GOVERNMENTS ACROSS EUROPE – including Ireland – are being charged up to 20 times what it costs to produce a ‘miracle’ drug for cystic fibrosis.
The production cost of the drug Kaftrio could be as low as just €5,200 per patient per year and be profitable, a team of British scientists has calculated; yet governments are being charged an estimated €70,000 to over €100,000 for these and similar medicines by the US biotech firm Vertex Pharmaceuticals.
That is according to a new analysis by Investigate Europe who examined Vertex’s accounts to discover its revenues in a number of European countries as well as costs to governments.
Game-changing medicines to treat cystic fibrosis (CF) known as CFTR modulators have been approved in the EU since 2012. Four are now on the market, including the more recent ‘miracle’ Kaftrio and Kalydeco therapies.
Ireland was among the first in Europe to get access to Kaftrio in 2020 due to a drug pipeline deal agreed with Vertex in 2017. Benefits can reportedly include a 10% to 14% rise in lung function as well as reduced need for hospitalisation due to chest infections.
Dr Andrew Hill, a British researcher and adviser to the World Health Organisation (WHO), monitors shipments of Vertex’s raw ingredients on import-export databases. Tracking their value, his team calculated that Kaftrio could be produced for just $5,600 (€5,200) per patient per year and would still be profitable.
The team of scientists estimated the generic cost of producing Kaftrio in India, where active ingredients of the drug are already produced. A profit margin of 10% and an average Indian tax of 27% were built into the calculations. Hill told Investigate Europe:
I think it’s outrageous if a drug company is so determined to get a price that’s not even cost-effective.
“But Vertex has a monopoly so the choice for a country is either you buy this drug at the Vertex price, or you get nothing.”
Vertex, however, challenged the methodology used, saying that the production costs quoted in this article are inaccurate. In addition they claim that “the price of these medicines is not determined by the production costs, but by the investment made in their development, the risk undertaken, and their value to patients and the health care system”, a spokesperson said. They added:
“Further, it is our revenues from existing products that fund our ongoing research into other serious diseases, and which have allowed us to achieve significant breakthroughs in the treatment of these diseases.”
Professor Martin Hug, chief pharmacist at the University Hospital of Freiburg in Germany, says “it was brave of the company to invest in it”. He said Vertex did this “because the Cystic Fibrosis Foundation offered money”.
As the father of two girls with CF, he is grateful to live in a country that is willing to pay for Vertex’s treatments, even though “it would be presumptuous to say let the prices be as high as they are because our society can afford it”.
“But you also have to realise that the development of drugs for rare diseases in particular is very, very expensive,” Prof Hug adds.
In an application to the Australian health authorities, Vertex assessed that generics – replica drugs made by other companies – could be 90% cheaper when Kaftrio’s period of exclusivity ends. In Europe, the drug’s patent is not expected to expire until 2037.
For now, generics of the medication are only sold in Argentina, where patent laws are less restrictive. A yearly supply of a Kaftrio copycat there can cost $100,000 (€93,000), still prohibitive for many. Alternatives sought by some include crowdfunding, or moving to a different country.
Noteworthy, the crowdfunded community-led investigative platform from The Journal, supports independent and impactful public interest journalism.
Monika Luty, a 27-year-old from Poland, was forced to do both. In 2020, her condition was so poor that her lung capacity dangerously neared 20% and she weighed just 37kg.
She posted a video online, begging Vertex to give her Kaftrio. At the time it had EU approval but was not reimbursed in Poland.
“I felt a huge disappointment”, she says. “Living in the EU, being Polish, I was discriminated against because I was not German or of another nationality where treatment was available. There should be no discrimination in the EU”.
Her friends helped her crowdfund over €200,000 and her dad sold his car so she could buy the drugs from Germany and, seeing how effective they were, she crossed the border for good when she felt better. She moved to Frankfurt, got an office job and received a free prescription for Kaftrio.
“I paid zero, so I was crying because it was so easy,” she remembers. “To get the drugs in Germany, all I needed was insurance, a job and to live there”. Two years later, Luty returned to Poland when modulators became available.
Gayle Pledger, co-founder of Vertex Save Us, an advocacy group, says that “Vertex is prepared to sit back and hold out for the highest price during negotiations”. She adds:
It’s really awful and upsetting when you hear what families are having to do to access these drugs.
”During this time, CF communities become more and more desperate and put pressure on their governments to pay the prices,” she adds, saying the root of the problem is actually the extremely high prices.
