging isn’t solely the product of a few greedy bad actors—not simply the individual craven behavior of cartoon villains like Martin Shkreli—but instead is baked into the system. Hoovering capital from each of us, especially from our meager and beleaguered public payment systems, is their primary purpose and core objective.
The form of capitalism embodied by the pharmaceutical industry writ large, and which has metastasized throughout much of the world economy, is utterly dominated by the interests of short term financial investors. The stakes for innovation (developing new cures and medicines that save lives) and justice (who gets access to these life saving tools) could not be higher.
Perhaps many view the functioning of the pharmaceutical industry as benign, noble, or at least “just the way things are” in a society committed to free market capitalism.
This common, but incorrect, reasoning tends to go something like this: pharmaceutical companies employ an army of benchtop scientists, biomedical engineers, researchers, and process and industrial designers to identify promising molecules and biological interventions. They develop in vitro, in vivo, and clinical trials to test the safety and potential efficacy of these interventions. They then work with the FDA and other regulatory agencies to ensure public meeting trust and safety standards. These efforts are expensive and require significant financial investments by the companies, justifying high prices that enable them to recoup costs and earn significant profit return for their effort and ingenuity. Although we may not like the prices set by these companies to recoup costs and accrue reasonable profit, that’s just the cost of doing business.
Capitalizing a Cure smashes that popular conception. Instead, through the remarkable yet ideal-typical case of Gilead’s launch of sofosbuvir, Roy traces a three step process that all but guarantees exorbitant drug prices and an enormous transfer of wealth from an impoverished public to the investor class.
The first step is the transformation of “publicly financed and cumulative knowledge into private assets for financial markets.” This process—central to financialized drug development—would shape the trajectory and price of a potential breakthrough for hepatitis C.
In the case of sofosbuvir, the fundamental underlying science of the “replicon” (a research tool that enabled hepatitis C drug development to accelerate) was funded through a mix of financing from the German government and the U.S. National Institutes of Health. In sum, research by Roy and by Harvard’s Program on Regulation, Therapeutics, and Law have shown that at least $60.9 million of direct investment by the US government made sofosbuvir’s development possible.
This public investment in the replicon and other basic science leading to sufosbuvir, however, would not remain in the public domain. In the spring of 1998, early in sufosbuvir’s development trajectory, an Emory University scientist, Ray Schinazi, launched a company called Pharmasset. As Victor Roy writes,
From the very beginning, [Schinazi’s] intentions were clear… “It’s actually ‘pharmaceutical assets’ and the idea was to create assets that would be sold to companies. That was the initial business plan.”
Schinazi made use of a new law–the infamous Bayh-Dole Act–which enabled patented intellectual property to be owned by individuals and private corporations, even if the underlying science and knowledge were funded by taxpayers. The euphemism used is “technology transfer”* i.e. capital transfer from public to private hands.
The mega-giant pharmaceutical company, Gilead Sciences, Inc., was founded in 1987 and amassed a veritable Scrooge McDuck-sized swimming pool of liquid cash, to the tune of $10 billion, accumulated through the sales (and corresponding denial to the impoverished in Africa, South Asia, and elsewhere) of lifesaving antiretroviral medications for HIV/AIDS.
By 2010, the value of Pharmasset (over $5 billion, largely based on the early sofosbuvir compound), catalyzed by state investment, was fully tethered to the interests of a relatively small number of venture capital funds.
The second step in this ever rising drug “pricing escalator” centers on placating venture capitalists’ insatiable thirst for profitable returns on investment, even as Pharmasset’s own investment in the drug was marginal in comparison to the government’s. Roy writes, “as a small biotechnology business with no products or revenue, Pharmasset was structurally tethered to an array of external financial actors.” This was its sole purpose: construct a pharmaceutical asset to be sold to the highest bidder.
Pharmasset found just such an extraordinarily high bidder in Gilead: “On November 20, 2011, Pharmasset agreed to be bought for $137 per share, or $11.2 billion. This was the largest-ever price for the acquisition of a small biotechnology company at the time.”
The mega-giant pharmaceutical company, Gilead Sciences, Inc., was founded in 1987 and amassed a veritable Scrooge McDuck-sized swimming pool of liquid cash, to the tune of $10 billion, accumulated through the sales (and corresponding denial to the impoverished in Africa, South Asia, and elsewhere) of lifesaving antiretroviral medications for HIV/AIDS.
But, according to this logic, there is no limit to what kind of price could be too high. How much is your grandmother’s life valued? Your son or daughter? Your spouse? What if you or the public system can’t afford these inflated prices?
But, despite the success Gilead found financially in the 1990s and 2000s, by the mid-2000s, their stock price per share was falling dramatically. A lack of new drug development and stagnant pipeline of new potential blockbuster medications meant that investors and business analysts were skeptical of Gilead’s long-term growth potential. They were, however, quite happy with the large “stock buy-back plan” which used a portion of its war chest to distribute to stock shareholders, artificially propping up the share price. Roy explains, “This short-term focus epitomizes the contradictions of financialized drug development: decrying the company’s lack of growth possibilities, while applauding it for distributing capital to share- holders that could have otherwise been reinvested to develop stronger pipelines.”
Gilead chose to move away from their historic “research and development” strategy, towards a high finance-driven “search and development” strategy, allowing them to ultimately profit from the outside development of compounds rather than invest in their own R&D programs.
Gilead was no longer a collection of industrious and innovative lab scientists struggling hard for the next big breakthrough; it was a sky-high stack of venture capital disguised in a lab-style trench coat and dark lab goggles, seeking to deploy that capital to capture the greatest future revenue returns possible.
Which brings us to the third step in the drug-development pricing escalator: the colonization of “future value” as the commonsense justification for exorbitant drug prices.
According to Gilead, paying higher—even extraordinarily higher—prices for the “value” of better future health should be obvious. Gilead’s view, according to Roy, was that “if public officials valued the health of patients with hepatitis C—and the improvement that future cures could bring—they should be willing to pay the price for that value.”
But, according to this logic, there is no limit to what kind of price could be too high. How much is your grandmother’s life valued? Your son or daughter? Your spouse? What if you or the public system can’t afford these inflated prices?
Jon Shaffer is a sociologist and organizer based in Baltimore who studies global health organizations, social movements, and their struggles over scientific knowledge. Follow him @jonshaffer.