The dirty motivation behind Gilead’s hepatitis C agreement

Up to 150 million people worldwide suffer from chronic hepatitis C, which attacks the liver and, if left untreated, can lead to cirrhosis and cancer. Complications related to hepatitis C claim 500,000 lives annually.

A major hurdle to treating the disease is the outrageous cost of new hep C drugs. In the United States, sofosbuvir, branded Sovaldi by Gilead, sells at $1,000 a pill, or $84,000 for a 12-week course of treatment. Harvoni, Gilead’s combination of sofosbuvir and ledipasvir, sells for $94,500 for a 12-week course. These medications offer a 95 percent cure rate — much higher than older treatments and with far fewer side effects. But their high prices mean that few patients can access the drugs in the United States, let alone in poor countries around the world, where the majority of hepatitis C patients live.

Gilead’s price gouging has generated international outrage. In response, the company signed an agreement in September with seven Indian pharmaceutical producers, allowing them to sell generic versions of sofosbuvir and ledipasvir in 91 countries. It is hoped that competition among the Indian companies will result in downward pressure on price so that more people can access the medicines.

While many health advocates, patient groups, media outlets and academics have championed the agreement, it may actually do more harm than good. Gilead portrays itself as a leader in medical innovation, but its real advance is in developing a creative business strategy of managing the competition — and gaining a public-relations boost while doing so. Specifically, Gilead’s agreement quietly undermines India’s patent laws and controls the country’s generic producers. This in turn threatens to reduce competition needed to keep medicine prices low and could ultimately shrink the global supply of affordable medicines.

Gilead’s maneuver stems from its worry over India’s strong generic medicine industry. Compared with Western countries, India has a stringent patent law that is intended to ensure that only medicines that are truly innovative receive patent protection. The government may revoke patent rights in order to promote generic competition in times of public need. This is legal in the eyes of the World Trade Organization, but India has nonetheless faced significant pressure from the U.S., the European Union and multinational pharmaceutical companies to weaken its patent standards. India’s production of the majority of the world’s generic medicines is a thorn in the side of brand-name pharmaceutical companies, the majority of which are in the U.S. and Europe.

These factors make India a gigantic challenge for pharmaceutical giants such as Gilead, which are increasingly threatened by the rise of generics. These multinationals are focused less on discovering new science than on tweaking existing compounds and drugs and calling them new — a practice that is common in Western countries but that India’s patent law is designed to prevent. This has been particularly frustrating for Gilead, which has seen many of its patent applications for its various HIV drugs, as well as sofosbuvir and ledipasvir, vulnerable to rejection under India’s strict patent law. (A patent on sofosbuvir has already been rejected by Egypt, which did not consider the medicine scientifically innovative.)

Recognizing this threat, Gilead has begun pre-emptively signing agreements with key Indian producers rather than face true competition on the open market. This strategy was first deployed in 2006, when the company’s patent application for its HIV drug, Viread, was rejected. This decision should have paved the way for companies to sell generic versions in India as well as other countries where patents on the drug hadn’t been granted. But Gilead appealed the case (a final outcome is still pending) and in the interim offered several Indian companies the right to sell generic versions of the drug in India and a number of other developing countries. By hanging over the heads of Indian generic companies the threat of litigation if the outcome of the case favored Gilead, it was able to lock in the agreements. The companies were allowed to make generic versions despite the lack of a patent for Viread in India and in most of the countries included in the agreements (which even covered countries, such as Togo and the Democratic Republic of the Congo, that, according to the World Trade Organization, do not have to grant pharmaceutical patents). Because a patent can be infringed only after it is granted, Gilead’s access strategy was thus tantamount to a landlord offering to rent and receive payment for a property for which his ownership has not been determined.

Further, the agreements meant that Gilead was able to control where its competition sold products. Gilead allowed its Indian competitors to sell in markets that it knew were not very profitable in exchange for their staying out of bigger and more lucrative middle-income countries such as China and Brazil. The agreements thus promoted competition controlled by Gilead, not open competition between Gilead and manufacturers of generics, which is necessary to bring down prices.

Gilead’s recent hep C agreements are a case of déjà vu. As with Viread, Gilead does not have patents on sofosbuvir or ledipasvir that would block generic production in India or in many of the 90 other countries included in the agreements, most of which are poor. Yet again, Indian generic manufacturers are prevented from selling generic versions to more profitable middle-income countries, where, according to Doctors Without Borders, 73 percent of the world’s hep C patients reside.

Gilead and some nongovernmental organizations have tried to allay fears of exclusion by pointing out legal language in the agreement that could allow Indian manufacturers to sell to some middle-income countries. But they would be able to do so only if there is no patent granted or pending in these countries or India — an extremely unlikely outcome, given that Gilead and other multinational pharmaceutical companies routinely file multiple patents on a single drug for decades after a medicine comes onto the market in order to quell competition.

So how much does Gilead really sacrifice in such agreements? In the case of hep C, it gave up the markets of low-income countries where most people can’t even afford to pay a dollar per day for malaria treatment and where, in most cases, it didn’t have patent protection in the first place. What does it gain? A controlled, divided market in which Gilead keeps the most lucrative countries for itself while getting monopoly protection in other countries (regardless of whether patents exist or are granted). Most important, these agreements essentially allow Gilead to circumvent the safeguards that India and other countries have established to protect the public against patents that are not deserved or would thwart competition.

Rather than champion these agreements, NGOs, international public health institutions, media and Indian generic manufacturers ought to wake up to Gilead’s real strategy. Groups such as Doctors Without Borders have rightly been critical of the licenses. But there is a deeper issue at play. By dividing the market and culling generic competition, Gilead is quietly achieving what the U.S. and Europe have long tried to do through coercive trade deals such as the Trans-Pacific Partnership as well as diplomatic threats: undermine India’s legally legitimate patent laws. It is time for governments of all countries, whether included or excluded from these agreements, to consider such licenses anti-competitive and unenforceable where there are no granted patents. Continuing to support such agreements — and encouraging Indian generic companies and other local manufacturers to sign them — will eventually reduce competition and seriously curtail the supply of affordable medicines worldwide.