    [Senate Prints 114-20, Part 1]
    [From the U.S. Government Publishing Office]

       114th Congress    }                               {     S. Prt.
                                COMMITTEE PRINT
         1st Session     }                               {     114-20
    _______________________________________________________________________

                             THE PRICE OF SOVALDI
                             AND ITS IMPACT ON THE
                            U.S. HEALTH CARE SYSTEM
                                  PART 1 OF 2

                                   ----------

    Prepared by the Staffs of Ranking Member Ron Wyden and Committee Member
                              Charles E. Grassley

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                            Orrin G. Hatch, Chairman
                           Ron Wyden, Ranking Member

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 DECEMBER 2015

                Printed for the use of the Committee on Finance

       114th Congress    }                               {     S. Prt.
                                COMMITTEE PRINT
         1st Session     }                               {     114-20
    _______________________________________________________________________

                             THE PRICE OF SOVALDI
                             AND ITS IMPACT ON THE
                            U.S. HEALTH CARE SYSTEM

                                  PART 1 OF 2

                                   ----------

    Prepared by the Staffs of Ranking Member Ron Wyden and Committee Member
                              Charles E. Grassley

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                            Orrin G. Hatch, Chairman
                           Ron Wyden, Ranking Member

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 DECEMBER 2015

                Printed for the use of the Committee on Finance
                                     ______

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                              COMMITTEE ON FINANCE

                         ORRIN G. HATCH, Utah, Chairman

    CHARLES E. GRASSLEY, Iowa            RON WYDEN, Oregon
    MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
    PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
    MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
    JOHN CORNYN, Texas                   BILL NELSON, Florida
    JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
    RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
    JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
    ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
    PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
    DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina

                         Chris Campbell, Staff Director

                  Joshua Sheinkman, Democratic Staff Director

                                      (ii)

                              INVESTIGATIVE STAFF

    Senate Finance Committee Minority    Senator Charles E. Grassley's
    Staff                                Staff
    PETER T. GARTRELL, Investigator      JASON FOSTER, Chief Investigative
    DAVID M. BERICK, Chief Investigator  Counsel
    ELIZABETH M. JURINKA, Chief Health   RODNEY L. WHITLOCK, Health Policy
    Policy Advisor                       Director
    IAN M. NICHOLSON, Assistant to the   JOSHUA FLYNN-BROWN, Investigative
    Democratic Staff Director            Counsel
    MATTHEW A. KAZAN, Senior Health      JANET TEMKO-BLINDER, Investigative
    Advisor                              Counsel-Detailee
    ANNE M. DWYER, Health Counsel        KATHERINE NIKAS, Investigative
    DOUGLASS V. CALIDAS, Legislative     Counsel
    Fellow                               SAMANTHA BRENNAN, Legal Fellow
    JAMES P. WEISMULLER, Law Clerk
    ADAM L. CARASSO, Senior Tax and
    Economic Advisor
    JOSHUA L. SHEINKMAN, Democratic
    Staff Director
    MICHAEL W. EVANS, Democratic Chief
    Counsel

                                     (iii)

                                C O N T E N T S

                                  ----------

                                                                       Page
    Note on the report...............................................     1

    Introduction.....................................................     1

    Section 1: Hepatitis C, its Human Toll, Treatment, and the Effect
      of ``Warehousing'' on Pharmaceutical Markets...................     5

    Section 2: Gilead's Acquisition of Pharmasset and the Final
      Approval Phase for Sovaldi.....................................    13

    Section 3: The Pricing of Sovaldi................................    29

    Section 4: The Financial Burden of Treating HCV and Resulting
      Access Restrictions............................................    79

    Section 5: Patients' and Payers' Reactions to the Price of
      Sovaldi........................................................    99

    Section 6: A Competitor Drug Enters the Market...................   112

    Section 7: Conclusions and Questions.............................   117

    Timeline of Key Events...........................................   123

    Glossary of Key Terms............................................   126

    Letter from Senators Wyden and Grassley to John Martin, CEO,
      Gilead Sciences, Inc. (July 11, 2014)..........................   129

    Appendix A: Medicaid Spending Data...............................   135

    Appendix B: Medicaid Prior Authorization Data Compiled by Oregon
      Health and Science University..................................   153

    Appendix C: Medicare Spending Data...............................   267

    Appendix D: Correspondence.......................................   273

        Exhibit 1: Email from Ann Walker-Jenkins, Director, Federal
          Government Affairs, CVS Health Corp., to Peter Gartrell
          (Mar. 9, 2015), attaching written response to investigative
          staff......................................................   274

        Exhibit 2: Letter from Darin J. Gordon and Thomas J. Betlach,
          National Association of Medicaid Directors, to Congress
          (Oct. 28, 2014)............................................   283

        Exhibit 3: Email from Eric Kimelblatt to Christopher J.
          Andrews and William Dozier, Re: Sovaldi Data (Apr. 15,
          2014)......................................................   292

        Exhibit 4: Letter from Lynne Saxton to the Honorable Ron
          Wyden and the Honorable Chuck Grassley (Oct. 19, 2015).....   297

        Exhibit 5: Letter from MaryAnne Lindeblad to the Honorable
          Ron Wyden and the Honorable Chuck Grassley (Sept. 23, 2015)   301

        Exhibit 6: Letter from Theodore Dallas to the Honorable
          Ronald L. Wyden and the Honorable Charles E. Grassley (Oct.
          2, 2015)...................................................   305

        Exhibit 7: Letter from Charles M. Palmer to Peter Gartrell
          (Feb. 9, 2015).............................................   310

        Exhibit 8: Letter from Thomas J. Betlach to Peter Gartrell
          (July 17, 2015)............................................   313

        Exhibit 9: Letter from Justin M. Senior to the Honorable
          Orrin G. Hatch and the Honorable Ron Wyden (Oct. 19, 2015).   316

        Exhibit 10: Letter from Samantha McKinley to the Honorable
          Charles E. Grassley and the Honorable Ron Wyden (Oct. 21,
          2015)......................................................   319

        Exhibit 11: Letter from Andy Vasquez to the Honorable Ron
          Wyden and the Honorable Charles E. Grassley (Aug. 14, 2015)   322

        Exhibit 12: Letter from Coy Stout, Vice President, Managed
          Markets, Gilead Sciences, Inc., to Community Partner (July
          1, 2015)...................................................   330

        Exhibit 13: Meeting Agenda, HCV Fair Pricing Coalition
          Meeting (Oct. 3, 2013) (prepared by Cara Miller, Gilead
          Sciences, Inc.)............................................   333

        Exhibit 14: Meeting Agenda, ``FPC Gilead 10-3-13 Meeting
          Agenda (FOR FPC ONLY)'' (Oct. 3, 2013) (prepared by Lynda
          Dee, Fair Pricing Coalition)...............................   335

        Exhibit 15: ``Gilead 12-6-13 Call Notes'' (prepared by Lynda
          Dee, Fair Pricing Coalition)...............................   337

        Exhibit 16: Letter from Murray Penner, Fair Pricing
          Coalition, to Coy Stout, Vice President, Managed Markets,
          Kristie Banks, Senior Director, Business Operations &
          Contract Compliance, Jim Drew, Director, Business
          Operations and Contract Compliance, Amy Flood, Vice
          President, Public Affairs, and Michele Rest, Director,
          Public Affairs, Gilead Sciences, Inc. (Apr. 14, 2014)......   341

        Exhibit 17: Email from William Dozier, Senior Manager,
          National Accounts, Gilead Sciences, Inc., to Douglas M.
          Brown, Senior Director, Pharmacy Pricing & Value Based
          Solutions, Magellan Health Services (May 11, 2014).........   344

        Exhibit 18: Email from Douglas M. Brown, Senior Director,
          Pharmacy Pricing & Value Based Solutions, Magellan Health
          Services, to Matthew D. Lennertz, Magellan Health Services
          (May 19, 2014).............................................   347

        Exhibit 19: Email from Douglas M. Brown, Senior Director,
          Pharmacy Pricing & Value Based Solutions, Magellan Health
          Services, to William Dozier, Senior Manager, National
          Accounts, Gilead Sciences, Inc. (June 5, 2014).............   350

        Exhibit 20: Letter from John B. McCarthy, Director, Ohio
          Department of Medicaid, to Peter Gartrell (Aug. 7, 2015)...   353

        Exhibit 21: Email from Janet Zachary-Elkind to Kacy
          Hutchison, Gilead Sciences, Inc. (Sept. 9, 2014) (attaching
          Sovaldi projections chart).................................   355

        Exhibit 22: Letter from Hon. Henry A. Waxman et al., to Dr.
          John C. Martin, Chief Executive Officer, Gilead Sciences,
          Inc. (Mar. 20, 2014).......................................   358

        Exhibit 23: Troyen A. Brennan et al., CVS Health Corp.,
          Analysis of ``Real World'' Sovaldi' (sofosbuvir)
          Use and Discontinuation Rates, September 2014..............   362

        Exhibit 24: Letter from Diana S. Dooley to the Honorable Ron
          Wyden and the Honorable Charles E. Grassley (Oct. 14, 2015)   369

    Appendix E: Documents Produced by Gilead Sciences, Inc...........   373

        Exhibit 1: Gilead Sciences, Inc., Gilead Liver Disease
          Therapeutics Strategy Overview: October 2011 Board of
          Directors Review (2011) (GS-0019261--GS-0019274)...........   374

        Exhibit 2: Email from John McHutchison to Matthew Young, Re:
          Bristol-Inhibitex (Jan. 7, 2012) (GS-0010634--GS-0010635)..   389

        Exhibit 3: Pharmasset, Inc., Board of Directors Meeting,
          Princeton, NJ (July 21, 2011) (GS-0004488--GS-0004612).....   392

        Exhibit 4: Gilead Sciences, Inc., Gilead to Acquire Harry
          (Nov. 19, 2011) (GS-0009179--GS-0009209)...................   518

        Exhibit 5: Gilead Sciences, Inc., Miscellaneous powerpoint
          slides (2014) (GS-0019034--GS-0019057).....................   550

        Exhibit 6: Pharmasset, Inc., Board of Directors meeting
          packet (July 21, 2010) (GS-0014970--GS-0015065)............   575

        Exhibit 7: Pharmasset, Inc., Board of Directors Memorandum
          (Sept. 16, 2011) (GS-0017760--GS-0017760)..................   672

        Exhibit 8: Pharmasset, Inc., Global Commercialization
          Strategy Update to Pharmasset Board of Directors (2011)
          (GS-0003852--GS-0003857)...................................   674

        Exhibit 9: Pharmasset, Inc., PSI-7977 Phase II Clinical Trial
          Data Review (Oct. 3, 2011) (GS-0011638--GS-0011734)........   681

        Exhibit 10: Gilead Sciences, Inc., Introduction to Project
          Harry (July 21, 2011) (GS-0019211--GS-0019233).............   779

        Exhibit 11: Barclays Capital, Description of Fairness Opinion
          (Nov. 13, 2011) (GS-0011877--GS-0011900)...................   803

        Exhibit 12: Gilead Sciences, Inc., Gilead Liver Disease
          Franchise: BOD Strategic Review (Oct. 2011) (GS-0019275--
          GS-0019298)................................................   828

        Exhibit 13: Gilead Sciences, Inc., Harry Update (Oct. 7,
          2011) (GS-0019236--GS-0019250).............................   853

        Exhibit 14: Email from Schaefer Price to Herb Conrad, et al.,
          ``FW: Forecast Assumptions'' (Nov. 18, 2011) (GS-0018378--
          GS-0018378)................................................   869

        Exhibit 15: Pharmasset, Inc., ``Adjustments to Forecast
          Assumptions, Based on Learnings from AASLD'' (Nov. 18,
          2011) (GS-0018379--GS-0018380).............................   871

        Exhibit 16: Morgan Stanley, Project Royal Discussion
          Materials (Nov. 18, 2011) (GS-0018382--GS-0018403).........   874

        Exhibit 17: Morgan Stanley, Project Royal Discussion
          Materials (Oct. 6, 2011) (GS-0002762--GS-0002773)..........   897

        Exhibit 18: Pharmasset, Inc., Untitled Presentation by
          Pharmasset Executives (Sept. 2011) (GS-0011557--GS-0011636)   910

        Exhibit 19: Barclays Capital, Revenue/Valuation Models:
          Project Harry (Nov. 13, 2011) (GS-0013466--GS-0013479).....   991

        Exhibit 20: Email from John McHutchison to Jonathan Piazza,
          Re: Project Pyramid Assumptions (June 21, 2011) (GS-
          0004809--GS-0004814).......................................  1006

        Exhibit 21: Gilead Sciences, Inc., Project Harry--Model
          Discussion (Aug. 16, 2011) (GS-0005511--GS-0005549)........  1013

        Exhibit 22: Gilead Sciences, Inc., Project Harry--Barclays
          Deck Backgrounder (July 20, 2011) (GS-0000207--GS-0000228).  1053

        Exhibit 23: Gilead Sciences, Inc., Hepatitis C and GS-7977
          Development Update (Nov. 5, 2012) (GS-0019442--GS-0019506).  1076

        Exhibit 24: Gilead Sciences, Inc., 2012-2018 Financial
          Forecast (Nov. 2012) (GS-0019394--GS-0019413)..............  1142

        Exhibit 25: Pharmasset, Inc., Board of Directors Packet (Oct.
          11, 2011) (GS-0017925--GS-0017991).........................  1163

        Exhibit 26: Gilead Sciences, Inc., Harry Update: Board
          Meeting (Oct. 24, 2011) (GS-0019309--GS-0019319)...........  1231

        Exhibit 27: Email from Cara Miller to Gregg Alton (Nov. 22,
          2013) (GS-0020826--GS-0020827).............................  1243

        Exhibit 28: Gilead Sciences, Inc., Sofosbuvir Pricing and
          Market Access Assessment, Final Recommendations--July 31st,
          2013 (July 31, 2013) (GS-0014018--GS-0014058)..............  1246

        Exhibit 29: Gilead Sciences, Inc., Gilead HCV US BPOA (Oct.
          2012) (GS-0013489--GS-0013502).............................  1288

        Exhibit 30: Gilead Sciences, Inc., Sofosbuvir US Pricing &
          Contracting Strategy, SVP Briefing (March 25, 2013) (GS-
          0019128--GS-0019184).......................................  1303

        Exhibit 31: Gilead Sciences, Inc., U.S. HCV Launch Update to
          Board of Directors (Aug. 1, 2013) (GS-0014059--GS-0014078).  1361

        Exhibit 32: Gilead Sciences, Inc., 2013-2015 HCV Launch
          Commercial Plan (April 4, 2013) (GS-0013503--GS-0013546)...  1382

        Exhibit 33: Email from Jim Myers to David L. Johnson, et al.,
          Characterization of SOF pricing at Launch (Nov. 8, 2013)
          (GS-0020772--GS-0020773)...................................  1427

        Exhibit 34: Gilead Sciences, Inc., Sofosbuvir Pricing &
          Contracting Strategy Working Team, SVP Check-in II (May 10,
          2013) (GS-0013972--GS-0014017).............................  1430

        Exhibit 35: Gilead Sciences, Inc., Minutes of Regular Meeting
          of Board of Directors (Aug. 1, 2013) (GS-0019671--GS-
          0019674)...................................................  1477

        Exhibit 36: Gilead Sciences, Inc., Sofosbuvir Pricing and
          Market Access Assessment: Response to Follow Up Questions
          (Aug. 26, 2013) (GS-0013857--GS-0013887)...................  1482

        Exhibit 37: Gilead Sciences, Inc., Sofosbuvir Pricing and
          Market Access Recommendation (Nov. 2013) (GS-0014079--GS-
          0014082)...................................................  1514

        Exhibit 38: Email from Kevin Young to John Martin, et al.,
          Re: COMPANY CONFIDENTIAL (Nov. 18, 2013) (GS-0020800--GS-
          0020800)...................................................  1519

        Exhibit 39: Email from John Martin to Kevin Young, Re:
          CONFIDENTIAL (Nov. 24, 2013) (GS-0020946--GS-0020947)......  1522

        Exhibit 40: Email from Kevin Young to Jim Meyers et al., Re:
          ADAP and Sofosbuvir (Nov. 19, 2013) (GS-0020802--GS-
          0020804)...................................................  1525

        Exhibit 41: Gilead Sciences, Inc., ``EAME SOF Price
          Recommendations'' (Sept. 11, 2013) (GS-0019913--GS-0019919)  1529

        Exhibit 42: Email from Kevin Young to Jim Meyers and Derrell
          Porter (Oct. 19, 2013) (GS-0020285--GS-0020288)............  1537

        Exhibit 43: Email from Paul Carter to Cara Miller (Oct. 11,
          2013) (GS-0020212--GS-0020213).............................  1542

        Exhibit 44: Gilead Sciences, Inc., Canadian Sofosbuvir
          Pricing Considerations (Sept. 30, 2013) (GS-0020086--GS-
          0020094)...................................................  1545

        Exhibit 45: Gilead Sciences, Inc., 2015-2016 HCV Commercial
          Plan (April 22, 2014) (GS-0014083--GS-0014110).............  1555

        Exhibit 46: Gilead Sciences, Inc., Topics for Discussion--
          LDV/SOF US Pricing (Aug. 4, 2014) (GS-0019000--GS-0019033).  1584

        Exhibit 47: Gilead Sciences, Inc., US HCV Pricing Update, SVP
          Update Meeting (July 21, 2014) (GS-0018861--GS-0018953)....  1619

        Exhibit 48: Gilead Sciences, Inc., 2014-2015 US HCV Franchise
          BPOA (Draft) (June 2014) (GS-0014143--GS-0014171)..........  1713

        Exhibit 49: Gilead Sciences, Inc., Updated Slides--Wave 2
          Pricing (GS-0018965--GS-0018999)...........................  1743

        Exhibit 50: Gilead Sciences, Inc., Managed Markets Hepatitis
          C Virus (HCV) Payer Advisory Board Final Report (Oct. 14,
          2014) (GS-0018760--GS-0018814).............................  1779

        Exhibit 51: Email from Mark Schoenebaum to Robin Washington,
          FINAL data from gild/bmy (and sort of MRK/ROG) buy-side
          survey (Oct. 31, 2013) (GS-0020496--GS-0020512)............  1835

        Exhibit 52: Gilead Sciences, Inc., HCV Wave 2 Contracting
          Recommendations (Sept. 9, 2014) (GS-0019058--GS-0019127)...  1853

        Exhibit 53: Email from Cara Miller to Gregg Alton, FW: FPC Ad
          Board Feedback (Oct. 4, 2013) (GS-0020133--GS-0020135).....  1924

        Exhibit 54: Email from Jim Meyers to David L. Johnson, et
          al., Synopsis of feedback from top HCV advisors at AASLD
          (Nov. 5, 2013) (GS-0020776--GS-0020780)....................  1928

        Exhibit 55: Email from Jim Meyers to John Milligan, Synopsis
          of feedback from top HCV advisors at AASLD (Nov. 8, 2013)
          (GS-0020765--GS-0020769)...................................  1934

        Exhibit 56: Email from Jim Meyers to Norbert Bischofberger,
          Synopsis of feedback from top HCV advisors at AASLD (Nov.
          7, 2013) (GS-0020753--GS-0020759)..........................  1940

    Appendix F: Narrative answers from Gilead Sciences, Inc., in
      response to questions in the July 11, 2014 letter from Senators
      Wyden and Grassley.............................................  1949

                              THE PRICE OF SOVALDI
                             AND ITS IMPACT ON THE
                            U.S. HEALTH CARE SYSTEM

                                      Note

        This inquiry began as a Senate Committee on Finance
    investigation when Senator Wyden was Chairman and Senator
    Grassley was a member of the Committee's Minority. During the
    course of the investigation, leadership on the Committee
    changed in January 2015. Both senators instructed their staffs
    to continue the investigation and produce a staff report to the
    Finance Committee. All references to ``investigative staff ''
    or ``staff '' refer to the current Minority staff of the
    Finance Committee and the staff of Senator Grassley.

                                  Introduction

        Hepatitis C (HCV) is the most common blood-borne virus in
    the United States, affecting as many as 5.2 million people.\1\
    The virus attacks the liver, resulting in inflammation,
    scarring and cirrhosis, while increasing the risk of liver
    cancer. Left untreated, HCV can cause serious illness; the
    disease is the leading cause of liver transplants in the United
    States. The aggressiveness of the virus makes it a potent
    public health issue in the United States. The virus is
    disproportionally concentrated among Americans who are likely
    to receive health coverage from public payers including
    Medicaid, Medicare, the Veterans Administration, and the State
    and Federal prison system.\2\ The high cost of HCV drugs sold
    by Gilead Sciences, Inc., continues to put tremendous strain on
    these public payer systems, creating difficult decisions about
    how to provide medically necessary drugs to patients while
    staying within budgets. As a result of the high cost of these
    drugs, many public and private payers adopted access
    restrictions to control HCV treatment costs, which reduced the
    number of patients eligible for treatment.
    ---------------------------------------------------------------------------
        \1\ Eric Chak et al., Hepatitis C Virus Infection in USA: An
    Estimate of True Prevalence, 31 Liver Int'l 1090, 1090-1101 (Sept.
    2011), available at http://www.ncbi.nlm.nih.gov/pubmed/21745274.
        \2\ Id. at 1096, Table 6.
    ---------------------------------------------------------------------------
        Gilead brought two drugs to market in recent years, Sovaldi
    and Harvoni, which have improved therapies to cure HCV.
    Sofosbuvir--the drug that would ultimately reach the market as
    Sovaldi and used in combination with ledispavir to create
    Harvoni--was largely developed by Pharmasset, Inc., a
    pharmaceutical company that was based in Princeton, New Jersey.
    Gilead acquired Pharmasset in January 2012.
        Sovaldi and Harvoni have reduced the time needed for
    treatment to a fraction of what it was five years ago. In
    addition, the effectiveness of treatment, that is, the
    probability that a patient will be cured, has increased. The
    new drugs have resulted in more patients being able to receive
    HCV therapy with limited or no use of interferon, an injectable
    drug that complicates treatment because it typically requires
    visits to a health care provider, and is often accompanied by
    difficult side effects.
        Progress in therapeutics has come at a high cost for both
    the public and private sectors. Concurrent with drug price
    increases, greater numbers of providers and patients have been
    drawn to these new drugs, leading to increased outlays for HCV
    treatment. In the run-up to launching Sovaldi, Gilead estimated
    that worldwide spending on HCV treatment in 2008 totaled $2.4
    billion.\3\ By 2014, Gilead alone reported net product sales of
    $12.4 billion for its HCV drugs, primarily from sales in the
    United States and Europe.\4\ A competitor drug developed by
    Johnson & Johnson, known as simeprevir, or Olysio, generated
    sales of $2.3 billion in 2014,\5\ primarily due to ``off
    label'' \6\ co-prescriptions with Sovaldi.\7\
    ---------------------------------------------------------------------------
        \3\ Appendix E, Ex. 1, Gilead Sciences, Inc., Gilead Liver Disease
    Therapeutics Strategy Overview: Board of Directors Review (2011), GS-
    0019261, at GS-0019265--GS-0019266 (2011).
        \4\ Gilead Sciences, Inc., Annual Report (Form 10-K), at 59 (Feb.
    25, 2015), available at http://www.sec.gov/Archives/edgar/data/882095/
    000088209515000008/a2014form10-k.htm.
        \5\ Johnson & Johnson, Annual Report (Form 10-K), Exhibit 13, at 5
    (Feb. 23, 2015), available at http://www.sec.gov/Archives/edgar/data/
    200406/000020040615000004/ex13-form10xk20141228
    .htm.
        \6\ The practice of a health care provider prescribing a drug or
    combination of drugs in a manner outside of what has been officially
    approved (in the U.S., by the Food and Drug Administration).
        \7\ Chris Hepp, Drug Sales Bolster J&J's Bottom Line, Phila.
    Inquirer (Apr. 21, 2014), available at http://articles.philly.com/2014-
    04-21/business/49268459_1_olysio-gilead-sciences-sovaldi.
    ---------------------------------------------------------------------------
        Gilead's recent financial results show that the company has
    generated an additional $14.3 billion in net product sales from
    its HCV drugs through the first nine months of 2015, bringing
    its 21-month total for its HCV drugs to $26.6 billion, $20.6
    billion of which was from sales to U.S. consumers.\8\
    ---------------------------------------------------------------------------
        \8\ Gilead Sciences, Inc., Third Quarter 2015 Financial Results
    (Form 8-K,), Exhibit 99.1) (October 28, 2015), available at
        http://www.sec.gov/Archives/edgar/data/882095/000088209515000031/
    exhibit991earningspress
    rel.htm; Gilead Sciences, Inc., Fourth Quarter and Full Year 2014
    Financial Results (Form 8-K), Exhibit 99.1 (Feb. 3, 2015), available at
        http://www.sec.gov/Archives/edgar/data/882095/000088209515000003/
    exhibit991earningspress
    rel.htm.
    ---------------------------------------------------------------------------
        An analysis by the consulting firm IMS Institute for
    Healthcare Informatics (IMS Institute) showed that U.S.
    spending on Sovaldi in 2014 was $7.9 billion, and from 2010 to
    2013 U.S. spending on all HCV drugs totaled $7.8 billion.
    Sovaldi alone accounted for 64% of U.S. HCV drug spending in
    2014, which totaled $12.3 billion, and more than a third of the
    $20.3 billion spent that year on new pharmaceutical
    treatments.\9\ HCV treatments also caused a jump in spending
    for ``specialty therapies,'' which the IMS Institute defines in
    part as ``mostly used by specialists and include treatment for
    cancer and other serious conditions.'' \10\ According to the
    IMS Institute, U.S. ``specialty medicine spending increased by
    26.5% to $124.1 billion in 2014; the increase was 16.3%
    excluding hepatitis C treatments.'' \11\
    ---------------------------------------------------------------------------
        \9\ IMS Institute for Healthcare Informatics, Medicines Use and
    Spending Shifts: A Review of the Use of Medicines in the U.S. in 2014,
    at 1, 8 (2015) [hereinafter IMS Institute for Healthcare Informatics,
    Medicines Use and Spending Shifts].
        \10\ Id. at 8.
        \11\ Id.
    ---------------------------------------------------------------------------
        After the introduction of Sovaldi at end of 2013, millions
    of Americans had a potentially viable path to a cure, but the
    price and cumulative cost on the health care system caused
    roadblocks for many. In response to treatment access and cost
    issues, Senators Ron Wyden and Charles Grassley sent a letter
    to Gilead on July 11, 2014, requesting documents and
    information about how the company determined the price for
    Sovaldi, the first of its two HCV drugs.
        For over a year, investigative staff reviewed more than
    20,000 pages of internal company documents provided by Gilead,
    as well as documents obtained from the Federal Trade Commission
    (FTC), Food and Drug Administration (FDA), state Medicaid
    programs, the Centers for Medicare and Medicaid Services (CMS),
    the Federal Bureau of Prisons (BOP), and other companies. In
    addition, investigative staff interviewed more than 100 people
    with expertise in HCV, or who had interacted with Gilead
    regarding Sovaldi and/or Harvoni. Lastly, investigative staff
    collected data from Medicaid programs in 50 states and the
    District of Columbia that provide important information about
    the breadth of HCV infection for one segment of public payers,
    and the cost that states faced in order to treat the disease.
        Based on all of the information reviewed, it appears that
    in pricing its line of HCV drugs Gilead may have underestimated
    the warnings of patient groups, insurers, health care
    providers, and other organizations about the potential impact
    that price would have on access. Such warnings were made not
    only through the media, but directly to company officials, both
    in private correspondence and various public forums. While
    publicly saying it prioritized patient access, Gilead set
    Sovaldi's price at a level where ultimately many patients would
    not receive treatment. Sovaldi was on the market for almost a
    year without serious competitors, allowing Gilead to maintain a
    high effective price despite efforts by many payers to
    negotiate volume or treatment discounts or rebates.
        The costs incurred by Gilead to bring the drugs to market
    included its $11.2 billion purchase of Pharmasset in 2011.
    Pharmasset performed the initial development of the drug and
    began the process of FDA approval, which Gilead then completed
    following the acquisition. Several months after Gilead agreed
    to buy Pharmasset, a Gilead executive described the acquisition
    as a ``bargain.'' \12\ The company failed to provide sufficient
    information to determine how much additional cost it incurred
    to complete the development, finish the FDA approval process,
    and bring the drug to market.
    ---------------------------------------------------------------------------
        \12\ Appendix E, Ex. 2, Email from John McHutchison to Matthew
    Young, Re: Bristol-Inhibitex (Jan. 7, 2012), GS-0010634.
    ---------------------------------------------------------------------------
        This report describes how Gilead set the price for Sovaldi
    and its follow-on drug, Harvoni. In addition, this report
    discusses and analyzes the financial and budgetary impacts of
    Gilead's pricing decisions on payers--public and private--as
    well as the resulting access restrictions imposed due to
    Sovaldi's cost. And finally, the report describes Gilead's
    response to resultant market forces, including payer access
    restrictions and competition.

                                   Appendices

        Several appendices to the report provide additional
    information and documents related to the investigation.
        Appendix A contains data collected by investigative staff
    from state Medicaid programs showing the amount of money spent
    on Sovaldi and Harvoni in 50 states and the District of
    Columbia, as well as the estimated number of Medicaid clients
    with HCV in states where the information was available.
        Appendix B presents a review of prior authorization
    restrictions put in place by state Medicaid programs for
    Sovaldi and Harvoni, as well as a sample of other payers. The
    study was completed by researchers at the Oregon Health and
    Sciences University.
        Appendix C presents data provided by the Centers for
    Medicare & Medicaid Services (CMS) on Medicare spending on
    Sovaldi, Harvoni, and other HCV drugs.
        Appendix D contains correspondence and other documents
    received by the Senators or investigative staff regarding
    Sovaldi or Harvoni.
        Appendix E contains all Gilead documents cited in this
    report.
        Appendix F contains all narrative answers cited in this
    report from Gilead in response to questions in the July 11,
    2014 letter from Senators Wyden and Grassley.
     Section 1: Hepatitis C, its Human Toll, Treatment, and the Effect of
                   ``Warehousing'' on Pharmaceutical Markets

                         Hepatitis C and Its Human Toll

        In 2013, HCV was listed as the cause of death for 19,368
    people in the United States.\13\ This number likely
    underestimates the number of HCV deaths. CDC researchers have
    found that fewer than 20% of HCV-infected decedents have HCV
    listed on their death certificates, even though at least 75% of
    HCV-infected decedents had pre-mortem evidence of serious liver
    disease.\14\ Despite the likely undercounting, a 2012 study
    reported that the number of HCV-associated deaths was greater
    than the number of human immunodeficiency virus (HIV)-
    associated deaths in the United States between 1999 and
    2007.\15\ This trend has continued in recent years. The virus
    is a killer not just in the United States, but across the
    world. Globally, between 130 million and 150 million people
    have chronic HCV; annually, the virus and related liver disease
    kill 704,000 people worldwide.\16\ In comparison, the World
    Health Organization (WHO) estimated that in 2010, malaria
    caused 660,000 deaths, and that in 2011, tuberculosis caused
    1.4 million deaths and HIV caused 1.7 million deaths.\17\
    ---------------------------------------------------------------------------
        \13\ Centers for Disease Control and Prevention (CDC), Surveillance
    for Viral Hepatitis--United States, 2013, Table 4.5, at 58, available
    at http://www.cdc.gov/hepatitis/statistics/2013
    surveillance/commentary.htm.
        \14\ Reena Mahajan et al., Mortality Among Persons in Care With
    Hepatitis C Virus Infection: The Chronic Hepatitis Cohort Study
    (CHeCS), 2006-2010, 58 Clinical Infectious Diseases 1055, 1055-61
    (2014).
        \15\ Kathleen N. Ly et al., The Increasing Burden of Mortality From
    Viral Hepatitis in the United States Between 1999 and 2007, 156 Annals
    of Internal Medicine 271, 271-78 (2012).
        \16\ GBD 2013 Mortality and Causes of Death Collaborators, Global,
    regional, and national age-sex specific all-cause and cause-specific
    mortality for 240 causes of death, 1990-2013: a systematic analysis for
    the Global Burden of Disease Study 2013, 385 Lancet 9963, 117-71
    (2015).
        \17\ World Health Organization, Global Policy Report on the
    Prevention and Control of Viral Hepatitis in WHO Member States (2013),
    available at http://apps.who.int/iris/bitstream/10665/85397/1/
    9789241564632_eng.pdf?ua=1.
    ---------------------------------------------------------------------------
        Prior to the virus's identification in 1989, HCV was
    frequently spread through unscreened blood transfusions.\18\
    The virus is disproportionately concentrated among baby boomers
    born from 1945 through 1965. In 2011, about 75% of HCV deaths
    in the United States were among forty-five to sixty-four-year-
    olds.\19\ The CDC estimates that 3.2% of baby boomers are
    positive for HCV, five times higher than people born prior to
    1945 or after 1965. Consequently, in 2012 and 2013, the CDC and
    the U.S. Preventative Services Task Force recommended that all
    people born from 1945 through 1965--more than 60 million
    people--be tested for the virus.\20\ The virus is most commonly
    transmitted in the United States through the use of unsanitary
    needles, leaving intravenous drug users at high risk for
    contracting the disease.\21\ With a growing number of people
    who inject intravenous drugs, such as heroin or other opiates,
    rates of HCV infection are increasing, as the recent HCV
    outbreak reported in Indiana illustrates.\22\
    ---------------------------------------------------------------------------
        \18\ Q.L. Choo et al., Isolation of a cDNA clone derived from a
    blood-borne non-A, non-B viral hepatitis genome, 244 Science 359, 359-
    62 (1989).
        \19\ CDC, Number and Rate* of Deaths with Hepatitis C Listed as a
    Cause of Death, by Demographic Characteristic and Year--United States,
    2007-2011, available at http://www.cdc.gov/hepatitis/Statistics/
    2012Surveillance/Table4.4.htm.
        \20\ Bryce D. Smith et al., CDC, Recommendations for the
    Identification of Chronic Hepatitis C Virus Infection Among Persons
    Born During 1945-1965 (2012), available at http://www.cdc.gov/mmwr/
    preview/mmwrhtml/rr6104a1.htm; U.S. Preventative Services Task Force,
    Hepatitis C: Screening, (June 2013), available at http://
    www.uspreventiveservicestaskforce.org/Page/Topic/recommendation-
    summary/hepatitis-c-screening.
        \21\ Centers for Disease Control and Prevention, Viral Hepatitis
    Surveillance, United States, 2013, at 6 (last updated Oct. 19, 2015),
    available at http://www.cdc.gov/hepatitis/statistics/2013surveillance/
    pdfs/2013hepsurveillancerpt.pdf (``HCV is transmitted primarily through
    percutaneous (parenteral) exposure that can result from injection drug
    use, needle stick injuries, and inadequate infection control in health-
    care settings.''); id. at 52 (``Of the 955 case-reports that had
    information about injection drug use, 61.6% (n=588) indicated use of
    injection drugs.'').
        \22\ Centers for Disease Control and Prevention, CDC Health Alert
    Network, Outbreak of Recent HIV and HCV Infections Among Persons Who
    Inject Drugs (Apr. 24, 2015), available at http://www.bt.cdc.gov/han/
    han00377.asp.
    ---------------------------------------------------------------------------

                      Distinct Genotypes Across the World
                            Create Distinct Markets

        There are seven different genotypes of HCV and within each
    genotype, there are sub-genotypes.\23\ Each genotype and sub-
    genotype reacts differently to treatment, and the FDA has
    approved drug regimens for specific HCV genotypes and sub-
    genotypes, rather than the entire spectrum of HCV. The current
    generation of HCV drugs, including Sovaldi and Harvoni, are not
    ``full spectrum'' drugs that can treat all genotypes, and they
    are not an equally effective treatment against all sub-
    genotypes.
    ---------------------------------------------------------------------------
        \23\ Donald G. Murphy et al., Hepatitis C Virus Genotype 7, a New
    Genotype Originating from Central Africa, 53 J. Clinical Microbiology
    967, 967-72 (2015).
    ---------------------------------------------------------------------------
        The prevalence of specific genotypes and sub-genotypes
    varies among different regions of the world. About 70% of HCV
    cases in the United States are genotype 1, the majority of
    which are sub-genotypes 1a and 1b. Genotypes 2 and 3 are
    estimated to account for 16% and 12% of cases in the United
    States, respectively, while genotypes 4, 5 and 6, in total,
    account for fewer than 4% of cases in the United States.\24\
    Conversely, in many Middle Eastern and African countries,
    genotype 4 accounts for more than 90% of HCV infections.\25\
    Genotype 5 is almost entirely contained within South Africa and
    select countries in Europe and the Middle East.\26\ Drug
    manufacturers have concentrated their focus on selling HCV
    drugs that treat genotypes with prevalence in developed
    countries.\27\
    ---------------------------------------------------------------------------
        \24\ See e.g., Jane P. Messina et al., Global Distribution and
    Prevalence of Hepatitis C Virus Genotypes, 61 Hepatology 77, 77-87
    (2015); M. Michele Manos et al., Distribution of Hepatitis C Virus
    Genotypes in a Diverse U.S. Integrated Health Care Population, 84 J.
    Med. Virology 1744, 1744-1750 (2012), available at http://
    www.ncbi.nlm.nih.gov/pubmed/22997077.
        \25\ Sanaa M. Kamal & Imad A. Nasser, Hepatitis C Genotype 4: What
    We Know and What We Don't Yet Know, 47 Hepatology 1371, 1371 (2008),
    available at http://webhome.weizmann.ac.il/home/liorg/HCV.pdf.
        \26\ N. Antaki et al., HCV Genotype 5: An Orphan Virus, 18
    Antiviral Therapy 263, 263-69 (2012), available at http://
    www.ncbi.nlm.nih.gov/pubmed/23111702.
        \27\ Appendix E, Ex. 3, Pharmasset, Board of Directors Meeting,
    Princeton, NJ (July 21, 2011), GS-0004488; Appendix E, Ex. 4, Gilead
    Sciences, Inc., Gilead to Acquire Harry (Nov. 19, 2011), GS-0009179, at
    GS-0009187; Jane P. Messina et al., Global Distribution and Prevalence
    of Hepatitis C Virus Genotypes, 61 Hepatology 77, 77-87 (2014),
    available at http://www.ncbi.
    nlm.nih.gov/pmc/articles/PMC4303918/.
    ---------------------------------------------------------------------------

