Remdesivir and Transfer Pricing Part II

There are 2 separate issues. If Gilead Sciences told other manufacturers not to produce remdesivir, this would cost lives. But let’s note Gilead has historically relied on third party contract manufacturers. So the real issue seems to be pricing. I’m sure we can design policies where Gilead would have the incentives to produce like crazy. Of course, there remains the policy question of how much we are willing to pay biopharma multinationals for life savings treatments? Please bear with me as I go through the various discussions of what may be a fast moving set of phase III trials and appears to be hope that this treatment may become part of how we overcome COVID-19. BTW – I agree the scientific success and the pricing issues trump the transfer pricing issues and I also agree that these critically important issues frame any debate on how any profits Gilead may receive become allocated across taxable jurisdictions. The first thing to realize that Gilead had developed this treatment originally for Ebola but that did not work out but they started testing it all over the world for COVID-19:

As the Covid-19 death toll keeps climbing in the U.S. and around the world, hundreds of patients in life-threatening condition are taking a “last-resort” unapproved antiviral drug called Remdesivir under a special FDA program. On Tuesday, The Centers for Disease Control and Prevention (CDC) Director Robert Redfield told a House appropriations panel that a number of people in Washington state, the area hit hardest by the coronavirus, have been treated with Remdesivir, made by Gilead Sciences, through FDA’s compassionate use program … Gilead’s Remdesivir was first tested on patients in Wuhan, China, where the epidemic erupted, last month as part of a Phase 3 study. Clinical trials were later expanded to Europe and Japan after the World Health Organization (WHO) said last month that the drug might be the “only one drug right now that we think may have real efficacy” in treating Covid-19. Gilead is expecting trial results from the experiment in China as early as April.

Who owns the phase II rights is not discussed here but who ultimately pays for these phase III trials in China, Europe, and the U.S. could be a very big deal from a transfer pricing perspective if this treatment gets regulatory approval. But what is this FDA’s compassionate use program? Gilead is working closely with global health authorities to respond to the novel coronavirus (COVID-19) outbreak through the appropriate experimental use of the investigational compound remdesivir. Together with the U.S. Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (DHHS), National Institute of Allergies and Infectious Diseases (NIAID) and Department of Defense (DoD) – CBRN Medical; the China CDC and National Medical Product Administration (NMPA); the World Health Organization (WHO); and researchers and clinicians across Europe and Asia; Gilead is focused on contributing our antiviral expertise and resources to help patients and communities fighting COVID-19. Gilead is getting a lot of patients inflicted with COVID-19 as basically experiments (dare I say lab rats) for their phase III testing so giving their treatment away for now should help their long-term prospects. We also heard a lot about this being an orphan drug:

Gilead Sciences Inc on Wednesday took the unusual step of asking the U.S. Food and Drug Administration to rescind a controversial orphan drug designation the agency had granted for the biotech company’s potential coronavirus treatment remdesivir just 48 hours earlier…The company was criticized by lawmakers and patient advocates after receiving the orphan designation on Monday for the experimental antiviral drug, saying it was taking advantage of the rapidly accelerating health crisis…. Orphan status is granted by the FDA to encourage development of drugs for rare conditions. The designation comes with a seven-year marketing exclusivity period if the drug is approved, and other benefits such as potentially faster approvals.

COVID-19 is not a rare disease but I suspect the FDA really wanted to accelerate the phase III trials for obvious reason. Of course, “marketing exclusivity” is a polite way of saying Gilead would not face unfettered competition. I suspect Gilead will rely on a host of third party contract manufacturers to gear up production as fast as possible. The contract manufacturers will like be paid a competitive price. The real issue is how will Gilead as the owner of intangibles as well as the distributor price its treatment? The profits from mere distribution will likely be modest but the profits attributable to any marketing and product intangibles could potentially be more substantial if this product succeeds. That is the key transfer pricing issue and how would reasonably deal with this issue depend on a lot of information not yet in the public domain. I suspect China, the U.S., and Europe as well as the rest of the world are more consumed with getting an effective treatment. Pricing issues come next and this worrying about how any profits get taxed on a worldwide basis is a tertiary concern. But if this all works out – at least we have hopefully laid a foundation for this last concern.