Are the Gilead Sciences (NASDAQ:GILD) Prices Justified?

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By Chris Hillman on December 23, 2014 BioPharma

On December 9, the Southern Pennsylvania Transportation Society (SEPTA) filed a lawsuit against Gilead Sciences (NASDAQ:GILD) stating that the company overcharges for its drug named Sovaldi. Sovaldi and Harvoni are two drugs which are used to cure Hepatitis C, the former is being sold by Gilead (NASDAQ:GILD) at $84,000 for a 12-week treatment and the latter, at $94,500 for a 12-week course. The lawsuit by SEPTA does not specifically mention Harvoni, however the pricing for the drug was shown in the company’s filings. What is interesting to note is that Gilead (NASDAQ:GILD) is offering Sovaldi at a much lower cost in other countries.

Gilead (NASDAQ:GILD) viewpoint:

According to Gilead (NASDAQ:GILD), the price of Sovaldi is justified because it saves a lot of money in the future. According to John Milligan the president of Gilead (NASDAQ:GILD), the value of a cure is underestimated in terms of the overall advantage that the healthcare system receives from the high price tag of the drug.

As per the center of disease control, approximately 3.2 million Americans are affected by Hepatitis C. This chronic Hepatitis is also one of the main causes of more than 6000 liver transplants every year in the country. These annual transplants cost around $280,000 each. Hepatitis C costs more than $750 million every year in its direct medical expenses and indirectly the disease cause the expenses of $4 or $5 billion.

Over the next 10 years, the treatment of Hepatitis C can cost U.S $50 billion, keeping the numbers in mind it can be said that the cost of Sovaldi and Harvoni is actually saving money over the long run.

The rules of economics are also in favour of Gilead (NASDAQ:GILD). The market rules of products demand and its supply affects the pricing of the product. While there have been many complaints about the drug being over priced, there hasn’t been much of a change in its demand. People are still buying both Solvadi and Harvonis despite the price.

There is a lot of competition in the medical field and these two drugs are also faced with rivals in the form of other medicines by various medical companies. AbbVie (NYSE:ABBV) is one other company that sells drugs for the cure of Hepatitis C. The drug by AbbVie (NYSE:ABBV) is called as Viekira Pak and it is being sold at $83,319 for a 12-week treatment. The price is just a little below the price of Sovaldi and is around 12% under the price of Harvoni. By looking at the numbers, and the demand of the product and the competition, it can be said that the drugs by Gilead (NASDAQ:GILD) are priced just right and people are buying the product, which shows that the drugs are in demand.

Whether the lawsuit will change anything or not is something that will be interesting to see. The company believes that the cost of the drugs that they have decided is justified and now only a market survey will decided whether Gilead (NASDAQ:GILD) were fair or not.