                                  HCV Symptoms

        A major challenge associated with HCV is its tendency to go
    undiagnosed, due to its slow progression and tendency to remain
    asymptomatic for years. These attributes have earned HCV the
    moniker ``the silent killer,'' and have contributed to poor
    surveillance of the disease.\28\ A recent study estimated that
    half of people in the U.S. with chronic HCV are aware they are
    infected.\29\ When HCV symptoms do develop, they include easily
    bleeding or bruising, itchy skin, fluid accumulation in the
    abdomen (ascites), swelling in the legs, weight loss,
    confusion, drowsiness, slurred speech (hepatic encephalopathy),
    and development of spider-like blood vessels on the skin
    (spider angiomas).\30\ Approximately 20% of chronic HCV
    patients, if untreated, will develop cirrhosis.\31\
    ---------------------------------------------------------------------------
        \28\ Patrick Strudwick, Hepatitis C: Hunting the Silent Killer, The
    Guardian (Feb. 25, 2015), available at http://www.theguardian.com/
    society/2015/feb/25/hepatitis-c-hunting-the-silent-killer.
        \29\ Baligh R. Yehia et al., The Treatment Cascade for Chronic
    Hepatitis C Virus Infection in the United States: A Systematic Review
    and Meta-Analysis, PLoS ONE (July 2, 2014), available at http://
    journals.plos.org/plosone/article?id=10.1371/journal.pone.0101554.
        \30\ Mayo Clinic, Diseases and Conditions: Hepatitis C (Jan. 15,
    2015), http://www.mayoclinic.
    org/diseases-conditions/hepatitis-c/basics/definition/con-20030618?p=1.
        \31\ David H. Spach, HCV Epidemiology in the United States,
    University of Washington, Hepatitis C Online (June 16, 2014), available
    at http://www.hepatitisc.uw.edu/go/screening-diagnosis/epidemiology-us/
    core-concept/all#hcv-incidence-prevalence.
    ---------------------------------------------------------------------------
        Hepatitis C remains the leading primary indication for
    people receiving or waiting for liver transplants.\32\ The most
    recent available federal data show that 1,402 patients received
    transplants in 2012, and 4,612 patients were on waiting
    lists.\33\
    ---------------------------------------------------------------------------
        \32\ United States Department of Health & Human Services, Organ
    Procurement & Transplantation Network, Scientific Registry of
    Transplant Recipients, 2012 Annual Data Report: Liver, at 69, 75 (Table
    1.3) and 81 (Table 4.7), available at http://srtr.transplant.hrsa.gov/
    annual_
    reports/2012/flash/03_liver_13/v2files/assets/downloads/
    publication.pdf.
        \33\ Id.
    ---------------------------------------------------------------------------

                      Advancing Treatment for Hepatitis C

        There is no vaccine for HCV, unlike for Hepatitis A and
    Hepatitis B. However, in recent years, significant progress has
    been made in improving standards of care (SOC). The
    effectiveness of a drug is primarily measured by the speed of
    viral reduction (early virologic response, or EVR, and rapid
    virologic response, or RVR) and the percentage of cured
    patients. A patient is considered cured when blood tests do not
    detect the virus twelve or twenty-four weeks after treatment,
    which is called sustained virologic response (SVR).\34\ Each
    successive SOC has simplified and shortened treatment regimens,
    increased effectiveness, and minimized side effects.
    ---------------------------------------------------------------------------
        \34\ H. Nina Kim & David H. Spach, Virologic Responses During
    Treatment of Hepatitis C, University of Washington, Hepatitis Web
    Study, (last updated Oct. 1, 2012), available at http://
    depts.washington.edu/hepstudy/hepC/mgmt/viroresponse/discussion.html
    (last updated Oct. 1, 2012).
    ---------------------------------------------------------------------------
        HCV treatment relied on interferon for nearly twenty-five
    years. It is a naturally occurring protein that cells secrete
    when they are attacked by a virus and was first identified in
    1957. Interferon exists in three different forms--alpha, beta,
    and gamma--and each is used to treat numerous diseases,
    including cancer, multiple sclerosis, AIDS, and genital
    warts.\35\ Interferon works by boosting the immune system to
    effectively block new cell sites to which a virus could attach.
    However, interferon has drawbacks, especially when used for
    prolonged treatment. Interferon treatment requires injections,
    necessitating weekly or semi-weekly visits to a provider's
    office or regular access to other health care services.
    Additionally, interferon causes side effects, including flu-
    like symptoms, such as fever, fatigue, muscle aches, and
    myalgia.\36\ Patients have likened the side effects to having
    the flu throughout treatment. Many patients cannot tolerate
    interferon, and thus did not have a viable treatment
    option.\37\
    ---------------------------------------------------------------------------
        \35\ Interferon, Encyclopedia Britannica Online (Aug. 7, 2009),
    available at http://www.
    britannica.com/EBchecked/topic/290230/interferon.
        \36\ Mary L. Filipi et al., Nurses' Perspective on Approaches to
    Limit Flu-Like Symptoms During Interferon Therapy for Multiple
    Sclerosis, 16 Int'l J. of MS Care 55, 59 (2014), available at http://
    ijmsc.org/doi/pdf/10.7224/1537-2073.2013-006.
        \37\ Id.
    ---------------------------------------------------------------------------
        Researchers began testing the effectiveness of interferon-
    alpha (interferon) therapies for HCV in the mid-1980s before
    the virus was identified and was still known as non-A-non-B
    hepatitis.\38\ After the virus' identification in 1989,
    interferon became the first SOC for those that could tolerate
    it. Interferon, as a standalone SOC, has a poor SVR rate. A
    twenty-four-week regimen has an SVR of only 6%, and a forty-
    eight-week regimen increases the SVR to 16%.\39\ In 1998, the
    FDA approved ribavirin, an antiviral drug, for use in
    combination with interferon for treatment of HCV.\40\ The
    combination improved the effectiveness of treatment; a twenty-
    four-week regimen resulted in an SVR of 34%, and a forty-eight-
    week regimen resulted in an SVR of 42%. Ribavirin further
    increased the SVR to 54% when combined with pegylated
    interferon, which combines polyethylene glycol (PEG) with
    interferon.\41\
    ---------------------------------------------------------------------------
        \38\ Jay H. Hoofnagle et al., Treatment of Chronic Non-A, Non-B
    Hepatitis with Recombinant Human Alpha Interferon: A Preliminary
    Report, 315 New Eng. J. Med. 1575, 1575-1578 (1986), available at
    http://www.ncbi.nlm.nih.gov/pubmed/3097544.
        \39\ Doris B. Strader & Leonard B. Seef, A Brief History of the
    Treatment of Viral Hepatitis C, 1 Clinical Liver Disease 6, 6 (2012),
    available at http://onlinelibrary.wiley.com/doi/10.1002/cld.1/epdf
    [hereinafter Strader & Seef, A Brief History of the Treatment of
    Hepatitis C].
        \40\ Press Release, Schering-Plough Corp., Schering-Plough
    Announces FDA Approval of Rebetron(TM) Combination Therapy for
    Previously Untreated Hepatitis C Patients; Rebetron Combination Therapy
    Now Approved for Use in Both Previously Untreated and Relapse Hepatitis
    C Patients (Dec. 9, 1998). Ribavirin was discovered in 1972 and, in
    addition to treating HCV, treats other RNA viruses. Shane Crotty et
    al., Ribavarin's Antiviral Mechanism of Action: Lethal Mutagenesis?, 80
    J. Molecular Med. 86, 86 (2001), available at http://www.liai.org/
    files/Ribavirin-Crotty.pdf. Ribavirin does not effectively treat HCV as
    a monotherapy because it does not reduce the production of HCV RNA,
    although it does significantly reduce liver damage. Id. at 91.
        \41\ Strader & Seef, A Brief History of the Treatment of Hepatitis
    C, at 6.
    ---------------------------------------------------------------------------
        The next major advance in treatment was the development of
    direct-acting antiviral (DAA) drugs, which work by attacking
    specific viral proteins encoded within the virus's RNA. These
    viral proteins include enzymes such as the NS5B polymerase and
    NS3/4A protease, as well as the NS5A protein, which is involved
    in the HCV replication complex. In 2011, the FDA approved two
    DAAs, boceprevir (Victrelis) and telaprevir (Incivek).\42\ In
    2013, the FDA approved two additional DAAs, simeprevir (Olysio)
    and sofosbuvir (Sovaldi).\43\ Each successive DAA advanced HCV
    treatment by maintaining or improving SVR, while also reducing
    treatment time for most patients, thereby reducing the use of
    interferon.
    ---------------------------------------------------------------------------
        \42\ VICTRELIS Prescribing Information (2011), available at http://
    www.accessdata.fda.gov/drugsatfda_docs/label/2011/202258lbl.pdf;
    INCIVEK Prescribing Information (2011), available at http://
    www.accessdata.fda.gov/drugsatfda_docs/label/2011/201917lbl.pdf.
        \43\ OLYSIO Prescribing Information (2013), available at http://
    www.accessdata.fda.gov/drugsatfda--docs/label/2013/205123s001lbl.pdf;
    SOVALDI Prescribing Information (2013), available at http://
    www.accessdata.fda.gov/spl/data/24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f/
    24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f.xml.
    ---------------------------------------------------------------------------
        The introduction of drugs that could treat patients without
    interferon critically advanced HCV treatment. Although the FDA
    approved Sovaldi for use without interferon for genotype 2 and
    genotype 3 patients, the primary cohort of genotype 1 patients
    still required the use of interferon and ribavirin with
    Sovaldi. However, in January 2014, the American Association for
    the Study of Liver Disease (AASLD) recommended that providers
    combine Sovaldi with Olysio for patients who could not tolerate
    interferon-based therapies. This off-label combination
    comprised approximately one-third of all Sovaldi-based
    treatments by the second quarter of 2014.\44\ The off-label
    drug combination further increased the cost of treatment for a
    portion of the patient population, primarily genotype 1
    patients who could not tolerate interferon.
    ---------------------------------------------------------------------------
        \44\ Appendix E, Ex. 5, Gilead Sciences, Inc., Miscellaneous
    powerpoint slides (2014), GS-0019034, at GS-0019036.
    ---------------------------------------------------------------------------
        In October 2014, nine months after the AASLD
    recommendation, the FDA approved Gilead's ledipasvir-sofosbuvir
    (Harvoni), the first FDA-approved interferon-free HCV therapy
    for genotype 1 patients.\45\ In November 2014, the FDA approved
    Johnson & Johnson's application for the AASLD-recommended
    Olysio-Sovaldi combination,\46\ but use of these drugs and
    their combination has fallen due to market competition from
    Viekira Pak and Harvoni \47\ (see slide below).\48\ In December
    2014, the FDA approved another interferon-free regimen,
    consisting of a combination of drugs--ombitasvir, paritaprevir,
    ritonavir, and dasabuvir (Viekira Pak).\49\ Notably, Harvoni is
    a single-tablet therapy, whereas Viekira Pak is a multi-tablet
    therapy.
    ---------------------------------------------------------------------------
        \45\ HARVONI Prescribing Information (2014), available at http://
    www.accessdata.fda.gov/spl/data/a3f06ce8-e0c0-4d41-9126-c43c94e4c87c/
    a3f06ce8-e0c0-4d41-9126-c43c94e4c87c.xml.
        \46\ Anna Edney, J&J Wins U.S. Approval for Hepatitis C Combo with
    Gilead, Bloomberg (Nov. 5, 2014), available at http://
    www.bloomberg.com/news/articles/2014-11-05/j-j-wins-u-s-approval-for-
    hepatitis-c-combo-with-gilead.
        \47\ Olysio generated revenue of $234 million during the first
    three months of 2015, an annualized pace of $936 million, compared to
    $2.3 billion in sales during the full year 2014.
        \48\ Appendix D, Ex. 1, Email from Ann Walker-Jenkins, Director,
    Federal Government Affairs, CVS Health Corp., to Peter Gartrell (Mar.
    9, 2015), attaching written response to investigative staff, at 6.
        \49\ VIEKIRA PAK Prescribing Information (2014), available at
    http://www.accessdata.fda.gov/spl/data/045ddc2b-403e-7db2-b3e1-
    9627632ab3d7/045ddc2b-403e-7db2-b3e1-9627632ab3d7.xml.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Even after competition entered the genotype 1 market,
    Sovaldi was the only drug that the FDA had approved to treat
    genotypes other than genotype 1--its label included indications
    for the treatment of genotypes 1, 2, 3, and 4 patients.
    Consequently, Gilead did not face significant competition in
    the U.S. for genotype 2 or 3 treatments besides the interferon-
    ribavirin combination, which has significantly worse side
    effects and, in some genotypes, worse outcomes. On July 24,
    2015, the FDA approved daclatasvir (Daklinza) for treatment of
    genotype 3; however, its label indicates that it should be used
    in combination with Sovaldi,\50\ which means there remains no
    standalone competitor. The AASLD has added the Daklinza-Sovaldi
    combination to its recommended treatment regimens for genotype
    1 and 2 patients. In addition, the FDA has approved a
    combination of ombitasvir, paritaprevir, and ritonavir
    (Technivie) for genotype 4 patients without cirrhosis.\51\
    ---------------------------------------------------------------------------
        \50\ DAKLINZA Prescribing Information (2015), available at http://
    www.accessdata.fda.gov/drugsatfda_docs/label/2015/
    206843Orig1s000lbl.pdf.
        \51\ TECHNIVIE Prescribing Information (2015), available at http://
    www.accessdata.fda.gov/drugsatfda--docs/label/2015/
    207931Orig1s000lbl.pdf.
    ---------------------------------------------------------------------------

                      Fibrosis and Patient ``Warehousing''

        The severe side effects of interferon-based regimens
    coupled with the anticipation of new, more tolerable treatment
    regimens, and the slow progression of HCV, caused many
    providers to advise their HCV patients to wait until more
    tolerable and effective therapies came to market. This practice
    is known as ``warehousing.'' Providers warehoused patients
    based in part on fibrosis scores, which correspond with
    declining liver function and range from 0 (no fibrosis) to 4
    (severe fibrosis or cirrhosis).\52\ Warehousing can result in
    sharply increased demand when an anticipated treatment comes to
    market. Fibrosis scores played two key roles in the recent
    debate over HCV treatment in part because low fibrosis scores
    are an indicator of a patient's ability to forestall treatment.
    Patients with early stages of the disease (fibrosis scores of
    0, 1 or 2) were frequently advised to wait until new drugs were
    released before beginning treatment. The rationale was that
    there would be better outcomes for patients who could medically
    afford to wait on new treatments with shorter durations, higher
    cure rates, and fewer side effects.
    ---------------------------------------------------------------------------
        \52\ Marc G. Ghany et al., Diagnosis, Management, and Treatment of
    Hepatitis C: An Update, 49 Hepatology 1335 (2009), available at http://
    onlinelibrary.wiley.com/doi/10.1002/hep.22759/abstract.
    ---------------------------------------------------------------------------
        Warehousing had previously occurred in 2000, in
    anticipation of the FDA's approval of pegylated interferon, and
    again in 2010, leading up to the approval of DAA medications.
    Warehousing has been a focus of pharmaceutical makers, Wall
    Street analysts, and the financial press because pent up demand
    materially affects revenue when regulatory approvals for
    improved treatments are anticipated. Such warehousing with HCV
    medications was noted in 2000 ahead of regulatory approval of
    pegylated interferon:

            One issue is a study released in late October showing
            that Schering-Plough Corp.'s experimental hepatitis
            drug Peg-Intron is more effective than the standard
            treatment for hepatitis C when the drug is combined
            with ICN's ribavirin. The study compared the
            combination to the standard therapy of ribavirin and
            Intron A, a combination sold by Schering-Plough as
            Rebetron. The study results ``have led to some
            speculation that doctors may be warehousing their
            patients instead of giving them Rebetron now as they
            wait for approval of Peg-Intron and ribavirin,'' Smith
            said. If that's true, that could lead to a temporary
            weakness in ribavirin sales, Smith said.\53\
    ---------------------------------------------------------------------------
        \53\ Karen Fessler, Panic Abandons Plan to Sell 50,000 ICN Shares,
    L.A. Times (Dec. 14, 2000), available at http://articles.latimes.com/
    2000/dec/14/business/fi-47.

        Again in 2010, warehousing occurred leading up to approval
    ---------------------------------------------------------------------------
    of the first DAA medications:

            At Fred Poordad's bustling hepatitis C clinic in the
            heart of Los Angeles, one in every five patients
            receives no treatment. They are waiting for a wave of
            new drugs, expected in the next 18 months, that may
            boost their chance at a cure by as much as 10-fold. The
            medicines also may bolster the prospects of Merck &
            Co., Vertex Pharmaceuticals Inc. and Johnson & Johnson,
            the companies in a race to get the first new treatment
            to the market in a decade. About half of patients can't
            tolerate the side effects of existing therapies, which
            generate $2 billion annually in sales. The new drugs
            could expand the market to $10 billion in five years,
            said Geoff Porges, an analyst for Sanford C. Bernstein
            & Co. in New York.\54\
    ---------------------------------------------------------------------------
        \54\ Michelle Cortez & Naomi Kresge, Warehoused Hepatitis C
    Patients May Boost Merck, J&J, Bloomberg (Apr. 19, 2010), available at
    http://www.bloomberg.com/news/articles/2010-04-18/-warehoused-
    hepatitis-c-patients-may-boost-sales-for-merck-j-j-vertex.

        With the expected introduction of new, more effective HCV
    drugs, Pharmasset noted the projected effect of warehousing on
    the market in financial filings after Gilead announced its
    intention to buy the company: ``Warehousing in 2012 and 2013
    results in the 2011 treatment rate being halved for these
    years. The treatment rate then accelerates in 2014 to twice the
    2011 treatment rate and remains stable through the end of the
    forecast period.'' \55\ In a 2013 New York Times article, Dr.
    Scott Friedman explained the rationale behind the patient
    warehousing that occurred in anticipation of Sovaldi:
    ---------------------------------------------------------------------------
        \55\ Pharmasset, Inc. Amendment No. 2 to Solicitation/
    Recommendation Statement Under Section 14(d)(4) of the Securities
    Exchange Act of 1934 (Schedule 14D-9), at 9 (Dec. 20, 2011), available
    at http://www.sec.gov/Archives/edgar/data/1301081/000119312511347237/
    d270458dsc
    14d9a.htm.

            Many doctors are now ``warehousing'' their hepatitis C
            patients--urging them to forgo treatment until the new
            drugs are approved. ``There's no way I'm going to put
            them on an interferon regimen when we're a year away
            from having interferon-free regimens,'' said Dr. Scott
            Friedman, the chief of liver diseases at the Icahn
            School of Medicine at Mount Sinai. ``It's rare you have
            to pull the trigger and get them on treatment in that
            period of time.'' Gilead estimates that only 58,000
            Americans with hepatitis C are now undergoing
            treatment, a small fraction even of those who know they
            are infected. Wanting to avoid interferon's side
            effects, some patients without symptoms try to monitor
            their liver and start treatment only if it shows signs
            of deterioration. But with the new more tolerable
            treatments, some experts say, it makes sense to treat
            early-stage disease to prevent cirrhosis and the
            accompanying risk of liver cancer.\56\
    ---------------------------------------------------------------------------
        \56\ Andrew Pollack, Hepatitis C, A Silent Killer, Meets Its Match,
    N.Y. Times (Nov. 4, 2013), available at http://www.nytimes.com/2013/11/
    05/health/hepatitis-c-a-silent-killer-meets-its-
    match.html?pagewanted=all&_r=0.
     Section 2: Gilead's Acquisition of Pharmasset and the Final Approval
                               Phase for Sovaldi

                   Pharmasset's Path From University Labs to
                            Hepatitis C Front-Runner

        Pharmasset was launched by four medical researchers in
    1998, with its first headquarters in a suburb of Atlanta. Soon
    thereafter, the company signed licensing agreements for drug
    candidates discovered during university-based research and
    signed additional agreements with several pharmaceutical
    companies.\57\
    ---------------------------------------------------------------------------
        \57\ Pharmasset, Inc., Registration Statement (Form S-1), at F-21
    (May 8, 2006), available at http://www.sec.gov/Archives/edgar/data/
    1301081/000119312506103750/ds1.htm.
    ---------------------------------------------------------------------------
        As Pharmasset prepared to become a publicly traded company
    in 2006, it focused on the clinical development of drugs to
    treat HIV, Hepatitis B, and HCV.\58\ By 2008, Pharmasset's
    financial filings showed that it began spending money on pre-
    clinical studies for PSI-7977, which Gilead would eventually
    market as Sovaldi, and include as a component of Harvoni.\59\
    Between 2008 and 2011, Pharmasset spent $62.4 million
    researching and developing PSI-7977.\60\ Those research funds
    included a federal grant of $244,479.25 awarded under the
    Qualifying Therapeutic Discovery Program for development of
    PSI-7977.\61\
    ---------------------------------------------------------------------------
        \58\ Id.
        \59\ Appendix F, Gilead Sciences, Inc., Response to Chairman Wyden/
    Senator Grassley letter dated July 11, 2014, narrative answer to
    question 6a (Sept. 9, 2014).
        \60\ Id.
        \61\ Qualifying Therapeutic Discovery Project Grants for the State
    of New Jersey, Internal Revenue Service (May 7, 2015), available at
    http://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-
    Provisions.
    ---------------------------------------------------------------------------
        Pharmasset executives understood PSI-7977's potential as a
    drug candidate. More than a year before acquisition talks began
    with Gilead, Pharmasset executives informed their board of
    directors that the drug's safety and efficacy profile proved
    promising in clinical trials, and that PSI-7977 ``is less risky
    than other drugs at this stage of development.'' \62\
    Pharmasset received unsolicited buyout offers from other
    pharmaceutical companies, prompting the company to engage
    Morgan Stanley as an advisor.\63\
    ---------------------------------------------------------------------------
        \62\ Appendix E, Ex. 6, Pharmasset, Board of Directors meeting
    packet (July 21, 2010), GS-0014970 at GS-0015031--GS-0015039.
        \63\ Pharmasset, Inc. Solicitation/Recommendation Statement Under
    Section 14(d)(4) of the Securities and Exchange Act of 1934 (Schedule
    14D-9) (Dec. 6, 2011), at 8-12, available at http://www.sec.gov/
    Archives/edgar/data/1301081/000119312511331226/d265035dsc14d9.htm.
    ---------------------------------------------------------------------------
        Pharmasset executives also continued to press the board for
    supplemental budget approvals to carry on development of PSI-
    7977.\64\ Executives discussed and explored ways to turn a
    small firm focused on research into a company that sold HCV
    drugs internationally.\65\ According to an internal slide
    presentation, the FDA told the company on August 18, 2011 that
    PSI-7977 ``could enable [a] rapid transition away from
    interferon AND ribavirin,'' and that agency officials ``were
    supportive of a rapid move to monotherapy in order to eliminate
    both interferon and ribavirin.'' \66\ On November 6, 2011, just
    two weeks before announcing its acquisition by Gilead,
    Pharmasset publicly unveiled the results of a Phase 2 FDA trial
    dubbed ``ELECTRON,'' which showed that PSI-7977 effectively
    cured all 40 of the genotype 2 and 3 participants, including 10
    who had not used interferon.\67\
    ---------------------------------------------------------------------------
        \64\ Appendix E, Ex. 7, Pharmasset, Board of Directors Memorandum
    (Sept. 16, 2011), GS-0017760.
        \65\ Appendix E, Ex. 8, Global Commercialization Strategy Update to
    Pharmasset Board of Directors (2011), GS-0003852.
        \66\ Appendix E, Ex. 9, PSI-7977 Phase II Clinical Trial Data
    Review (Oct. 3, 2011), GS-0011638, at GS-0011640.
        \67\ Twelve Weeks Interferon-Free PSI-7977 Regimen Cures 100
    Percent Hep C Genotype 2/3, Hep Mag (Nov. 6, 2011), available at http:/
    /www.hepmag.com/articles/psi7977_svr_hcv_
    2501_21405.shtml.
    ---------------------------------------------------------------------------
        Jim Meyers, Gilead vice president of North American
    commercial operations, told investigative staff that the data
    release was better than Gilead expected. It provided a better
    view and a more bullish view of all of the variables that came
    into play, including assumptions about the drug's launch year,
    its eventual market penetration, overall disease prevalence and
    geographic distribution.\68\
    ---------------------------------------------------------------------------
        \68\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Washington, D.C.
    (Dec. 1, 2014).
    ---------------------------------------------------------------------------
        Pharmasset's Phase 2 success with PSI-7977 came against a
    backdrop of stiff competition. In 2011, the first drugs that
    directly attacked HCV had been released, and a herd of
    pharmaceutical companies was racing to be the first with an
    interferon-free therapy, as described in a 2010 memo from
    Pharmasset's executives to its board:

            [M]ost big pharmaceutical companies with antiviral
            franchises are expecting HCV to be the next big
            antiviral market and are placing a strong emphasis on
            quickly establishing market leadership through the use
            of direct acting antivirals to improve the efficacy of
            current therapy with the hope of decreasing the
            duration of interferon therapy. This will be quickly
            followed by combinations of direct acting antivirals in
            hopes of eliminating interferon therapy.\69\
    ---------------------------------------------------------------------------
        \69\ Appendix E, Ex. 6, Pharmasset, Board of Directors meeting
    packet (July 15, 2010), GS-0014970, at GS-0015031--0015042.

        Given the promising data from clinical trials and the
    potential market for improved HCV therapies, Pharmasset's PSI-
    7977 was well-positioned to be a market leader. Gilead was
    aware of this potential.

                 Gilead's Concern About a Weak Product Pipeline

        Gilead was not only concerned about ensuring it could
    acquire Pharmasset's promising molecule, it was aware that it
    could move too slowly and miss the chance to purchase the
    company in a highly competitive industry. Gilead and its
    bankers code-named the acquisition ``Project Harry,'' with the
    companies named after characters from the children's novel
    Harry Potter--Pharmasset was referred to as ``Harry'' and
    Gilead was ``Gryffindor.'' In a presentation titled
    ``Introduction to Project Harry'' on July 21, 2011, Gilead COO
    John Milligan stated that ``Harry is the best, and most timely,
    way to bring a nucleotide to Gilead's portfolio,'' and the
    company was ``unlikely to be available a year from now''
    because it is an ``[a]ttractive acquisition for several
    companies.'' \70\
    ---------------------------------------------------------------------------
        \70\ Appendix E, Ex. 10, Gilead Sciences, Inc., Introduction to
    Project Harry (July 21, 2011), GS-0019211, at GS-0019214.
    ---------------------------------------------------------------------------
        Presentations to Gilead's board suggest that absent its own
    promising drug compounds, the purchase of Pharmasset was the
    primary route for the company to compete in the HCV market.
    Barclays summarized the strategic rationale in the days before
    the acquisition was announced:

          Diversifies Gryffindor's business outside of HIV while
                leveraging Gryffindor's area of expertise
          Harry acquisition accelerates Gryffindor's development
                program in the treatment of HCV
          Harry's nucleotide analog PSI-7977 and portfolio of nucs
                have demonstrated potency and effectiveness in 700+
                patients without safety or resistance concerns
          Gryffindor's expertise in anti-viral therapies positions
                it as the company uniquely capable of maximizing
                Harry's HCV commercial opportunity \71\
    ---------------------------------------------------------------------------
        \71\ Appendix E, Ex. 11, Barclays, Description of Fairness Opinion
    (Nov. 13, 2011), GS-0011877, at GS-0011880 (emphasis in original).

        More than a year before acquisition talks began, Pharmasset
    executives presented a case study to the company's board that
    succinctly summarized their view of Gilead's difficulties in
    ---------------------------------------------------------------------------
    HCV drug development:

            Today, Gilead is left wondering what to do in HCV. As a
            result of their lack of success in HCV, they hired John
            McHutchison to head their Hepatitis development efforts
            in June 2010. The very clear signals from Gilead and
            John are that they will be making some strategic moves
            in HCV.\72\
    ---------------------------------------------------------------------------
        \72\ Appendix E, Ex. 6, Pharmasset, Board of Directors meeting
    packet (July 15, 2010), GS-0014970, at GS-0015031--0015061.

        The expectation of a strategic move was partially due to
    Gilead's own difficulties in developing an HCV drug. As
    negotiations with Pharmasset began in September 2011, Gilead
    announced another setback for one of its HCV drugs, GS-9190,
    forcing the company to alter study protocols after patients in
    two studies reported adverse side effects.\73\ A presentation
    to Gilead's board of trustees in October 2011 showed that as
    late as 2010, Gilead had been aiming for a ``broad genotypic
    oral antiviral'' in 2020, but that ``the competitive nature of
    the field and speed of development has now compacted the
    timelines'' to within just a few years.\74\ Another
    presentation showed that Gilead's advisory board expected an
    all-oral therapy ``very soon,'' that ``[development]
    [t]imelines are shrinking rapidly,'' and that the ``[f]ield is
    moving very fast; faster than anyone anticipated.'' \75\ The
    presentation stated that Pharmasset was recruiting patients to
    its clinical trials faster than any other company, and
    concluded that the company ``has established the fastest
    pathway forward with the simplest regimen that is furthest
    along.'' \76\ These presentations made clear that Gilead's lack
    of success in its HCV pipeline and its desire to remain
    competitive increased both the value and importance of
    acquiring Pharmasset's promising therapies.
    ---------------------------------------------------------------------------
        \73\ Press Release, Gilead Sciences, Inc., Gilead Amends Study
    Design for Ongoing Hepatitis C Clinical Trials That Include GS 9190,
    Pegylated Interferon and Ribavirin, and Another Direct-Acting Antiviral
    Agent (Sept. 4, 2011), available at http://www.gilead.com/news/press-
    releases/2011/9/gilead-amends-study-design-for-ongoing-hepatitis-c-
    clinical-trials--that-include-gs-9190-pegylated-interferon-and-
    ribavirin-and-another--directacting-antiviral-agent.
        \74\ Appendix E, Ex. 12, Gilead Sciences, Inc., Gilead Liver
    Disease Franchise: BOD Strategic Review (2011), GS-0019275, at GS-
    0019285--0019286.
        \75\ Appendix E, Ex. 13, Gilead Sciences, Inc., Harry Update (Oct.
    7, 2011), GS-0019236, at GS-0019239.
        \76\ Id. at GS-0019246.
    ---------------------------------------------------------------------------

                  The $11.2 Billion Acquisition of Pharmasset

        On January 17, 2012, Gilead Sciences, Inc., announced the
    completion of its $11.2 billion purchase of Pharmasset, Inc.
    Gilead executives were confident in Pharmasset's HCV drug
    candidate, which was entering the final phase of testing for
    regulatory approval. However, when the acquisition was first
    announced on November 21, 2011, it triggered a selloff of
    Gilead stock, and was panned by financial analysts who deemed
    the deal as extremely risky:

            Investors balked at the deal on Monday, with shares of
            Gilead falling 9 percent on the announcement. ``For
            Gilead to give up effectively one-third of their value
            for an unproven asset still subject to significant
            ongoing clinical risk seems remarkable,'' Geoffrey
            Porges, biotechnology analyst at Sanford C. Bernstein &
            Company, wrote in a note Monday. Thomas Wei of
            Jefferies & Company estimated that Gilead's sales of
            hepatitis C drugs would have to reach $4 billion a
            year--difficult, but not impossible--to justify the
            purchase price.\77\
    ---------------------------------------------------------------------------
        \77\ Andrew Pollack & Michael J. De La Merced, Gilead to Buy
    Pharmasset for $11 Billion, N.Y. Times (Nov. 21, 2011), available at
    http://dealbook.nytimes.com/2011/11/21/gilead-to-buy-pharmasset-for-11-
    billion/?_r=0.

