Outrage of the Month: A Price-Gouging, Tax-Dodging Drug Company

09/01/2016 10:35 am ET Updated Sep 02, 2017

On July 13, Americans for Tax Fairness (ATF) released a report describing how drugmaker Gilead Sciences raked in billions of dollars in profits in the past two years from exorbitantly priced hepatitis C (HCV) drugs that were developed with taxpayer support. According to the report, Gilead Sciences: Price Gouger, Tax Dodger, the company then shifted those profits offshore, enabling it to dodge nearly $10 billion in U.S. taxes.

Gilead made headlines in 2013 when its first HCV drug, sofosbuvir (brand name Sovaldi), went on the market at a cost of $1,000 per pill, or $84,000 for a full 12-week course of treatment (see here and here). In 2014, Gilead introduced its second HCV drug, Harvoni -- which combines sofosbuvir with ledipasvir -- at a price of $1,125 per pill, or $94,500 for a full course of treatment. According to ATF, the actual cost of making a 12-week course of sofosbuvir is estimated at $100 to $1,400.

A huge number of patients are candidates for these drugs: The Centers for Disease Control and Prevention estimates that 3 to 4 million people in the U.S. have chronic HCV infections.

ATF's key findings included the following:

• The federal government provided at least $4 million to fund HCV-related research that appears to have aided in the development of Gilead's drugs.

• From 2013 to 2015, Gilead's worldwide revenues tripled -- from $11 billion to $33 billion -- and its pre-tax profits rose more than fivefold -- from $4 billion to $22 billion. Much of these gains were driven by sales of the company's two HCV drugs.

• U.S. taxpayers are paying at least $5 billion annually for Gilead's overpriced HCV drugs, while hundreds of thousands of patients go untreated because of the unaffordable costs.

• As sales of its HCV drugs exploded, Gilead appears to have engaged in a massive shift of American profits offshore to dodge U.S. taxes. ATF estimates that the company has used tax loopholes to avoid paying $10 billion in U.S. taxes since 2013.

ATF recommends that that Congress close the loopholes that Gilead relies upon to dodge U.S. taxes. But the government already has at its disposal a powerful tool to address Gilead's price-gouging behavior: Under existing patent law the U.S. government could authorize other companies to make much cheaper generic versions of Sovaldi and Harvoni to treat HCV patients under government health programs, such as the Medicare and Medicaid insurance programs and the health care systems operated by the Department of Veterans Affairs and Department of Defense. Gilead in exchange would receive reasonable royalties, to compensate them for the costs associated with developing the HCV drugs, which would be substantially less than future federal expenditures currently projected for these drugs.

The U.S. government has used its patent use authority only once before for a drug. Gilead's outrageous price-gouging, tax-dodging behavior certainly provides a just basis for doing so again.