Market Access and Expansion

Market access strategy development and go-to-market model creation
Identifying key success factors, such as targeting, segmentation, and medical strategy
Assessing market potential and growth opportunities in new geographies
Prioritizing countries for international expansion and rethinking existing market approaches
Sequencing launch approaches for new geographies and estimating market potential for new products

Balancing Profits and Ethics: Gilead’s Innovative Strategy in Low-Income Countries

Sasan Dastaran, University of Warwick, Warwick Business School

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4488303

Abstract:

This article delves into the innovative strategy deployed by Gilead Sciences, Inc., an American biopharmaceutical company, in providing access to its costly Hepatitis C drugs in low-income countries. Faced with immense pressure from humanitarian organizations and potential threats to its patents, Gilead implemented the Anti-Diversion program, leveraging strategic alliances with Indian pharmaceutical manufacturers. This strategy facilitated the supply of cheaper generic versions of their drugs to a large segment of the global population while preserving Gilead's lucrative markets in the U.S. and E.U. Despite initial criticism, the program has proved to be largely successful, fostering a favourable business environment and expanding patient access to lifesaving drugs.

Gilead Sciences, Inc.: An Introduction to the Global Antiviral Market Leader

Gilead Sciences, Inc., a US-based biopharmaceutical entity, focuses on the research and development of antiviral medications meant for diseases like hepatitis B and C, HIV/AIDS, and influenza. The company's decision to venture into the antiviral drug market was viewed as both adventurous and ambitious. Nevertheless, Gilead's success became evident when they introduced a series of drugs effective against hepatitis C. Due to the brief life cycle of antimicrobial agents, including antivirals, and high R&D costs, Gilead had no choice but to raise the price tag. Hepatitis C is a viral infection that primarily affects the liver and was the leading cause of infectious disease deaths in the US in 2014 (CDC, 2014).

Gilead introduced its first drug in the hepatitis C series, Sovaldi, in 2013, which was followed by Harvoni and Epclusa in 2019. In 2015, the price of Sovaldi was $1,000 per pill or $84,000 for a complete treatment course in the US (Médecins Sans Frontières, 2015). For a full 12-week course of Epclusa, Gilead set the price at $US78,078 (Drugs.com, 2021).

With numerous instances where impoverished countries are unable to afford expensive medications, there are ethical considerations at stake, especially for life-saving drugs like these. As Gilead held the potential to save countless lives, the company faced immense pressure from humanitarian organizations and the media. However, even minor discounts on the product made it unaffordable for poorer nations.

Gilead proposed a solution to this issue via their hepatitis C 'Anti-Diversion' program. The program aimed to prevent access to cheap generics in high and middle-income countries while supplying these in selected regions at an affordable rate. This program, however, was met with criticism due to its exclusion of refugees and marginalized individuals and potential violations of patient confidentiality.

Through this program, Gilead partnered with seven Indian pharmaceutical companies to supply generic Sovaldi to 90 countries at a price as low as $900 for a 12-week course – just 1% of the original price in developed countries (Pmlive, 2015). These low-income regions account for about 100 million patients, almost half of the global patient population (businesswire.com, 2014).

As illustrated in Figure 1, Gilead’s revenue doubled and then tripled in 2014 and 2015 compared to 2013. The success of Sovaldi, Gilead's first hepatitis C drug, contributed significantly to this increase. Just a year after its launch, Sovaldi became the second best-selling drug worldwide, with sales worth $10.3 billion, primarily from the US market. Although Sovaldi could have achieved even higher numbers, Gilead introduced a more effective combination, Harvoni, which accounted for $2.1 billion in sales in 2014. The total sales of both drugs in the U.S. in 2014 was $12.4 billion, bringing Gilead's net income to $13.3 billion, a significant increase from $3.5 billion in 2013 (Andrew Pollack, 2015).

However, critics pointed out that the average income in countries covered by the anti-diversion program was merely $1,900, making the drug still unaffordable for many. Two years into the deal with Indian generic manufacturers, other Indian companies legally challenged Gilead's patent, leading to political lobbying. While India upheld Gilead's patent, China, Ukraine, and Egypt rejected it (Ed Silverman, 2016).