        Despite doubts among analysts and investors, Gilead
    executives were confident that Pharmasset was developing a
    molecule that would revolutionize HCV treatment by potentially
    removing interferon from therapy in the future. Furthermore,
    executives were willing to pay a premium because, as noted
    above, Gilead's own efforts at developing HCV drugs were not
    succeeding and were not progressing as quickly as needed to
    keep up with competitor companies.
        Although a company executive told investigative staff that
    Gilead was taking an extraordinary risk in buying
    Pharmasset,\78\ documents provided by the company suggest that
    executives were very confident in sofosbuvir's ability to gain
    FDA approval. Gilead slides highlighted an ``[e]xcellent safety
    profile (no measureable side effects in any patients to date)''
    headed into Phase 3 testing as well as high cure and response
    rates for genotype 1 patients with and without interferon.\79\
    The confidence stemmed from months that Gilead, in conjunction
    with advisors from Barclays and Bank of America, had spent
    studying the global HCV market and potential revenue streams
    from a hypothetical ``Harry-Gryffindor'' acquisition. The
    acquisition team had studied proprietary financial and research
    data provided by Pharmasset under non-disclosure agreements,
    and provided regular reports to executives and the Board of
    Directors at Gilead.
    ---------------------------------------------------------------------------
        \78\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Oct. 30, 2014).
        \79\ Appendix E, Ex. 13, Gilead Sciences, Inc., Harry Update (Oct.
    7, 2011), GS-0019236 at GS-0019240.
    ---------------------------------------------------------------------------
        The information left Gilead's leadership sufficiently
    convinced of PSI-7977's promise, that the company increased its
    offer 37% during the 11 weeks spent negotiating the deal--from
    $100 per share to the final offer price of $137 per share.\80\
    That was a 59% premium to the all-time high price for
    Pharmasset stock.\81\
    ---------------------------------------------------------------------------
        \80\ Pharmasset, Inc. Solicitation/Recommendation Statement Under
    Section 14(d)(4) of the Securities and Exchange Act of 1934 (Schedule
    14D-9) (Dec. 6, 2011), at 8-12, available at http://www.sec.gov/
    Archives/edgar/data/1301081/000119312511331226/d265035dsc14d9.htm.
        \81\ Press Release, Gilead Sciences, Inc., Pharmasset, Inc., Gilead
    Sciences to Acquire Pharmasset, Inc. for $11 Billion (Nov. 21, 2011),
    available at http://www.sec.gov/Archives/edgar/data/882095/
    000119312511317734/d259746dex991.htm.
    ---------------------------------------------------------------------------
        John McHutchison, who would be an important player in the
    eventual pricing of Sovaldi, was deeply involved in the
    acquisition process. A medical doctor and well-known HCV
    researcher, McHutchison had been a consultant to Pharmasset
    before joining Gilead as senior vice president, liver disease
    therapeutics, and a member of the company's executive team.\82\
    Shortly before the deal closed, McHutchison described the
    purchase of Pharmasset as a ``bargain'' in an email to Matthew
    Young at Barclays, which served as Gilead's acquisition
    advisor. In the same email, dated January 7, 2012, McHutchison
    wrote that Bristol-Meyers Squibb acted in ``desperation'' when
    the company paid $2.5 billion to purchase another small
    biotechnology firm developing a different HCV drug.\83\
    ---------------------------------------------------------------------------
        \82\ Press Release, Gilead Sciences, Inc., John G. McHutchison, MD,
    to Join Gilead Sciences as Senior Vice President, Liver Disease
    Therapeutics (June 8, 2010), available at http://investors.gilead.com/
    phoenix.zhtml?c=69964&p=irol-newsArticle&ID=1436018.
        \83\ Appendix E, Ex. 2, Gilead Sciences, Inc., Emails between
    Matthew Young, Barclays Capital, and John McHutchison (Jan. 7, 2012),
    GS-0010634.
    ---------------------------------------------------------------------------
        In 2014, the first year that Gilead marketed Sovaldi and
    Harvoni, the company reported $12.4 billion in worldwide HCV
    sales,\84\ more than three times the amount that Jefferies &
    Company projected being needed to justify the purchase of
    Pharmasset. The company expects sales of its HCV drugs to grow
    in 2015, having reported net product sales of $14.3 billion
    during the year's first nine months.\85\
    ---------------------------------------------------------------------------
        \84\ Gilead Sciences, Inc. Annual Report (Form 10-K) (Feb. 25,
    2015), available at http://www.sec.gov/Archives/edgar/data/882095/
    000088209515000008/a2014form10-k.htm.
        \85\ Press Release, Gilead Science, Inc., Gilead Sciences Announces
    Second Quarter 2015 Financial Results (July 28, 2015), available at
    http://www.sec.gov/Archives/edgar/data/882095/000088209515000022/
    exhibit991earningspressrel.htm.
    ---------------------------------------------------------------------------

                   Pharmasset Expected 12-Week HCV Treatment
                                to Cost $36,000

        Gilead's eventual selling price for Sovaldi was
    substantially higher than what Pharmasset expected to charge.
    Specifically, after the acquisition was announced, Pharmasset
    filed with the Securities and Exchange Commission on December
    6, 2011, showing it projected to sell PSI-7977 for $36,000 per
    treatment regimen in the United States, with discounted prices
    in the European Union.\86\ Gilead ultimately set the price of
    Sovaldi at $84,000 for a single 12-week treatment course, more
    than twice as high as Pharmasset's public projection at the
    time the acquisition was announced.
    ---------------------------------------------------------------------------
        \86\ Pharmasset, Inc. Solicitation/Recommendation Statement Under
    Section 14(d)(4) of the Securities and Exchange Act of 1934 (Schedule
    14D-9) (Dec. 6, 2011) at 32, available at http://www.sec.gov/Archives/
    edgar/data/1301081/000119312511331226/d265035dsc14d9.htm.
    ---------------------------------------------------------------------------
        Gilead claims that Pharmasset actually projected a higher
    selling price than $36,000. In particular, Gilead's outside
    counsel directed investigative staff to Pharmasset's amended
    14-D filing, which projects a price range of $36,000 to $72,000
    for U.S. customers, filed on December 20, 2011.\87\
    Investigative staff's review of documents provided during the
    course of the investigation show that Pharmasset's executives
    and board of directors were presented with this price range
    immediately before the acquisition was announced, but the
    $72,000 price did not appear to play a role as the company
    considered selling to Gilead.
    ---------------------------------------------------------------------------
        \87\ Pharmasset, Inc., Amendment No. 2 to Solicitation/
    Recommendation Statement Under Section 14(d)(4) of the Securities
    Exchange Act of 1934 (Schedule 14D-9) (Dec. 20, 2011), available at
    http://www.sec.gov/Archives/edgar/data/1301081/000119312511347237/
    d270458dsc14d9a.htm.
    ---------------------------------------------------------------------------
        Documents show that the $72,000 price for PSI-7977 first
    appeared on November 18, 2011, three days before the
    acquisition was announced. That day, Pharmasset CEO Schaefer
    Price emailed a presentation to the company's board of
    directors. The presentation states that the ``price for 7977 +
    RBV ranges from $36,000 (Victrelis only) to $72K (Incivek +
    SOC). This does not reflect any price premium or cost savings
    to payers.'' \88\ The presentation also states that the then-
    current cost to treat patients with protease inhibitors ranged
    from ``$65K to $74K based on length'' of treatment.
    Importantly, though, the price increases were not included in
    the presentation's forecast model.\89\
    ---------------------------------------------------------------------------
        \88\ Appendix E, Ex. 14, Email from Schaefer Price to Herb Conrad,
    et al., ``FW: Forecast Assumptions,'' November 18, 2011, GS-0018378;
    Appendix E, Ex. 15, Pharmasset, Inc., ``Adjustments to Forecast
    Assumptions, Based on Learnings from AASLD'' (Nov. 18, 2011), GS-
    0018379 at GS-0018380. At the time, clinical guidelines recommended
    using Victrelis (boceprevir) in combination with peg-interferon/
    ribavirin for 24 to 44 weeks; guidelines recommended that Incivek be
    used for 12 weeks in combination with peg-interferon/ribavirin, with an
    additional 12 to 36 weeks of peg-interferon/ribavirin. See Table 2 in
    Mark G. Ghany et al., An Update on Treatment of Genotype 1 Chronic
    Hepatitis C Virus Infection: 2011 Practice Guideline by the American
    Association for the Study of Liver Diseases, 54 Hepatology 1433, 1433-
    44 (Oct. 2011), available at http://doi.org/10.1002/hep.24641.
        \89\ Appendix E, Ex. 15, Pharmasset, Inc., ``Adjustments to
    Forecast Assumptions, Based on Learnings from AASLD'' (Nov. 18, 2011),
    GS-0018379, at GS-0018380.
    ---------------------------------------------------------------------------
        On the same day as the Price email, Morgan Stanley
    presented slides to the Pharmasset board containing a matrix
    titled ``Pricing Sensitivity--Mgmt. Case.'' \90\ In this
    matrix, unit pricing of $72,000 translates to a price of $290
    per share.\91\ This amount per share is more than twice the
    purchase price the board approved from Gilead less than 72
    hours later. This suggests that Pharmasset did not view $72,000
    as a realistic price. Moreover, in that presentation, all of
    the management cases--downside, base, and upside--used $36,000
    as the price for PSI-7977. The management case ``represents
    management's view of the most probable scenario in light of
    recent developments in the Hepatitis C landscape.'' \92\
    ---------------------------------------------------------------------------
        \90\ A management case is typically the financial model that
    executives believe is most likely reflective of a company's business on
    a go-forward basis or the model that management is using to make
    planning decisions.
        \91\ Appendix E, Ex. 16, Morgan Stanley, Project Royal Discussion
    Materials (Nov. 18, 2011), GS-0018382, at GS-0018396.
        \92\ Id. at GS-0018393.
    ---------------------------------------------------------------------------
        Other documents from earlier in the year further
    demonstrate that Pharmasset had not contemplated pricing PSI-
    7977 nearly as high as Gilead would eventually price Sovaldi.
    One document contains a presentation prepared by Morgan Stanley
    with financial analysis prepared in its advisory role to
    Pharmasset. These presentations contained a matrix like the one
    below estimating the per-share value of Pharmasset correlated
    with the expected prices for PSI-7977 and another drug
    candidate, PSI-938: \93\
    ---------------------------------------------------------------------------
        \93\ Appendix E, Ex. 17, Morgan Stanley, Project Royal Discussion
    Materials (Oct. 6, 2011), GS-0002762.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The above pricing sensitivity matrix suggests that if
    Pharmasset expected PSI-7977 to sell for $50,000, the company
    would have expected its market value to range from $13.7
    billion to $15.2 billion--between 22.6% and 35.7% higher than
    the price that was actually garnered from Gilead.\94\
    Similarly, presentations in May 2011 and July 2011 show that
    the highest price points being discussed in modeling were
    $24,000 and $36,000, the latter of which was dubbed the
    ``management case.''
    ---------------------------------------------------------------------------
        \94\ To determine this estimate, investigative staff compared the
    tender price Gilead offered Pharmasset shareholders when the 2011
    transaction took place ($137/share) with the Morgan Stanley pricing
    sensitivity matrix. Id. The matrix projected different share prices for
    Pharmasset based on prices for PSI-7977 and PSI-938. The column in
    which PSI-7977 was priced at $50,000 had a range of share prices as low
    as $168 (with PSI-938 at $24,000) and $186 (with PSI-938 at $50,000),
    which are 122.6% and 135.7% of the tender price. Staff used those
    percentage differences to multiply the final purchase Gilead paid for
    Pharmasset ($11.2 billion) to arrive at a range of $13.7 billion and
    $15.2 billion.
    ---------------------------------------------------------------------------
        Lastly, a presentation from September 2011 shows the price
    of manufacturing PSI-7977 in relation to the price of therapy.
    While the drug was being manufactured for testing, Pharmasset
    calculated the production cost to be $32,000 per kilogram, or
    $1 per 1,200-milligram caplet.\95\ Pharmasset expected
    production costs to be cut by almost two-thirds to $11,000 per
    kilogram when commercial-scale operations began.\96\ The
    presentation shows that manufacturing costs for Pharmasset
    would be de minimis compared to the revenue each course of
    therapy would generate--ranging from 0.9% for a $50,000 course
    to 1.5% for a $30,000 course: \97\
    ---------------------------------------------------------------------------
        \95\ Appendix E, Ex. 18, Pharmasset, Untitled Presentation by
    Pharmasset Executives (Sept. 2011), GS-0011557 at GS-0011588.
        \96\ Id. at GS-0011581.
        \97\ Id. at GS-0011590.

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Thus, it appears that, based on internal presentations
    given between five months and three days before the
    announcement of Gilead's acquisition of Pharmasset, Pharmasset
    did not intend to sell PSI-7977 for prices exceeding $50,000.
    In particular, the range that was presented to the board while
    the acquisition was in its final stages indicate that the
    financial impacts of the higher end of the drug price range
    would have meant Pharmasset was substantially undervaluing
    itself.

               Gilead Did Not Contemplate a Price Above $75,000
                           Leading up to Acquisition

        On November 13, 2011, less than two weeks before the deal
    was announced, Barclays gave a presentation to Gilead that
    suggests Gilead was considering a price range of $55,000 to
    $75,000 for Sovaldi treatment to ensure suitable financial
    returns. The presentation referenced a gross price per patient
    in the United States of $65,000 and included sensitivity
    analysis showing the revenue effect of increasing or decreasing
    the price by $10,000 (resulting in the $55,000 to $75,000
    range).\98\ It is important to recognize that the figures in
    the presentation were projected gross prices, which is the
    price point before discounting to payers which results in a net
    price.
    ---------------------------------------------------------------------------
        \98\ Appendix E, Ex. 19, Barclays Capital, Revenue/Valuation
    Models: Project Harry (Nov.13, 2011), GS-0013466, at GS-0013467, GS-
    00013474.
    ---------------------------------------------------------------------------
        These figures were developed over the course of several
    months by Barclays in close partnership with a Gilead project
    team. Emails show that the pricing model had been through
    numerous iterations with Gilead's employees studying the model
    for market assumptions with respect to infection rates, cure
    rates, market share and other data points related to the HCV
    population domestically and abroad.\99\
    ---------------------------------------------------------------------------
        \99\ Appendix E, Ex. 20, Email from John McHutchison to Jonathan
    Piazza, Re: Project Pyramid Assumptions (June 21, 2011), GS-0004809;
    Appendix E, Ex. 21, Gilead Sciences, Inc., Project Harry--Model
    Discussion (Aug 16, 2011), GS-0005511.
    ---------------------------------------------------------------------------
        Jim Meyers told investigative staff that the molecule's
    ultimate price was not a major consideration during the run-up
    to the purchase of Pharmasset.\100\ Gilead had a rough but
    conservative estimate for drug prices, primarily based on the
    Barclays model.\101\ Treatment rates, flow of patients and flow
    of diagnosis were the company's primary concern at that
    point.\102\ Price was not unimportant, but the number of
    patients was more important to making the deal acceptable.\103\
    ---------------------------------------------------------------------------
        \100\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Dec. 1, 2014).
        \101\ Id.
        \102\ Id.
        \103\ Id.
    ---------------------------------------------------------------------------
        Meyers referred investigative staff to the last page of a
    presentation from July 20, 2011, and a summary of assumptions,
    including an $80,000 ``price-per-cure'' (the total cost of
    prescribing drugs divided by the number of cured patients
    results in an average price per cured patient), which was based
    on the price of telaprevir and boceprevir.\104\ Price per cure
    is higher than the price of these drugs because some number of
    patients taking the drug would not be cured, and the initial
    treatment regimen required the use of interferon and/or
    ribavirin to also be administered.\105\ That presentation
    assumed that the gross price of DAA drugs would start at
    $63,500, equaling a price per cure of $80,000.\106\ The pricing
    assumption model showed that the cost-per-cure was projected to
    increase 3% annually, and assumes an 8% ``convenience bump'' in
    pricing when an all-oral, single-tablet drug came to
    market.\107\ This appears similar to the strategy, detailed
    later in this report, which Gilead employed when it priced
    Sovaldi and Harvoni. Lastly, Barclays expected that American
    patients would be charged a premium for HCV treatments,
    compared to patients in Japan and Europe (see slide
    below).\108\
    ---------------------------------------------------------------------------
        \104\ Appendix E, Ex. 22, Gilead Sciences, Inc., Project Harry--
    Barclays Deck Backgrounder (July 20, 2011), GS-0000207, at GS-0000228.
        \105\ Id. at GS-0000214.
        \106\ Id. at GS-0000219.
        \107\ Id.
        \108\ Id.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In sum, as the deal between Pharmasset and Gilead entered
    its final phase, Gilead executives believed that the purchase
    of Pharmasset would be profitable if the drug were sold for a
    gross price ranging from $55,000 to $75,000 before sales
    discounts were applied. A presentation one year after the sale
    suggests the company expected prices to be at the midpoint--
    i.e., $65,000.\109\ This was approximately $20,000 less than
    what Gilead ultimately chose as the selling price.
    ---------------------------------------------------------------------------
        \109\ Appendix E, Ex. 23, Gilead Sciences, Inc., Hepatitis C and
    GS-7977 Development Update, ``HCV Strategy Review,'' November 5, 2012,
    GS-0019442, at GS-0019461--GS-0019462.
    ---------------------------------------------------------------------------

    Complete R&D Costs for Gilead's Completion of the Approval Process for
                           Sovaldi Were Not Provided

        Gilead provided R&D spending data for ``sofosbuvir-based
    regimens,'' which include ``any compound in R&D that uses
    sofosbuvir or is combined in development with sofosbuvir.''
    \110\ Thus, the spending data may overstate the R&D costs
    associated with bringing Sovaldi to market because the data
    includes three compounds in addition to sofosbuvir as a single-
    agent drug.\111\ Gilead failed to provide costs attributable
    solely to the development of Sovaldi, despite repeated requests
    to do so.
    ---------------------------------------------------------------------------
        \110\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 12 (Sept. 9, 2014).
        \111\ These four combinations were GS-7977 (sofosbuvir as a single-
    agent drug); GS-7977 in combination with GS-5885 (which would
    eventually become Harvoni); GS-7977 in combination with GS-5816; and
    GS-7977 in combination with GS-9813. Appendix E, Ex. 24, Gilead
    Sciences, Inc., 2012-2018 Financial Forecast (Nov. 2012), GS-0019394 at
    GS-0019413.
    ---------------------------------------------------------------------------
        Gilead said that its estimated R&D costs for sofosbuvir-
    based regimens would be $880.3 million between 2012 and
    2014.\112\ The R&D costs that Gilead provided are detailed in
    table 1 below:
    ---------------------------------------------------------------------------
        \112\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 12 (Sept. 9, 2014).

              Table 1--Gilead Sciences' Research and Development Costs  for Sofosbuvir-based Drug Regimens
    ----------------------------------------------------------------------------------------------------------------
                                                               2012                 2013          2014  (estimated)
    ----------------------------------------------------------------------------------------------------------------
    Personnel Costs *................................         $45,195,000          $51,770,600          $74,765,423
    ----------------------------------------------------------------------------------------------------------------
    Clinical Studies/Contract Research Organization          $136,942,698         $238,986,739         $242,830,400
     Costs **........................................
    ----------------------------------------------------------------------------------------------------------------
    Milestones/Licenses..............................                   -           $4,117,281         ($2,907,678)
    ----------------------------------------------------------------------------------------------------------------
    Overhead Allocations/Facilities Costs/Materials           $27,859,182          $29,339,061          $31,367,638
     and Supplies....................................
    ----------------------------------------------------------------------------------------------------------------
    Total............................................        $209,996,871         $324,213,681         $346,055,782
    ----------------------------------------------------------------------------------------------------------------
    Total 2012-2014..................................                                                  $880,266,334
    ----------------------------------------------------------------------------------------------------------------
    Source: Gilead Sciences, Inc.
    * Gilead does not track expenses related to personnel costs, overhead allocation, facilities costs, and
      materials and supplies by therapeutic product candidate. Gilead estimated expenses by allocating based on a
      percentage of total employee headcount.
    ** Section 14.1 of Sovaldi's FDA label states ``The safety and efficacy of SOVALDI was evaluated in five Phase 3
      trials in a total of 1724 HCV mono-infected subjects with genotypes 1 to 6 chronic hepatitis C (CHC) and one
      Phase 3 trial in 223 HCV/HIV-1 co-infected subjects with genotype 1, 2 or 3 CHC.'' \113\

        As noted above, Pharmasset spent $62.4 million between 2008
    and 2011 researching and developing PSI-7977. Combined, this
    totals $942.4 million. Gilead did note in its response to the
    senators' letter that additional costs were expected for post-
    market release studies, but Gilead failed to detail those
    costs.\114\
    ---------------------------------------------------------------------------
        \113\ SOVALDI Prescribing Information, Section 14.1 (2013),
    available at http://www.
    accessdata.fda.gov/spl/data/24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f/
    24e7ec0a-9f1b-4b63-8e48-53a
    63cd7c46f.xml.
        \114\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 12 (Sept. 9, 2014).

        By comparison, while negotiating its eventual sale to
    Gilead, executives for Pharmasset presented the company's
    expected drug development costs for fiscal year 2012 (which
    ---------------------------------------------------------------------------
    began October 1, 2011):

            Our budgeted development program expenses are $125.0
            million for fiscal 2012, up $72.7 million from $52.3
            million in fiscal 2011. The main drivers of this
            substantial increase in our development expenses is the
            advancement of PSI-7977 into four Phase 2b studies
            (including the Phase 2b QUANTUM study), as well as 3
            Phase 3 studies, and the advancement of PSI-938 into
            the QUANTUM study.\115\
    ---------------------------------------------------------------------------
        \115\ Appendix E, Ex. 25, Pharmasset, Inc., Board of Directors
    Packet (Oct. 11, 2011), GS-0017925, at GS-0017956.
    ---------------------------------------------------------------------------
        Specifically, development costs for PSI-7977 were budgeted
    by Pharmasset to be $90.5 million.\116\ In the same
    presentation, Pharmasset executives projected that the Phase 3
    studies for PSI-7977--the final clinical development needed for
    regulatory approval that Gilead was primarily engaged in after
    the merger--would total $125.6 million.\117\
    ---------------------------------------------------------------------------
        \116\ Id.
        \117\ Id. at GS-0017966.
    ---------------------------------------------------------------------------
        The spreadsheet on the following page provides specific,
    quarterly costs that Pharmasset budgeted for these studies.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

           Gilead's Development Timeline Benefited from FDA Policies

        Sovaldi was one in a series of HCV therapies that benefited
    from FDA policies designed to shorten the R&D process and
    broaden access to potentially lifesaving therapies (See Table
    2). In the case of Sovaldi, the compressed timeline meant
    Gilead was afforded an opportunity to sell its therapy in the
    U.S. with minimal competition in the genotype 1 market for
    nearly a year.
        Little more than a month before acquiring Pharmasset in
    2011, Gilead executives reported to the board that changes to
    FDA standards regarding HCV testing protocols would benefit the
    purchase of Pharmasset and speed up the eventual approval of
    sofosbuvir. The agency would no longer require SVR to be tested
    24 weeks after treatment ended. Instead, it would require an
    SVR follow-up at just 12 weeks.\118\ Furthermore, studies using
    placebo-controlled trials would be accepted. As a result, Phase
    3 studies would be ``simpler and faster.'' \119\ Gilead
    executives believed that the probability of successfully
    reaching the market increased along with the ``truncated
    timelines for approval.'' \120\
    ---------------------------------------------------------------------------
        \118\ Appendix E, Ex. 26, Gilead Sciences, Inc., Harry Update:
    Board Meeting (Oct. 24, 2011), GS-0019309, at GS-0019311.
        \119\ Id.
        \120\ Appendix E, Ex. 13, Gilead Sciences, Inc., Harry Update:
    Board Meeting (Oct. 7, 2011), GS-0019236, at GS-0019244.
    ---------------------------------------------------------------------------
        By November 2012, McHutchison reiterated to the board that
    ``the timelines have shortened considerably for both GS-7977 as
    a single agent and GS-7977 combinations,'' in a presentation
    that referred to additional conversations with the FDA (when
    Gilead acquired Pharmasset, the PSI-7977 became GS-7977). A
    presentation made on the same day first referenced the
    company's expectation that a new drug approval (NDA) for GS-
    7977 would be submitted by April 2013, and approval achieved by
    December of that year.\121\
    ---------------------------------------------------------------------------
        \121\ Appendix E, Ex. 23, Gilead Sciences, Inc., Hepatitis C and
    GS-7977 Development Update, November 5, 2012, GS-0019442, at GS-
    0019443, GS-0019469.
    ---------------------------------------------------------------------------
        In 2013, the FDA granted GS-7977 both ``breakthrough
    therapy designation'' \122\ and GS-7977 ``priority review''
    \123\ status. The priority review, granted in June 2013,
    expedited the approval of Sovaldi.\124\ The breakthrough status
    broadened the label's treatment indication, as Martin explained
    in a memo that was drafted for the board of directors:
    ---------------------------------------------------------------------------
        \122\ The agency implemented the process based on instruction in
    the Food and Drug Administration Safety and Innovation Act of 2012 to
    ``implement more broadly effective processes for the expedited
    development and review of innovative new medicines intended to address
    unmet medical needs for serious or life-threatening diseases,'' Pub. L.
    No. 112-144, Sec. 901(a)(1)(C), 126 Stat. 993.
        \123\ Authorized by the Prescription Drug User Act (PDUFA) of 1992,
    Pub. L. No. 102-571, priority review allows the FDA to act on an NDA
    within six months of submission, as opposed to the standard 10-month
    period. The FDA can grant priority review status if the NDA ``treats a
    serious condition and, if approved, would provide a significant
    improvement in safety or effectiveness.'' Food and Drug Administration,
    Guidance for Industry: Expedited Programs for Serious Conditions--Drugs
    and Biologics, at 7 (2014), available at http://www.fda.gov/downloads/
    drugs/guidancecomplianceregulatoryinformation/guidances/ucm358301.
        \124\ Press Release, Gilead Sciences, Inc., Gilead Announces U.S.
    FDA Priority Review Designation for Sofosbuvir for the Treatment of
    Hepatitis C (June 7, 2013), available at http://www.gilead.com/news/
    press-releases/2013/6/gilead-announces-us-fda-priority-review-
    designation-for-sofosbuvir-for-the-treatment-of-hepatitis-c.

            As highlighted by John McHutchison and Bill Symonds
            during our meeting last month/earlier this month, the
            FDA granted Sovaldi a Breakthrough Designation, which
            allowed us to submit data from two additional Phase 3
            studies beyond the four Phase 3 trials submitted with
            the initial New Drug Application.\125\
    ---------------------------------------------------------------------------
        \125\ Appendix E, Ex. 27, Gilead Sciences, Inc., Email from Cara
    Miller to Gregg Alton (Nov. 22, 2013), GS-0020826.

        Martin appeared to be referring to the VALENCE and PHOTON-1
    studies.\126\ The FDA's summary review explained, ``VALENCE
    provided data to support a 24-week treatment duration for GT3
    subjects to improve relapse rates and PHOTON-1 provided data to
    support regimens for HCV/HIV-1 co-infected subjects along with
    an interferon-free regimen for GT1 subjects.'' \127\
    ---------------------------------------------------------------------------
        \126\ Food and Drug Administration Center for Drug Evaluation and
    Research, Clinical Pharmacology and Biopharmaceutics Review(s):
    Application Number: 204671Orig1s000, at 2 (Nov. 22, 2013), available at
    http://www.accessdata.fda.gov/drugsatfda_docs/nda/2013/204671Orig1s
    000ClinPharmR.pdf.
        \127\ Id. at 8.
    ---------------------------------------------------------------------------
        Under section 506(a) of the Federal Food, Drug, and
    Cosmetic Act (FFDCA), as amended, breakthrough designation is
    provided:

            if the drug is intended, alone or in combination with 1
            or more other drugs, to treat a serious or life-
            threatening disease or condition and preliminary
            clinical evidence indicates that the drug may
            demonstrate substantial improvement over existing
            therapies on 1 or more clinically significant
            endpoints, such as substantial treatment effects
            observed early in clinical development.\128\
    ---------------------------------------------------------------------------
        \128\ Food and Drug Administration Safety and Innovation Act Pub.
    L. No. 112-114, Sec. 902(a)(3), 126 Stat. 995 (2012).

        When considering a breakthrough therapy designation
    request, the FDA evaluates the quantity and quality of the
    clinical evidence submitted, available alternative therapies to
    that drug, and magnitude of treatment effects shown.\129\ For
    Gilead, expanding the label's indication meant that Sovaldi
    would be a viable therapy for more patients, expanding the
    market for the drug.
    ---------------------------------------------------------------------------
        \129\ Center for Health Policy at Brookings, Breakthrough Therapy
    Designation: Exploring the Qualifying Criteria (2015) [hereinafter
    Brookings, Breakthrough Therapy Designation], available at http://
    www.brookings.edu//media/events/2015/04/24-fda-breakthrough-therapy-
    designation/breakthrough-therapy-designation_final.pdf.
    ---------------------------------------------------------------------------
        Financial documents filed a month after the Gilead-
    Pharmasset acquisition was announced show that Pharmasset's
    management expected that the drug would be launched in the U.S.
    sometime between the fourth quarter of 2013 and the second
    quarter of 2015.\130\ The actual December 2013 FDA approval was
    at the front-end of these projections. The importance of this
    timing shift is underscored in pricing documents discussed in
    detail later in this report showing that Gilead officials
    believed a lack of competition would inform the eventual price
    for Sovaldi.
    ---------------------------------------------------------------------------
        \130\ Pharmasset, Inc., Amendment No. 2 to Solicitation/
    Recommendation Statement Under Section 14(d)(4) of the Securities
    Exchange Act of 1934 (Schedule 14D-9) (Dec. 20, 2011), available at
    http://www.sec.gov/Archives/edgar/data/1301081/000119312511347237/
    d270458dsc14d9a.htm. Pharmasset, Inc.
    ---------------------------------------------------------------------------
        Table 2 shows the HCV drugs that received FDA approval.

                                      Table 2--HCV Drugs That Received FDA Approval
    ----------------------------------------------------------------------------------------------------------------
                                                             Breakthrough
                                                               Therapy
                    Drug                  Approval Date    Designation for       Priority     Indication(s) Approved
                                                               Approved        Review (Y/N)
                                                            Indication(s)
    ----------------------------------------------------------------------------------------------------------------
    Daklinza (daclatasvir) NDA 206843..  July 24, 2015   No                   Yes             For the treatment of
                                                                                               hepatitis C virus
                                                                                               (HCV) genotype 3 in
                                                                                               combination with
                                                                                               sofosbuvir.
    ----------------------------------------------------------------------------------------------------------------
    Technivie (ombitasvir,               July 24, 2015   Yes                  Yes             For use in combination
     paritaprevir, and ritonavir) NDA                                                          with ribavirin for
     207931.                                                                                   the treatment of
                                                                                               hepatitis C virus
                                                                                               (HCV) genotype 4
                                                                                               infections in
                                                                                               patients without
                                                                                               cirrhosis.
    ----------------------------------------------------------------------------------------------------------------
    Viekira Pak (ombitasvir,             December 19,    Yes                  Yes             For use with or
     paritaprevir, and ritonavir;         2014                                                 without ribavirin to
     dasabuvir) NDA 206619.                                                                    treat patients with
                                                                                               chronic hepatitis C
                                                                                               virus (HCV) genotype
                                                                                               1 infection.
    ----------------------------------------------------------------------------------------------------------------
    Harvoni (ledipasvir and sofosbuvir)  October 10,     Yes                  Yes             For the treatment of
     NDA 205834.                          2014                                                 chronic hepatitis C
                                                                                               (CHC) genotype 1
                                                                                               infection.
    ----------------------------------------------------------------------------------------------------------------
    Sovaldi (sofosbuvir) NDA 204671....  December 6,     Yes                  Yes             For the treatment of
                                          2013                                                 chronic hepatitis C
                                                                                               (CHC) infection as a
                                                                                               component of a
                                                                                               combination antiviral
                                                                                               treatment regimen.
                                                                                               [Labeling specifies
                                                                                               efficacy established
                                                                                               in genotype 1, 2, 3
                                                                                               or 4]
    ----------------------------------------------------------------------------------------------------------------
    Olysio (simeprevir) NDA 205123.....  November 22,    No                   Yes             For the treatment of
                                          2013                                                 chronic hepatitis C
                                                                                               (CHC) genotype 1
                                                                                               infection as a
                                                                                               component of a
                                                                                               combination antiviral
                                                                                               treatment regimen.
    ----------------------------------------------------------------------------------------------------------------
    Incivek (telaprevir) NDA 201917....  May 13, 2011    No *                 Yes             In combination with
                                                                                               peginterferon alfa
                                                                                               and ribavirin, the
                                                                                               treatment of genotype
                                                                                               1 chronic hepatitis C
                                                                                               (CHC) in adult
                                                                                               patients with
                                                                                               compensated liver
                                                                                               disease, including
                                                                                               cirrhosis.
    ----------------------------------------------------------------------------------------------------------------
    Victrelis (boceprevir) NDA 202258..  May 13, 2011    No *                 Yes             For the treatment of
                                                                                               chronic hepatitis C
                                                                                               (CHC) genotype 1
                                                                                               infection, in
                                                                                               combination with
                                                                                               peginterferon alfa
                                                                                               and ribavirin, in
                                                                                               adult patients with
                                                                                               compensated liver
                                                                                               disease, including
                                                                                               cirrhosis.
    ----------------------------------------------------------------------------------------------------------------
    Source: FDA.
    Note: * Prior to Food and Drug Administration Safety and Innovation Act and creation of the Breakthrough Therapy
      designation.

                       Section 3: The Pricing of Sovaldi

        Shortly after Gilead bought Pharmasset, the company's
    senior officials began to prepare for the release of what they
    expected to be a blockbuster drug. The documentation reviewed
    shows that Gilead considered a number of factors in determining
    a price point for Sovaldi, including costs for the existing
    standard of care for HCV treatment and setting a high baseline
    for the next wave of HCV drugs. In addition, during the pricing
    process, Gilead looked at a range of impacting factors to gauge
    the likelihood of various ``softer issues'' at different
    pricing points, ranging from professional societies including
    price ``asterisks'' in their therapy recommendations, to
    protests from the AIDS Health Foundation or Fair Pricing
    Coalition, to losing ``key opinion leader'' endorsements, and
    even the likelihood of congressional hearings or letters
    concerning the price of Sovaldi.\131\ (See slide below)
    ---------------------------------------------------------------------------
        \131\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014047.
    ---------------------------------------------------------------------------
        The Gilead pricing team concluded that while pricing
    Sovaldi at $80,000 to $85,000 would generate an outcry from
    advocacy groups and payers, ``[t]his price will allow Gilead to
    capture value for the product without going to a price where
    the combination of external factors and payer dynamics could
    hinder patient access to uncomfortable levels.'' \132\
    Ultimately, Gilead was mistaken in some of its key assumptions
    as many public and private payers quickly reacted and adopted
    access restrictions.
    ---------------------------------------------------------------------------
        \132\ Id. at GS-0014044, GS-0014047--GS-0014050, GS-0014053.
    ---------------------------------------------------------------------------
        Gilead did not produce all relevant documents and
    supporting materials related to pricing as requested, despite
    the company's assurances of cooperation. Therefore, the staff's
    analysis of pricing decisions and strategies that follows is
    necessarily based only on the documents and interviews that
    were provided by the company and from outside sources.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                             Early Pricing Strategy

        By October 2012, the company had Phase 3 trials well
    underway, and was turning its attention to how it would market
    Sovaldi. That same month, Gilead laid out objectives for its
    commercial launch in a working document titled ``Gilead HCV
    U.S. BPOA.'' \133\ The document detailed potential customer
    groups, advertising strategies to reach baby boomers, and
    ``critical success factors for launch.'' \134\ As it would for
    the next 14 months, the company was largely focused on
    expanding the patient pool that would be treated with
    sofosbuvir.
    ---------------------------------------------------------------------------
        \133\ Appendix E, Ex. 29, Gilead Sciences, Inc., Gilead HCV U.S.
    BPOA (Oct. 2012), GS-0013489, at GS-0013489.
        \134\ Id. at GS-0013492--GS-0013502.
    ---------------------------------------------------------------------------
        In a November 2012 a presentation titled ``HCV Strategy
    Review,'' Kevin Young, the company's executive vice president
    for commercial operations, referenced a U.S. price of ``$58k
    vs. $65k (likely at parity for launch).'' \135\ The price in
    the EU would be ``discount to U.S.  25%.'' \136\
    ---------------------------------------------------------------------------
        \135\ Appendix E, Ex. 23, Gilead Sciences, Inc., Hepatitis C and
    GS-7977 Development Update, ``HCV Strategy Review,'' November 5, 2012,
    GS-0019442, at GS-0019460, GS-0019462.
        \136\ Id. at GS-0019462.
    ---------------------------------------------------------------------------
        On March 25, 2013, Gilead management met and reviewed the
    results of market data that had been collected in a senior vice
    president briefing titled ``Sofosbuvir U.S. Pricing &
    Contracting Strategy.'' \137\ This meeting was the first of
    eight scheduled meetings leading to a recommendation to a group
    of senior executives known as the ``global pricing committee''
    or GPC.\138\
    ---------------------------------------------------------------------------
        \137\ Appendix E, Ex. 30, Gilead Sciences, Inc., Sofosbuvir U.S.
    Pricing & Contracting Strategy, SVP Briefing, March 25, 2013, GS-
    0019128.
        \138\ Gilead failed to provide documents related to the GPC meeting
    scheduled for April 22 or July 21. Only one SVP review was provided for
    the month of May, and none in June. The ``KY/RW Review,'' which stands
    for Kevin Young and Robin Washington, both senior officials at the
    company, is referred to on page GS-0019129 of Exhibit 30, but was not
    provided. See id. at GS-0019129. In a letter dated September 30, 2014,
    Senators Grassley and Wyden asked Gilead's outside counsel, Mark R.
    Paoletta, to certify all documents related to these meetings had been
    provided. Gilead's counsel failed to certify that the document
    production had been completed, indicating that many documents remained,
    and that the request would likely ``incorporate hundreds of thousands
    of emails and documents.'' Gilead also failed to provide any
    documentation of a ``SOF Launch Meeting'' that the HCV Sales Team was
    scheduled to convene in November 2013 (referred to in Appendix E, Ex.
    31, Gilead Sciences, Inc., U.S. HCV Launch Update, August 1, 2013, GS-
    0014059, at GS-0014068).
    ---------------------------------------------------------------------------
        Gilead's key pricing considerations at this time, as
    reflected in the documents provided, were comparisons to the
    costs of existing HCV SOCs, the impact of expected competition
    on the market for HCV therapies, the increased cost for SOCs
    longer than the 12-week regimen for genotype 1 patients, and an
    initial discussion of contracting strategies. The slide on the
    following page indicates Gilead's contracting and pricing
    timeline.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        According to Meyers, the GPC is a critical intra-corporate
    body that determined the final price of Sovaldi and other
    drugs.\139\ The committee typically meets when a material
    product, such as Sovaldi, is being priced. The GPC is made up
    of top executives at the company including:
    ---------------------------------------------------------------------------
        \139\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Dec. 1, 2014).

       John Martin, CEO
       Robin Washington, CFO
       John Milligan, COO
        Jim Meyers, Senior Vice President for Commercial
            Operations, North America
        Kevin Young, Executive Vice President, Commercial
            Operations (now retired)
        Norbert Bischofberger, Executive Vice President, Research
            and Development Chief Scientific Officer
        John McHutchison, Executive Vice President for Clinical
            Research.\140\
    ---------------------------------------------------------------------------
        \140\ Id.

