Taxpayers Funded A Lifesaving Drug And Guess What Happened Next

Our nation pays - by far - the highest prices in the world for prescription drugs. As a result of these prices, nearly one in five Americans cannot afford to fill their prescriptions. At what point do we say our tax system, our publicly funded research and our patent system are not serving the public interest?
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The pharmaceutical industry has become a major health hazard to the American people.

Our nation pays - by far - the highest prices in the world for prescription drugs. As a result of these outrageous prices, nearly one in five Americans cannot afford to fill their prescriptions. Meanwhile, the five largest prescription drug companies made a combined $50 billion in profits last year. That is unacceptable. A lifesaving product does no one any good if a patient cannot buy the medicine they need, and that is now happening far too often in the richest nation in the world.

A new report out today from Americans for Tax Fairness explains how a pharmaceutical company, Gilead Sciences, games the system to charge high prices, shift profits offshore and avoid billions in U.S. taxes.

Gilead sells a drug called Sovaldi, which is used to treat the hepatitis C virus. The drug was developed with taxpayer funds by a researcher who worked at the Department of Veterans Affairs and founded a small drug company. Gilead bought the company for $11 billion, acquired the government-provided monopoly rights and set the price at $1,000 per pill, or $84,000 per treatment in 2013.

U.S. public and private insurers, taxpayers and patients spent more money on Sovaldi in 2014 than on any other prescription drug. Gilead made its investment back in less than a year.

If gone untreated, hepatitis C can end in what one nurse-practitioner called "some of the worst deaths I've ever seen." She said, "At the end, you die not knowing who you are, your belly looks 12 months pregnant, you're malnourished, and you're bleeding to death."

Patients with hepatitis C are often low-income and a disproportionate number of them are veterans. Yet many Medicaid programs have had to limit access to the drug, and despite spending literally billions of dollars on the new hepatitis C drugs, the Department of Veterans Affairs initially struggled to provide the medication to every veteran who needed it.

Meanwhile, Gilead's profits have quintupled since it started selling the drug, from $4 billion in 2013 to $22 billion in 2015.

It gets worse. The Americans for Tax Fairness report finds that Gilead has dodged nearly $10 billion in U.S. taxes.

How is that possible?

Gilead claimed that despite making "two-thirds of its revenues here and charging higher drug prices than anywhere else in the world, it made only about one-third of its profits in the United States," according to the report. The company pays an effective tax rate of just 1 percent in the foreign countries where it claims to do business. And in 2013, Gilead's chief financial officer said the formula for Sovaldi was being transferred to Ireland in order to lower the company's effective tax rate.

The strategy worked: Gilead's worldwide effective tax rate dropped from 27 percent in 2013 to 16 percent in 2015.

Many American corporations use this practice to avoid paying U.S. taxes, but Gilead's greed is particularly reprehensible because the American public paid for these drugs twice: first taxpayers bankrolled the research behind the hepatitis C drugs and then they paid a second time when Gilead decided to charge Americans the highest price in the world for the treatment.

And now Americans are getting cheated a third time as Gilead stashes its profits abroad to avoid taxes.

But Gilead is not the only company taking advantage of our public research funding and tax loopholes. Pfizer, Merck, Johnson & Johnson, Eli Lilly, Bristol-Meyers Squibb and many others engage in similar offshore tax dodging to avoid billions in U.S. taxes each year.

At what point do we say our tax system, our publicly funded research and our patent system are not serving the public interest? At what point do we realize that they have been distorted to serve the private interests of a few billionaires like John C. Martin, Gilead's CEO until this past March, whose compensation peaked at almost $200 million in 2014? At what point will Congress have the courage to stand up to the greed of the pharmaceutical industry and say enough is enough?

Last year I asked the Department of Veterans Affairs to use an existing law allowing the federal government to break patents in order to make hepatitis C drugs available to veterans. I also introduced a bill last year, the Corporate Tax Dodging Prevention Act, which would tax all profits of American corporations the same way regardless of where they are earned. This would eliminate the incentive for companies to hide their profits overseas.

I have also supported legislation that would lower costs for consumers by rewarding developers of medicines on the basis of a drug's benefit to consumers. Under such a system, Sovaldi would have been awarded a substantial monetary prize as it represented a major advancement for patients with hepatitis C, but under my proposal, the drug would immediately come on the market as a generic drug, saving consumers a decade or more of paying exorbitant prices for brand-name drugs. I also strongly support instructing Medicare to negotiate drug prices and reducing the barriers to the importation of prescription medication from Canada and other countries.

Other countries strictly regulate what pharmaceutical companies can charge, but in the U.S. there is no limit to the egregious profiteering of corporate CEOs. Coupling outrageous prices on drugs with new and inventive ways to avoid paying taxes is truly shameless.

That must change.

Americans who suffer from hepatitis C today and from many other serious illnesses -- including veterans, retirees, and children -- need a government that works for them, not just the CEOs of large pharmaceutical companies and the billionaire class.

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