New drugs are centrally approved by the European Medicines Agency, but each EU state has to negotiate prices with companies directly.
These deals are highly secretive, which favours the likes of Vertex who has a monopoly on the four CF drugs. Richer countries with higher purchasing power also benefit and can often negotiate cheaper prices than poorer nations or those with smaller markets.
Analysis of Vertex’s corporate filings as well as budget and health data from national authorities provides for the first time a glimpse into price disparity across Europe for these life-saving medications.
In western Europe, Investigate Europe compared Vertex’s local revenues to the official number of patients taking the company’s drugs in 2022. The average, excluding VAT, was estimated to be around €71,000 in France, €81,000 in Italy, €87,000 in Spain and €88,000 in the Netherlands per patient annually.
In Ireland, recent estimates are not possible, as Vertex’s local subsidiary now books all the group’s EU sales, thus masking its Irish revenues.
However, previous corporate filings show that Ireland had an estimated 40% discount on two CF drugs in 2018. That year, the biotech recorded a €69 million net turnover in Ireland, while the HSE reported €99 million in pre-discount payments to the company. The amounts only covered Kalydeco and Orkambi, Vertex’s early treatments.
In comparison to countries in western Europe, the expenditure per patient in some central and eastern European countries appears higher.
Investigate Europe analysis of national drug expenditure reports estimates that in 2023, Poland spent an average of around €109,000 before VAT per patient on CFTR modulators.
The national health fund said that “all rebates or discounts negotiated with pharma companies are included” in their figures, though some paybacks, which one former health official calls “insignificant” are not counted.
In the Czech Republic, the estimate is €140,000, based on 2022 data which includes “the real cost paid for this kind of treatment”, according to VZP, the country’s largest public insurer. It is not clear if any tax is factored in.
For the above countries, Investigate Europe only looked at data reflecting a full year of availability of all four Vertex drugs. Kaftrio and Kalydeco account for most of the costs.
The amounts quoted are estimated averages, since patients may start treatment later in the year or move from one drug to the other. As a result, the real reimbursement price of each medicine can differ.
The Vertex spokesperson strongly refuted Investigate Europe’s analysis regarding “manufacturing costs, drug pricing, tax, and the discovery, development and accessibility of Vertex medicines”, saying it did not reflect the company’s achievements in transforming the treatment of cystic fibrosis and significant improvements in quality of life.
They also said the inquiries sent to the company by the investigative team “demonstrates a lack of understanding of drug development, pricing, reimbursement and global access”.
The price of our medicines is based on their innovation and the value they bring to the CF community, caregivers and healthcare systems.
“The reimbursed prices quoted in your inquiry are inaccurate,” a Vertex spokesperson also said. The company declined to comment on individual countries or to detail any specific inaccuracies.
Vertex, however, told the team that “reimbursed prices are not set unilaterally by the innovator, but confidentially agreed with the health authorities in each country, taking into consideration the medicines’ broad clinical benefits, the number of CF patients, a country’s ability to fund innovative medicines, and other factors”.
One European state negotiator with experience of Vertex said that “the strategy for companies is always profit maximisation”. They added: “So it’s not in their interest to make you a good offer.”
EU countries don’t know how much others pay, says the official, who asked to remain anonymous, adding that “if a company has billions of profit, you can definitely conclude that we all pay way too much”
The assumption that Vertex’s demands are disproportionate has led to clashes with several governments. In Britain, health authorities recently criticised Kaftrio’s cost-effectiveness and threatened to cut reimbursement for new patients.
In a previous stand-off with the UK, the manufacturer destroyed 8,000 packs of Orkambi, another of its treatments as they went out of date during the row.
In Ireland, a dispute with the government kept Kaftrio out of reach from 35 children in 2022 because their gene mutation was excluded from an earlier contract and Vertex pressed for additional payment. It was nearly a year before the children eventually received the drug.
“It was horrific, it was 11 months of crying every day” reflects Gràinne Uí Lúing, whose two daughters were affected by the delay.
She felt “it just came down to money for Vertex”, saying it seemed like there was “nothing personal” or “nothing medical” about this. In Uí Lúing’s opinion it was “just money and filling their pockets” and she felt it was “disgusting”.
She recalls one particularly tense meeting with company representatives during the negotiations. “I asked them, “how much for my child’s life, what are you costing?”
Hearing their mum speak about this revives painful memories for her daughters, Caoimhe, 10, and Fiadh, eight. It’s OK, we’re just having a chat. We have it. We’re happy,” Uí Lúing comforts them.