        By the time of the March 2013 presentation, the company had
    Phase 3 testing data and had begun taking steps to understand
    the drug's place in the market.\141\ The company was gathering
    data relevant for pricing determinations taking into
    consideration what was currently being paid for similar drugs,
    discounting, and the concentration of the payer market share.
    The pricing process was based on four different factors:
    clinical attributes, value determination, market research with
    payers, and the cost of current product regimens.\142\ The 58-
    page slide deck prepared for management touched on all of these
    points and data, while noting that ``sofosbuvir will likely
    rank among the largest launches ever (year 1 sales), driving a
    doubling in payers' HCV class expenditures in 2014.''\143\
    ---------------------------------------------------------------------------
        \141\ Id.
        \142\ Id.
        \143\ Appendix E, Ex. 30, Gilead Sciences, Inc., Sofosbuvir U.S.
    Pricing & Contracting Strategy, SVP Briefing, March 25, 2013, GS-
    0019128, at GS-0019156.
    ---------------------------------------------------------------------------
        As part of pricing considerations, Gilead aimed to gain a
    thorough understanding of how similar drugs on the market were
    priced.\144\ Gilead focused on the genotype 1 market because it
    makes up roughly 70% of HCV patients in the United States and
    was a focal point for competing drug companies. As discussed in
    Section 1 of this report, two protease inhibitors, telaprevir
    (Incivek developed by Vertex) and boceprevir (Victrelis
    developed by Merck), had already received FDA approval in 2011.
    However, Sovaldi was expected to have an edge because clinical
    studies showed it would provide faster, more effective
    treatment and reduced time on, or outright elimination of,
    interferon injections.\145\
    ---------------------------------------------------------------------------
        \144\ Id. at GS-0019143.
        \145\ Id. at GS-0019133.
    ---------------------------------------------------------------------------
        Gilead used the prices of Incivek and Victrelis as a
    baseline and evaluated how to price sofosbuvir at a premium to
    existing therapies.\146\ Company officials surmised that its
    drug had a ``value premium'' because of increased efficacy and
    tolerability, shorter treatment duration, and its potential to
    ultimately be part of an all-oral regimen (as it ultimately
    would be in combination with ledipasvir in Harvoni).
    ---------------------------------------------------------------------------
        \146\ Id. at GS-0019172, GS-0019173.
    ---------------------------------------------------------------------------
        In a slide titled ``Premium Based on Explicit Savings from
    P/R Duration,'' the company used the approximate price of
    Incivek ($55,275) as a pricing baseline. Incivek required using
    interferon/ribavirin for 24 to 48 weeks. Gilead calculated
    Incivek's average Wholesale Acquisition Cost (WAC) based on 36
    weeks of interferon/ribavirin would be $82,496.\147\ Using this
    model, Gilead's clinical and projected ``real world'' cure
    rates could justify prices ranging between $82,000 and $121,000
    for a 12-week course of the drug.\148\
    ---------------------------------------------------------------------------
        \147\ Id. at GS-0019143.
        \148\ Id. at GS-0019174--GS-0019175.
    ---------------------------------------------------------------------------
        The next step was to evaluate competition. Because Incivek
    and Victrelis would be sidelined by next generation drugs,
    Gilead anticipated two primary competitors, simeprevir (Olysio)
    and the ``second wave'' all-oral drug combination being
    developed by AbbVie (later launched as Viekira Pak).\149\
    ---------------------------------------------------------------------------
        \149\ Id. at GS-0019133.
    ---------------------------------------------------------------------------
        Another key concern was the timing and order of competitor
    drug release dates. For example, AbbVie's all-oral regimen
    could affect uptake for sofosbuvir, which still relied on
    interferon and ribavirin, if Gilead's all-oral offering,
    Harvoni, had not yet received approval. The presentation also
    left open the question about what weight Gilead should give to
    ``actual or assumed competitive pricing.'' \150\ Importantly,
    the group also weighed how Harvoni's eventual pricing should
    affect pricing for the launch of Sovaldi.\151\
    ---------------------------------------------------------------------------
        \150\ Id. at GS-0019136.
        \151\ Id.
    ---------------------------------------------------------------------------
        The clinical data that was included in the presentation
    showed that Sovaldi would perform better clinically in genotype
    1 patients than Olysio, which would be Sovaldi's primary head-
    to-head advantage until the FDA approved interferon-free
    regimens.\152\ Looking ahead to competition, Gilead recognized
    that AbbVie's yet-to-be-approved Viekira Pak had shown similar
    clinical efficacy as Gilead's interferon-free Harvoni (which
    also was in clinical trials). However, Gilead was confident
    that the simplicity of its eventual drug--Harvoni would require
    taking only a single pill per day whereas Viekira Pak required
    multiple pills--would be more popular with providers and
    payers.\153\
    ---------------------------------------------------------------------------
        \152\ Id. at GS-0019167, GS-0019168.
        \153\ Id. at GS-0019166.
    ---------------------------------------------------------------------------
        Gilead surmised that ``price and/or contracting may be an
    important competitive differentiator'' for Olysio and Viekira
    Pak.\154\ The company planned to focus on a series of strategic
    questions over the coming months:
    ---------------------------------------------------------------------------
        \154\ Id. at GS-0019135.

              Is our objective to maximize revenue or volume/
            share?
              What nominal price range for sofosbuvir should we
            consider? Are today's PIs [protease inhibitors] a valid
            reference point?
              How should we think about articulating sofosbuvir's
            price--in terms of price per cure? Other more or less
            sophisticated metrics?
              How can we best manage value perceptions of
            sofosbuvir for those patient groups for which SVR% is
            lower? Should we evaluate strategies that offer
            guarantees, e.g., price-per-cure, blended pricing
            maximum across genotypes? \155\
    ---------------------------------------------------------------------------
        \155\ Id. at GS-0019178.

        The last of these questions touched in part on the
    treatment of people with genotype 2 and 3, for which sofosbuvir
    would be the only DAA to gain FDA approval until the July 2015
    approval of Daklinza. The FDA label that was eventually issued
    recommended that genotype 3 patients use the drug for twice as
    long as for genotype 1 patients--24 weeks.\156\ Using the drug
    longer meant paying twice as much--a $168,000 WAC price before
    additional costs for ribavirin--and an increased likelihood of
    side effects such as pruritus and asthenia.\157\ The March 2013
    presentation shows that Gilead anticipated that the headline
    number for cures--more than 90%--would set a higher expectation
    for many patients whose actual outcomes were significantly more
    uncertain.\158\ Some patients taking Sovaldi would pay more for
    a drug that had a lower probability of curing their particular
    HCV genotype or sub-genotype.\159\
    ---------------------------------------------------------------------------
        \156\ SOVALDI Prescribing Information (2013), available at http://
    www.accessdata.fda.gov/spl/data/24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f/
    24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f.xml.
        \157\ Id. at Table 3.
        \158\ Appendix E, Ex. 30, Gilead Sciences, Inc., Sofosbuvir U.S.
    Pricing & Contracting Strategy, SVP Briefing, March 25, 2013, GS-
    0019128, at GS-0019167, GS-0019178, GS-0019182.
        \159\ One of the company's strategic questions in the presentation
    was: ``How can we best manage value perceptions of sofosbuvir for those
    patient groups for which SVR% is lower? Should we evaluate strategies
    that offer guarantees, e.g., price-per-cure, blended pricing maximum
    across genotypes?'' Id. at GS-0019178.
    ---------------------------------------------------------------------------
        Gilead's clinical data showed that the outcomes for
    genotype 3 patients, particularly those with cirrhosis or who
    had undergone previous treatment for HCV (``treatment
    experienced'' or ``TE'') were far less certain than, for
    example, patients with genotype 1 who were non-cirrhotic and
    had never received treatment (``treatment naive'' or
    ``TN'').\160\ The concerns about treating genotype 3 patients
    was especially true in March 2013, when Gilead's pricing team
    only appeared to be evaluating results for 12 weeks of
    treatment, which had an SVR of just 56% for genotype 3 patients
    who were treatment-naive.\161\ Treatment-experienced genotype 3
    patients showed an even lower SVR for 12 weeks--30%--and just
    62% for 16 weeks.\162\
    ---------------------------------------------------------------------------
        \160\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013509.
        \161\ Appendix E, Ex. 30, Gilead Sciences, Inc., Sofosbuvir U.S.
    Pricing & Contracting Strategy, SVP Briefing, March 25, 2013, GS-
    0019128, at GS-0019176.
        \162\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013508. The
    FDA ultimately approved using Sovaldi for 24 weeks in genotype 3
    patients.
    ---------------------------------------------------------------------------
        Gilead also would have been aware that its drug faced
    shortfalls in other patient populations. People with subtype
    genotype1b and cirrhosis had lower SVR rates (82% and 80%,
    respectively) than those with subtype gentoype1a and non-
    cirrhotic (both at 92%).\163\ For patients facing a liver
    transplant, the FDA label recommended using Sovaldi with
    ribavirin for 48 weeks. However, clinical trials showed SVR of
    just 64% following a transplant.\164\ The cost of Sovaldi for
    those patients alone would be $336,000 at wholesale
    prices.\165\
    ---------------------------------------------------------------------------
        \163\ SOVALDI Prescribing Information (2013), available at http://
    www.accessdata.fda.gov/spl/data/24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f/
    24e7ec0a-9f1b-4b63-8e48-53a63cd7c46f.xml.
        \164\  Id.
        \165\ The wholesale price for Sovaldi is $84,000 for 12 weeks, and
    a 48-week prescription would cost four times as much, excluding
    additional costs for interferon and/or ribavirin.
    ---------------------------------------------------------------------------
        Gilead considered adjusting the price downward for patients
    with genotypes 2 and 3, but ultimately set a single price,
    regardless of genotype or clinical effectiveness. Meyers would
    raise this issue with senior executives less than a month
    before sofosbuvir received FDA approval:

            It will be important for us to have a coordinated
            cross-functional characterization of the price of SOF
            at launch, regardless of who we're speaking to
            (advocacy groups, physicians, payers, Wall Street,
            etc.). Part of that characterization (not by any means
            all of it) will be addressing concerns about patients
            who may require 24 weeks of SOF and thus be subjected
            to 2X the cost (GT-3 patients, HIV/HCV co-infected
            patients, etc.). If not handled effectively, this
            concern could dominate the narrative at launch.

            As you know, I raised this concern proactively with
            some of our closest advisors at AASLD. Below was the
            helpful advice from Nid Afdhal (which was very similar
            to that of Ira Jacobson) on how to speak to the fact
            that some patients may need 24 weeks [sic]

            SOF has been developed for a therapy duration of 12
            weeks or less, now and in the future. For the first
            year of launch, there are some patient segments that
            may benefit from 24 weeks of SOF. We are hopeful that
            having an FDA approved indication for a longer duration
            of therapy in these subgroups will induce payers to
            cover SOF and leave a modest cost burden to the patient
            (that Gilead can cover) [sic] \166\
    ---------------------------------------------------------------------------
        \166\ Appendix E, Ex. 33, Email from Jim Myers to David L. Johnson,
    et al., Characterization of SOF pricing at Launch (Nov. 8, 2013), GS-
    0020772, at GS-0020772--GS-0020773.

        In addition to the wholesale price, the presentation showed
    the company beginning to consider the question of its
    contracting strategy with private and public payers. Gilead's
    data showed that commercial payers accounted for 52% of
    Victrelis payments and 63% of Incivek payments during the
    fourth quarter of 2012, with the remaining split among various
    public payers.\167\ Furthermore, as Gilead observed of Incivek
    and Victrelis: ``[t]hough PIs have been widely contracted,
    discounts have been relatively small and geared mostly to
    provide access rather than preferred status.'' \168\ That led
    Gilead to ask additional strategic questions:
    ---------------------------------------------------------------------------
        \167\ Appendix E, Ex. 30, Gilead Sciences, Inc., Sofosbuvir U.S.
    Pricing & Contracting Strategy, SVP Briefing, March 25, 2013, GS-
    0019128, at GS-0019159-60.
        \168\ Id. at GS-0019156.

              Do payers anticipate historic increases in HCV
            expenditures? If so, how do they intend to control
            them?
              What should Gilead do to assuage payers' concerns?
              Is contracting a cost of entry in HCV? Should we
            contract from ``day one''? Should our contracting
            strategy be proactive or reactive? Do we think it's
            going to be a nominal contract?
              Should we make any ``guarantees'' to create greater
            predictability of expenditures for payers? \169\
    ---------------------------------------------------------------------------
        \169\ Id. at GS-0019157.

        Just as importantly, Gilead recognized that because the
    Affordable Care Act (ACA) substantially expanded the number of
    people who qualify for Medicaid, ``the percentage of HCV-
    infected [individuals] with public coverage, specifically
    Medicare and VA, will grow substantially.'' \170\ Even at that
    early stage, Gilead viewed the shift to public payers ``as
    important targets for policy engagement and contracting.''
    \171\ The company also was concerned that its average sales
    price could face ``significant downward pressure'' due to the
    Medicaid expansion and transition of baby boomers onto
    Medicare.\172\ The company questioned whether the WAC should
    incorporate the expectation that prices would be subject to
    pressure, and whether Gilead would need to engage in ``more
    proactive in contracting with government payers.'' \173\
    ---------------------------------------------------------------------------
        \170\ Id. at GS-0019161.
        \171\ Id.
        \172\ Id. at GS-0019163.
        \173\ Id.
    ---------------------------------------------------------------------------

                     May 2013: The Second Pricing Check-in

        Gilead continued its pricing discussions on May 10, 2013,
    when the Sofosbuvir Pricing & Contracting Strategy Working Team
    met for ``SVP Check-in II.'' The meeting was scheduled to last
    90 minutes, and included presentations from Abby Ginsberg, a
    senior manager of marketing sciences at Gilead, and three
    representatives from the consulting firm IMS--Steve Swanson,
    Tom Baker, and Kevin O'Leary.\174\
    ---------------------------------------------------------------------------
        \174\ Appendix E, Ex. 34, Gilead Sciences, Inc., Sofosbuvir Pricing
    & Contracting Strategy Working Team, SVP Check-in II, May 10, 2013, GS-
    0013972, at GS-0013973.
    ---------------------------------------------------------------------------
        Based on the documentation reviewed, this pricing check-in
    was dominated by the results of a study conducted by IMS that
    was intended to determine an access-optimizing pricing strategy
    for the drug. The significant themes from this presentation
    involved Sovaldi's ability to influence the price of future HCV
    products; that a price point of $80,000--$90,000 would be
    acceptable in terms of access, even without significant
    contracting; and pricing concerns for genotype 3 patients and
    non-standard SOC regimes.
        By the time of the May 10 meeting, a strong sentiment had
    emerged within the company that there was a ``clinically
    justified reason for premium pricing,'' according to internal
    interviews that were highlighted in the presentation.\175\
    Other views discussed internally included:
    ---------------------------------------------------------------------------
        \175\ Id. at GS-0013976.

              Optimize price for G1 and develop strategies for
            dealing with G2/3
              Penetrate the market upfront to maximize sofo
            experience
              Exploring price per cure messaging is critical
              Leave plenty of room in the gross to net assumptions
            for Wave 2 \176\
    ---------------------------------------------------------------------------
        \176\ Id.

        Several anonymous quotes from company officials were
    included in the presentation slide, such as ``Vertex moved the
    conversation with managed to care [sic] to pricing per cure and
    I think that we can make that argument better.'' \177\ That
    statement likely reflects that until the introduction of
    protease inhibitors to the market, there had not been a
    sufficiently effective cure against which a reasonable pricing
    method could be justified. Now that Gilead was on the cusp of
    introducing a more effective cure for genotype 1 patients than
    had previously been introduced, the internal view was that
    Gilead should follow other companies in using a price-per-cure
    method (rather than a price-per-regimen method), which would
    ultimately justify higher unit pricing.
    ---------------------------------------------------------------------------
        \177\ Id.
    ---------------------------------------------------------------------------
        To further pinpoint a price for the product's market
    introduction, IMS was hired to ``determine the access-
    optimizing price point for its novel HCV therapy sofosbuvir in
    support of the brand's U.S. launch,'' with a goal ``to
    anticipate payer access and management strategies for
    sofosbuvir in order to determine the access-optimizing pricing
    strategy.'' \178\ It was charged with gauging the product's
    value for providers and payers, developing the expected mix of
    private and public payers with which Gilead would interact, and
    prioritizing the most important accounts, both for market
    access and contracting strategies.\179\
    ---------------------------------------------------------------------------
        \178\ Id. at GS-0013981.
        \179\ Id.
    ---------------------------------------------------------------------------
        Meyers told investigative staff that IMS contacted over 90
    payers and asked them what value they saw in the proposed
    label.\180\ The communications were made in a double-blind
    fashion--the client was not aware of the payers' identities,
    and vice-versa.\181\ Payers were presented with clinical
    attributes and other information about a given drug, but were
    not provided the name or company developing it.\182\
    ---------------------------------------------------------------------------
        \180\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Dec. 1, 2014).
        \181\ Id.
        \182\ Id.
    ---------------------------------------------------------------------------
        IMS began its portion of the presentation by highlighting
    an Express Scripts report that showed drugs used to treat HCV
    made up less than 1% of Express Scripts' PMPY (per-member-per-
    year) drug spending in 2012. With a PMPY of $7.82, HCV was
    behind the four most expensive therapy classes--inflammatory
    conditions ($50.62), multiple sclerosis ($37.98), cancer
    ($31.93), and HIV ($20.78).\183\ The relatively low spending on
    HCV drugs fit into Gilead's view that HCV was being
    undertreated and was a potent commercial opportunity. Express
    Scripts was a bellwether because it is the largest pharmacy
    benefit manager, as measured by market share.
    ---------------------------------------------------------------------------
        \183\ Appendix E, Ex. 34, Gilead Sciences, Inc., Sofosbuvir Pricing
    & Contracting Strategy Working Team, SVP Check-in II, May 10, 2013, GS-
    0013972, at GS-0013979--GS-0013980.
    ---------------------------------------------------------------------------
        IMS asked payers not only about Sovaldi, but also
    anticipated products, Harvoni and AbbVie's Viekira Pak. In the
    presentation, IMS described Sovaldi as the first wave of a two-
    step drug release strategy for Gilead. The second wave would be
    Harvoni, which would be interferon-free and would compete with
    Viekira Pak.\184\ In the executive summary, IMS laid out top
    level results of the surveys, first from a clinical point of
    view:
    ---------------------------------------------------------------------------
        \184\ Id. at GS-0013983.

              Wave 1 sofosbuvir was seen to be a clear winner over
            the current standard of care in GT-1 and GT-2, while
            GT-3 was generally not well-received (at least in
            treatment naive patients)
              AbbVie's regimen was highly valued, despite the
            complicated regimen burden, and was favored by payers
            over IFN-containing regimens, including sofosbuvir Wave
            1
              Wave 2 was the unanimously preferred regimen over
            all profiles tested and was driven by a multitude of
            clinical factors, including co-infected data, limited
            side effects, once daily oral dosing, and SVR \185\
    ---------------------------------------------------------------------------
        \185\ Id.

        IMS noted that Managed Medicaid payers ``did appear
    slightly less enthusiastic'' about Sovaldi's clinical
    attributes.\186\ Likewise, while payers recognized a
    ``significant step for advancing HCV treatment,'' the
    expectation of a high price was flagged by three payers that
    ``immediately cited their concerns that the product would be
    expensive due to all the improvements relative to the current
    treatment options.'' \187\
    ---------------------------------------------------------------------------
        \186\ Id. at GS-0013985.
        \187\ Id. at GS-0013986 (emphasis in original).

        The executive summary then laid out ``Wave 1 Pricing
    ---------------------------------------------------------------------------
    Strategy,'' for Sovaldi:

              Pricing potential varied across payer segments
            although acceptable pricing with equal access was
            widely achievable at up to $80-90K; access will always
            have a PA [prior authorization] to the label in HCV and
            a hard step through current products was seen to be
            quite difficult
              Gilead could feasibly influence AbbVie's pricing by
            capturing a high price with Wave 1, which is most
            likely to be the price reference for AbbVie at the time
            of their launch \188\
    ---------------------------------------------------------------------------
        \188\ Id. at GS-0013983.

        IMS suggested that pricing at ``$80-90K'' was
    ``acceptable'' and would provide ``equal access.'' \189\ IMS
    also assumed that AbbVie would enter the market at a high price
    and that Gilead could capture that price point by entering high
    as well.\190\ The potential price point for AbbVie appears to
    be a building block for the price Gilead ultimately would use
    for Sovaldi:
    ---------------------------------------------------------------------------
        \189\ Id.
        \190\ Id.

              If AbbVie launches before Wave 2, it will become the
            new price reference and drive payer reactions to Wave 2
            list prices
              Despite the significantly better clinical
            perception, Wave 2 will likely need to be within a 10-
            15% price range to AbbVie's regimen to avoid being
            disadvantaged on access because of equal SVR
              For Wave 2, contracting could be valuable with
            payers who might prefer AbbVie's 3-DAA based on a lower
            price; the goal would be to allow Gilead to have equal
            market access and compete among docs \191\
    ---------------------------------------------------------------------------
        \191\ Id.

        The presentation then turned its attention to ``Wave 2
    Pricing Strategy,'' for what would eventually be called
    Harvoni. IMS was even more explicit about the opportunity
    Gilead had to set a high price if Sovaldi was brought to the
    market first, and the pricing downside the company faced if it
    ---------------------------------------------------------------------------
    was beaten to the market by AbbVie:

              Gilead's [drug] has the first mover advantage with
            Wave 1, which gives the possibility to set a higher
            price reference for the market
              If AbbVie's 3-DAA comes to the market before Wave 2,
            it will become SoC and Wave 2 will not be able to
            command a premium over it if equal market access is the
            goal \192\
    ---------------------------------------------------------------------------
        \192\ Id. at GS-0013992.

        These suggested strategies show the importance that market
    competition likely had on Gilead's approach to pricing and
    contracting its HCV drugs. The presentation also delved into
    cost issues regarding non-genotype 1 patients. Although
    genotype 2, 3, and 4 patients make up a minority (20-25%) of
    HCV patients in the United States, treatment costs would be
    much higher given the additional amount of time needed for
    treatment. For example, at the time, the only other FDA-
    approved treatment for genotype 3 patients was 24 weeks of
    pegylated interferon and ribavirin, which had a wholesale cost
    of $18,150; whereas Sovaldi plus pegylated interferon and
    ribavirin for genotype 3 patients required 24 weeks, pushing
    the wholesale cost of treatment above $168,000--more than nine
    times the previous SOC. This price increase was in the face of
    concern from payers that genotype 3 trials demonstrated only
    slight improvements to the then-current standard of care,
    interferon and ribavirin; the slide characterized the data from
    trials as ``seen to be weak relative to IFN/Ribavirin alone.''
    \193\
    ---------------------------------------------------------------------------
        \193\ Id. at GS-0013993 (emphasis in original).
    ---------------------------------------------------------------------------
        IMS added additional detail to its preliminary conclusions
    regarding how Gilead should engage in a contracting strategy
    throughout 2014. First, IMS said that ``contracting was not
    seen to be mandatory for sofosbuvir in Wave 1,'' and that
    ``access will likely be achieved without active payer
    engagement via contracting.'' \194\ Contracting also should
    only be undertaken as a ``sign of good faith.'' \195\ It
    suggested a potential contracting approach in which Gilead
    ``[c]ontract only with the high level of control payers that
    may block Wave 1 at high prices and only implement traditional
    rebate +/- performance kickers.'' \196\
    ---------------------------------------------------------------------------
        \194\ Id.
        \195\ Id.
        \196\ Id.
    ---------------------------------------------------------------------------
        Furthermore, for Wave 2, i.e. Harvoni, the potential
    contract approach was to ``[c]ontract selectively only with
    payers preferring AbbVie to gain equal access and compete for
    physicians, who will likely prefer Gilead's easier regimen.''
    \197\ IMS told Gilead that ``[p]ayers expect significant
    contracting opportunities when both AbbVie and Wave 2 are on
    the market due to comparable SVR, which drives payers to see
    interchangeability,'' although ``[p]ayers would, however,
    expect Gilead to have to offer less given the improved pill
    burden.'' \198\
    ---------------------------------------------------------------------------
        \197\ Id.
        \198\ Id.
    ---------------------------------------------------------------------------
        The IMS consultation may have reinforced the internal view
    that Gilead's line of drugs should be sold at a premium price.
    IMS reported that payers evaluating SVR data had a ``very
    strong perception of GT-2 data . . . GT-1 was also well-
    received to nearly all payers though slightly less so than the
    GT-2 data,'' and that the ``improved dosing/duration'' were
    ``very favorable drivers of value.'' \199\ IMS also reinforced
    the company's expectation that it would not compete on price,
    but instead on its ability to treat patients. Lastly, it shows
    that Gilead expected the price it set for Sovaldi to be a
    benchmark from which per-unit prices could increase.
    ---------------------------------------------------------------------------
        \199\ Id. at GS-0013985 (emphasis in original).
    ---------------------------------------------------------------------------
        IMS also presented analyses of how Gilead could approach
    setting a price from a ``regimen pricing argument'' similar to
    Gilead's first SVP Check-In two months earlier. For genotype 1
    patients using Incivek, the FDA called for up to 48 weeks of
    pegylated interferon/ribavirin. The new sofosbuvir regimen
    would only require 12 weeks--a potential savings of more than
    $27,000 at wholesale costs. Instead of passing the potential
    savings onto payers, IMS suggested an approach in which the
    savings would be added to sofosbuvir's topline revenue. IMS
    calculated that the Incivek regimen would cost $95,766 \200\ of
    which roughly $35,000 could be attributed to interferon and
    ribavirin. That left roughly $25,000 of ``potential savings
    capture'' from the shorter regimen of interferon and ribavirin
    that could be added to sofosbuvir's price. On the slide, IMS
    noted:
    ---------------------------------------------------------------------------
        \200\ IMS used 12 weeks of Incivek plus 48 weeks of ribavirin and
    interferon as a reference. See id. at GS-0014017.

              Sofosbuvir will clearly benefit from comparison to
            the current triple regimen cost because of shorter
            duration and less INF/ribavarin [sic]
              Payer price sensitivity toward regimen costs compels
            a choice of pricing strategy that maximizes revenue for
            a single regimen
              Generally, payers will look at the cost of single
            agents in terms of PMPM \201\ for underwriting
            purposes, but the P&T \202\ will certainly consider
            course of therapy \203\
    ---------------------------------------------------------------------------
        \201\ ``Per Member Per Month'' is a calculation of the monthly
    average cost of services provided to individuals.
        \202\ ``Pharmacy and Therapeutics Committees'' are made up of
    physicians, pharmacists, and other health professionals, who together
    manage and update a provider's formulary, and set policies for use of
    different drugs.
        \203\ Appendix E, Ex. 34, Gilead Sciences, Inc., Sofosbuvir Pricing
    & Contracting Strategy Working Team, SVP Check-In II, May 10, 2013, GS-
    0013972, at GS-0013988 (emphasis in original).

        The potential $85,000 price was included in tables with
    three other price benchmarks--less than $67,000, $100,000, and
    more than $120,000--showing how commercial, Medicaid, and
    Medicare payers might restrict access at different price
    points. Across each of the payer categories, access for
    genotype 1 patients became increasingly restrictive as the
    price rose. However, IMS concluded that ``most payers are
    willing to accept at least $85k for GT-1 before considering
    additional access restrictions over the current PIs.'' \204\
    Payers were more reluctant to accept that cost for genotype 2
    and 3 patients where data showed relatively minor improvements
    in terms of cure rates.\205\ As IMS summarized, ``GT-2/3 posed
    more difficulties to payers at the tested price points, and GT-
    3 in particular pushed many payers to look for heavy
    restrictions or block sofosbuvir completely.'' \206\
    ---------------------------------------------------------------------------
        \204\ Id. at GS-0013989.
        \205\ Id. at GS-0013990.
        \206\ Id. at GS-0013990.
    ---------------------------------------------------------------------------
        In a third table summarizing potential prices for Harvoni's
    eventual release, IMS concluded ``[s]ofosbuvir in Wave 2 was
    widely seen as achieving a $100K price point although the
    competitive implications of AbbVie pricing will clearly
    influence achievable pricing.'' \207\
    ---------------------------------------------------------------------------
        \207\ Id. at GS-0013991.
    ---------------------------------------------------------------------------
        The IMS view on pricing strategy was built at least partly
    on the experience that other drug companies had in introducing
    earlier HCV treatments, which IMS used as a case study.\208\
    For example, in 1998 the Schering Corporation introduced
    Rebetron, which combined interferon and ribavirin in a single
    package.\209\ IMS observed that ``through aggressive price
    increases, Schering doubled the cost of HCV therapy over 3-4
    years following Rebetron launch.'' \210\ Rebetron was reported
    to cost between $15,600 and $17,300 for a yearlong therapy, or
    $1,300 to $1,440 a month.\211\
    ---------------------------------------------------------------------------
        \208\ Id. at GS-0013995--GS-0013999.
        \209\ Lauran Neergaard, FDA Approves Potent Hepatitis C Drug,
    Associated Press (June 3, 1998).
        \210\ Appendix E, Ex. 34, Gilead Sciences, Inc., Sofosbuvir Pricing
    & Contracting Strategy Working Team, SVP Check-In II, May 10, 2013, GS-
    0013972, at GS-0013996.
        \211\ Denis Grady, Group Finds a Way to Offer a Hepatitis C Drug
    for Less, N.Y. Times (June 30, 1999), available at http://
    www.nytimes.com/1999/06/30/us/group-finds-a-way-to-offer-a-hepatitis-c-
    drug-for-less.html.
    ---------------------------------------------------------------------------

            July 2013: The Final Pricing and Access Recommendations

        On July 31, 2013, Gilead's pricing team gave Meyers final
    pricing and access recommendations. The documentation from the
    July timeframe indicated a belief that price sensitivity would
    begin at $90,000 and a recognition of potential public payer
    restrictions. There were also deep concerns about wave 2
    pricing because of prospective competition and a continued
    confidence in the clinical efficacy of the drug in comparison
    to the prices for existing regimens and other factors
    justifying a higher price. At the time, the contracting
    strategy began to take more detailed shape.
        The slide presentation included analysis of the expected
    tradeoffs of increasing the price of Sovaldi--revenue would
    rise but the number of patients receiving the drug would
    decline. (See slide below). It also showed that Gilead was
    aware it was in a position to create clear savings for payers,
    but chose to pursue a ``regimen neutral'' price justified by
    ``cost-per-cure'' calculations that resulted in greater revenue
    per treatment than previous DAAs. The company had received
    feedback from payers that ``[g]iven the significant
    improvements in efficacy and tolerability and high level of
    physician demand, SOF enjoys substantial pricing freedom in
    Wave 1,'' that ``price sensitivity begins at $90k for subset of
    payers [sic],'' and ``that even at a high price differential it
    is unlikely they would impose step edits through inferior
    regimens (PIs or simeprevir).'' \212\
    ---------------------------------------------------------------------------
        \212\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014026.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The presentation predicted that 24% of the payers it had
    surveyed would institute access restrictions of some sort for
    genotype 1 patients if Sovaldi were priced at $75,000, and that
    47% would institute restrictions at $90,000.\213\ For genotype
    2 patients, 33% of payers were predicted to institute
    restrictions at a price of $75,000, and 43% at $90,000; for
    genotype 3 patients, restrictions at the two price points were
    expected to be 37% and 51%, respectively.\214\
    ---------------------------------------------------------------------------
        \213\ Id. at GS-0014029.
        \214\ Id. at GS-0014029--GS-0014030.
    ---------------------------------------------------------------------------
        The presentation concluded that ``[t]he optimal range for
    Wave 1 pricing based on revenue/uptake trade-offs is likely
    $85-$95K, though other softer factors must be considered,'' and
    ultimately recommended that the price be ``between $80K to $85K
    per course of therapy.'' \215\ The presentation picked up on
    other themes that had been discussed and analyzed in previous
    presentations, including:
    ---------------------------------------------------------------------------
        \215\ Id. at GS-0014053.

            1.  Gilead has considerable pricing potential with
            sofosbuvir in Wave 1 without major access consequences,
            but the pricing potential for future launches will be
            constrained by competition
            2.  Long term sofosbuvir franchise value will be driven
            by a high price capture opportunity in Wave 1 and a
            volume capture in Wave 2 and beyond \216\
    ---------------------------------------------------------------------------
        \216\ Id. at GS-0014053 (emphasis in original).

        As noted above, one of Gilead's considerations for Wave 1
    prices, i.e., Sovaldi, was the potential to achieve a high
    price for Wave 2, i.e., Harvoni. The ``value capture
    opportunity is in Wave 1,'' the presentation stated, and ``Wave
    2 access will be enhanced with a high Wave 1 price.'' \217\ It
    went on to say that ``[a]t any price, access for Wave 2
    improves as the price for Wave 1 is increased, suggesting that
    Wave 1 will set a price benchmark against which Wave 2 will
    ultimately be evaluated.'' \218\ It also noted that the
    introduction of market competition would change the pricing
    environment. The ``[c]ompetitive threat from AbbVie and
    [Bristol-Myers Squibb] will be critical factors for the Wave 2
    market access strategy as these regimens could drive payers to
    disadvantage sofosbuvir under select scenarios, especially if
    efficacy is comparable among all the regimens and there is a
    large price differential.'' \219\
    ---------------------------------------------------------------------------
        \217\ Id. at GS-0014026.
        \218\ Id.
        \219\ Id.
    ---------------------------------------------------------------------------
        There was particular concern about competition posed by
    Bristol-Myers Squibb's drug candidate, daclatasvir, ``being
    used to break up the sofosbuvir [single tablet regimen].''
    \220\ Bristol-Myers was singled out several times in the
    presentation as a constraining factor for the eventual pricing
    of Harvoni, underscoring the need that it was important Sovaldi
    ``[e]stablishes high benchmark for Wave 2.'' \221\ Gilead
    believed the Bristol-Myers Squibb combinations, with fewer
    pills, could pose a market share risk to AbbVie, and ``could be
    a threat to Gilead depending on price,'' \222\ limiting
    Gilead's ability to charge a premium for Harvoni. The
    presentation stated, ``[w]ave 1 pricing will impact the imputed
    sub-WAC value of ledipasvir, therefore determining the value
    capture opportunity for a sofosbuvir + daclatasvir
    combination'' and ``[t]hese considerations re-enforce the
    limitations on taking a premium in Wave 2, as a large
    difference between the two regimens would make NS5A
    substitution significantly more appealing to payers.'' \223\ As
    noted above, the FDA approved a Daklinza-Sovaldi combination
    for genotype 3 patients on July 24, 2015 that was submitted by
    Bristol-Myers Squibb.
    ---------------------------------------------------------------------------
        \220\ Id. at GS-0014027.
        \221\ Id. at GS-0014052.
        \222\ Id. at GS-0014027.
        \223\ Id.
    ---------------------------------------------------------------------------
        The presentation sought to assure executives that Gilead
    would have ample justification to price its HCV drug at a
    premium level. Gilead had weathered criticism for pricing
    decisions in the recent past, coming under scrutiny for its
    decision to charge $28,500 for the AIDS drug Stribild. One
    activist derided Stribild's price at the time of FDA approval
    as ``shockingly irresponsible,'' \224\ and 13 congressmen
    expressed concern in a letter to CEO John Martin about the
    effects of Gilead's drug-pricing decisions on the AIDS Drug
    Assistance Program.\225\ The presentation stated ``HCV is very
    much unlike HIV and, while exercising caution based on the
    Stribild launch is understandable, sofosbuvir is quite
    different.'' \226\ It went on to detail the ``sofosbuvir
    opportunity relative to Stribild,'' with the following lists:
    ---------------------------------------------------------------------------
        \224\ Andrew Pollack, F.D.A. Approves Once-A-Day Pill for H.I.V.,
    N.Y. Times (Aug. 27, 2012), available at http://www.nytimes.com/2012/
    08/28/business/fda-approves-once-a-day-pill-for-hiv.
    html?_r=0.
        \225\ Press Release, Office of U.S. Representative Alcee Hastings,
    Hastings Expresses Concern over HIV Drug Price Increases, ADAP (Aug. 1,
    2012), available at http://alceehastings.house.gov/news/
    documentsingle.aspx?DocumentID=327935.
        \226\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014021.

    ------------------------------------------------------------------------
            Sofosbuvir Wave 1 is . . .                  Implications
    ------------------------------------------------------------------------
    1. Substantially better than standard of     Market access in HIV is
     care across metrics.                        significantly different
                                                 than market access in HCV
    2. In a therapy area where there is          Prescribing physicians are
     significant unmet need.                     comfortable with prior
                                                 authorizations and
                                                 recognize that they are
                                                 part of ``standard
                                                 operating procedures''
    3. In a therapy area where prior             Stribild is not viewed by
     authorizations are the norm.                payers as having
                                                 substantially better
                                                 efficacy than current
                                                 products and view it
                                                 largely as a convenience
                                                 value story
    4. Being researched with more rigor than     Sofosbuvir demonstrates
     the Stribild launch.                        substantially better data
                                                 in both efficacy and
                                                 convenience as well as
                                                 other metrics that are
                                                 important to payers and
                                                 represents significant
                                                 clinical value \227\
    ------------------------------------------------------------------------

        Gilead remained confident that Sovaldi's ability to
    increase SVR for most patients, coupled with reduced time on
    interferon and ribavirin, was ample justification for increased
    pricing: ``A price of $80-$85K does represent >30% premium to
    Incivek on a molecule price [sic], however, the product is
    delivering better outcomes for those dollars.'' \228\ The
    presentation touched on how payers might end up justifying
    paying for multiple rounds of treatment with some patients:
    ``[p]ayers are currently paying significantly more than the
    price of Incivek to achieve an outcome, so regimen cost is
    critical.'' \229\ The company also included ``future market
    considerations'' justifying their pricing:
    ---------------------------------------------------------------------------
        \227\ Id. (emphasis in original).
        \228\ Id. at GS-0014022.
        \229\ Id.

