Can Gilead make remdesivir pay?
Gilead has been rewarded handsomely, via share price gains, for its Covid-19 remdesivir work, but the potential costs should not be forgotten.
Remdesivir is out of the gate for Gilead, with emergency use authorisation from the FDA permitting a commercial rollout of the antiviral for Covid-19. Instead, the company has pledged to donate its entire supply of 1.5 million doses, which will be distributed by the US government.
Gilead is expected to profit at some point, however: how else to explain the 23% share price surge this year, adding $18bn to the group’s market cap? This implies that a huge commercial opportunity awaits, which feels premature when considering that so much remains unknown.
On the company’s earnings call last week executives said they were still unsure what any future commercial model for remdesivir might look like. But big money is at stake here: Remdesivir costs could reach $1bn this year, Gilead estimates.
“We have to have a sustainable economic model that works here, and that achieves access [and] affordability to patients around the world,” chief executive Daniel O’Day said. “But rest assured, we understand our responsibility.”
Unsurprisingly the company will not talk about price yet – aside from the political sensitivities of this topic, remdesivir’s real benefit is far from clear (Remdesivir results pile up, but what do they all mean?, April 30, 2020). The cost-watchdog Icer has had a stab at this topic, however, putting together models based on “cost recovery” and a traditional cost-effectiveness analysis.
They concluded that a price of $10 per 10-day dose would cover manufacturing costs – although this would require Gilead to write off its R&D investment. But a price of up to $4,500 could be considered cost-effective, Icer found, assuming a mortality benefit is confirmed and using a $50,000 quality-adjusted life year threshold.
Few in the sellside have published remdesivir models yet, but this upper price seems to be higher than many are assuming. Consensus from EvaluatePharma provides some insight; however, this average is derived from some wildly different numbers, demonstrating the lack of clarity around this opportunity.
Gilead has a fiduciary duty to its shareholders, which means that executives will be focused on recovering its remdesivir costs. But the risk that this might not happen cannot be ignored.
More effective treatments might emerge, or vaccines could lessen the need for remdesivir more quickly than expected. And of course there is the opportunity cost of Gilead not focusing on potentially more profitable activities.
Analysts at Baird noted that the commercial opportunity remains “ambiguous”, and are sceptical that this will be substantially more than a “goodwill enterprise” for the company. Considering that $1bn could be sunk in remdesivir this year alone, this is a pretty big slice of goodwill.
Gilead should be applauded for its efforts to find a treatment for the pandemic. And while talking about commercial models will not win it fans, calls for greater clarity from investors will soon grow louder.