Several pharmaceutical companies, including Gilead and Bristol-Myers Squibb (BMS), have increased access to patented essential drugs through voluntary non-exclusive licenses. The 2014 licensing agreements between BMS and Gilead tripled access to hepatitis C medication, as depicted in Figure 2 (Simmons, Cooke, and Miraldo, 2019).

Despite the legal requirement to respect patents, in certain situations where there are no alternatives for a life-saving drug, countries may devise strategies to circumvent them. This creates a unique situation compared to other patented drugs that are expensive and unavailable in some markets but have generic alternatives. The issue is further complicated by ethical considerations.

Examining Gilead’s Strategic Decision-Making: The AAA Triangle Framework

As depicted in Figure 3, we utilized the AAA Triangle (Ghemawat, 2007) to lay out possible strategies.

Adaptation:

Certain products might adopt different packaging and branding strategies for the same product in order to offer it at a lower price and rationalize the disparity in their main markets. In the pharmaceutical industry, the molecular composition and formulation have to remain consistent across all regions, and a new packaging strategy would not justify the exceedingly high price tags in wealthier nations. The only real room for adaptation was with the price, which was incredibly high and out of reach for many countries. Unlike other patented drugs with cheaper substitutes, Gilead found itself in a unique situation. Despite their primary profit-making markets being the U.S. and EU, they couldn't disregard the rest of the world. Not only would it raise ethical questions to ignore so many patients, but it could also tarnish their reputation as pharmaceutical companies often aspire to be perceived as saviours. Thus, the most viable solution was to adapt their pricing for these markets. However, the considerable difference in affordability thresholds between these countries and the product's cost made maintaining balance and justifying the disparity to patients in high-income countries challenging. The disparity could also potentially lead to the smuggling of the product from low-income to high-income countries or even incentivize people to travel to these regions for treatment. Furthermore, consumers and health.

authorities in low-income regions tend to be less brand-conscious and more lenient about manufacturing standards. Licensing to local companies in countries like India, a major global pharmaceutical manufacturer, could cut production and logistic costs. Yet, such an exclusive deal could invite opposition from any major Indian pharmaceutical companies left out of the agreement due to their influential R&D capacities and potential to reproduce the formulation and challenge the patent.

Aggregation:

India, home to some of the world's largest pharmaceutical manufacturing plants and a significant supplier of generics to the U.S. and antiretroviral drugs globally (Pharma Industry in India: Pharma Sector Overview, Market Size, Analysis...| IBEF, 2022), offers economies of scale in the pharmaceutical industry. Although Gilead's products command significant margins at their original prices, when those margins reduce for low-income countries, each cent becomes crucial. The high global demand for Hepatitis C medication necessitates efficient logistics, a strength of Indian pharmaceutical companies. In addition, India's significant production of ingredients, both active and excipients, could further reduce production costs.

Arbitrage:

With patients being registered with their IDs and products not sold on the spot markets, arbitrage opportunities were limited. As highlighted, reduced production costs benefitted both primary (U.S. and EU) and low-income markets. Gilead capitalized on India's manufacturing capabilities to supply half of its customer base in low-income regions such as Africa and India. This not only solidified their dominance in the viral disease market but also reduced the risk of patent claims in these regions. Plus, with such agreements in place, R&D companies were less incentivized to target the molecule.

The third part continues the arbitrage section from the previous discussion, suggesting that no universal regulation compels innovative drug manufacturers to provide access to low-income countries. While the World Health Organization (WHO) has made recommendations, these are not enforceable. Consequently, those unable to afford patented molecules are often left waiting until they are off-patent, at which point generic manufacturers can produce cheaper alternatives. According to Figure 4, the legal duties, or "Must", are only applicable within certain regions of the country of origin. Besides that, some major companies may fall into the "Ought to" category, providing access to low-income regions not because of an external obligation but due to a corporate decision to voluntarily adopt certain policies - this is considered corporate responsibility. At the top is "Can", which should be discussed on a case-by-case basis, considering the company's resources (Leisinger, Garabedian, and Wagner, 2012).

