Unsanitized: Time to Seize Drug Patents

Plus, the scene in Los Angeles, and the end of the PPP. This is The COVID-19 Daily Report for June 30, 2020.

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First Response

Gilead Sciences is nothing special. The entire pharmaceutical sector has been raising prices during the pandemic: 245 drugs hiked up between January and June according to Patients for Affordable Drugs, including 61 being used for COVID-19 treatment and another 30 in use in clinical trials. That’s what the industry does: it anticipates demand spikes or new uses for its product and runs up the price accordingly. You would too if you were in business and had no restrictions on price. The fact that the products mean life and death to millions of Americans may complicate things morally, but profit maximization is one hell of a… drug.

So Gilead announcing that it will charge hospitals $3,120 for an average patient course of treatment of remdesivir, which has had limited success in reducing the length of coronavirus admissions, is just obvious. Dexamethasone, which has shown success in preventing death in seriously ill COVID-19 patients, was already a cheap steroid on the market that cost about $8 for 30 tablets, and the manufacturer didn’t have time to react. Gilead did. It’s the same madness that has two friends test for the virus, and one paid $199 while the other paid $6,408, when both were supposed to pay nothing because we’ve passed three bills saying “free testing.” There’s no rhyme or reason to any of it.

Patients won’t pay $3,120—that will be mediated through their insurer and whatever their out-of-pocket costs end up being. (If you’re already hospitalized, chances are you’ve hit your limit anyway, and remdesivir added to that might not cost you much extra.) But of course the insurer eventually offloads their costs, so really we’re all paying that price in higher premiums and co-pays and other fees.

The VA and Indian Affairs prices for Gilead will be one-third the level of the price for hospitals, because those programs have built-in discounts. Nowhere else on Earth will there be two prices, because the rest of the world has figured out how to deal with drug companies—limit pricing and buy wholly in bulk—and America is the exceptional nation. Hilariously, Gilead’s stock fell in Monday trading because investors thought they should charge more.

Read all of our Unsanitized reports

If remdesivir were sold at the cost of production, it would cost $10, not $3,120. The “value” of the drug comes with the reduction in admission length, and the savings to hospitals and patients. But even that value, based on the known science, shouldn’t go too far past $400, according to the Institute for Clinical and Economic Review. You could say that Gilead needs to recoup its research and development costs, but of course the U.S. government financed much of that research.

This seems like a job for a policy we at the Prospect highlighted in the Day One Agenda for the next president, which can force drug companies to reduce prices. As we explained then, the government can use Section 1498 of the U.S. Code to override Gilead’s patent rights, while giving them “just compensation” for the product, which might be either the production cost or that value-added $400 cost, a savings of $2,700 or $3,100 per treatment. Kestine Thiele explains Section 1498, sometimes called “eminent domain for patents,” at Medium.

The George W. Bush administration threatened Section 1498 for Cipro, the anthrax drug, and that was enough for Bayer to sell it to the U.S. at less than a dollar a pill. And if there’s any drug treatment that fits the profile for using this measure, it’s remdesivir, which will be needed at much higher levels as cases surge. The government can simply ask to negotiate the price with the threat of patent seizure. Of course, with the current Secretary of Health and Human Services a former Eli Lilly executive, I wouldn’t hold my breath. This is why hedge fund managers see pills as bets on the future; there’s no expectation of government intervention.

However, several presidential candidates, including two of the leading potential vice presidential choices (Kamala Harris and Elizabeth Warren), proposed forms of this policy during the campaign. This is a perfect issue for a presidential nominee who has to this point resisted such interventions. There’s an available option to make coronavirus drugs affordable: seize the patents. It’s time to tell the pharma reps that it’s happening.

Los Angeles Plays Itself

In my burgh tensions have raised, as a premature opening is leading to nasty consequences. The city of Los Angeles reports that, after bars re-opened on June 20, 500,000 people returned to party, according to Foursquare data. (This actually doesn’t line up with the spike in positive cases, it’s too soon, which makes things more frightening.) That same report from the health department shows the majority of nightspots not following social distancing guidelines and over half of bar and restaurant workers not wearing masks or face shields.

And it’s led to a serious crisis in the city, particularly in the hospitals, where admissions are surging. In addition to nearly 3,000 cases in L.A. just yesterday, a new high, public health director Barbara Ferrer warned that hospitalizations could jump four to five times above the peak in April and May, and even exhaust regular and ICU beds by the middle of July. R0 is at 1.26, which means that 1.26 people are being infected for every one carrier. And close to three times as many infected people are infecting others.

L.A. has responded by trying to cancel the Fourth of July, and good luck with that. Shutting down the bars makes sense; closing the beaches and banning fireworks displays, less so. Putting aside that health officials single out workplaces as one of the biggest vectors for spread, indoor gatherings generally (including weddings and other events) have been the problem, not the outdoors. I get that the beaches and fireworks shows were likely to be packed, but forcing people indoors on what’s scheduled to be a hot weekend doesn’t seem like an ideal solution.

While thousands of cases in one city sounds like a lot, this is the most populous county in America, and armed with only a laptop, I can safely avoid, well, everyone. So your scribe will be on the case. Just in isolation.

Time’s Up for PPP

Today is the application deadline for the Paycheck Protection Program, for some reason. The SBA site reads that $519 billion has been dispersed, leaving about $140 billion in the holster, less bank fees. There is no rationale for pulling back this money right now.

I talked yesterday to Daisy Bedoya of Largo, Florida, owner of Graphx Signs, a design company that makes window lettering, LED light displays, and other designs. She’s been in business since 2004, and it’s really a one-woman operation. PPP, which is intended to pay employees, really didn’t help her as initially envisioned. Congress only changed the program in mid-June, leaving her little time to decide if she should apply. She didn’t have a pre-existing banking relationship like a line of credit, that might have got her through the queue faster. The language barrier (Bedoya speaks mostly Spanish) was also a hurdle.

“I don’t think they have to close [PPP] too soon,” Bedoya told me. “Thousands of small businesses need that help.” As a single operation, Bedoya only qualified for a few thousand dollars, so the program itself was problematic for her. And with cases rising in Florida, she’s even more worried. “I have to let the customer know we’re still open,” she said. “I have to pay rent, no matter if I’m closed. I have debts to pay. I don’t want to close my business.”

Why this artificial deadline exists, and why the country isn’t doing all it can to seek out and assist people like Daisy, is beyond me. I know Ben Cardin wants more support for small business in the next bill. Why are we removing the support from the last one?

Days Without a Bailout Oversight Chair

95. And yesterday we learned the names of 794 companies whose corporate bonds the Fed plans to pick up. The Fed will buy debt from Apple, Verizon, and AT&T, along with six automakers. There’s a bunch of energy debt in there. In general it’s a blue-chip bonanza. Maybe if there was a bailout oversight chair we could make even a little sense out of what this program even is and what’s it’s supporting (Apple’s recent debt issuance, for example, explicitly says it will be used for “share buybacks and dividends”).

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