Gilead is negotiating Sovaldi’s (sofosbuvir) pricing with the Chinese government. This is a necessary step to ensure the company captures China’s large hepatitis C population, following its decision to exclude the country from its drug access program, and to also avoid the potential negative repercussions in other emerging markets should China resort to compulsory licensing.
In response to contentious debates over the high price of its hepatitis C virus (HCV) therapies Sovaldi and Harvoni (sofosbuvir/ledipasvir), Gilead created a drug access program to sell low-cost versions of Sovaldi in 91 low-income countries, at $1,000 per treatment. These low-income countries account for around 54% of HCV infections worldwide. Notably absent were price breaks for middle-income countries such as China, despite the country having the highest caseload of HCV, with an estimated 45.9 million individuals infected with the disease in 2011 (see Datamonitor Healthcare’s Epidemiology: Hepatitis C in China for more details).
Should it leave China out of pricing reduction discussions, Gilead would arguably stand to lose a large share of the HCV market. Based on a $7,500 price tag per person – the price Gilead is offering in Brazil – the cost of treatment would total nearly $350bn. Additionally, despite rapid growth of the private health insurance sector in China, the public health sector accounts for 90% of all patient visits in the country, according to Deutsche Bank’s 2014 healthcare report. It is therefore in Gilead’s best interest to ensure that it can capture the public market segment.
Arriving at a fair pricing agreement in China is also critically important for Gilead as the threat of compulsory licensing in this market is likely to affect Sovaldi’s intellectual property in other middle-income countries. In June 2015, Chinese regulatory authorities rejected a patent for a prodrug of Sovaldi. Although this is only one of Gilead’s patents, the action threatens to weaken Gilead’s patent protection for Sovaldi in other countries as these patents are now under scrutiny in Ukraine, Russia, Argentina, and Brazil.
It remains to be seen what level of discount Gilead will be willing to agree to in order to capture China’s large HCV patient population and to minimize the risk of compulsory licensing. According to the World Health Organization, the caseload of HCV in China is 20-fold greater than that in Brazil, meaning the Chinese government is likely to want to negotiate lower pricing than what Gilead has offered in Brazil. However, given the company’s decision to exclude China from its drug access program, it must be betting that the Chinese government will be willing to pay more than $1,000 per treatment for Sovaldi available through the program.