Conclusion:

Gilead's decision to implement the Anti-Diversion program was a brilliant choice. Despite receiving criticism from activists, the WHO, and other humanitarian organizations for neglecting certain individuals and violating patient confidentiality, the outcome has been overwhelmingly positive. The program with Indian generic manufacturers has enhanced access to Hepatitis C drugs in low-income countries. Gilead focused on the U.S. and E.U. for profit, while the rest of the world was able to benefit from the medication. This approach created a tranquil environment that allowed Gilead to successfully develop and launch new generations of antiretroviral drugs. Agreements with Indian companies successfully mitigated the threats of patent circumvention. Furthermore, it diminished the market's appeal for other generic manufacturers to invest in R&D. As discussed by Ertel and Gordon (2007), Gilead capitalized on the manufacturing capacity of their Indian partners as a primary reason for alliances. This allowed them to supply their drugs to 100 countries, thereby reducing production and logistic costs.

References:

Andrew Pollack (2015) Sales of Sovaldi, New Gilead Hepatitis C Drug, Soar to $10.3 Billion - The New York Times, The New York Times. Available at: https://www.nytimes.com/2015/02/04/business/sales-of-sovaldi-new-gilead-hepatitis-c-drug-soar-to-10-3-billion.html (Accessed: 14 April 2022).

businesswire.com (2014) Gilead Announces Generic Licensing Agreements to Increase Access to Hepatitis C Treatments in Developing Countries | Business Wire. Available at: https://www.businesswire.com/multimedia/home/20140915005379/en/ (Accessed: 13 April 2022).

CDC (2014) Hepatitis C Kills More Americans than Any Other Infectious Disease | CDC Online Newsroom | CDC. Available at: https://www.cdc.gov/media/releases/2016/p0504-hepc-mortality.html (Accessed: 14 April 2022).

Drugs.com (2021) How much does Epclusa cost? Available at: https://www.drugs.com/medical-answers/epclusa-cost-3109603/ (Accessed: 12 April 2022).

Ed Silverman (2016) Gilead gets a big win as India upholds a Sovaldi patent, after all - STAT, Stat News. Available at: https://www.statnews.com/pharmalot/2016/05/10/gilead-hepatitis-patents-drug-pricing/ (Accessed: 14 April 2022).

Ertel and Gordon (2007) Bet-the-Company Deals: Mergers, Alliances, and Outsourcing | Harvard Business Publishing Education, HBR. Available at: https://www.hbsp.harvard.edu/product/5033BC-PDF-ENG (Accessed: 17 April 2022).

Ghemawat, P. (2007) ‘Managing differences: the central challenge of global strategy.’, Harvard Business Review, 85(3), pp. 58–68, 140. doi: 10.1108/sd.2007.05623had.001.

Leisinger, K. M., Garabedian, L. F. and Wagner, A. K. (2012) ‘Improving Access to Medicines in Low and Middle Income Countries: Corporate Responsibilities in Context’, Southern Med Review. BioMed Central, 5(2), p. 3. Available at: /pmc/articles/PMC3606933/ (Accessed: 17 April 2022).

Médecins Sans Frontières (2015) Indian generic companies should reject Gilead’s controversial hepatitis C ‘Anti-Diversion’ programme | MSF. Available at: https://www.msf.org/indian-generic-companies-should-reject-gilead’s-controversial-hepatitis-c-‘anti-diversion’ (Accessed: 12 April 2022).

Pharma Industry in India: Pharma Sector Overview, Market Size, Analysis...| IBEF (2022). Available at: https://www.ibef.org/industry/pharmaceutical-india (Accessed: 16 April 2022).

Pmlive (2015) Gilead under fire for Sovaldi anti-diversion policy - PMLiVE. Available at: https://www.pmlive.com/pharma_news/gilead_under_fire_for_sovaldi_anti-diversion_policy_710447 (Accessed: 13 April 2022).

Simmons, B., Cooke, G. S. and Miraldo, M. (2019) ‘Effect of voluntary licences for hepatitis C medicines on access to treatment: a difference-in-differences analysis’, The Lancet Global Health. Elsevier, 7(9), pp. e1189–e1196. doi: 10.1016/S2214-109X(19)30266-9.

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