              Healthcare reform has incentives to pay for value,
            which aligns with what sofosbuvir will deliver (even if
            it is not the least expensive agent)
              While it is true that budgets are not infinite,
            higher cost products can be preferred if actually
            demonstrating strong real world outcomes \230\
    ---------------------------------------------------------------------------
        \230\ Id.

        Gilead presented multiple pricing scenarios for Sovaldi,
    numbered one through five--$50,000, $60,000, $80,000, $95,000,
    and $115,000 (the company assumed each would have an additional
    $10,000 worth of interferon/ribavirin).\231\ Those prices were
    compared to the price for Incivek plus interferon/ribavirin
    ``at launch'' ($81,000) and ``today'' ($99,000).\232\ The
    company concluded that ``[r]elative to the current cost of
    Incivek, sofosbuvir would most likely provide savings to payers
    at molecule prices <$80k.'' \233\ The company relied on a cost-
    per-cure justification for a higher price--``[s]avings are
    still likely at a sofosbuvir product cost of $95K, especially
    considering sofosbuvir's superior SVR and the significant rates
    of treatment failure/abandonment associated with Incivek.''
    \234\
    ---------------------------------------------------------------------------
        \231\ Id. at GS-0014024.
        \232\ Id.
        \233\ Id. (emphasis in the original).
        \234\ Id.
    ---------------------------------------------------------------------------
        The company also considered the effect of selling to
    substantial government payers, such as Medicaid, 340B, and the
    VA, which it termed ``sub-WAC channels,'' where pricing would
    be ``substantially lower than the Commercial market.'' \235\
    The company expected the payer mix for treatment of HCV to be
    heavily weighted toward various public payer insurance
    programs, growing from 34% in 2012 to as much as 58% by
    2016.\236\
    ---------------------------------------------------------------------------
        \235\ Id. at GS-0014025.
        \236\ Id. at GS-0014028.
    ---------------------------------------------------------------------------
        Like their commercial counterparts, Gilead expected most
    Medicaid and Medicare payers would likely provide ``preferred
    access'' to Sovaldi if the drug were priced below $80,000.
    Above that price, all three payer categories were expected to
    begin implementing some sort of restrictions on access,
    particularly for patients with genotype 2 or genotype 3.\237\
    ---------------------------------------------------------------------------
        \237\ Id. at GS-0014033--GS-0014035.
    ---------------------------------------------------------------------------
        For other payer groups, Gilead recognized that ``[n]on-
    traditional segments widely vary in price sensitivity and some
    degree of contracting is likely required regardless of price''
    to secure access.\238\ For the VA, that meant ``discount for
    access.'' \239\ For integrated delivery networks (IDN) such as
    Kaiser Permanente, ``these price levels will likely not provide
    access and demand contracts.'' \240\ For Departments of
    Corrections, ``possible discount for access, though may not be
    a Gilead target.'' \241\ A key consideration for the company
    was that Gilead would be ``generally pushing the upper comfort
    level for IDN payers.'' \242\
    ---------------------------------------------------------------------------
        \238\ Id. at GS-0014036.
        \239\ Id.
        \240\ Id.
        \241\ Id.
        \242\ Id.
    ---------------------------------------------------------------------------
        This presentation was the first in which Gilead discussed
    contracting strategy in detail and its unwillingness to
    discount from the WAC price to gain access on payers'
    formularies and/or preferred drug lists. The company planned to
    limit its contracting because ``[r]eactive contracting with low
    rebates should be sufficient in many channels although
    proactive strategies will be required elsewhere.'' \243\
    ---------------------------------------------------------------------------
        \243\ Id. at GS-0014037.
    ---------------------------------------------------------------------------
        To determine where to contract, Gilead identified ``market
    influencers'' in different payer categories that were tightly
    managing access to HCV drugs already on the market.\244\ In the
    commercial space the market influencers included companies like
    Aetna, Regence, and Blue Cross Blue Shield Michigan; in
    Medicare Part D, Coventry and Emblem Health; and in managed
    Medicaid states, such as Missouri, Illinois, Louisiana, and
    California.\245\ For Department of Corrections and Medicaid
    fee-for-service payers, the primary target was California,
    which represented ``12% of the overall DOC payer segment,''
    and ``10% of channel,'' respectively.\246\ Gilead planned to
    use a ``proactive approach'' with Kaiser Permanente and the
    VA.\247\ In all cases, the company planned to offer 5% to 10%
    discounts off the WAC price.\248\
    ---------------------------------------------------------------------------
        \244\ Id. at GS-0014031--GS-0014037.
        \245\ Id. at GS-0014033, GS-0014035.
        \246\ Id. at GS-0014037.
        \247\ Id.
        \248\ Id. at GS-0014031--GS-0014037.
    ---------------------------------------------------------------------------
        The company examined the implications of pricing Sovaldi at
    various levels, and how different prices would affect the
    company's standing amongst stakeholders, the value to
    shareholders and reputational risks. The lowest prices posed
    the least risk, but the least financial upside.\249\ Gilead
    determined that ``[w]hile pricing at $50-60K would promote
    preferred status, it will result in significant unrealized
    revenue.'' \250\ It continued:
    ---------------------------------------------------------------------------
        \249\ Id. at GS-0014047.
        \250\ Id. at GS-0014048.

              Pricing at $50K
                PROS: Gilead could build substantial ``good
            will'' with the payer community and will gain
            widespread ``preferred'' market access across nearly
            every payer segment in the market
                CONS: What Gilead could achieve at $50K would
            also be achievable at much higher prices, suggesting
            significant foregone revenue; despite pricing at this
            level, activists are still likely to voice
            dissatisfaction with the strategy

              Pricing at $60K
                PROS: Gilead very unlikely to face any access
            issues from the major market segments and will be
            enabling payers to pay substantially less per patient
            on a regimen basis relative to incumbent products
                CONS: Gilead not realizing a substantial
            revenue amount and Wave 1 price would fall below the
            access-optimizing price; furthermore, achieving more
            than an $80K Wave 2 price will be unlikely, eroding
            shareholder value \251\
    ---------------------------------------------------------------------------
        \251\ Id.

        At the next price level, $80,000, the company identified
    ``external considerations'' to be the primary risk, that is,
    how consumer groups would react to the price.\252\ Gilead
    concluded ``[a]t $80K, widespread parity access will be the
    norm, with strong physician and patient preferences driving
    significant uptake.'' \253\ It then considered the effects on
    four different groups: \254\
    ---------------------------------------------------------------------------
        \252\ Id. at GS-0014049.
        \253\ Id.
        \254\ The abbreviations include PA (prior authorization, which
    payers can use to restrict access), PIs (protease inhibitors), SIM
    (simeprevir, a.k.a. Olysio), and KOLs (key opinion leaders).
    ``Janssen'' refers to Johnson & Johnson's pharmaceutical arm that
    developed Olysio.

             Payer Considerations
                Given that SOF will be cheaper than most PIs
            on a regimen basis, payers are highly unlikely to
            manage access at $80K (beyond PA to label), instead
            placing it at parity to current treatments and leaving
            the decision to physicians

             Physician/Patient Considerations
                SOF will be the clear favorite of physicians
            and patients considering its equivalent (or cheaper)
            total cost, significantly improved SVR, decreased
            duration, and reduced side effect burden relative to
            PIs

             Competitive Considerations
                An aggressive pricing strategy for
            [simeprevir] could create some challenges for SOF in
            some high control accounts, but a low price strategy
            would be value-
            destroying for Janssen

             External Considerations
                As with all prices, advocacy groups will
            criticize pricing, likely focusing on the product cost
            without accounting for the total regimen discount
                While a select subset of KOLs (key opinion
            leaders) will be vocal about their concerns, a change
            in guidelines is highly unlikely at this price \255\
    ---------------------------------------------------------------------------
        \255\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014049.

        At $95,000, which the company had identified earlier in the
    document as an ``inflection point,'' risks from physicians,
    patients, and competing companies increased. Gilead summarized
    the landscape: ``[p]ayer pushback is more likely . . . but
    strict management will remain difficult to the significantly
    improved clinical profile.'' More specific considerations
    included: \256\
    ---------------------------------------------------------------------------
        \256\ OOP is Out of Pocket expenses; 3-DAA is triple direct-acting
    antiviral; BMS is Bristol-Myers Squibb.

             Payer Considerations
                The majority of payers are still unlikely to
            impose anything above a soft step at $95K, although
            certain high-control plans such as the VA and Kaiser
            may require additional contracting or cost-
            effectiveness data to ensure access

             Physician/Patient Considerations
                Given the strength of the profile and modest
            premium to PIs, physician preferences will remain
            largely unchanged
                Patients will continue to prefer sofosbuvir,
            with most OOP (out-of-pocket) issues easily addressable
            via co-pay programs

             Competitive Considerations
                At this price, an AbbVie premium for 3-DAA
            would break the $100K threshold, which they may elect
            to avoid
                Irrespective of Wave 2 price, as Wave 1 price
            rises, the capturable [sic] opportunity for BMS expands
            \257\
    ---------------------------------------------------------------------------
        \257\ This observation refers to Gilead's concern about daclatasvir
    being paired with other companies' drugs, including sofosbuvir.

             External Considerations
                Advocacy group criticism will intensify but
            overall impact will be similar
                While increasing numbers of KOLs may voice
            concern, guideline modification remains unlikely given
            the modest premium to PI regimens vs. the significant
            clinical improvements \258\
    ---------------------------------------------------------------------------
        \258\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014050.

        Finally, the company considered the highest end of its
    proposed price range--$115K. At that point, external risks were
    considered to be at their highest (as denoted by a circle
    filled with red).\259\ Other factors registered high risk, but
    their respective circles were only two-thirds red, indicating
    less concern.\260\ Gilead expected ``[s]trict management and
    guideline restrictions may appear at $115K, with usage in GT-2
    and GT-3 presenting a potential target for payers.'' \261\ More
    specifically:
    ---------------------------------------------------------------------------
        \259\ Id. at GS-0014051.
        \260\ Id.
        \261\ Id.

             Payer Considerations
                At $115K, many payers will attempt to
            disadvantage sofosbuvir through tier differentials and
            soft steps; while hard steps are possible, it will
            remain extremely difficult to step patients through an
            inferior regimen

             Physician/Patient Considerations
                Physicians will still prefer sofosbuvir to PI
            regimens, but a limited number may reduce usage or
            consider warehousing
                Usage in GT-3 and, to a lesser extent, GT-2
            will become increasingly difficult to justify,
            particularly for TN patients

             Competitive Considerations
                Competitor pricing would be informed by
            Gilead's access experience, and risks of discounts rise
                This price translates into $38K reduction in
            SOF costs if Wave 2 is only 8 weeks, heightening price
            pressure from BMS

             External Considerations
                High levels of advocacy group criticism and
            negative PR/competitive messaging could be expected at
            $115K and it would be increasingly difficult to manage
            at these levels
                Select KOLs may intensify their push for
            guideline modification \262\
    ---------------------------------------------------------------------------
        \262\ Id. at GS-0014051.

        With a price range established for senior management to
    consider, the company's pricing team summarized what Gilead
    should expect if the drug were priced at $80,000 to $85,000,
    including the expectation that certain patients would have
    problems accessing the drug, and that contracting would be
    ---------------------------------------------------------------------------
    necessary for certain payers:

              Sofosbuvir will have a PA to the label, which will
            mean very limited, if any, access for treatment
            experienced patients; naives will be accessible
              Gilead will need to contract with the VA, Kaiser,
            and likely additional plans on the fringes who may
            restrict sofosbuvir
              Advocacy groups will be vocal at any price and a
            minority of KOLs may voice concern \263\
    ---------------------------------------------------------------------------
        \263\ Id. at GS-0014054.

    ---------------------------------------------------------------------------
        It also set an action plan with priorities for Gilead:

              While restrictions based on fibrosis score are
            unlikely, Gilead needs to be prepared to answer
            questions about which patients and why
              It will be critically important to communicate to
            payers the clinical value that SOF creates and to be
            prepared in advance to answer questions regarding in
            which patients SOF should be used
              Gilead should proactively identify key accounts and
            develop a plan for messaging to them immediately
            following launch to ensure access
              Ensure that payers understand the population Gilead
            is aiming to treat and to reinforce that the population
            is not in the millions, as some believe \264\
    ---------------------------------------------------------------------------
        \264\ Id.

        This presentation shows that Gilead set a price as high as
    it thought acceptable before significant access restrictions
    would be imposed. Its analysis indicated that pricing in the
    $80,000 to $85,000 range would deliver this result for the
    majority of genotype 1 patients, though not for other patient
    groups. As discussed later in this report, Gilead's analyses
    were ultimately incorrect on this point as many payers adopted
    access restrictions at the final price of $84,000. Even when
    the scope of these restrictions became manifest in mid-2014,
    Gilead did not alter its approach.
        The presentation's final slide was devoted to patient
    support programs such as co-pay coupon programs, donations to
    two independent non-profit patient assistance foundations, and
    patient assistance programs (PAP). These programs were designed
    to ``ensure there is no gap in coverage and impact from pricing
    & contracting decisions.'' \265\
    ---------------------------------------------------------------------------
        \265\ Id. at GS-0014058.
    ---------------------------------------------------------------------------
        In its April 2015 report, Medicines Use and Spending
    Shifts, the IMS Institute states ``[m]anufacturers commonly
    provide coupons when their brand is not covered on a
    formulary,'' and ``[i]ncreasingly, coupons are being used
    around the launch of an innovative brand to eliminate barriers
    to patients considering new medicines.'' \266\ Any loss on co-
    payment (typically a small percentage of a drug's price) is
    made up by the insurance company's portion. Industrywide, co-
    pay coupons were used for 8% of total prescriptions in 2014
    compared to 3% in 2011, 5% in 2012 and 6% in 2013.\267\
    However, co-pay coupons may not be used for federally funded
    health care programs.\268\
    ---------------------------------------------------------------------------
        \266\ IMS Institute for Healthcare Informatics, Medicines Use and
    Spending Shift, at 25.
        \267\ Id.
        \268\ Office of the Inspector General, U.S. Department of Health
    and Human Services, Special Advisory Bulletin: Pharmaceutical
    Manufacturer Copayment Coupons, September 2014, available at http://
    oig.hhs.gov/fraud/docs/alertsandbulletins/2014/
    SAB_Copayment_Coupons.pdf.
    ---------------------------------------------------------------------------
        The copay coupons, used to pay the deductibles or
    coinsurance for commercial customers, were expected to cost the
    company between $10 million and $15 million, depending on the
    WAC price ($60,000 to $100,000).\269\ The Foundation support
    would cost $100 million at $60,000, with costs growing about $5
    million for every incremental price increase of $10,000.\270\
    The PAP did not add additional costs, but instead was foregone
    revenue--it was a cost of goods sold for 6,000 uninsured
    patients and 6,000 pre-transplant patients.\271\ Although this
    presentation outlined the company's initial approach to its
    patient support programs, the strategy of providing such
    benefits evolved as payer access restrictions began to be
    imposed, as discussed in section 4 of this report.
    ---------------------------------------------------------------------------
        \269\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014058.
        \270\ Id.
        \271\ Id.
    ---------------------------------------------------------------------------
        The timeline in the March presentation discussed above
    indicates that the pricing and access recommendations would
    next have been provided to the GPC for a final review. However,
    interviews and documents that Gilead provided to investigative
    staff do not clearly indicate whether the GPC was involved in a
    final review.

                August 2013: The Board is Briefed on Sovaldi's
                               Launch and Pricing

        On August 1, 2013, the day after the final pricing team
    recommendation, Meyers and Bill Symonds, Gilead's vice
    president for liver diseases, presented ``an update on the
    status of the clinical trials involving sofosbuvir and . . .
    the preparations taken for the anticipated U.S. launch of
    sofosbuvir.'' \272\ Meyers' presentation, ``U.S. HCV Launch
    Update,'' gave a high-level overview of the market, pricing and
    Gilead's launch timeline to the board of directors.\273\ During
    the meeting, members of the board ``asked a number of questions
    that were answered by management.'' \274\ After Meyers and
    Symonds left the room, the board and Kevin Young, the executive
    vice president for commercial operations, ``further discussed
    the anticipated launch of sofosbuvir.'' \275\
    ---------------------------------------------------------------------------
        \272\ Appendix E, Ex. 35, Gilead Sciences, Inc., Minutes of Regular
    Meeting of Board of Directors, August 1, 2013, GS-0019671, at GS-
    0019672.
        \273\ Appendix E, Ex. 31, Gilead Sciences, Inc., U.S. HCV Launch
    Update, August 1, 2013, GS-0014059.
        \274\ Appendix E, Ex. 35, Gilead Sciences, Inc., Minutes of Regular
    Meeting of Board of Directors, August 1, 2013, GS-0019671, at GS-
    0019672.
        \275\ Id.
    ---------------------------------------------------------------------------
        The presentation by Meyers and Symonds began with a review
    of the market, specifically, Gilead's estimate that there were
    4.1 million people in the United States with HCV, but that only
    1.7 million were diagnosed. In addition, the presentation noted
    that of the 1.7 million diagnosed with HCV, 381,000 were being
    cared for by a health provider, and just 73,000 were currently
    being treated with drugs.\276\ The presentation underscored the
    need to boost marketing efforts around HCV and disease
    awareness; ``HCV-infected patients account for only 17% of the
    patient volume of HCV treaters,'' which ``[i]ncreases the
    importance of implementing a broad disease awareness/medical
    education platform and of increasing patient awareness of new
    treatment options.'' \277\
    ---------------------------------------------------------------------------
        \276\ Appendix E, Ex. 31, Gilead Sciences, Inc., U.S. HCV Launch
    Update, August 1, 2013, GS-0014059, at GS-0014061.
        \277\ Id. at GS-0014063.
    ---------------------------------------------------------------------------
        Meyers reiterated the need for sofosbuvir to be established
    as the SOC and ``backbone of HCV therapy at initial launch,''
    because the more that physicians waited for interferon-free
    therapies for genotype 1 patients, ``the less established SOF
    will be at the time of competitive IFN-free launches.'' \278\
    Broad market access, growing the pool of patients seeking
    therapy, and deploying disease awareness advertising were also
    deemed ``critical success factors.'' \279\ The board also was
    guided through disease awareness and branded marketing
    materials that would accompany Sovaldi at launch, and was
    informed that Gilead's U.S. sales force of 144 people was 30%
    larger than the next closest competitor, Vertex.\280\
    ---------------------------------------------------------------------------
        \278\ Id. at GS-0014067.
        \279\ Id. at GS-0014067.
        \280\ Id. at GS-0014069--GS-0014071.
    ---------------------------------------------------------------------------
        The next topic for Myers was payer access restrictions and
    pricing comparisons, emphasizing the need to set a high price
    for Sovaldi in order to set a price platform from which to
    launch Harvoni. The presentation stated that Gilead would be
    ``[b]etter off pricing SOF at initial launch for GT-1 patients,
    as there will be varying degrees of access restrictions for GT-
    2/3 patients regardless of where we price,'' and that
    ``[w]herever we want to end up in terms of pricing for SOF/LDV,
    we have to get most of the way there in the initial pricing of
    SOF.'' \281\ The ``[l]argest incremental gain in SVR is at
    initial launch, and this is what payers value.'' \282\ The
    company would ``need to keep prescribing in the hands of
    physicians, not payers, and to contract for open/parity access
    only when necessary.'' \283\
    ---------------------------------------------------------------------------
        \281\ Id. at GS-0014076.
        \282\ Id.
        \283\ Id. at GS-0014076.
    ---------------------------------------------------------------------------

                   August 2013: Answering Follow-up Questions

        On August 26, 2013, a presentation was given entitled
    ``Sofosbuvir Pricing and Market Access Assessment: Response to
    Follow Up Question.'' The presentation built on the July 31st
    presentation where Meyers was provided a final recommendation
    from Gilead's pricing team to senior management.\284\
    ---------------------------------------------------------------------------
        \284\ Appendix E, Ex. 36, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment: Response to Follow Up Question, August
    26, 2013, GS-0013857.
    ---------------------------------------------------------------------------
        The presentation delved into ``the potential impact of
    discounting on demand into the financial modeling.'' \285\ It
    studied payer, patient, and provider reactions to a gross-to-
    net price that reflect contracted discounts.\286\ The impact of
    discounting did ``not change the overall conclusion from the
    financial analysis: [w]ithin a $70K-$95K SOF price range
    patient impact increases as price is increased but not enough
    to offset revenue gains.'' \287\ It continued, ``[a]ssuming a
    gross SOF price between $75K and $90K the current budgeted
    level of mandatory and supplemental discounting could
    theoretically support enough contracting to regain the majority
    of the predicted patient losses.'' \288\ But, ``[g]iven the
    competitive timing executing these contracts in a timely manner
    may be challenging . . . assum[ing] supplemental discounts
    could be in place by Q3.'' \289\
    ---------------------------------------------------------------------------
        \285\ Id. at GS-0013858.
        \286\ Id. at GS-0013860.
        \287\ Id. at GS-0013859.
        \288\ Id.
        \289\ Id. at GS-0013859.
    ---------------------------------------------------------------------------
        Gilead assumed its discounts for HCV drugs would be lower
    than for other product lines--17% for HCV drugs versus a range
    of 20% to 41% for its other units.\290\ The presentation
    assumed that supplemental discounts would be offered only to
    ``the most price sensitive accounts'' in Medicare, Medicaid,
    and commercial payer segments.\291\ The presentation used
    several percentages for projected discounts for each payer
    segment.\292\ Subsequent tables and graphs show that the
    patient impact, i.e., lost patient starts, would be reduced by
    discounting across all price levels, and that revenue would
    increase during Wave 1. ``Incorporating the impact of
    discounting on patients [sic] demand increases the forecast and
    reduces estimated patient loss significantly,'' the
    presentation states.\293\ At an $85,000 price point, with a 6%
    supplemental discount applied, Gilead projected patient losses
    of 10% in 2014, 8% in 2015, and 11% in 2016 compared to a
    $65,000 price point.\294\ An ``alternative version'' at the end
    of the presentation shows that implementing 15% supplemental
    discount for commercial payers would have reduced patient start
    at a WAC price of $85,000 to 5% in 2014, 2% in 2015, and 3% in
    2016; revenue in each of those years was expected to remain
    higher than without discounting.\295\
    ---------------------------------------------------------------------------
        \290\ Id. at GS-0013880.
        \291\ Id. at GS-0013861.
        \292\ Id.
        \293\ Id. at GS-0013862.
        \294\ Id. at GS-0013861, GS-0013863.
        \295\ Id. at GS-0013887.
    ---------------------------------------------------------------------------
        However, as detailed in Sections 4 and 5 of this report,
    very few payers agreed to Gilead's discount offers for Sovaldi.
    The discount offers were viewed negatively because of their
    small size and because they were tied to loosening access
    restrictions to treatment that would have increased patient
    volume, offsetting any cost savings for the payer.
        A note at the bottom of the page appears to show how the
    company's assumptions about discounting had evolved from the
    ``June Forecast'' price of $60,000. Discounts appear to be
    lower, meaning a greater share of the gross price would be
    captured in the net price:

            Gross to Net in June forecast was 22% in 2014; updated
            gross-to-net assumptions of 13% in 2014 are used for
            all scenarios with Wave 1 pricing at or below $60K and
            17% for all scenarios with Wave 1 pricing about $60K
            \296\
    ---------------------------------------------------------------------------
        \296\ Id. at GS-0013862.

        Two slides in the presentation's appendix (see below)
    further detail how Gilead calculated its gross-to-net
    assumptions.\297\ Mandatory discounting for government programs
    would account for the majority of the discounts (8.1%).
    Supplemental discounts to commercial payers and others would
    account for 4.8%, and other discounts (for example, cash
    discounts and inventory management agreements, which are
    referred to as IMAs) would account for 5% of the discounting.
    References to FSS apply to the Federal Supply Schedule, the
    contracting system for the VA, Department of Defense, and other
    federal agencies such as the Bureau of Prisons (see Section
    4).\298\ The slides also reinforce that Gilead planned to limit
    supplemental discounting except with certain key accounts.
    ---------------------------------------------------------------------------
        \297\ Id. at GS-0013881 and GS-0013882.
        \298\ U.S. Department of Veterans Affairs, available at VA Federal
    Supply Schedule Service: General FAQs, http://www.fss.va.gov/faqs/
    general.asp#q001 (last visited Sept. 1, 2015).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The presentation examined what it considered the ``highly
    unlikely'' scenario of Johnson & Johnson pricing simeprevir at
    $20,000 per course of treatment, its impact on Gilead's revenue
    from Sovaldi, and how it ``would put negative attention on SOF
    at the recommended price.'' \299\ Focusing on Sovaldi's price,
    the presentation concluded that if simeprevir were priced at
    $20,000, Gilead would need to triple the number of patient
    starts in 2014 to 37,500 people in order to achieve the same
    revenue as it would if simeprevir were priced at $60,000.\300\
    Similarly, the presentation concluded that ``[o]ur Wave 1 goal
    of a high price remains consistent''--and Harvoni ``Wave 2
    strategy may require more caution.'' \301\
    ---------------------------------------------------------------------------
        \299\ Appendix E, Ex. 36, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment: Response to Follow Up Question, August
    26, 2013, GS-0013857, at GS-0013865.
        \300\ Id. at GS-0013866.
        \301\ Id. at GS-0013867.
    ---------------------------------------------------------------------------

            November 2013: Sovaldi's Price is Set by Top Executives

        One of the final pricing documents provided by Gilead is
    the ``Sofosbuvir Pricing and Market Access Recommendation,''
    dated November 15, 2013. This presentation recommended that
    Sovaldi be priced at $81,000 or $27,000 per bottle.\302\ This
    is the price that Meyers and Young would provide to the
    company's senior management three days later for final
    approval.
    ---------------------------------------------------------------------------
        \302\ Appendix E, Ex. 37, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Recommendation, November 2013, GS-0014079, at GS-
    0014079.
    ---------------------------------------------------------------------------
        This presentation is light on details compared to previous
    presentations, and very little new information is presented,
    save for the following:

              The optimal range for Wave 1 pricing based on
            revenue/uptake trade-offs is likely $85-$95K, though
            other softer factors must be considered
              If we price lower it opens up a window for
            competitors to pair up with SOF and come in at a lower
            regimen cost than our FDC
              Even if we priced lower, such as $70k, it would not
            mitigate the high cost of a 24 week regimen (message
            points being developed), and therefore we recommend we
            address this on a case by case basis on a sub-WAC level
            \303\
    ---------------------------------------------------------------------------
        \303\ Id.

        It is clear that Gilead was concerned about competition.
    The threat of competition worked in two ways--the efficacy of
    AbbVie's drug combination complicated the decision-making
    process to price the product and the potential of a
    daclatasvir-sofosbuvir combination put upward pressure on the
    price. Lastly, the company recognized the weakness of its drug
    in treating genotype 3 patients versus the interferon/ribavirin
    ---------------------------------------------------------------------------
    SOC.

        The final pricing recommendation was addressed as follows:

              We recommend pricing sofosbuvir Wave 1 at $81K
            ($27k/bottle) per course of 12 week therapy and
            contract selectively for access at target payers:
              For the VA we recommend negotiating up to a 50%
            discount on their volume (vs the original 40% discount)
            to make up for the higher cost of treating co-infected
            and IFN-ineligible patients which account for about 60%
            of their population
              For Kaiser we recommend negotiating up to a 10%
            discount for access
              Other plans will be evaluated on a one off basis
            \304\
    ---------------------------------------------------------------------------
        \304\ Id.

        On November 18, 2013, Young received a slide from Meyers
    and forwarded it to company officers later that night (see
    slide below). In the body of the email, Young stated, ``[o]ur
    recommendation for your discussion and approval is $27,000 per
    28 tablet bottle'' ($81,000 for 12W).\305\
    ---------------------------------------------------------------------------
        \305\ Appendix E, Ex. 38, Email from Kevin Young to John Martin et
    al., Re: COMPANY CONFIDENTIAL (Nov. 18, 2013), GS-0020800.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        On November 23, 2013, less than two weeks before Sovaldi
    received FDA approval and went on the market in the U.S., Young
    sent an email to Cara Miller, the company's senior director for
    public affairs stating, ``The amount to drop into the U.S.
    Sovaldi press release, when you do final review is `$28,000.'
    '' \306\ The price appears to have been set during an offsite
    meeting held in the days prior with the company's leadership
    team--CEO John Martin, President and COO John Milligan, Chief
    Scientific Officer Norbert Bischofberger, CFO Robin Washington,
    Executive Vice President for Corporate and Medical Affairs
    Gregg Alton, and Young.\307\ No notes or further record of this
    meeting has been provided.
    ---------------------------------------------------------------------------
        \306\ Appendix E, Ex. 39, Email from Kevin Young to Cara Miller,
    Re: CONFIDENTIAL (Nov. 24, 2013), GS-0020946, at GS-0020947.
        \307\ Id.; Appendix E, Ex. 38, email from Kevin Young to John
    Martin et al., COMPANY CONFIDENTIAL (Nov. 18, 2013), attaching
    Sofosbuvir (SOF) Pricing chart, GS-0020800, GS-0020801.
    ---------------------------------------------------------------------------
        On November 24, 2013, Young was in Tokyo, Japan and
    exchanged emails with Martin, who noted the per-bottle price of
    $28,000 would be ``be easy from the press release, from 28 days
    and $28,000.'' \308\ Young responded, ``I think $28,000 is
    right. Its [sic] where I wanted to be and I think we all
    collectively circled this price point. What I've really
    appreciated is how we have stepped carefully through this with
    the Board and [the leadership team] over two years.'' \309\
    Martin ended the back-and-forth saying ``I'm pleased where we
    are too.'' \310\
    ---------------------------------------------------------------------------
        \308\ Appendix E, Ex. 39, Email from Kevin Young to Cara Miller,
    Re: CONFIDENTIAL (Nov. 24, 2013), GS-0020946.
        \309\ Id.
        \310\ Id.
    ---------------------------------------------------------------------------
        Those emails appear to be the final decision points in a
    pricing process. During that time, company officials engaged in
    a series of presentations that examined a complex matrix of
    tradeoffs regarding revenue, volume, marketing, reactions from
    payers, patients, and advocates, potential market competition,
    and how Sovaldi's price ultimately would affect pricing of
    Gilead's successor drug, Harvoni. Staff repeatedly requested
    documentation regarding the final pricing decision, but Gilead
    refused such requests. Accordingly, it was not clear what
    factors ultimately influenced the final decision to increase
    the price from the final recommendation of $27,000 per bottle
    to $28,000 per bottle.
        However, it was clear that as senior leadership finalized
    the price for Sovaldi, the company was already anticipating
    protests over the price. ``Let's not fold to advocacy pressure
    in 2014,'' Young wrote in an email on November 19, 2014, to
    Meyers, the company's chief spokesman, Coy Stout, and Kristie
    Banks, a senior director for business development and contract
    compliance.\311\ ``Let's hold our position whatever competitors
    do or whatever the headlines.'' \312\
    ---------------------------------------------------------------------------
        \311\ Appendix E, Ex. 40, Email from Kevin Young to Jim Meyers et
    al., Re: ADAP and Sofosbuvir (Nov. 19, 2013), GS-0020802, at GS-
    0020802.
        \312\ Id.
    ---------------------------------------------------------------------------

     International Pricing of Sovaldi Was Significantly Lower Than in the
                                 United States

        As noted in the senators' July 2014 letter to Gilead, the
    pricing strategy for Sovaldi in non-U.S. markets contemplated
    significant lower prices than what would be set for U.S.
    consumers. For example, the senators noted that Gilead had
    reportedly reached an agreement with Egypt to sell Sovaldi for
    roughly $900 per course of treatment.
        In a written response to the senators, Gilead explained
    that it engaged in separate pricing approaches for developed-
    and less-developed countries. In developed countries, Gilead
    negotiated with individual countries and payers. Based on
    information provided by Gilead, Table 3 shows the wholesale
    price for Sovaldi in those developed countries was at
    significant discount to the U.S. price (per 12-week course of
    treatment).\313\
    ---------------------------------------------------------------------------
        \313\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 21 (Sept. 9, 2014).

