Pharmaceuticals in the United States

FOR INTERNAL USE ONLY. NOT FOR DISTRIBUTION OUTSIDE KELLOGG. This case was prepared by Professors Meghan

Busse and Craig Garthwaite. It was written as a basis for class discussion. Cases are not intended to serve as endorsements, sources of

primary data, or illustrations of effective or ineffective management. Do not duplicate or post.

MEGHAN BUSSE AND CRAIG GARTHWAITE

Sovaldi: Pricing a Breakthrough Drug

Dr. John C. Martin, PhD, CEO of Gilead Sciences Inc., sat at his desk in the company’s

headquarters in Foster City, California, on September 15, 2014, and reviewed the situation.

Gilead was a biotechnology company that discovered, developed, and commercialized drugs

to treat patients infected with HIV, hepatitis, or influenza. Sovaldi, Gilead’s new treatment for

hepatitis C, had been approved for sale in the United States in December 2013. The drug was a

clinical breakthrough and had achieved record sales of $5.7 billion in its first six months.

However, the drug’s price of $1,000 per pill (or $84,000 for a standard twelve-week

treatment) had been the subject of harsh public criticism from insurers, healthcare organizations,

and even the U.S. government. Gilead had recently announced a program to make Sovaldi

available in low-income countries for $10 per pill, but this had only invited further attacks on the

company.

Martin considered how Gilead should respond to the criticism and what, if anything, to

change in its approach to pricing Sovaldi.

Pharmaceuticals in the United States

Pharmaceutical sales in the United States were $328 billion in 2012, more than one-third of

the global total.1 Per person, Americans spent $1,010 on pharmaceuticals annually, more than

twice the $498 average2 among OECD countries.* For new drugs launched between 2009 and

2013, more than half of all revenue came from the United States and only 23 percent from

Europe.3

Regulation

In the United States, pharmaceuticals were heavily regulated by the Food and Drug

Administration (FDA), the government