A few minutes later, the sisters are beaming again playing chess at the kitchen table of their family house near Dublin. They chat about their upcoming trip to the Harry Potter studios in London.
Caoimhe and Fiadh recently celebrated their first anniversary of treatment and are now “unbelievably well”, their mum says.
The beginning of the highly sought-after medicines was in 2000 when the non-profit Cystic Fibrosis Foundation agreed to fund Aurora Biosciences, a US pharmaceutical firm, to discover new therapies against the disease.
One year later, Vertex bought Aurora and continued the partnership. As part of the arrangement, the foundation bankrolled Vertex’s therapy development with $150 million against royalty rights on future sales. Simply put, Vertex would own the patents and market the drugs, while the non-profit would take a slice of all future revenues.
Vertex said it has “invested over $10 billion overall into research and development for CF. Over the past 10 years, we’ve invested more than 70% of our operating expenses back into R&D.”
Research and development aside, only around 4% of what Vertex charges for its medicines relates to manufacturing costs, according to analysis of its latest accounts. The group spent about $400 million to produce pills in 2023. It sold them for $9.8 billion globally.
Its other outlay on selling the drugs came from its royalties agreement with the Cystic Fibrosis Foundation. Except the non-profit is no longer the beneficiary.
Between 2014 and 2020, Royalty Pharma bought the foundation’s royalty rights for almost $4 billion. The New York-listed investment firm now pockets 9% of all CFTR modulators earnings worldwide, in perpetuity.
In just seven years, it cashed in over $4 billion, its accounts show. The deal was all the more lucrative in that Royalty Pharma pays zero corporation tax across a string of entities in tax havens like Ireland and Delaware.
“Investors in Royalty Pharma plc pay taxes on the income earned by Royalty Pharma plc on a pass-through basis” a spokesperson said. “Royalty Pharma plc does not pay any tax because it is taxed as a fund”. The group said it was proud to have helped the Cystic Fibrosis Foundation ”accelerate their mission”.
Vertex’s financial connections to Ireland run deeper than their income from patients. The tax-friendly jurisdiction is a cornerstone of the group’s corporate structure in Europe. All of its EU sales, nearly $2 billion in 2022, run through its Irish holding.
Consequently, Vertex records little profit in EU countries. Globally, Vertex paid over $760 million of corporate tax last year, a 17.4% rate that left it with a $3.6 billion net profit. It rewarded its investors with $427 million of share buybacks and handed its CEO $20 million.
“Vertex paid billions of dollars in income taxes during the period 2018-2023″ a company spokesperson said, adding that the group complies with all disclosure requirements and its corporate tax rate “is well above the OECD minimum global tax rate of 15%”.
Later this year, Vertex will be eying regulatory approval for its fifth CF therapy, known as Vanza Triple. Some analysts believe it could yield nearly $10 billion in annual revenues.
Still, just like the four breakthrough treatments before, access is poised to be an issue. Vertex has been criticised for blocking cheap generics globally, while not marketing its products in poor countries.
Middle-income nations like India and South Africa are also unable to access the drug and one person with CF from South Africa is suing the firm over patent abuse and human rights violation.
The Guardian reported in March that Vertex has filed an 800-page response to this court submission. The Vertex spokesperson told the paper that the company intended to bring its CF medicines to eligible patients in South Africa and was in the final stages of confirming access to Trikafta “on a named patient basis”.
The spokesperson also said this was “the fastest and most efficient route to access in South Africa, given the country’s systemically challenging reimbursement system for rare diseases”.
Vertex runs a pilot programme to donate free Kaftrio supplies in 12 countries but declined to say how many patients benefited. The company added that two-thirds of patients worldwide take its drugs, a percentage that masks the widespread unavailability of Kaftrio.
Out of 100,000 people who have been diagnosed with CF in the world, 12% were estimated to take Kaftrio in 2022. This is despite it treating the most common type of CF worldwide.
How big pharma feeds inequality in Europe
By Maxence Peigné and Eurydice Bersi • Editor: Chris Matthews
Deadly Prices is an investigation across 20 countries by Investigate Europe and its partners into how medicine prices are set and what determines access to them. Investigate Europe is a non-profit journalistic cooperative with members from 11 countries. Project illustration is by Alexia Barakou.
Noteworthy is the crowdfunded investigative journalism platform from The Journal, and is the Irish publication partner for this series.
To embed this post, copy the code below on your site
have your say