     Table 3--Wholesale Price of Sovaldi in Developed Countries Outside the
                                  United States
    ------------------------------------------------------------------------
               Country                               Price
    ------------------------------------------------------------------------
    Austria.....................                                 $63,189.70
    Canada......................                                 $50,525.00
    Denmark.....................                                 $56,449.40
    Finland.....................                                 $54,381.20
    France......................                                 $72,508.00
    Germany.....................                                 $63,198.70
    Luxembourg..................                                 $62,149.90
    Norway......................                                 $53,043.90
    Sweden......................                                 $51,453.60
    Switzerland.................                                 $59,594.80
    United Kingdom..............                                 $57,100.20
    ------------------------------------------------------------------------
    Source: Gilead Sciences, Inc., Response to Chairman Wyden/Senator
      Grassley letter dated July 11, 2014, narrative answer to question 21,
      September 9, 2014 (Appendix F)

        In formulating its strategy for pricing for European
    countries, Gilead's commercial pricing team sought to achieve
    ``the highest price we can get accepted in early launch markets
    (UK, Germany, France).'' \314\ At the time, the team expected
    the United Kingdom to set the European price floor and Germany
    to set the ceiling,\315\ although Gilead put great weight on
    negotiating an early European price point with the French
    Temporary Authorization of Use (ATU) program at $74,000 in
    October 2013.\316\ This program allows access to drugs for
    serious illness prior to final marketing authorization
    approval,\317\ and was seen as an important benchmark for
    European negotiations.\318\ Under this program, companies are
    granted a price premium, averaging 12%.\319\ However, even at
    this price, a senior Gilead official cautioned that ``. . . we
    should be careful saying that the price is comparable with
    existing treatment. It's actually at a significant premium
    (although entirely justifiable on its merits.)'' \320\
    ---------------------------------------------------------------------------
        \314\ Appendix E, Ex. 41, Gilead Sciences, Inc., ``EAME SOF Price
    Recommendations'' (Gilead slide presentation), September 11, 2013, GS-
    0019913, at GS-0019914.
        \315\ Id.
        \316\ Appendix E, Ex. 42, Email from Kevin Young to Jim Meyers and
    Derrell Porter (Oct. 19, 2013), GS-0020285, at GS-0020285.
        \317\ A. Degrassat-Theas et al., Abstract, Temporary authorization
    for use: does the French patient access programme for unlicensed
    medicines impact market access after formal licensing?, 31
    PharmacoEconomics 335, 335-43 (April 2013), available at http://
    www.ncbi.nlm.nih.gov/pubmed/23529210.
        \318\ Appendix E, Ex. 42, Email from Kevin Young to Jim Meyers and
    Derrell Porter (Oct. 19, 2013), GS-0020285, at GS-0020285--GS-0020287.
        \319\ A. Degrassat-Theas et al., Abstract, Temporary authorization
    for use: does the French patient access programme for unlicensed
    medicines impact market access after formal licensing?, 31
    PharmacoEconomics 335, 335-43 (April 2013), available at http://
    www.ncbi.nlm.nih.gov/pubmed/23529210.
        \320\ Appendix E, Ex. 43, Email from Paul Carter to Cara Miller
    (Oct. 11, 2013), GS-0020212, at GS-0020212--GS-00200213.
    ---------------------------------------------------------------------------
        In less-developed countries, Gilead employed a different
    set of strategies. Initially, it followed a ``tiered pricing
    structure based on a country's health care and other resources
    and the severity of the HCV prevalence within that country.''
    \321\ How these factors were weighted was not explained, but
    Gilead confirmed that it had signed a treatment agreement with
    the Egyptian government in July 2014 at a list price equivalent
    to $908.04 per course of treatment.\322\
    ---------------------------------------------------------------------------
        \321\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 21 (Sept. 9, 2014).
        \322\ Id.
    ---------------------------------------------------------------------------
        As Gilead noted in its written response, it also was
    pursuing a parallel strategy for these same less-developed-
    country markets based on the licensing of generic production
    and marketing of sofosbuvir-based drugs. Indeed, shortly after
    the response was provided, Gilead entered into licensing
    agreements with seven Indian pharmaceutical companies to
    produce and market sofosbuvir (Sovaldi) and ledipasvir/
    sofosbuvir single tablet regimen (Harvoni) in 91 developing
    countries.\323\ As explained by Meyers and Andy Rittenberg,
    corporate counsel for Gilead, in the October 30th interview,
    this model also has been used by Gilead for HIV/AIDS drugs.
    According to Mr. Rittenberg, these generic manufacturers would
    be licensed to manufacture and sell these drugs even in
    countries in which Gilead had previously reached pricing
    agreements.\324\
    ---------------------------------------------------------------------------
        \323\ Press Release, Gilead Sciences, Inc., Gilead Announces
    Generic Licensing Agreements to Increase Access to Hepatitis C
    Treatments in Developing Countries, (Sept. 15, 2014), available at
    http://www.gilead.com/news/press-releases/2014/9/gilead-announces-
    generic-licensing-agreements-to-increase-access-to-hepatitis-c-
    treatments-in-developing-countries.
        \324\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Oct. 30, 2014).
    ---------------------------------------------------------------------------
        The generic manufacturers would set their own prices even
    to the point of undercutting Gilead's own country-specific
    price agreement--a point reiterated in the company's fact
    sheet, which states that ``(t)he generic drug companies may set
    their own prices. . . .'' \325\ The license agreement for these
    generic manufacturing arrangements posted by Gilead on its
    website establishes a 7% royalty to be paid to Gilead Sciences
    Limited, an Irish corporation, on net sales of products in
    these 91 countries.\326\ According to the most recent version
    of the company's fact sheet, these generic licensing agreements
    have now been expanded to include 11 Indian companies for
    distribution in 101 developing countries.\327\
    ---------------------------------------------------------------------------
        \325\ Gilead Sciences, Inc., Fact Sheet, Chronic Hepatitis C
    Treatment Expansion: Generic Manufacturing for Developing Countries,
    August 2015, available at http://www.gilead.com//media/files/pdfs/
    other/hcvgenericagreementfactsheet.pdf?la=en.
        \326\ Gilead Sciences, Inc., License Agreement, Execution Copy,
    September 15, 2014, (Section 4.1, page 8), available at http://
    gilead.com//media/files/pdfs/other/2014_original_hcv_
    licensing_agreement.pdf?la=en.
        \327\ Gilead Sciences, Inc., Fact Sheet, Chronic Hepatitis C
    Treatment Expansion: Generic Manufacturing for Developing Countries,
    August 2015, available at http://www.gilead.com//media/files/pdfs/
    other/hcvgenericagreementfactsheet.pdf?la=en.
    ---------------------------------------------------------------------------
        The cost of these drugs outside of the U.S. is
    significantly below the U.S. price--a fact that was actively
    considered by Gilead in pricing them in Canada. In a
    presentation prepared by the Gilead Sciences Canada, the
    company concluded that the expected Canadian wholesale price of
    $55,000 would not draw cross border patients and that the
    structure of the Gilead distribution system would limit the
    risk of mail order arbitrage.\328\ Gilead concluded that U.S.
    patients would not cross the border to incur a final expected
    out-of-pocket expense of some $64,000.\329\
    ---------------------------------------------------------------------------
        \328\ Appendix E, Ex. 44, Gilead Sciences, Inc., Canadian
    Sofosbuvir Pricing Considerations, September 30, 2013, GS-0020086, at
    GS-0020087.
        \329\ Id. at GS-0020091.
    ---------------------------------------------------------------------------

                  Sticking to the Plan: Harvoni Builds on the
                             Price Set for Sovaldi

        After the successful launch of Sovaldi, Gilead turned its
    attention to pricing Harvoni, the second wave of HCV drugs
    involving sofosbuvir. In a series of presentations, Gilead
    described how it would ``[s]ecure market share leadership,
    while growing the market,'' through ``[e]ffective portfolio
    management/prioritization in wake of successive launches,
    [r]esponding to competitors' attempts to fragment the market
    through scientific dialogue with prescribers, [e]nsuring parity
    access in a payer environment that desires market
    fragmentation,'' and ``[a]ccelerating Market Development
    efforts to grow the market.'' \330\ The ultimate goal for the
    time period was to ``[m]aximize [t]otal [f]ranchise [v]alue.''
    \331\
    ---------------------------------------------------------------------------
        \330\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan, April 22, 2014, GS-0014083, at GS-0014085 (emphasis in
    original).
        \331\ Id. at GS-0014086 (emphasis in original).
    ---------------------------------------------------------------------------
        As it considered pricing Harvoni at $96,000 for a 12-week
    course of therapy, which the majority of patients was expected
    to need, the company projected that its HCV drugs would
    generate more than $30 billion in net revenue between 2015 and
    2018.\332\ The company ultimately set Harvoni's price at
    $94,500.\333\
    ---------------------------------------------------------------------------
        \332\ Appendix E, Ex. 46, Gilead Sciences, Inc., Topics for
    Discussion--LDV/SOF U.S. Pricing, August 4, 2014, GS-0019000, at GS-
    0019026.
        \333\ Stephanie M. Lee, Is $1,125 Hepatitis Pill from Bay Area
    Drugmaker Worth It?, San Francisco Chronicle (Oct. 11, 2014), available
    at http://www.sfgate.com/health/article/Is-1-125-hepatitis-pill-from-
    Bay-Area-drugmaker-5815341.php.
    ---------------------------------------------------------------------------
        Harvoni was expected to face competition that would make
    large price jumps difficult. One of the challenges was to
    ``[p]rotect against price erosion from Wave 1T2, and 2T3.''
    \334\ As it set out to price Harvoni, the company viewed its
    position as one of ``modest pricing power for the LDV/SOF,
    although avoiding restrictions with all accounts will be
    difficult to achieve.'' \335\ The company also was loath to
    offer broad discounts, because they ``do not offer offsetting
    share benefits for Gilead; however, this does not mean there
    are not some payers where discounting will be profitable.''
    \336\
    ---------------------------------------------------------------------------
        \334\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan, April 22, 2014, GS-0014083, at GS-0014097.
        \335\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018862.
        \336\ Id.
    ---------------------------------------------------------------------------
        Gilead's main selling point for Harvoni has been that for
    certain patients--specifically, those who were treatment-naive
    and free of cirrhosis--it would be a single-pill, interferon-
    free therapy that could be curative in eight weeks. However,
    Gilead expected that just 21% to 46% of patients using its
    drugs would fit in that category and receive the eight-week
    therapy.\337\ Gilead expected 14% to 32% of its Harvoni revenue
    to come from eight-week patients.\338\ The remainder would be
    on 12 weeks (45% to 70%) or in the case of treatment
    experienced patients with cirrhosis, 24 weeks (9%).\339\ Gilead
    has repeatedly said that Harvoni lowered the cost of treatment,
    but it did so only for the least sick, i.e., those with the
    lowest viral load counts and the healthiest livers.\340\ In
    terms of sticker prices, Gilead would now be charging $94,500
    for a 12-week treatment, up from $84,000 for Sovaldi, and more
    than 30% higher than the price of Incivek.
    ---------------------------------------------------------------------------
        \337\ Id. at GS-0018878.
        \338\ Id. at GS-0018894--GS-0018895.
        \339\ Id. at GS-0018878.
        \340\ Id.
    ---------------------------------------------------------------------------
        In addition to boosting awareness of sofosbuvir and gaining
    access to payers' formularies, the company would seek to
    ``[e]ducate governments about economic advantages of
    investments in HCV cure and of HCV budget increases in 2015-
    2016,'' and ``[a]ccelerate patient flow through the HCV
    waterfall.'' \341\ In other words, ensure patients were tested
    and received treatment at an earlier disease stage, ``to drive
    longer term sustainable growth.'' \342\ Specifically, the
    company was seeking to ``[e]ncourage a shift towards more
    patients being candidates for treatment'' to ``drive rapid SOF
    uptake across all indicated patient types.'' \343\
    ---------------------------------------------------------------------------
        \341\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan, April 22, 2014, GS-0014083, at GS-0014095 (emphasis in
    original).
        \342\ Id.
        \343\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143 at GS-0014146.
    ---------------------------------------------------------------------------
        Gilead was aware of ``[n]egative noise regarding price and
    potential access limitations.'' \344\ It also knew that
    ``[b]udget impact'' would ``shape reimbursement decisions in
    certain markets, with growing desire to prioritize care''
    amongst patients.\345\ Gilead singled out Medicaid, noting that
    ``[w]hile this will grow to 15% of the treated population,
    coverage may continue to be challenging based on state-level
    budget constraints,'' and that the program was ``[h]ighly cost
    constrained and predominately cost-focused.'' \346\ Gilead
    expected HCV treatment ``to drive a significant increase in
    2015 federal Medicare Part D spending and annual individual
    beneficiary premiums.'' \347\ It also was aware that ``[t]he
    Wave 2 launches will add significantly to the total spend on
    HCV,'' with its projections topping $15 billion in 2015, alone,
    compared to less than $2 billion in 2013 (see slide
    below).\348\ Gilead stated in a slide titled ``PR
    Considerations'' presented in July that ``[g]iven that the LDV/
    SOF is >$1000/pill for all scenarios under consideration,
    negative stakeholder reactions and media scrutiny can be
    expected to continue in the months prior to AbbVie's launch.''
    \349\ Similar to its approach with Sovaldi, Gilead examined how
    different prices would affect ``soft'' factors ranging from
    negotiations with insurers, to the possibility that
    ``[d]iscussions of U.S. government price controls gain
    traction.'' \350\
    ---------------------------------------------------------------------------
        \344\ Id.
        \345\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan, April 22, 2014, GS-0014083, at GS-0014088.
        \346\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143 at GS-0014157.
        \347\ Appendix E, Ex. 49, Gilead Sciences, Inc., Updated Slides--
    Wave 2 Pricing, GS-0018965, at GS-0018992.
        \348\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018891.
        \349\ Id. at GS-0018906 (emphasis omitted).
        \350\ Appendix E, Ex. 46, Gilead Sciences, Inc., Topics for
    Discussion--LDV/SOF U.S. Pricing, August 4, 2014, GS-0019000, at GS-
    0019013.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In addition, Gilead received direct feedback from payers
    such as CVS/Caremark, Molina Healthcare, Atrius Health,
    California Medicaid, UnitedHealth Group, and Blue Cross Blue
    Shield of Michigan, all of which had representatives on
    Gilead's payer advisory board.\351\ In October 2014,
    ``[a]dvisors found Sovaldi and LDV/SOF's clinical profile
    compelling; however, the cost per population and impact on the
    plan's budgets [sic] are large concerns for advisors,'' which
    the presentation listed under ``similarities'' with previous
    advisory boards.\352\ And as Gilead was seeking to expand the
    number of patients, Joel Brill, the CEO of Predictive Health
    LLC, warned ``[t]here is a need to narrow the patient
    population, because if you tell us that all patients need to be
    treated, our budgets cannot afford that,'' which was put under
    a category in the presentation of ``budget sustainability.''
    \353\
    ---------------------------------------------------------------------------
        \351\ Appendix E, Ex. 50, Gilead Sciences, Inc., Managed Markets
    Hepatitis C Virus (HCV) Payer Advisory Board Final Report, October 3,
    2014, GS-0018760, at GS-0018768--GS-0018769.
        \352\ Id. at GS-0018774.
        \353\ Id. at GS-0018777.
    ---------------------------------------------------------------------------
        Gilead recognized that Sovaldi had fundamentally changed
    the HCV market in 2014. It estimated that, based on 120,000 new
    patients and an average treatment cost of $89,300, ``[o]verall
    additional spending on HCV treatments in the U.S. in 2014 is
    estimated $10.7 [billion],'' which ``[r]eflects a 280% increase
    in national HCV [per member per month] spending from $0.87 in
    2013 to $4.2 in 2014,'' while ``[a]nnual increases in PMPM have
    typically ranged from 3% to 4%.'' \354\ In addition, the
    company expected HCV spending to push down earnings-per-share
    by double-digit percentages for the largest health insurers,
    UnitedHealth, WellPoint, Aetna and Humana, which ``could drive
    payers to push back on cost or change coverage going forward.''
    \355\ The slide below summarizes Sovaldi's financial impacts to
    private payers during 2014: \356\
    ---------------------------------------------------------------------------
        \354\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018908.
        \355\ Id. at GS-0018908--GS-0018909.
        \356\ Id. at GS-0018891.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Gilead prioritized outreach to certain health care
    providers based on the number of HCV patients they were seeing
    and treating. For providers who were already prescribing
    Sovaldi, the company's ``[b]ehavioral [o]bjective'' was to
    continue and expand use of the drug.\357\ For providers who
    were not using Sovaldi, the company planned to initiate sales
    calls and urge them to begin prescribing.\358\
    ---------------------------------------------------------------------------
        \357\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143, at GS-0014151--GS-0014153.
        \358\ Id.
    ---------------------------------------------------------------------------
        The company also broke down consumer and patient groups
    into high, medium and low priorities. Within the high priority
    category were diagnosed patients whose average age was 50 and
    were employed, insured, ``more educated'' and with an annual
    income of $60,000.\359\ Gilead's ``behavioral objective'' with
    these patients was to ``[e]ngage patients to re-think their Hep
    C, [a]ctivate urgency to treat, [d]rive linkage to treating
    specialists, [a]sk provider for treatment by name.'' \360\
    Community service providers and allied health care providers in
    clinical settings were designated a ``low-medium''
    priority.\361\ Gilead estimated that there were 9,000 community
    health clinics that would need to be engaged to ensure the
    company's treatments were used.\362\ It expected that ``[t]o
    activate [community health workers, Gilead would] need to
    educate about evolving treatment paradigm, cure, importance of
    linkage to HCV care.'' \363\
    ---------------------------------------------------------------------------
        \359\ Id. at GS-0014154.
        \360\ Id.
        \361\ Id. at GS-0014155.
        \362\ Id.
        \363\ Id.
    ---------------------------------------------------------------------------
        Finally, Gilead ranked payers, with commercial, Medicare,
    and VA rated as ``high'' priorities, and Medicaid as a
    ``medium'' priority. Corrections were rated as a ``low-med''
    priority, as were integrated delivery networks like Kaiser
    Permanente ``depending on risk.'' \364\ Payers participating in
    exchanges were ``low'' priority, with the company noting that
    ``[o]nly 6% of treated patients will come from exchange plans
    by 2016,'' and that while coverage was similar to commercial
    and managed care Medicaid plans, exchanges are ``generally more
    restrictive, and with higher cost-sharing.'' \365\ Two months
    later, the company would observe that payers would be reluctant
    to block access to new HCV drugs, ``instead, payers may pick
    two `winners' and generate rebates off the volume.'' \366\
    ---------------------------------------------------------------------------
        \364\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan, April 22, 2014, GS-0014083, at GS-0014157.
        \365\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143, at GS-0014156--GS-0014157.
        \366\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018865.
    ---------------------------------------------------------------------------
        In regards to determining the price point for Harvoni,
    Gilead studied $84,000, $115,000 and $145,000. Notably, Gilead
    labeled the $145,000 price point as ``unacceptably expensive.''
    \367\ In a survey of payers, $84,000 was viewed as
    ``reasonable,'' while $115,000 was viewed as ``at the top end
    of value alignment'' and ``pushing the upper limit.'' \368\
    However, like when it priced Sovaldi, Gilead was aware that
    market competition, particularly for genotype 1 patients, would
    restrict the company's ability to capture higher prices with
    its second wave drug, Harvoni.
    ---------------------------------------------------------------------------
        \367\ Id. at GS-0018866.
        \368\ Id.
    ---------------------------------------------------------------------------
        Gilead was concerned that since Bristol-Myers Squibb was
    exploring a combination of its own drug with sofosbuvir that it
    would create competition over price and possibly undercut
    Harvoni if priced it too high: ``As a consequence, if LDV/SOF
    is priced at a significant premium to the alternative,
    physicians will allocate a substantial share of prescriptions
    to the DCV+SOF combination.'' \369\ Likewise, the company spent
    a significant amount of effort comparing its price to different
    price points for AbbVie's Viekira Pak, and the trade-offs
    between market access and revenue maximization.\370\
    ---------------------------------------------------------------------------
        \369\ Id. at GS-0018863.
        \370\ Id. at GS-0018869.
    ---------------------------------------------------------------------------
        It also studied what Wall Street analysts expected in terms
    of a price for Harvoni, and the ``potential impact on estimate
    earnings,'' which would affect equity investment.\371\
    Documents show that the company had had an interest in
    analysts' opinions on Harvoni's price during the lead-up to
    Sovaldi's release. On October 31, 2013, Robin Washington
    received a lengthy ``buy-side survey'' from health care analyst
    Mark Schoenebaum that contained financial and pricing
    predictions that had been collected from 203 respondents.\372\
    These analysts expected that the gross price for a 12-week
    regimen of Sovaldi would be $85,400; the price of Harvoni was
    expected to be $94,000.\373\
    ---------------------------------------------------------------------------
        \371\ Appendix E, Ex. 46, Gilead Sciences, Inc., Topics for
    Discussion--LDV/SOF U.S. Pricing, August 4, 2014, GS-0019000, at GS-
    0019009--GS-0019010.
        \372\ Appendix E, Ex. 51, Email from Mark Schoenebaum to Robin
    Washington, FINAL data from gild/bmy (and sort of MRK/ROG) buy-side
    survey, (Oct. 31, 2013), GS-0020496, at GS-0020496--GS-0020497.
        \373\ Id.
    ---------------------------------------------------------------------------
        On September 9, 2014, the company discussed its contracting
    strategy with a price of $94,500, specifying specific discounts
    for various payer groups and payers: \374\
    ---------------------------------------------------------------------------
        \374\ Appendix E, Ex. 52, Gilead Sciences, Inc., HCV Wave 2
    Contracting Recommendations, September 9, 2014, GS-0019058, at GS-
    0019060--GS-0019063.

    ------------------------------------------------------------------------
               Segment             Discount    Approach       Commentary
    ------------------------------------------------------------------------
    Kaiser Permanente             20%         Proactive
    ------------------------------------------------------------------------
    Integrated Delivery Networks  8%-10%      Proactive   Henry Ford is
     (Geisinger, University of                             reactive only
     Pittsburgh Medical Center,
     Selective, Henry Ford)
    ------------------------------------------------------------------------
    Departments of Corrections    10%-20%     Proactive   Contract with
     (CA, FL, NY, OH, MI, AZ &                             listed State
     University of Texas Medical                           DOC's at a
     Branch)                                               discount of 10-
                                                           20%. UTMB will
                                                           receive 340B
                                                           pricing and a 15%
                                                           supplemental
                                                           discount on
                                                           eligible
                                                           utilization (10%
                                                           on Commercial
                                                           utilization)
    ------------------------------------------------------------------------
    FFS Medicaid                  4-10%       Proactive   Independent states
    Medicaid Pools                                         will be
    Magellan and SSDC                                      negotiated if
                                                           they are listed
                                                           as ``select
                                                           payers'' or
                                                           reactive, as
                                                           needed

    Independent States:
                                                          Discounts will be
    Magellan Independent States:                           tiered based on
    FL, MO, TN, TX, VA                                     the coverage
                                                           levels (fibrosis
                                                           level)

    All other independent         ..........  ..........  - F2-F4 (8%)
     states:                                              - Prior
    CA, CO, GA, IL, IN, MA, OH                             Authorization to
                                                           Label (10%)
    ------------------------------------------------------------------------
    Managed Medicaid              See         PROACTIVE
                                   Commentar   for
                                   y           PerformRx
                                               and
                                               Envision
                                               Rx
                                                          - At launch, for

    ------------------------------------------------------------------------
    VA/DOD                        10% (plus   Proactive   VA discounts will
                                   26%                     be proactively
                                   statutory               submitted via TPR
                                   discount)
    ------------------------------------------------------------------------
    340B                          Statutory   Proactive   All 340B accounts
                                   Discounts               will receive
                                                           statutory
                                                           discounts with
                                                           the exception of
                                                           UTMB and Puerto
                                                           Rico DOH
    ------------------------------------------------------------------------
    Healthcare exchanges          Equal to    Proactive   Exchange
                                   commercia               utilization will
                                   l                       be included in
                                   discounts               commercial
                                                           account contracts
                                                           at the commercial
                                                           discount rate
    ------------------------------------------------------------------------
    Source: Appendix E, Ex. 52, Gilead Sciences, Inc., HCV Wave 2
      Contracting Recommendations, September 9, 2014, GS-0019058, at GS-
      0019060--GS-0019063

        Gilead further broke down its priority accounts by tier.
    Standing alone at the top tier was Express Scripts, which
    Gilead estimated had 233,900 HCV patients.\375\ The second tier
    included Humana (43,700 HCV patients), Optum Rx (78,900 HCV
    patients), WellPoint (76,520 HCV patients), and CVS Caremark
    (22,035 HCV patients).\376\ With most of the largest national
    accounts, Gilead planned to begin contracting negotiations at a
    5% rebate, generally maxing out at between 8% and 12%.\377\
    These highest priority accounts were followed by eight pages of
    tables with dozens more accounts that, because of size or other
    reasons, were deemed a lower priority by Gilead.\378\ Rebate
    strategies varied widely, ranging from no rebate to 12% (see
    slide below).\379\
    ---------------------------------------------------------------------------
        \375\ Id. at GS-0019069.
        \376\ Id.
        \377\ Id.
        \378\ Id. at GS-0019068--GS-0019078.
        \379\ Id.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The company appears to have been strict in its limits for
    rebate negotiations. For example, while the company was willing
    to provide Kaiser Permanente with a higher discount than other
    payers (20%), Kaiser had ``articulated expectations of a rebate
    as high as 30% to 49%.'' \380\ In notes on the contracting
    approach for Kaiser, the company states ``the rebate may be
    extended by BU and Executive Leadership above 20%.'' \381\ It
    is not clear who or what ``BU'' is in this instance. Similar
    notations can be found for other accounts, as well.
    ---------------------------------------------------------------------------
        \380\ Id. at GS-0019082.
        \381\ Id.
    ---------------------------------------------------------------------------
        Gilead estimated that about 360,000 of the 1.2 million-
    person state prisoner population were infected with HCV, but
    the company planned to limit its contracting approach to the
    most populous state systems. The company had already secured
    contracts with California and Texas and would seek to contract
    with only the five largest Departments of Corrections that
    remained, because the company saw diminishing benefits in
    smaller prison systems. The five states--Florida, New York,
    Ohio, Michigan, and Arizona--represented ``42% of non-
    contracted inmate lives.'' \382\ In focusing on the prison
    population, Gilead saw an ``[a]bility to treat inmates before
    they are released and potentially treated through Medicaid.''
    \383\ Risks included ``[s]pillover to other non-contracted
    state DoCs,'' and potentially ``miss[ing] out on treatment
    opportunities arising from public policy changes.'' \384\ The
    company noted it would ``[s]upport HCV treatment in DoC segment
    by providing reduced price which will stretch the existing DoC
    budgets.'' \385\
    ---------------------------------------------------------------------------
        \382\ Id. at GS-0019094.
        \383\ Id. at GS-0019098.
        \384\ Id. at GS-0019096.
        \385\ Id. at GS-0019098.
    ---------------------------------------------------------------------------
        Gilead also studied what factors payers and physicians
    would focus on when making a conclusion as to what price point
    was palatable. Payers appeared to provide the company with some
    conflicting views with respect to the price of Harvoni. For
    example, the company expected that for ``scenarios with the
    same net price, access is more favorable for a high WAC/high
    discount approach,'' than lower WAC and lower rebates.\386\
    However, a key finding with its payer advisory board indicated
    that SVR rates were a focal point; ``[a]lthough advisors
    initially responded negatively to the cost of the regimen, most
    advisors responded positively to data presented as cost per
    SVR.'' \387\ As an example, when members of Gilead's payer
    advisory board were asked during a May 2014 meeting to ``price
    each regimen based on the clinical profile as if they were the
    manufacturer,'' the average was $102,855, with a range of
    $84,000 to $126,000.\388\ William Cardarelli, director of
    pharmacy at Atrius Health, believed the controversy over the
    drugs' prices would be short-lived: ``The best thing you can do
    is help us figure out who gets treated and not position
    yourselves as treating everyone at diagnosis. This too will
    pass, the hysteria will die down; there's something new every
    year. The government has the attention of a 2-year-old.'' \389\
    ---------------------------------------------------------------------------
        \386\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018910.
        \387\ Appendix E, Ex. 50, Gilead Sciences, Inc., Managed Markets
    Hepatitis C Virus (HCV) Payer Advisory Board Final Report, October 3,
    2014, GS-0018760, at GS-0018772.
        \388\ Id. at GS-0018797.
        \389\ Id. at GS-0018773.
    ---------------------------------------------------------------------------
        Notably, physicians did not assign great importance to the
    price of the drug, which Gilead was keenly aware of throughout
    its process of pricing Sovaldi and Harvoni. A survey of payers
    ranked net cost as the second most important issue for
    management of therapies.\390\ Physicians, meanwhile, ranked
    five clinical attributes ahead of cost: SVR, tolerability,
    adverse events, treatment duration, and ease of administration
    ahead of a patient's out-of-pocket expenses.\391\ Such
    divergence was one of the reasons that Gilead was focused on
    keeping decisions in the hands of providers.
    ---------------------------------------------------------------------------
        \390\ Appendix E, Ex. 47, Gilead Sciences, Inc., U.S. HCV Pricing
    Update, SVP Update Meeting, July 21, 2014, GS-0018861, at GS-0018926.
        \391\ Id. at GS-0018926, GS-0018943.
    ---------------------------------------------------------------------------

                   Gilead's Marketing to Doctors and Patients

        Part of Gilead's strategy was to seed demand by having
    patients approach their health care providers (HCPs) for
    treatment, and to convince providers of the drug's merits so
    they would ``expand their definition of `treatment candidates'
    so that they reengage untreated patients for SOF.'' \392\ At
    the same time, the company needed ``access and advocacy'' to
    eliminate ``barriers'' to treatment and medical society
    treatment guidelines, as well as KOLs (key opinion leaders) to
    advocate on behalf of the products.\393\ To that end, the
    company's top goal was to quickly establish sofosbuvir as the
    standard of care for all genotype 1, genotype 2, and genotype 3
    patients, and to ``sustain launch trajectory by growing treated
    patient pool,'' specifically, increasing treated patients 73%
    beginning in November 2013.\394\
    ---------------------------------------------------------------------------
        \392\ Appendix E, Ex. 29, Gilead Sciences, Inc., Gilead HCV U.S.
    BPOA, October 2012, GS-0013489, at GS-0013493.
        \393\ Id. at GS-0013493.
        \394\ Id. at GS-0013490.
    ---------------------------------------------------------------------------
        As Gilead began to consider how to price its soon-to-be-
    approved drug, the company refined its commercial pitch to
    ensure that it would be financially successful. A 44-page
    presentation on April 4, 2013 titled ``2013-2015 HCV Launch
    Commercial Plan,'' shows that Gilead wanted to maximize the
    opportunities, and minimize the threats through a combination
    of advertising, brand placement, lobbying, public relations and
    marketing, developing supporters in the medical and patient
    advocacy communities, targeted speeches at medical conferences,
    published articles in medical journals, and extensive
    salesforce training on a country-by-country basis taking into
    account national requirements. These initiatives would be led
    by the company's Commercial Planning and Operations department,
    whose job it would be to marshal the resources of employees in
    departments ranging from public affairs to research and
    development, medical affairs and sales.\395\
    ---------------------------------------------------------------------------
        \395\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013527--GS-
    0013534.
    ---------------------------------------------------------------------------
        In order to prepare the market for sofosbuvir's launch,
    Gilead planned to court providers using a branded campaign to
    sell ``HCV Treaters, Past Treaters and high potential Non-
    Treaters'' on the clinical efficacy of Sovaldi through in-
    office visits, journals, and online material.\396\ Each
    category of ``treater'' was prioritized based on the potential
    for providers to take up ``target behaviors'' to ``quickly
    adopt sofosbuvir as SOC, re-engage untreated patients in their
    practice and discuss sofosbuvir with them, [and] become
    advocates for sofosbuvir and increasing treatment rates.''
    \397\ The company further analyzed the groups in terms of the
    number of patients, prescriptions for interferon, and speed
    with which they began using previous protease inhibitors. The
    most valuable ``customer group'' for the company's sales force
    were 660 ``high value current PI (protease inhibitor)
    treaters.'' Based on prescription data for other HCV drugs, the
    company estimated that these providers had an average of 26
    patients per provider--more than five times as many as the next
    category of 4,452 ``Community PI Rxers.'' \398\ One goal was to
    ensure that Gilead's sales resources were being used to
    convince providers to prescribe sofosbuvir.
    ---------------------------------------------------------------------------
        \396\ Id. at GS-0013494.
        \397\ Id. at GS-0013497.
        \398\ Id. at GS-0013498.
    ---------------------------------------------------------------------------
        In addition, a cornerstone of Gilead's strategy to court
    the medical community was its ``[s]peaker [f]aculty and
    [t]raining.'' \399\ Gilead recruits, trains and retains third-
    party health care professionals that are part of a ``Speakers
    Bureau'' to communicate on behalf of the company's products and
    the diseases they treat. In order to incentivize experts to
    speak on behalf of their products, Gilead will pay speaking
    fees and reimburse travel expenses for the speakers.\400\
    Gilead reported paying speaking fees of $2.1 million for
    Harvoni and $2.9 million for Sovaldi in 2014.\401\ An analysis
    by investigative staff shows that Gilead made 2,630 payments to
    293 providers in 46 states for ``compensation for services
    other than consulting, including serving as faculty or as a
    speaker at a venue other than a continuing education program,''
    related to Sovaldi or Harvoni.\402\ The average payment was
    $1,379, and the median payment was $2,500.\403\
    ---------------------------------------------------------------------------
        \399\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143, at GS-0014163.
        \400\ Gilead Sciences, Inc., 2009 Pocket Guide to Gilead's Business
    Conduct Manual, at 17-19, available at http://phx.corporate-ir.net/
    External.File?item=UGFyZW50SUQ9MjE0Mjl8Q2hpbGR
    JRD0tMXxUeXBlPTM=&t=1 [hereinafter Gilead, 2009 Pocket Guide].
        \401\ Gilead Sciences, Inc., Sunshine Act/Open Payments Compliance:
    Reporting Period: January 1 to December 31, 2014, available at http://
    www.gilead.com/responsibility/sunshinepercent20act percent20open
    percent20payments percent20compliance (last visited Sept. 10, 2015).
        \402\ Data available from Gilead Sciences, Inc., 2014 Non-Research
    Speaker Payments (spreadsheet), available at http://goo.gl/iTu3Ld
    (accessed July 14, 2015).
        \403\ Id.
    ---------------------------------------------------------------------------
        These speakers use materials, slides and handouts that have
    been approved and are tightly controlled by Gilead:

            Speakers may not edit, reorder, or hide any slides or
            otherwise modify the content emphasis, balance or
            context of the material in the slides. Speakers must
            move through the on-label deck, displaying every slide.
            They need not verbalize all content on every slide but
            should address points of interest or relevance for the
            particular audience or setting. A substantial portion
            of the presentation must be devoted to the presentation
            and discussion of this slide deck. Speakers may only
            use their own slides in exceptional circumstances and
            if they are pre-approved by Gilead.\404\
    ---------------------------------------------------------------------------
        \404\ Gilead, 2009 Pocket Guide, at 17-19.

        Gilead aimed to conduct 2,500 to 2,750 speaker programs
    related to its HCV treatments with as many as 400 speakers
    onboard by the third quarter of 2014.\405\ Presentations
    promoting Harvoni were approved by the company within two days
    of the FDA's approval of the drug, and speeches began within
    two weeks after approval.\406\
    ---------------------------------------------------------------------------
        \405\ Appendix E, Ex. 48, Gilead Sciences, Inc., 2014-2015 U.S. HCV
    Franchise BPOA (Draft), GS-0014143, at GS-0014163.
        \406\ Id. at GS-0014163--GS-0014165.
    ---------------------------------------------------------------------------
        Convincing providers was only part of the equation for
    Gilead as the company wanted patients who had long been told to
    wait for development of more effective cures to go to their
    providers seeking help. These combined efforts would ``need to
    drive more patients into care and increase referral rates,''
    and ``overcome inertia towards non-treatment.'' \407\
    ---------------------------------------------------------------------------
        \407\ Appendix E, Ex. 29, Gilead Sciences, Inc., Gilead HCV U.S.
    BPOA (Oct. 2012), at GS-0013492, GS-0013493.
    ---------------------------------------------------------------------------
        Gilead recognized that years of warehousing had shrunk the
    annual number of people receiving HCV treatment to 56,000
    annually.\408\ To combat the low number of patients, Gilead
    calculated that Sovaldi, and its would-be competitor, Olysio,
    needed to increase the number of annual treatments to be
    viable: ``Sofosbuvir and simeprivir launch must increase
    treated pool by 41K patients to be consistent with forecast.''
    \409\ The document does not indicate that Gilead ever expected
    the two drugs to be used in an off-label combination as AASLD
    ultimately recommended for patients who could not tolerate
    interferon.
    ---------------------------------------------------------------------------
        \408\ Id. at GS-0013490.
        \409\ Id.
    ---------------------------------------------------------------------------
        To foster demand, the company planned to use a non-branded
    disease awareness advertising campaign to target baby boomers
    to ask providers about new HCV treatments.\410\ The working
    document had many components ranging from geography (``20
    states capture 75% of Baby Boomer population'') to effective
    types of media (``TV, Internet, and radio have the highest
    reach to Boomers'') to potential advantages to using a
    spokesperson (``Credible individual that baby boomers can
    relate to (e.g. Sally Field for Boniva)'').\411\ The company
    would measure the campaign's success based on rating points and
    other tracking metrics, response to the campaign demonstrated
    by seeking out more information, and, finally, action as
    demonstrated by provider visits and drug prescriptions.\412\
    ---------------------------------------------------------------------------
        \410\ Id. at GS-0013499.
        \411\ Id. at GS-0013500.
        \412\ Id. at GS-0013499--GS-0013502.
    ---------------------------------------------------------------------------
        While not explicitly discussed in this presentation, one
    example of the awareness campaign includes the website
    www.hepchope.com, which Gilead set up in addition to a toll-
    free phone number 1-844-4HepcHope. The toll-free number is
    staffed from 9 a.m. to 9 p.m. by health educators employed by
    Gilead in Foster City, California, where the company is based.
    When calling, the caller is asked to provide an email or
    physical mailing address with which Gilead and its partner
    companies can send educational information about HCV (see
    below), strategies for finding a provider and discussing the
    disease, and information about Gilead's HCV treatments.
        The caller is further asked how they heard about the
    hotline/website, and are advised that, while their privacy will
    be protected, Gilead may use their information for market
    research. Callers can be transferred to Gilead's ``Support
    Path'' program, which is designed to help ``patients get
    started on therapy and move toward treatment completion,''
    through on-call nurses, financial assistance for drug
    purchases, and prepared forms such as ``letters of medical
    necessity'' that providers send to insurers.\413\ Like
    HepCHope, the program provides valuable and detailed market
    intelligence for Gilead. For example, a presentation in
    September 2014 analyzing Medicaid fee-for-service programs says
    a ``majority of states are managing HCV with strict criteria,''
    pointing to ``953 unique patients on Support Path.'' \414\
    ---------------------------------------------------------------------------
        \413\ Gilead Sciences, Inc., Support Path, available at http://
    www.mysupportpath.com/ (accessed Nov. 10, 2015).
        \414\ Appendix E, Ex. 52, Gilead Sciences, Inc., HCV Wave 2
    Contracting Recommendations, September 9, 2014, GS-0019058, at GS-
    0019104.
    ---------------------------------------------------------------------------
        On the website, clicking ``learn more about a treatment
    option for Hepatitis C'' links to a website advertising
    Harvoni. According to an advertising industry website, a Gilead
    commercial that advertises the HepCHope phone number and
    website had aired at least 9,816 times as of November 18,
    2015.\415\
    ---------------------------------------------------------------------------
        \415\ Gilead Sciences, Inc., HepCHope.com TV Commercial, ``Forget
    Me Not,'' available at http://www.ispot.tv/ad/7Ba0/hepchope-com-get-me-
    not (accessed Nov. 18, 2015).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Meyers told investigative staff that the company never
    launched a branded campaign for Sovaldi on television. Instead,
    the company provided visual materials to physicians and
    advertised in medical journals. Meyers said the print campaign
    started in February 2014 and lasted roughly a month-and-a-half,
    at which point the company noted an unexpected volume
    surge.\416\ Examples of print advertisements for Sovaldi can be
    found in the July 2014 and September 2014 issue of Esquire
    magazine.\417\ The purpose of the ads was to build disease
    awareness, Meyers said, but Gilead was experiencing such large
    volume that it was not deemed necessary.\418\
    ---------------------------------------------------------------------------
        \416\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (October 30, 2014).
        \417\ Gilead Sciences, Inc., Sovaldi (advertisement), Esquire
    Magazine, at 44-45 (July 2014 Esquire Magazine (Sept. 2014), at 128-
    129.
        \418\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (October 30, 2014).
    ---------------------------------------------------------------------------
        Gilead has advertised a great deal for Harvoni--ads for the
    drug have aired 8,224 times as of November 18, 2015.\419\
    ---------------------------------------------------------------------------
        \419\ Gilead Sciences, Inc., Harvoni TV Commercial, ``I am Ready,''
    available at http://www.ispot.tv/ad/786d/harvoni-i-am-ready#moreData
    (accessed Nov. 18, 2015).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In addition, the company needed to ensure that policymakers
    were aware of HCV as a public health issue, so it would be a
    higher priority for government outlays. The company planned to
    boost government awareness by ``creating tools necessary to
    engage policymakers in advocating and elevating HCV as a major
    public health issue and increase budgets accordingly.'' \420\
    To that end, before launching the drug, Gilead planned to
    ``articulate the unmet needs and disease burden of HCV to
    multiple stakeholders including physicians, health policy
    makers, payers, and advocates,'' and ``develop evidence of HCV
    disease burden and a plan for raising HCV as a national health
    priority.'' \421\
    ---------------------------------------------------------------------------
        \420\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013533.
        \421\ Id. at GS-0013519.
    ---------------------------------------------------------------------------
        Gilead believed sofosbuvir's shortening and simplification
    of treatment for genotype 1 patients would be appealing to
    providers, who in turn would be more likely to prescribe the
    drug than they had been with predecessor therapies. However,
    because relatively few physicians routinely prescribed drugs
    for HCV, the company would need to convince more providers to
    pursue treatment for their patients. By increasing the number
    of prescribing providers, more patients would become potential
    consumers. To that end, the company would ``strive for rapid
    inclusion in guidelines'' from medical organizations that would
    raise its profile in the medical community.\422\ The company
    planned to target the Conference on Retroviruses and
    Opportunistic Infections (CROI), the European Association on
    the Study of the Liver (EASL), the International Society for
    the Pharmacoeconomics and Outcomes Research (ISPOR), the Asian
    Pacific Association for the Study of the Liver (APASL), and the
    American Association for the Study of Liver Disease
    (AASLD).\423\
    ---------------------------------------------------------------------------
        \422\ Id. at GS-0013510.
        \423\ Id. at GS-0013528.
    ---------------------------------------------------------------------------
        As the drug was launched, Gilead wanted to ``ensure payers
    and national health authorities are supportive of the value
    offered by SOF-based regimens,'' and its goal was ``from the
    outset, SOF-based regimens should be considered first for all
    GT2/3 and GT1 TN patients.'' \424\
    ---------------------------------------------------------------------------
        \424\ Id. at GS-0013519.
    ---------------------------------------------------------------------------
        The goal following launch would be to ``maintain SOF value
    and eliminate access barriers with payers,'' by working to
    ``protect price erosion in advance of SOF/LDV launch, and
    maintain value in GT2/3,'' and ``work to ensure restrictions
    are not imposed in key markets.'' \425\ At the same time, the
    push for patients would be sharpened with efforts to ``increase
    the numbers of patients accessing treatment,'' and ``encourage
    treating physicians to initiate SOF-based regimens in the
    majority of patients for whom previously no treatment was
    offered.'' \426\ Over the course of three years, the company
    wanted to ``increase referral of diagnosed patients to treating
    physicians,'' and ``support efforts to increase delivery of HCV
    care beyond specialists who treat today.'' \427\
    ---------------------------------------------------------------------------
        \425\ Id. at GS-0013522.
        \426\ Id.
        \427\ Id.
    ---------------------------------------------------------------------------
        At the same time that Gilead was laying out plans to
    maximize sales of sofosbuvir, it also recognized potential
    commercial threats, including:

              HCPs (health care providers) may wait for IFN-free
            regimens in GT1
              Apathy for Tx (treatment/treating) early disease due
            to limited data on benefits of treating earlier
              Payers may limit access and force declining value
              Potential for market fragmentation with launches of
            competitive regimens
              Low government prioritization of HCV in many
            countries \428\
    ---------------------------------------------------------------------------
        \428\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013510.

        The company planned to prioritize targeting sofosbuvir for
    genotype 1 patients in Europe and the U.S. as that genotype was
    predominant in both regions. In the U.S., as well as in France,
    Germany, and Italy, secondary emphasis would be given to
    genotype 2 patients, reflecting the second largest bloc in the
    countries' respective patient populations. Similarly, for Spain
    and the United Kingdom, the company would focus on genotype 3
    patients, based on the number of prospective
    prescriptions.\429\ Gilead also singled out two ``special
    populations'' to target: pre-transplant patients (of which the
    company estimated to be 6,400 in the U.S., and 4,800 in the EU)
    who would receive up to 48 weeks of sofosbuvir, and patients
    with both HIV and HCV, of which there were an estimated 55,000.
    As the company noted, most of these patients were already under
    the care of specialists, and had ``fewer barriers to initiating
    treatment vs mono-infected'' patients with only HCV.\430\
    ---------------------------------------------------------------------------
        \429\ Id. at GS-0013511--GS-0013513.
        \430\ Id. at GS-0013511--GS-0013514.
    ---------------------------------------------------------------------------
        In its April 4th commercial plan, Gilead had defined its
    commercial opportunity, strategy, and initiatives. Its success
    in the U.S. ultimately would be measured post-launch by ``key
    metrics'' on a monthly and quarterly basis.\431\ These metrics
    included ``ex-factory units,'' i.e., sales directly from the
    factory to distributors, total prescriptions of Sovaldi,
    revenue, and ``forecast attainment.'' \432\ No other
    documentation of this meeting has been provided, despite
    repeated requests that Gilead provide supporting documents.
    ---------------------------------------------------------------------------
        \431\ Id. at GS-0013537.
        \432\ Id.
    ---------------------------------------------------------------------------
        Once the drug was launched, a series of metrics would be
    used to measure success in the United States and across the
    world. The company planned to ``establish and communicate
    unified launch success metrics,'' and ``track success metrics''
    that would be communicated monthly.\433\ Among those metrics
    were physician surveys to determine brand awareness; profile
    constructs of patients being prescribed the drug; message
    testing; tracking various prescription data, including new-to-
    brand prescriptions, new proscriptions, total prescriptions,
    and longitudinal (i.e., geographic) prescriptions; \434\
    revenues, respectively; factory-to-distributor sales;
    monitoring the prescriber base; and attaining forecast
    goals.\435\ Many of these same metrics would be repeated in the
    ``EAME'' market comprising Europe, Asia, and the Middle
    East.\436\
    ---------------------------------------------------------------------------
        \433\ Id. at GS-0013532.
        \434\ These were referred to in the presentation as NBRx, NRx, TRx,
    LRx, respectively.
        \435\ Appendix E, Ex. 32, Gilead Sciences, Inc., 2013-2015 HCV
    Launch Commercial Plan, April 4, 2013, GS-0013503, at GS-0013536--GS-
    0013537.
        \436\ Id. at GS-0013538.
    ---------------------------------------------------------------------------

               Impact of AASLD/IDSA HCV Treatment Recommendations

        In late January 2014, on the heels of Sovaldi's 2013
    launch, an advisory committee under the auspices of the
    American Association for the Study of Liver Diseases (AASLD)
    and the Infectious Disease Society of America (IDSA) issued
    guidance on the treatment of HCV.\437\ The panel declared
    sofosbuvir as the ``recommended'' regimen for treatment-naive
    genotype 1 patients who were eligible to receive interferon
    regardless of subtype.\438\ Simeprevir, a drug manufactured by
    Gilead's competitor Johnson & Johnson as Olysio, was declared
    ``acceptable'' for subtype 1b and some subtype 1a
    patients.\439\ The endorsement effectively rendered Sovaldi the
    new standard of care for HCV. It should be noted that the FDA
    labels required interferon to be administered with both Sovaldi
    and Olysio for genotype 1 patients, though for shorter periods
    than previous therapy regimens.
    ---------------------------------------------------------------------------
        \437\ American Association for the Study of Liver Disease &
    Infectious Diseases Society of America, HCV Guidance: Recommendations
    for Testing, Managing, and Treating Hepatitis C (2014), available at
    http://www.hcvguidelines.org.
        \438\ Id. at 18.
        \439\ Id. at 19.
    ---------------------------------------------------------------------------
        In addition, the panel made a recommendation that
    sofosbuvir (Sovaldi) and simeprevir (Olysio) could be
    administered together for genotype 1 patients who could not
    tolerate interferon.\440\ This recommendation was based largely
    on a single phase 2 clinical trial of 167 patients known as
    COSMOS. This combination was not officially approved by the FDA
    until October 2014 and did not conform to the FDA label for
    either drug until then.\441\ Nonetheless, an increasing number
    of physicians prescribed this off-label regimen in order to
    address the continuing treatment obstacles to interferon. By
    some estimates, the combination represented upwards of 1/3 of
    all Sovaldi prescriptions by the end of the 2nd quarter of
    2014.\442\ When faced with the expert panel's recommendation,
    many payers accepted the off-label regimen, but then faced the
    double cost of two expensive HCV drugs being co-prescribed. The
    wholesale price of the two together was roughly $150,000.\443\
    ---------------------------------------------------------------------------
        \440\ Id. at 18.
        \441\ Johnson & Johnson's Janssen division applied to the FDA for
    approval to use the two in combination on May 7, 2014, citing the
    COSMOS study. Press Release, Johnson & Johnson, Janssen Submits
    Supplemental New Drug Application to U.S. FDA for Olysio TM
    (Simeprevir) for Once-Daily Use in Combination with Sofosbuvir for 12
    Weeks for the Treatment of Adult Patients With Genotype 1 Chronic
    Hepatitis C (May 7, 2014), available at http://www.
    investor.jnj.com/releasedetail.cfm?releaseid=846096. FDA approved the
    combined use on November 5, 2014. Anna Edney, J&J Wins U.S. Approval
    for Hepatitis C Combo With Gilead, Bloomberg (Nov. 5, 2014), available
    at http://www.bloomberg.com/news/articles/2014-11-05/j-j-wins-u-s-
    approval-for-hepatitis-c-combo-with-gilead.
        \442\ Hepatitis C Online, Medications to Treat HCV, Simeprevir
    (Olysio), http://www.
    hepatitisc.uw.edu/page/treatment/drugs/simeprevir-drug (last visited
    Nov. 11, 2015).
        \443\ Id.
    ---------------------------------------------------------------------------
        Gilead pointed to this off-label use as a major factor in
    payers' growing complaints about the cost of Sovaldi during
    2014. In its written response to the senators' letter, Gilead
    stated that it opposed the recommendation of using the two
    drugs together.\444\ While it is true that a significant number
    of patients were given the Sovaldi/Olysio combined regimen, it
    appears that this was done by physicians to address one of the
    drawbacks inherent in Sovaldi, which was its continued reliance
    on interferon for the largest cohort of HCV patients, i.e.,
    those with genotype 1. With the advent of the all-oral Harvoni
    and Viekira Pak products, use of the combination decreased
    dramatically.\445\
    ---------------------------------------------------------------------------
        \444\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    questions 17, 18d (Sept. 9, 2014).
        \445\ Id.
    ---------------------------------------------------------------------------
        Finally, it is important to note that without the AASLD/
    IDSA expert panel recommendation, the combination off-label use
    would not likely have occurred at the levels of use seen in
    2014.
        Potential conflicts of interest could have played a role in
    the AASLD/IDSA's recommendations for Sovaldi and the Sovaldi/
    Olysio combination, and a number of panel members reported that
    they received compensation and/or research funding from the two
    manufacturers.\446\ However, we located no direct evidence of
    influence on panel members and, as noted above, the
    recommendation on the Sovaldi/Olysio combination was contrary
    to Gilead's longer-term interests and its corporate position as
    explained in its written response. Members of the panel
    interviewed indicated that their primary concern in making the
    recommendation was addressing the need for improved treatment
    regimens that did not rely upon interferon and providing better
    outcomes compared to the prior regimens.
    ---------------------------------------------------------------------------
        \446\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    questions 18a, 18b (Sept. 9, 2014); American Association for the Study
    of Liver Diseases & Infectious Diseases Society of America,
    Recommendations for Testing, Managing, and Treating Hepatitis C,
    Disclosure Information (2014), available at https://web.archive.org/
    web/20140428013944/http:/www.hcvguidelines.org/disclosure_information.
     Section 4: The Financial Burden of Treating HCV and Resulting Access
                                  Restrictions

        Investigative staff closely examined how Sovaldi, Harvoni,
    and other recent therapies for HCV affected three different
    federal public payer programs--Medicaid, Medicare, and the
    Bureau of Prisons. These programs have a disproportionate
    population of the nation's HCV patients and are an important
    part of the nation's health care system. As noted at various
    points in this report, Gilead's two drugs have dramatically
    increased the amount spent on HCV care. These programs combined
    to spend at least $5.2 billion for Gilead's HCV therapies in
    calendar year 2014 before rebates--$4.4 billion attributable to
    Sovaldi and more than $800 million to Harvoni, which only
    gained FDA approval in mid-October of that year.\447\ Through
    the first six months of the year, Medicare reports having paid
    $4.4 billion, before rebates, for Gilead's HCV therapies,
    compared to just $200 million for all other drugs approved to
    treat the disease. As a result, these public payers, as well as
    traditional insurance plans, adopted access restrictions to
    limit the number of patients who could benefit from this new
    class of HCV therapies. The nature and extent of these
    restrictions appear to go well beyond what Gilead anticipated
    in its pricing process.
    ---------------------------------------------------------------------------
        \447\ The pharmaceutical spending data collected from Medicare Part
    D and state Medicaid programs represent outlays before mandatory
    (Medicaid) or voluntary/supplemental (Medicaid and Part D) rebates were
    applied. Federal law limits the disclosure of pricing information in a
    form that discloses the identity of a specific manufacturer or
    wholesaler, subject to limited exceptions. See 42 U.S.C.
    Sec. Sec. 1395w-102, 1395w-104, 1396r-8.
    ---------------------------------------------------------------------------

                   Medicaid and Prescription Drug Purchasing

        Medicaid is a jointly funded state-federal program that
    provides health insurance to over 72.4 million low-income
    Americans.\448\ In order to receive federal financial
    participation, states must establish and administer their
    Medicaid programs within broad federal guidelines under which
    states have flexibility to determine the type, amount,
    duration, and scope of services they provide.
    ---------------------------------------------------------------------------
        \448\ Department of Health and Human Services, Centers for Medicare
    & Medicaid Services, Medicaid & CHIP: August 2015 Monthly Applications,
    Eligibility Determinations and Enrollment Report at 2 (2015)
    [hereinafter HHS, Medicaid & CHIP Report], available at http://
    medicaid.gov/medicaid-chip-program-information/program-information/
    downloads/august-2015-enrollment-report.pdf.
    ---------------------------------------------------------------------------
        States generally provide a comprehensive set of benefits
    consisting of mandatory benefits such as inpatient and
    outpatient hospital care and physician services as well as
    optional services including prescription drugs.\449\ While
    prescription drug coverage, including coverage for HCV
    treatments, is considered an optional benefit, every state has
    chosen to cover outpatient prescription drugs for nearly all of
    their Medicaid enrollees.\450\ As a result, due to the unique
    structure of the Medicaid drug program, state Medicaid programs
    can be particularly sensitive to the cost of drugs.
    ---------------------------------------------------------------------------
        \449\ Benefits, Medicaid.gov, available at http://www.medicaid.gov/
    medicaid-chip-program-information/by-topics/benefits/medicaid-
    benefits.html.
        \450\ Prescription Drugs, Medicaid.gov, available at http://
    www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/
    prescription-drugs/prescription-drugs.html.
    ---------------------------------------------------------------------------
        The Medicaid Drug Rebate Program was created by the Omnibus
    Budget Reconciliation Act of 1990 to help offset the cost of
    certain outpatient dugs.\451\ Under the program, drug
    manufacturers are allowed to enter into a national rebate
    agreement with the Secretary of the Department of Health and
    Human Services to offer certain rebates to states' Medicaid
    programs in exchange for guaranteed state Medicaid coverage of
    FDA-approved drugs sold by the drug manufactures. The basic
    Medicaid rebate for brand name drugs is the greater of: (1) the
    difference between the drug's average manufacturer price (AMP)
    during the drug's rebate period--typically the previous
    calendar quarter--and the drug's best price or (2) 23.1% of the
    drug's AMP.\452\ Under the Medicaid Drug Rebate Program, drug
    manufactures would owe an additional rebate on brand name drugs
    when they raise prices faster than the inflation rate.\453\
    According to the Centers for Medicare & Medicaid Services
    (CMS), approximately 600 drug manufactures are currently
    participating in the Medicaid Drug Rebate Program, including
    Gilead.\454\ In addition to the basic and additional Medicaid
    drug rebate, state Medicaid programs collaborate through
    purchasing pools to negotiate supplemental drug rebates with
    drug manufactures.\455\
    ---------------------------------------------------------------------------
        \451\ Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-
    508, Sec. 4401, 104 Stat. 1388.
        \452\ Medicaid Drug Rebate Program, Medicaid.gov, available at
    http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/
    Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program.html.
        \453\ Id.
        \454\ Id. (see link to Drug Manufacturer Contact Information file).
        \455\ See, e.g., NMPI--National Medicaid Polling Initiative,
    Provider Synergies, available athttp://www.providersynergies.com/
    services/medicaid/default.asp?content=NMPI.
    ---------------------------------------------------------------------------
        Medicaid has faced significant costs for treating
    individuals infected with HCV. Historically, Medicaid
    eligibility was limited to certain low-income children,
    pregnant women, parents of dependent children, the elderly, and
    individuals with disabilities.\456\ However, under the
    Affordable Care Act of 2010, states were provided with enhanced
    federal funding to extend coverage to low-income adults--many
    of whom were previously uninsured.\457\ As a result of this
    policy, enrollment in Medicaid has ballooned by more than 12
    million since October 2013 to a total of more than 71 million
    enrollees today.\458\ Medicaid is now the single largest health
    insurer in the country, covering more individuals than Medicare
    or any other private insurer.
    ---------------------------------------------------------------------------
        \456\ Julia Paradise, Kaiser Family Foundation, The Kaiser
    Commission on Medicaid and the Uninsured, Medicaid Moving Forward 2
    (2015), available at http://kff.org/health-reform/issue-brief/medicaid-
    moving-forward.
        \457\ Patient Protection and Affordable Care Act, Pub. L. No. 111-
    148, 124 Stat. 119 (2010).
        \458\ HHS, Medicaid & CHIP Report, at 2.
    ---------------------------------------------------------------------------
        As a result of the sheer size and complex health needs of
    the Medicaid population and the program's unique drug rebate
    program, the impact of Sovaldi and Harvoni on state Medicaid
    programs has been particularly deep. The impact can be best
    seen when examining state Medicaid budgets and program coverage
    policies.
        State Medicaid programs typically pay for outpatient drugs
    in one of two ways--either through a fee-for-service (FFS)
    payment made directly to the pharmacist, or through a capitated
    payment made directly to a managed care organization (MCO),
    which then manages payment to the pharmacist.\459\ In both
    cases, upon entering the market, Sovaldi had a demonstrable
    financial impact described with greater detail in the following
    pages.
    ---------------------------------------------------------------------------
        \459\ Brian Bruen & Katherine Young, Kaiser Family Foundation, The
    Kaiser Commission on Medicaid and the Uninsured, Paying for Prescribed
    Drugs in Medicaid: Current Policy and Upcoming Changes 1, 3 (2014),
    available at https://kaiserfamilyfoundation.files.wordpress.com/2014/
    05/8593-paying-for-prescribed-drugs-in-medicaid-current-policy-and-
    upcoming-changes.pdf.
    ---------------------------------------------------------------------------

                 The Outsized Impact of Gilead's HCV Drugs on
                          State Medicaid Drug Spending

        The financial impact of Gilead's line of HCV drugs on state
    Medicaid programs has been dramatic. Shortly after Harvoni was
    approved by the FDA, the National Association of Medicaid
    Directors (NAMD) wrote to Congress on October 28, 2014 that
    ``the challenge Sovaldi and other new hepatitis C medications
    pose for the Medicaid program is the intersection of a high-
    cost therapy and a potentially large population eligible for
    therapy.'' \460\
    ---------------------------------------------------------------------------
        \460\ Appendix D, Ex. 2, Letter from Darin J. Gordon and Thomas J.
    Betlach, National Association of Medicaid Directors, to Congress (Oct.
    28, 2014) at 3.
    ---------------------------------------------------------------------------
        According to NAMD, during its first year on the market,
    states were largely unsuccessful in securing supplemental
    rebates for Sovaldi. In its letter to Congress, NAMD wrote,
    ``states are not well positioned to secure meaningful
    supplemental rebates for Sovaldi. . . . To date, supplemental
    rebates states have secured for Sovaldi are minimal, with any
    further concessions predicted on unrestricted access to the
    drug.'' \461\ In fact, just five state Medicaid programs
    reported that they reached supplemental rebate agreements with
    Gilead for Sovaldi in 2014.\462\
    ---------------------------------------------------------------------------
        \461\ Id.
        \462\ See Appendix A.
    ---------------------------------------------------------------------------
        Thus, in order to manage the costs of Sovaldi and Harvoni,
    which made up the majority of pharmaceutical spending to treat
    HCV, state Medicaid programs developed access restrictions to
    control costs in a constrained budget environment,\463\ pitting
    patients seeking therapy against those agencies ``weighing
    complex ethical questions, scientific evidence and public
    health needs to maximize appropriate access to new
    treatments.'' \464\ A recent study of HCV patients in four Mid-
    Atlantic states showed that Medicaid recipients were more
    likely than those with Medicare or commercial insurance to have
    their prescriptions for DAAs rejected, or have their treatment
    delayed.\465\
    ---------------------------------------------------------------------------
        \463\ See Appendix B for a compilation of access restrictions
    supplied by the Oregon Health & Sciences University.
        \464\ Appendix D, Ex. 2, Letter from Darin J. Gordon and Thomas J.
    Betlach, National Association of Medicaid Directors, to Congress (Oct.
    28, 2014) at 4.
        \465\ Vincent Lo Re, et al., American Association for the Study of
    Liver Diseases (AASLD) Abstract, Incidence and Determinants of Denial
    of DAA Treatment for Chronic HCV Infection by Insurance Type During the
    First 6 Months of the Modern HCV Treatment Era, 62 Hepatology 1382A
    (2015) available at http://www.aasld.org/sites/default/files/TLM-2015-
    LakeBreaking
    Abstracts.pdf.
    ---------------------------------------------------------------------------
        To better quantify and qualify the financial impacts of
    these drugs on individual state programs, investigative staff
    requested quantitative and qualitative data from Medicaid
    programs in all 50 states and the District of Columbia
    regarding a series of issues related to HCV infections,
    pharmaceutical spending, interactions with Gilead, and the
    financial impact of Sovaldi and Harvoni on state Medicaid
    spending. State Medicaid programs were asked to provide:

        Total spending (pre-rebate) on Sovaldi and Harvoni in
            CY2014
        The number of prescriptions filled for Sovaldi and Harvoni
            during CY2014
        The number of unique recipients who were dispensed Sovaldi
            and Harvoni during CY2014
        The top 25 drugs, in terms of aggregate spending, in
            CY2014
        The rank of Sovaldi and Harvoni in the state's
            pharmaceutical spending
        The estimated number of enrollees infected with HCV
        The estimated number of enrollees in each state's Medicaid
            program
        Whether the state signed a supplemental rebate agreement
            with Gilead in CY2014

        All 51 programs responded to the information request,
    providing valuable data showing how state Medicaid programs
    were affected by the price of Sovaldi and Harvoni (see Appendix
    A). State Medicaid programs reported that $1.3 billion was
    spent on Sovaldi during CY2014, prior to any statutory or
    supplemental rebates. For this cumulative outlay for Sovaldi in
    2014, state agencies reported that just 16,281 enrollees
    received the drug, constituting less than 2.4% of at least
    698,000 Medicaid recipients nationwide believed to carry the
    disease (map 1 shows the percentage of enrollees who were
    treated with Sovaldi during CY2014 on a state-by-state
    basis).\466\ Oklahoma and Indiana are examples of states that
    spent heavily on HCV drugs in 2014 to treat small portions of
    Medicaid enrollees infected with the disease (see graph).
    ---------------------------------------------------------------------------
        \466\ The estimate of 698,000 enrollees was derived from data
    reported by states to staff. The actual number of Medicaid enrollees
    infected with HCV is likely significantly higher, because seven states
    did not provide estimates--Hawaii, Idaho, Louisiana, North Dakota,
    Ohio, South Dakota, Utah. See Appendix A.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The data collected by investigative staff show that outlays
    for Sovaldi ranked it among the top five pharmaceutical
    spending items for 33 different state Medicaid agencies (see
    map 2).\467\ Fourteen states reported that Sovaldi was the top
    pharmaceutical cost for their FFS, MCO or combined
    programs.\468\ Fifteen more reported that Sovaldi was the
    second highest cost.\469\ Four more states reported that
    Sovaldi ranked third, fourth or fifth in their pharmaceutical
    spending for CY2014.\470\
    ---------------------------------------------------------------------------
        \467\ See Appendix A. Gilead valued this type of spending rank
    data. In April 2014, the company requested state-by-state ranks for
    Sovaldi from Magellan Medicaid Administration, a contractor that
    negotiated rebates on behalf of 25 state agencies. When a Magellan
    official questioned the relevance of such data to the company, William
    Dozier, a senior manager for national accounts, wrote that the data
    were ``relevant to the Gilead.pricing committee [sic] because it shows
    the impact current pricing has on Medicaid.'' Appendix D, Ex. 3, Email
    from Eric Kimelblatt to Christopher J. Andrews and William Dozier,
    ``Re: Sovaldi Data'' (Apr. 15, 2014).
        \468\ Connecticut, Georgia, Hawaii, Kentucky, Maryland,
    Massachusetts, Minnesota, New Jersey, New Mexico, New York, North
    Dakota, Oklahoma, Tennessee, Utah. See Appendix A.
        \469\ Arizona, Florida, Indiana, Louisiana, Maine, Missouri,
    Montana, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Rhode
    Island, Vermont, Wyoming. See Appendix A.
        \470\ Colorado, Illinois, Kansas, South Dakota. See Appendix A.
    ---------------------------------------------------------------------------
        Researchers at the Brigham and Women's Hospital found that
    spending on Sovaldi accounted for more than 6.6% of the
    pharmaceutical program budgets for state Medicaid programs in
    Connecticut, New York and Massachusetts.\471\ Oregon's Medicaid
    program, which spent $591.2 million in 2014, expected that HCV
    treatment would make up a significant portion of its future
    drug spending:
    ---------------------------------------------------------------------------
        \471\ Joshua M. Liao and Michael A. Fischer, New England Journal of
    Medicine, Early Patterns of Sofosbuvir Utilization by State Medicaid
    Programs, September 24, 2015, (figure 1) available at http://
    www.nejm.org/doi/full/10.1056/NEJMc1506108.

            Based on historical utilization and assumptions
            regarding provider capacity, we concluded approximately
            500 patients would be treated annually at a projected
            cost of $51 million per year for the first six
            years.\472\
    ---------------------------------------------------------------------------
        \472\ Appendix D, Ex. 4, Letter from Lynne Saxton to the Honorable
    Ron Wyden and the Honorable Chuck Grassley, (Oct. 19, 2015), at p. 2.

        Investigative staff received responses from 48 state
    programs to the question regarding supplemental rebates, and
    only five reported reaching a supplemental rebate agreement
    with Gilead during 2014.\473\ This illustrates that Gilead's
    supplemental rebate terms for Sovaldi were not accepted by the
    vast majority of state Medicaid programs. The states that
    reached agreement with Gilead estimated having roughly 15,000
    enrollees infected with HCV, less than 2.2% of Medicaid
    enrollees believed to be infected with the disease.\474\ As
    referenced above and discussed in more detail below, in the
    absence of acceptable rebate offers, many states reacted to the
    high cost of Sovaldi and Harvoni by restricting access to the
    sickest patients and requiring that patients be under the care
    of hepatologists or other specialists prior to receiving the
    drugs.
    ---------------------------------------------------------------------------
        \473\ Louisiana, South Dakota, and Wisconsin did not provide a
    response to this question. Georgia, Maine, Minnesota, Vermont, and
    Wyoming agreed to supplemental rebate terms. See Appendix A.
        \474\ See Appendix A.
    ---------------------------------------------------------------------------
        The high cost of Sovaldi and Harvoni has exerted a strain
    on state Medicaid budgets, and is predicted to continue to do
    so. For example:

        Washington's Medicaid director wrote that ``if [the Health
            Care Authority] were to pay for hepatitis C treatment
            for all Medicaid clients infected with hepatitis C, the
            cost would be three times the current total pharmacy
            budget [of roughly $1 billion].'' Taking into account
            rebates with Gilead, the state anticipates spending
            more than $242 million in FY2016 alone to treat
            eligible Medicaid patients.\475\
    ---------------------------------------------------------------------------
        \475\ Appendix D, Ex. 5, Letter from MaryAnne Lindeblad to the
    Honorable Ron Wyden and the Honorable Chuck Grassley (Sept. 23, 2015),
    at 2.
    ---------------------------------------------------------------------------
        Georgia reported to investigative staff that $30.4 million
            was spent to treat 329 patients with Sovaldi during
            2014.\476\ The patients treated with Sovaldi
            represented less than 6% of the estimated 6,000
            enrollees who have been diagnosed with HCV.\477\ In an
            August presentation to the state legislation, the
            Georgia Department of Community Health reported that
            $40.8 million had been spent on Harvoni through the
            first six months of 2015 and projected that $80 million
            would be spent on hepatitis C drugs during FY2016 with
            an expectation that the budget impact would continue
            through FY2017.\478\
    ---------------------------------------------------------------------------
        \476\ Georgia reported spending $7.5 million on Harvoni and $6.2
    million on Olysio in 2014. See Appendix A.
        \477\ See Appendix A.
        \478\ Georgia Department of Community Health, Hepatitis C Overview,
    Medicaid and SHBP (Aug. 11, 2015), p. 7-9, available at http://
    dch.georgia.gov/sites/dch.georgia.gov/files/Hepatitis%
    20C%20presentation.pdf.
    ---------------------------------------------------------------------------
        Pennsylvania estimated that ``the cost could range from
            $2.87 billion to $3.05 billion paid to the dispensing
            providers, or $1.58 billion to $1.73 billion after the
            federal drug rebates are collected.'' \479\ There are
            an estimated 31,000 enrollees in Pennsylvania's
            Medicaid program diagnosed with HCV.\480\
    ---------------------------------------------------------------------------
        \479\ Appendix D, Ex. 6, Letter from Theodore Dallas to the
    Honorable Ronald L. Wyden and the Honorable Charles E. Grassley, (Oct.
    2, 2015) at 2.
        \480\ See Appendix A.
    ---------------------------------------------------------------------------
        New York's MCOs and FFS alone spent more than $363 million
            on Sovaldi.\481\
    ---------------------------------------------------------------------------
        \481\ See Appendix A.

        In addition, several states wrote to Senators Grassley and
    Wyden, or otherwise communicated to investigative staff, that
    they were compelled to undertake unusual financial arrangements
    with MCOs, seek targeted budgetary authority for the management
    of costs related to managing HCV treatment, and, in at least
    ---------------------------------------------------------------------------
    one case, enact new legislation. For example:

        The Iowa Department of Human Services ``has incorporated
            the cost of specialty drugs (including HCV medications)
            in its current and future Medicaid budget requests.''
            \482\
    ---------------------------------------------------------------------------
        \482\ Appendix D, Ex. 7, Letter from Charles M. Palmer to Peter
    Gartrell, (Feb. 9, 2015), at 1.
    ---------------------------------------------------------------------------
        Arizona ``added an additional $30 million in funding to
            the capitation rates [for managed care organizations]
            to address the additional costs of Sovaldi and Harvoni,
            for total funding of $45 million.'' \483\
    ---------------------------------------------------------------------------
        \483\ Appendix D, Ex. 8, Letter from Thomas J. Betlach to Peter
    Gartrell (July 17, 2015), at 2.
    ---------------------------------------------------------------------------
        Florida established ``kick payments'' for HCV drugs in
            mid-2014 after managed care plans expressed concern
            that costs for treating the disease would exceed what
            had been expected at the time capitation rates were set
            for the year.\484\
    ---------------------------------------------------------------------------
        \484\ Appendix D, Ex. 9, Letter from Justin M. Senior to the
    Honorable Orrin G. Hatch and the Honorable Ron Wyden (Oct. 19, 2015),
    at 2. ``A kick payment is a rate mechanism to manage the uncertainty of
    the number of people who will need high cost Hepatitis C treatment. A
    kick payment allows the Medicaid program to pay the health plans based
    on expected costs for each enrollee who is prescribed the drugs for
    treatment.'' Id.
    ---------------------------------------------------------------------------
        Kentucky reported in a letter to the senators that the
            state's ``spending related to HCV has increased to
            about 7 percent of its total Medicaid budget, providing
            new hepatitis C drugs to a relatively small number of
            patients.''\485\
    ---------------------------------------------------------------------------
        \485\ Appendix D, Ex. 10, Letter from Samantha McKinley to the
    Honorable Charles E. Grassley and the Honorable Ron Wyden (Oct. 21,
    2015).

        Texas sent a letter to the Senators expressing its concern
    ---------------------------------------------------------------------------
    with respect to HCV drug prices:

            The state's experience with second generation HCV drugs
            prompted the 84th Texas Legislature to pass a rider on
            the state's appropriations act in June 2015. The rider
            requires [The Health and Human Services Commission] to
            estimate the potential cost of all new outpatient drug
            products prior to covering the products. All products
            with an estimated annual cost of greater than $500,000
            must be submitted to the Legislative Budget Board for
            review. This requirement may increase the amount of
            time between approval of a new treatment by the FDA and
            provision of that treatment to Medicaid clients.\486\
    ---------------------------------------------------------------------------
        \486\ Appendix D, Ex. 11, Letter from Andy Vasquez to the Honorable
    Ron Wyden and the Honorable Charles E. Grassley (Aug. 14, 2015), at 3.

    ---------------------------------------------------------------------------
        The letter went on to say:

            The rebate revenue from manufacturers lessens the
            impact of second generation HCV drugs on the state's
            Medicaid budget. However, given the exorbitant price of
            these medications, the rebates are insufficient and
            these drugs jeopardize the solvency of the state's
            Medicaid and public health programs. Manufacturers
            lowering the price at which these drugs are sold to
            providers would be more beneficial than rebates to the
            Texas Medicaid program and would also benefit its
            state-funded health program.\487\
    ---------------------------------------------------------------------------
        \487\ Id. at 4.

        In a letter to Senators Wyden and Grassley, Oregon's
    ---------------------------------------------------------------------------
    Medicaid director stated:

            What we face is not a drug cost problem; it is a drug
            price problem. State Medicaid programs are limited in
            our ability to control pharmacy benefit expenditure,
            particularly as federal law requires us to provide a
            pathway to coverage for all FDA-approved drugs, no
            matter how minimal the likely benefit per dollar spent.
            While federally mandated rebates help, they provide
            limited relief.\488\
    ---------------------------------------------------------------------------
        \488\ Appendix D, Ex. 4, Letter from Lynne Saxton to the Honorable
    Ron Wyden and the Honorable Chuck Grassley, (Oct. 19, 2015), at 2.

        Kentucky is preparing to begin HCV screening tests at
    county health departments, partly due to the rising use of
    injectable drugs in the state, which has contributed to the
    ---------------------------------------------------------------------------
    spread of the disease:

            Given the current cost of the newer treatment options
            and to remain fiscally responsible we will be forced to
            make difficult decisions regarding who does and does
            not get access to treatment medications upon
            diagnosis.\489\
    ---------------------------------------------------------------------------
        \489\ Appendix D, Ex. 10, Letter from Samantha McKinley to the
    Honorable Charles E. Grassley and the Honorable Ron Wyden, (Oct. 21,
    2015), at 2.

        One of the tools that Kentucky, and many other states, has
    used to prioritize treatment and manage costs is establishing
    prior authorization criteria.\490\
    ---------------------------------------------------------------------------
        \490\ Id.
    ---------------------------------------------------------------------------

      Adoption of Prior Authorizations in Response to HCV Drug Pricing by
                            State Medicaid Programs

        In light of Sovaldi's high price and an inability to
    negotiate suitable supplemental rebate terms that would
    moderate program costs, more than half the nation's state
    Medicaid programs implemented prior authorization (PA)
    criteria, which restrict access in order to the drug to control
    costs.
        With the assistance of the Oregon Health & Sciences
    University's Center for Evidenced-based Policy (``OHSU''),
    investigative staff examined how the PAs were structured for
    Sovaldi, and later, Harvoni and Viekira Pak.\491\ OHSU
    conducted an initial survey of publicly available data on state
    Medicaid programs' approval of Sovaldi between May 30, 2014 and
    September 24, 2014.\492\ Within this period--roughly six and
    nine months after introduction of Sovaldi, respectively--OHSU
    found:
    ---------------------------------------------------------------------------
        \491\ See Appendix B.
        \492\ See Appendix B, tables 1(a) and 1(b).

        27 state Medicaid programs had adopted PA criteria for the
            drug;
        24 state Medicaid programs of those that adopted PA
            criteria adopted PAs based on disease severity as
            measured by Metavir fibrosis scores;
        19 of the programs that managed the disease on the basis
            of fibrosis scores allowed use of the drug for only the
            most advanced stages of disease with fibrosis scores of
            F3 or F4; and
        Other PA criteria included prescription by or consultation
            with a specialist in liver disease, alcohol and drug
            use screening, interferon-free eligibility, achievement
            of early viral response to initial treatment, no prior
            treatment with sofosbuvir, and once-in-a-lifetime
            access.\493\
    ---------------------------------------------------------------------------
        \493\ See Appendix B.

        After OHSU's review, some states' programs that researchers
    listed as not having PAs for Sovaldi or Harvoni subsequently
    implemented restrictions. For example, Nebraska adopted PA
    criteria for Sovaldi that limited prescriptions of the drug to
    patients with a Metavir score of F3 or F4.\494\ Likewise,
    following FDA approval of Harvoni and Viekira Pak, Texas set PA
    criteria requiring patients have a F3 or F4 fibrosis score, in
    addition to other restrictions such as treatment by a
    specialist and demonstrating sobriety.\495\
    ---------------------------------------------------------------------------
        \494\ Nucleotide Analog NS5B Polymerase Inhibitor (Sovaldi -
    sofosbuvir) Prior Authorization Criteria, available at https://
    nebraska.fhsc.com/Downloads/NEcriteria_Sovaldi-201409.pdf.
        \495\ Texas Medicaid/CHIP Vendor Drug Program, Medicaid Fee-For-
    Service Prior Authorization Criteria and Policy (Antiviral Agents for
    Hepatitis C Virus) (Mar. 2015), available at https://
    paxpress.txpa.hidinc.com/hepc_initial_request.pdf.
    ---------------------------------------------------------------------------
        OHSU also performed a survey of publicly available state
    Medicaid program restrictions on the use of Harvoni, which was
    introduced on October 10, 2014, shortly after the Sovaldi
    survey was completed.\496\ This second survey also included the
    use of Viekira Pak, the most direct, all-oral, competing
    regimen for genotype 1. The OHSU survey of Harvoni/Viekira Pak
    restrictions was conducted between April 30, 2015 and May 5,
    2015, roughly six-to-nine months after introduction. The OHSU
    survey found:
    ---------------------------------------------------------------------------
        \496\ Appendix B, tables 2(a) and 2(b).

        33 state Medicaid programs had adopted criteria governing
            the use of these two drugs;
        25 of those that adopted PA criteria also adopted PAs
            based on disease severity;
        19 had requirements that patients have fibrosis scores of
            F3 or F4; and
        Other criteria included alcohol sobriety and drug use
            screening, prescription or consultation by a
            specialist, once-in-a-lifetime access, viral response
            to initial treatment, and informed consent.\497\
    ---------------------------------------------------------------------------
        \497\ Appendix B, tables 2(a) and 2(b).

        Texas was one of 13 state Medicaid programs reported in the
    survey to have placed Viekira Pak on its preferred drug list
    (PDL), meaning that it was essentially the default medication
    unless patients could not tolerate the drug or it was not
    indicated for use with the patient's HCV genotype. The state's
    pharmaceutical and therapeutics committee chose Viekira Pak for
    the PDL ``based on the understanding that both Harvoni and
    Viekira Pak were effective treatments, but because AbbVie
    submitted more aggressive rebates to HHSC's [Health and Human
    Services Commission] PDL vendor, Viekira Pak was more cost
    effective.'' \498\ Even with the discounts, the state expects
    spending on HCV therapies will total $194 million through
    FY2018.\499\ The program estimates that 17,325 Medicaid
    enrollees are infected with the virus.\500\
    ---------------------------------------------------------------------------
        \498\ Appendix D, Ex. 11, Letter from Andy Vasquez to the Honorable
    Ron Wyden & the Honorable Charles E. Grassley (Aug. 14, 2015), at 2.
        \499\ See id. at 3.
        \500\ Appendix A, table 1.
    ---------------------------------------------------------------------------

             The Medicare Prescription Drug (``Part D'') Benefit:
                                  An Overview

        Prior to the 2003 enactment of the Medicare Modernization
    Act, the Medicare program lacked a prescription drug benefit.
    As a result, one-third of all Medicare enrollees lacked
    prescription drug coverage with many of these beneficiaries
    deciding to forgo some of their prescribed medications due to
    high cost.\501\ In the year the law was passed, a quarter of
    Medicare seniors did not fill at least one prescription due to
    high costs, and a third spent $100 or more per month on drugs.
    ---------------------------------------------------------------------------
        \501\ Sebastian Schneeweiss et al., The Effect of Medicare Part D
    Coverage on Drug Use and Cost Sharing Among Seniors Without Prior Drug
    Benefits, 28 Health Affairs w305, w305-w316 (2009), available at http:/
    /content.healthaffairs.org/content/28/2/w305.full.
    ---------------------------------------------------------------------------
        The three groups of Medicare enrollees most vulnerable to
    out-of-pocket drug costs were those without prescription
    coverage, low-income seniors, and the complex chronically ill
    (those with three or more complex conditions). Seniors with
    access to prescription coverage typically received it from
    employers, through private, individual purchase of Medigap,
    Medicare Part C (then Medicare+
    Choice) plans, or through Medicaid, with the former method
    prevalent among higher-income seniors, and the latter two more
    common among the low-income.\502\ Since the creation of Part D,
    the program has only grown. As of 2014, 37 million Medicare
    beneficiaries received drug coverage through Part D, roughly
    69% of the Medicare program's beneficiaries.\503\
    ---------------------------------------------------------------------------
        \502\ Dana Gelb Safran, Prescription Drug Coverage and Seniors:
    Findings From a 2003 National Survey, Health Affairs W5-152, W5-160
    (Apr. 2005), available at http://content.health
    affairs.org/content/early/2005/04/19/hlthaff.w5.152.short.
        \503\ Medpac, Status Report on Part D, Report to the Congress:
    Medicare Payment Policy, at 347 (Mar. 2015), available at http://
    www.medpac.gov/documents/reports/chapter-14-status-report-on-part-d-
    %28march-2015-report%29.pdf?sfvrsn=0.
    ---------------------------------------------------------------------------
        Part D relies on private insurers, known as Prescription
    Drug Plans (PDPs), to deliver the prescription drug benefit to
    beneficiaries.\504\ Medicare Advantage plans can also offer a
    prescription drug benefit. Medicare beneficiaries choose from a
    range of PDPs offering benefits in their geographic region, and
    pay a premium subsidized by Medicare. Medicare covers about 75%
    of the cost of the drug benefit and the remainder is paid by
    the beneficiary. However, low-income beneficiaries receive a
    more substantial subsidy. In each of the 34 regions, PDPs
    compete based on premiums, the availability of prescription
    drugs, pharmacy networks, and quality.\505\
    ---------------------------------------------------------------------------
        \504\ Some Medicare Advantage plans also provide drug coverage in
    addition medical benefits.
        \505\ Medpac, Part D Payment System (2014), at 2, available at
    http://www.medpac.gov/documents/payment-basics/part-d-payment-system-
    14.pdf?sfvrsn=0 [hereinafter Medpac, Part D Payment System].
    ---------------------------------------------------------------------------
        The amount Medicare pays a PDP is directly related to bids
    submitted by each plan to the CMS. A plan's bid is an estimate
    of its costs to provide the drug benefit to enrollees in the
    next year.\506\ To determine payment to plans, CMS calculates a
    national average bid, and each plan then receives a payment
    equal to that national average. If an individual plan's bid is
    higher than the national average, the difference is made up by
    an increase in the size of that plan's premium paid by
    enrollees. As a result of this payment structure, large
    increases in projected drug costs not only affects a plan's
    ability to offer affordable drug coverage, but also affects all
    Part D enrollees and the overall spending by Medicare.
    ---------------------------------------------------------------------------
        \506\ The bid is subsequently adjusted by a number of factors
    including the enrollees' health statuses.
    ---------------------------------------------------------------------------
        The plans themselves are also unique. Medicare sets a
    standard drug benefit design but allows for individual plans to
    vary the structure so long as the plan meets certain actuarial
    equivalence tests. Low-income beneficiaries also receive even
    greater cost-sharing protection than provided by the standard
    benefit. In 2015, the standard benefit includes a $320
    deductible; coverage for 75% of drug expenses up to a benefit
    level of $2,960; and a catastrophic coverage for costs above a
    total drug spending threshold of $7,061.76.\507\ Above the
    latter level, a beneficiary is required to pay 5% of the costs
    of drugs, with 95% borne by the Medicare program.\508\ As a
    result, the higher an enrollee's annual drug spend, the greater
    the proportion of their costs will be paid for by Medicare.
    This arrangement is of particular importance in the context of
    increased utilization of high-cost drugs and their impact on
    Medicare spending.
    ---------------------------------------------------------------------------
        \507\ Medpac, Part D Payment System, at 1-2.
        \508\ Id.
    ---------------------------------------------------------------------------
        The coverage between the $2,960 and $7,061.76 thresholds is
    known as the Part D coverage gap or ``donut hole.'' Prior to
    the enactment of the ACA, Part D offered no drug coverage
    between these two thresholds; the ACA phases out the coverage
    gap over time. In 2015, 55% of the cost of brand name drugs
    purchased in the coverage gap will be paid for on behalf of
    beneficiaries (50% through discounts provided by manufacturers
    and 5% through a subsidy provided by Medicare).\509\
    ---------------------------------------------------------------------------
        \509\ Id.
    ---------------------------------------------------------------------------
        Unlike FFS Medicare for hospitals and physicians, Part D
    prices for health services are not set administratively, but
    rather are set through negotiations between PDPs (or often PBMs
    on behalf of PDPs) and drug manufacturers. The government is
    prohibited by law to interfere in these negotiations.\510\ The
    outcome of these negotiations and the size of price discounts
    PDPs receive from manufacturers are the result of multiple
    factors including the bargaining power of the PDPs (or PBMs),
    the level of competition among drug manufacturers, and
    alternative therapies available to patients.
    ---------------------------------------------------------------------------
        \510\ Medicare Prescription Drug, Improvement, and Modernization
    Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (42 U.S.C. Sec. 1395w-
    111(i)).
    ---------------------------------------------------------------------------
        Part D relies on private negotiations between Part D
    prescription drug plans and drug manufacturers to establish the
    price of drugs offered to Medicare beneficiaries. Many factors
    influence the outcome of these negotiations and the ultimate
    price of drugs that is borne by both Medicare and Part D
    enrollees. Two particularly important factors affecting the
    size of a rebate are: (1) the presence of similar drugs in the
    market, and (2) the Part D plan's ability to steer enrollees
    toward one manufacturer's drug over another.
        In the instance where only one drug is on the market,
    manufacturers have little incentive to offer price discounts or
    rebates if the manufacturer is confident the plan will include
    the drug on its formulary and physicians will prescribe the
    drug to their patients. This dynamic changes significantly if a
    competitor enters the market with a drug in the same
    therapeutic class. In that case, both manufacturers have an
    incentive to offer price discounts or rebates in the hope that
    a plan places the manufacturer's drug on the plan's formulary.
    The Congressional Budget Office (CBO) has found, ``rebates tend
    to be higher in therapeutic classes containing more drugs that
    are close substitutes.'' \511\
    ---------------------------------------------------------------------------
        \511\ Congressional Budget Office, Competition and the Cost of
    Medicare's Prescription Drug Problem (2014), at 28, available at
    https://www.cbo.gov/sites/default/files/45552-PartD.pdf.
    ---------------------------------------------------------------------------
        Manufacturers also provide price discounts or rebates if a
    plan adjusts its benefit design to increase the likelihood
    patients will be prescribed its drug over a competitor's drugs.
    The CBO found that ``[t]he ability to steer beneficiaries
    toward preferred drugs gives Part D plan sponsors leverage when
    negotiating drug prices.'' \512\ Manufacturers ``tend to offer
    the largest rebates to plan sponsors that actively steer a
    large share of beneficiaries to their drugs.'' \513\ Without
    multiple, similar drugs on the market, the needed leverage to
    extract price discounts or rebates from drug manufacturers does
    not exist and as a result, Medicare and Part D enrollees will
    typically pay for higher drug costs.
    ---------------------------------------------------------------------------
        \512\ Id. at 27.
        \513\ Id.
    ---------------------------------------------------------------------------

                  Sovaldi, Harvoni, and the Impact on Medicare

        Medicare Part D has been lauded as a successful addition to
    the Medicare benefit. However, recent spending growth and
    future projections of Part D spending show costs increasing
    considerably. The 2015 Medicare Trustees report states that
    Part D spending growth from 2013 to 2014 was 12.1%, compared to
    6.5% over the previous eight years.\514\ According to the CBO,
    Part D spending growth will far outpace traditional Medicare
    fee-for-service spending growth over the next ten years. CBO
    notes that Parts A and B spending will increase by 89% between
    2014 and 2025. Part D will see spending growth over the same
    time period of 168%.\515\
    ---------------------------------------------------------------------------
        \514\ The Boards of Trustees, Federal Hospital Insurance and
    Federal Supplementary Medical Insurance Trust Funds, 2015 Annual
    Report, at 106, available at http://www.cms.gov/Research-Statistics-
    Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/
    Downloads/TR2015.pdf.
        \515\ Congressional Budget Office, March 2015 Medicare Baseline, by
    Fiscal Year, (Mar. 9, 2015), available at https://www.cbo.gov/sites/
    default/files/cbofiles/attachments/44205-2015-03-Medicare.
    pdf.
    ---------------------------------------------------------------------------
        Increased spending growth leads to higher premiums for Part
    D enrollees and additional fiscal pressure on the federal
    budget. Because each plan's bid contains the plan's cost of
    providing drug therapies to expected enrollees and these bids
    are proprietary, it is difficult to assess an individual drug's
    impact on plans' bids. However, the Medicare Trustees report
    specifically notes a projected acceleration in per capita
    benefits for 2015 because ``additional plan spending for
    several high-cost drugs to treat hepatitis C was not factored
    into plan bids for the 2014 plan year, resulting in significant
    reconciliation payments from Part D to plans in 2015.'' \516\
    ---------------------------------------------------------------------------
        \516\ Id.
    ---------------------------------------------------------------------------
        Data analyzed by investigative staff shows that in the 18
    months since Gilead's HCV drugs gained FDA approval, Medicare
    spent nearly $8.2 billion on pre-rebate spending on Sovaldi and
    Harvoni. (See Graph 2 below, and Appendix C for corresponding
    tables). Part D's spending before rebates on Sovaldi in 2014
    was greater than any individual drug paid for by Medicare's
    Part D or Part B programs during 2013 and the same can be said
    for pre-rebate spending Harvoni through the first six months of
    2015.\517\
    ---------------------------------------------------------------------------
        \517\ Nexium, which is prescribed for treatment of heartburn, was
    the top drug by total expenditures (before rebates) for Part D at $2.5
    billion; Rituximab, which is used to treat cancer and rheumatoid
    arthritis, was the top drug by total expenditures for Part B at $1.5
    billion. CMS, Medicare Provider Utilization and Payment Data: Part D
    Prescriber, Part D Prescriber National Summary table, CY 2013,
    available at https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/Part-D-
    Prescriber.html; MedPac, Report to Congress: Medicare and the
    Healthcare Delivery System (June 2015), at 66 (Table 3-1), available at
    http://www.medpac.gov/documents/reports/chapter-3-part-b-drug-payment-
    policy-issues-%28june-2015-report%29.pdf?sfvrsn=0.
    ---------------------------------------------------------------------------

     Graph 2--Monthly Part D Spending on Hepatitis C Drugs (Jan. 2014-June
                                     2015)

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In 2014, Medicare spent $4.8 billion on HCV drugs prior to
    rebates, $3.1 billion of which was spent on Sovaldi, and nearly
    $700 million more on Harvoni, which was on the market for
    roughly 12 weeks after being approved in October by the
    FDA.\518\ Medicare's spending on HCV drugs through the first
    six months of 2015 indicates that the aggregate cost of
    treating the disease is likely to grow. Medicare's pre-rebate
    spending for HCV drugs in 2015 had already reached $4.6 billion
    by the end of June, more than 95% of which was attributable to
    Gilead drugs ($3.7 billion for Harvoni; $669 million for
    Sovaldi).\519\
    ---------------------------------------------------------------------------
        \518\ See Appendix C.
        \519\ See Appendix C.
    ---------------------------------------------------------------------------
        In the 18 months that Gilead's drugs have been on the
    market, Medicare's monthly spending on HCV treatments increased
    more than six-fold from $116.4 million in January 2014
    (Sovaldi, 76%, Olysio, 9%, Other HCV drugs, 15%) to $793.2
    million in June 2015 (Harvoni, 82%; Sovaldi, 14%; Other HCV
    drugs, 4%).\520\ Medicare's average pre-rebate monthly spending
    on HCV drugs grew to $765 million during the first six months
    of 2015, more than double the average monthly spend of $349.5
    million.\521\
    ---------------------------------------------------------------------------
        \520\ Id.
        \521\ Id.
    ---------------------------------------------------------------------------
        By way of comparison, Medicare's pre-rebate spending on HCV
    drugs for calendar year 2013 was $396 million, of which $238
    million was spent on DAAs (Incivek, Olysio, Sovaldi, Victrelis)
    according to CMS data analyzed by investigative staff.\522\
    ---------------------------------------------------------------------------
        \522\ Id.
    ---------------------------------------------------------------------------

           Sovaldi and Harvoni's Effect on the Federal Prison System

        The Bureau of Prisons (BOP) is responsible for delivering
    medically necessary health care to its inmates in accordance
    with proven standards of care.\523\ As of November 5, 2015, the
    BOP reported that 9,216 of the system's 198,953 inmates have
    been diagnosed with HCV.\524\ The prevalence of HCV infection
    in prison inmates is substantially higher than that of the
    general U.S. population, in part due to the prevalence of
    individuals who have used injectable drugs.\525\
    ---------------------------------------------------------------------------
        \523\ U.S. Department of Justice, Office of the Inspector General,
    The Federal Bureau of Prison's Efforts to Manage Inmate Health Care,
    Audit Report 08-08 (Feb. 2008), available at https://oig.justice.gov/
    reports/BOP/a0808/final.pdf.
        \524\ Data provided by Federal Bureau of Prisons (Nov. 12, 2015).
        \525\ Eric Chak et al., Hepatitis C Virus Infection in USA: An
    Estimate of True Prevalence, 31 Liver Int'l 1090, 1090-1101 (Sept.
    2011), available at http://www.ncbi.nlm.nih.gov/pubmed/21745274;
    Centers for Disease Control and Prevention, Prevention and Control of
    Infections with Hepatitis Viruses in Correctional Settings (Jan. 2003),
    available at, http://www.cdc.gov/mmwr/PDF/rr/rr5201.pdf.
    ---------------------------------------------------------------------------
        In fiscal year 2014, the year Sovaldi became available to
    treat prisoners infected with HCV, the BOP's spending on HCV
    drugs increased 14%, even though the number of patients treated
    decreased 52%. By comparison, in fiscal year 2012, before the
    Gilead pharmaceuticals had been introduced as a viable
    treatment option, the BOP spent $4.4 million on treatment of
    369 HCV cases (see table 4 below). In fiscal year 2014, after
    the introduction of Sovaldi, the BOP spent $5.9 million on the
    treatment of only 183 HCV inmates. Moreover, in fiscal year
    2015 YTD with the use of both Sovaldi and Harvoni as HCV
    treatment, the BOP has spent nearly $13.7 million to treat just
    222 HCV-diagnosed inmates. In fiscal year 2014, Gilead's drugs
    accounted for 46% of the BOP's HCV spending; by fiscal year
    2015, Gilead's drugs accounted for 91% (see table 5 and graph 3
    below).

                                 Table 4--Bureau of Prisons Spending on HCV Medications
    ----------------------------------------------------------------------------------------------------------------
                  Fiscal Year                     HCV Medication Purchases                 Patients Treated
    ----------------------------------------------------------------------------------------------------------------
    2012                                                            $4,378,238                                  369
    ----------------------------------------------------------------------------------------------------------------
    2013                                                            $4,168,807                                  381
    ----------------------------------------------------------------------------------------------------------------
    2014                                                            $5,917,436                                  183
    ----------------------------------------------------------------------------------------------------------------
    2015                                                           $13,665,112                                  222
    ----------------------------------------------------------------------------------------------------------------
    Source: Federal Bureau of Prisons

                   Table 5--Annual Spending by Federal Bureau of Prisons on HCV Drugs (by brand name)
    ----------------------------------------------------------------------------------------------------------------
                Drug                    FY 2012              FY 2013              FY 2014              FY 2015
    ----------------------------------------------------------------------------------------------------------------
    Harvoni                                       $0                   $0                   $0           $6,885,214
    ----------------------------------------------------------------------------------------------------------------
    Sovaldi                                       $0                   $0           $2,700,783           $5,556,731
    ----------------------------------------------------------------------------------------------------------------
    Olysio                                        $0                   $0             $166,802             $778,636
    ----------------------------------------------------------------------------------------------------------------
    Pegylated Interferon                  $1,803,072             $483,808             $990,854             $258,574
    ----------------------------------------------------------------------------------------------------------------
    Viekira Pak                                   $0                   $0                   $0              $92,622
    ----------------------------------------------------------------------------------------------------------------
    Ribavirin                               $384,057             $310,715             $191,671              $71,049
    ----------------------------------------------------------------------------------------------------------------
    Daklinza                                      $0                   $0                   $0              $14,399
    ----------------------------------------------------------------------------------------------------------------
    Victrelis                               $532,772           $2,115,613           $1,100,593               $7,888
    ----------------------------------------------------------------------------------------------------------------
    Incivek                               $1,658,337           $1,258,671             $766,733                   $0
    ----------------------------------------------------------------------------------------------------------------
        Total                             $4,378,238           $4,168,807           $5,917,436          $13,665,112
    ----------------------------------------------------------------------------------------------------------------
    Source: Federal Bureau of Prisons

        Overall system medical costs have been increasing.
    According to data provided by the BOP, the BOP's total medical
    spending in fiscal year 2013 was $1.062 billion, of which $82.3
    million was for pharmaceuticals; in 2014, total medical
    spending was $1.097 billion, of which pharmaceutical spending
    comprised $96.1 million; and in 2015, total medical spending
    was $1.147 billion, of which pharmaceutical spending was $108.4
    million.
        To most effectively deal with the rising cost of HCV
    treatment, the BOP's Health Services Division (HSD) issued
    Clinical Practice Guidelines (CPGs) on the Evaluation and
    Management of Chronic Hepatitis C Virus Infection.\526\ Based
    on perceived risk for complications or progression of the
    disease, these guidelines prioritize inmates into four levels
    of treatment. According to a 2015 BOP memorandum, inmates with
    the highest priority (priority 1) have the most advanced HCV
    with rapidly progressing liver disease including:
    ---------------------------------------------------------------------------
        \526\ Federal Bureau of Prisons, Evaluation and Management of
    Chronic Hepatitis C Virus (HCV) Infection (July 2015), available at
    https://www.bop.gov/resources/pdfs/hepatitis_c.pdf.

        Cirrhosis (end-stage liver disease);
        Liver transplant candidates or recipients;
        Patients with liver cancer or comorbid conditions
            associated with HCV;
        Patients being cared for with immunosuppressant
            medications; and
        Prisoners who were receiving treatment when they entered
            the system.\527\
    ---------------------------------------------------------------------------
        \527\ Id. at 7.

        Several agencies, including the BOP, are required to
    maintain a Department of Veterans Affairs (VA) Schedule
    contract as a condition of receiving payment. The Veterans
    Health Care Act of 1992 \528\ authorizes the VA to negotiate
    drug prices on behalf of many government agencies, including
    the BOP. The VA's National Acquisition Center negotiates and
    establishes Federal Supply Schedule (FSS) prices for the
    Department of Defense, VA, the Public Health Service, and the
    U.S. Coast Guard (known as the ``Big 4'') receiving at least a
    24% discount from the weighted average price of a single form
    and dosage unit paid by wholesalers to a manufacturer. This
    price is known as the Federal Ceiling Price (FCP).
    ---------------------------------------------------------------------------
        \528\ 38 U.S.C. Sec. 8126.
    ---------------------------------------------------------------------------
        Many of the FSS contracts are renegotiated on a five-year
    period, allowing for contractual modifications as new drugs or
    generics enter the market, with all covered drug pricing to be
    renegotiated at the end of every calendar year. If the BOP
    desires, it can enter into discussions with manufacturers for
    additional discounts, called Temporary Price Reductions (TPR),
    based on market share or access, but granting of a TPR to an
    agency like the BOP is completely discretionary by the
    manufacturer. The BOP is therefore rarely involved in one-on-
    one negotiations with individual companies, and has relatively
    little control over the prices it receives for pharmaceutical
    products.\529\
    ---------------------------------------------------------------------------
        \529\ Telephone interview of BOP staff (Aug. 27, 2015).
    ---------------------------------------------------------------------------

    Graph 3--Monthly Hepatitis C Drug Spending by Federal Bureau of Prisons
                             (Aug. 2013-Sept. 2015)

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    Access Restrictions by Non-Public Payers

        The OHSU survey conducted between May 30, 2014 and
    September 24, 2014 included several non-state payers to compare
    PA restrictions with state Medicaid programs.\530\ OHSU found
    that non-state payers adopted similar PA restrictions. Publicly
    available criteria for Sovaldi used by Aetna, CIGNA, Regence
    BlueCross BlueShield, and Anthem BlueCross BlueShield were
    reported in the survey.\531\ All PA restrictions for non-state
    payers included some level of disease severity, with the two
    BlueCross Blue Shield plans requiring F3 or F4 scores.\532\
    Aetna required early viral response to initial treatment.
    Several required alcohol sobriety and drug use screening and
    patient treatment support and management programs. All required
    determination of interferon ineligibility.\533\ In
    communications with investigative staff separate from the OHSU
    survey, state program officials, as well as other payers,
    indicated that such restrictions were overwhelmingly based on
    concerns related to the cost impacts of sofosbuvir-based
    treatment on their programs.\534\
    ---------------------------------------------------------------------------
        \530\ See Appendix B, Table 1b.
        \531\ Id.
        \532\ Id.
        \533\ Id. At the time of the survey, no publicly available criteria
    were found for United Health Care, another major payer.
        \534\ See Appendix D.
    ---------------------------------------------------------------------------
        As described earlier, in order to help patients with
    private insurance offset the cost of co-pays and other coverage
    assistance, Gilead budgeted funds for its patient assistance
    programs. Through the first week of July 2014, Gilead reported
    providing co-pay coupons, worth an average of $919, to 18,618
    unique patients.\535\ The money was used to reduce co-payments,
    which means that patients had a lower cost burden, but does not
    offset the amount of money that insurers end up paying for the
    drug.\536\ Gilead reported providing free product worth $225
    million through the PAP to 3,568 unique patients (an average of
    $62,709 per patient), or roughly 5.4% of patients treated with
    Sovaldi up to that point.\537\ The company said it did not have
    access to foundation assistance data, nor did the company
    disclose the names of the foundations or the amount they were
    provided. All of the costs related to operating the PAP,
    including manufacturing costs of the free product provided
    through it, copay coupons, and a patient support program called
    MySupportPath, are accounted for as operating expenses (sales
    and marketing operational expenses). The copay coupons offset
    Gilead's product revenue.\538\ The company had already
    anticipated by late 2013 that the PAP program should be
    monitored; in the context of Gilead's approach to AIDS Drug
    Assistance Programs, Young wrote to Meyers, Stout, and Banks,
    ``Let's monitor PAP very carefully. I do worry that people
    might attempt to stretch applications for PAP. We might see
    some strange behaviors we need to address early.'' \539\
    ---------------------------------------------------------------------------
        \535\ Appendix F, Gilead Sciences, Inc., Response to Chairman
    Wyden/Senator Grassley letter dated July 11, 2014, narrative answer to
    question 20 (Sept. 9, 2014).
        \536\ Id.
        \537\ Id.
        \538\ Id.
        \539\ Appendix E, Ex. 40, Email from Kevin Young to Jim Meyers, Coy
    Stout, Re: ADAP and Sofosbuvir (Nov. 19, 2013), GS-0020802.
    ---------------------------------------------------------------------------
        Gilead announced on July 1, 2015 that it would exclude some
    insured patients from the PAP program. Advocates, including the
    AIDS Healthcare Foundation, viewed Gilead's denial of patient
    access to HCV treatment through the PAP program as a
    ``bargaining strategy'' or ``punitive measure against health
    insurers,'' and ultimately an attempt to force payers into
    further opening access to Gilead's HCV drugs.\540\ In a letter
    addressed to ``Community Partner'' from Gilead's Coy Stout,
    vice president, managed markets, the company detailed its
    changes:
    ---------------------------------------------------------------------------
        \540\ Senate Finance Committee Interview of Emalie Huriaux,
    Director of Federal and State affairs, Project Inform (July 10, 2015);
    see also AHF Criticizes Gilead for Blacklisting Hepatitis C Patients
    from Drug Assistance Programs to Punish Insurers, Aids Healthcare
    Foundation (July 23, 2015), available at http://cqrcengage.com/
    aidshealth/app/document/8671298;jsessionid=gAma-
    5LojCWfh42hyhRCL98y.undefined.

            [P]atients who are insured and who do not meet their
            payer's coverage criteria will no longer be eligible
            for support via Gilead's Patient Assistance Program.
            Patients who fall within the category of ``Insured and
            Did Not Meet Payer Criteria'' are patients whose
            insurance providers limit access to Sovaldi/Harvoni
    ---------------------------------------------------------------------------
            based on, but not limited to, the following:

                Fibrosis score restrictions
                Preferring or exclusively covering another product
            on formulary (i.e., Viekira Pak preferred)
                Limiting coverage to a maximum treatment duration
            or denying subsequent treatment after a patient has
            failed therapy
                Step-therapy requirements
                Clinical criteria (e.g., psychiatric requirements,
            drug and alcohol testing)

            It is important to note that a very small number of
            patients fall into this category. Support Path experts
            will continue to treat each patient case individually
            and consider a number of variables when assessing
            patients for our free drug program.

        The company justified the changes as followed:

            In the interest of facilitating patient access in the
            period immediately following the launch of Sovaldi and
            Harvoni, the Gilead Patient Assistance Program (PAP)
            made these medications available to virtually all
            patients who met financial and other program
            requirements. Gilead also implemented significant
            discounts for its HCV therapies across different payer
            groups. While many payers responded to these discounts
            by opening access broadly, some payers have continued
            to restrict access despite the discounts. As a result,
            our PAP criteria enabled continued restrictions by some
            payers by providing a generous route for them to deny
            access and refer patients they have chosen not to
            cover. While we have approved many of these patients in
            the past, we feel it is necessary to establish more
            specific guidelines for patient eligibility. Our PAP
            was designed to help uninsured patients with the most
            need, and changes are necessary to remain true to that
            mission. We believe these changes also will help
            increase access among those payers who continue to
            restrict access.\541\
    ---------------------------------------------------------------------------
        \541\ Appendix D, Ex. 12, Letter from Coy Stout, Vice President,
    Managed Markets, Gilead Sciences, Inc., to Community Partner (July 1,
    2015).

        The price of Sovaldi constituted a large burden--notably
    among state Medicaid programs, Medicare, and the BOP--and
    triggered access restrictions across public and private payers,
    thus limiting the number of HCV-infected patients who could
    access the new treatment options. In response to these
    restrictions, Gilead stayed firm in its initial contracting
    strategy by offering only small discounts in return for opening
    patient access, and limiting its PAP program.
       Section 5: Patients' and Payers' Reactions to the Price of Sovaldi

        Gilead may not have anticipated the scope and depth of the
    resulting restrictions as it was attempting to price Sovaldi in
    a way that would not ``hinder patient access to uncomfortable
    levels,'' \542\ but it should not have been surprised by
    negative reactions--particularly after the price was
    announced--as patient groups, public and private payers, and
    others began to provide direct feedback on the price, as
    detailed in this section.
    ---------------------------------------------------------------------------
        \542\ Appendix E, Ex. 28, Gilead Sciences, Inc., Sofosbuvir Pricing
    and Market Access Assessment, Final Recommendations--July 31st, 2013,
    GS-0014018, at GS-0014020.
    ---------------------------------------------------------------------------
        By September 2014, as it considered a price for Harvoni,
    the company had done its own analysis of access restrictions
    that state Medicaid programs had put in place for Sovaldi:

                More than half of the states are limiting coverage
            to the sickest patients (i.e. F3-F4)
                Additional strict criteria including one per
            lifetime treatment, patient certifications, and drug/
            alcohol testing
                Budget concerns driving strict management through
            [prior authorization] requirements
                Staffing for [prior authorization] requirements
            has also impacted coverage decisions (i.e. IL Medi)
                Appeals require court hearings in WI, AR, IL \543\
    ---------------------------------------------------------------------------
        \543\ Appendix E, Ex. 52, Gilead Sciences, Inc., HCV Wave 2
    Contracting Recommendations, September 9, 2014, GS-0019058, at GS-
    0019107.

        ``Extreme budget constraints drive strict criteria for
    treatment and an unstable formulary review process inhibiting
    access to Sovaldi,'' the presentation concluded.\544\
    Furthermore, the company expected that ``[h]ighly restrictive
    criteria to control costs and F3-F4 restrictions will likely
    remain.'' \545\
    ---------------------------------------------------------------------------
        \544\ Id.
        \545\ Id. at GS-0019108.
    ---------------------------------------------------------------------------
        The presentation shows that Gilead was clearly aware that
    the cost of providing Sovaldi to Medicaid patients had become--
    and would continue to be--problematic, even though executives
    believed $84,000 was a fair price that would be readily
    accepted by the marketplace, given their belief in the clinical
    efficacy of the product. Meyers said that Gilead had spoken to
    many major payers and received positive feedback, and that
    negative press about Sovaldi's price only took off after the
    spike in the off-label combination of Sovaldi and Olysio.\546\
    However, even before the product was introduced to market,
    Gilead officials were informed of significant concerns about
    the price.
    ---------------------------------------------------------------------------
        \546\ Interview with Jim Meyers, Senior Vice President, North
    America Commercial Organization, Gilead Sciences, Inc., in Washington,
    D.C. (Oct. 30, 2014).
    ---------------------------------------------------------------------------
        For many payers, particularly in Medicaid, the combination
    of price and an influx of patients seeking treatment for HCV
    was a major part of the concerns--and the warnings--that Gilead
    received. The material that follows shows that Gilead officials
    were told, and in some cases repeatedly, about the potential
    negative consequences that a high price for Sovaldi and future
    HCV treatments could have on the American health system, public
    payers, private payers, and ultimately, patients who would be
    denied treatment. The communications--in the form of meetings,
    phone calls, and written communications--began more than two
    months before Gilead received its approval for Sovaldi in
    December 2013, and continue into 2015.

                 Concerns Before and Shortly After FDA Approval

        One of the first warnings about the potential impacts of
    high HCV drug prices came during a meeting of the FDA's
    Antiviral Drugs Advisory Committee.\547\ The administrative
    hearing, which took place less than two months before the FDA's
    approval of Sovaldi, was one of the final steps in the agency's
    review process. Gilead was represented at the hearing by John
    McHutchison, William Symonds, and Diana Brainard, all of whom
    are either executives or senior managers in the company's liver
    disease unit.\548\ The hearing allowed members of the committee
    to ask questions of the company with respect to its research,
    and in turn, receive input from the public.
    ---------------------------------------------------------------------------
        \547\ U.S. Food and Drug Administration, Center for Drug Evaluation
    and Research, Meeting Agenda, Antiviral Drugs Advisory Committee
    Meeting (Oct. 25, 2013), available at http://www.fda.gov/downloads/
    AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/Antiviral
    DrugsAdvisoryCommittee/UCM375281.pdf.
        \548\ Id. At the time, McHutchinson was Senior Vice President for
    liver diseases; Symmonds was Vice President for liver diseases; and
    Brainard was Senior Director of liver diseases.
    ---------------------------------------------------------------------------
        Lynda Dee, a Baltimore attorney who for more than a decade
    has advocated on behalf of people infected with AIDS and HCV,
    was among those in attendance. For many years, she led a
    coalition of advocacy groups that has met with drug companies
    prior to drugs being released to the market. These advocacy
    group meetings were intended to provide companies with a
    ``patient perspective'' about the positive and negative impacts
    of drugs on consumers--clinically, financially, socially--and
    provide a forum to advocate for lower prices.\549\
    ---------------------------------------------------------------------------
        \549\ Telephone interview with Lynda Dee (November 2014).
    ---------------------------------------------------------------------------
        ``[O]h, happy day,'' Dee said of Sovaldi's pending
    approval, according to a transcript of the meeting.\550\ Dee
    ticked off the positives of the drug and the company, one by
    one. The groups she was representing, AIDS Action Baltimore and
    the Fair Pricing Coalition (FPC), both received grant funding
    from Gilead. She was supportive of the company's study
    protocols. She also had a personal interest in her attendance:
    ---------------------------------------------------------------------------
        \550\ U.S. Food and Drug Administration, Center for Drug Evaluation
    and Research, Meeting Transcript, Antiviral Drugs Advisory Committee,
    at 212-216 (Oct. 25, 2013) [hereinafter FDA Meeting Transcript],
    available at http://www.fda.gov/downloads/AdvisoryCommittees/
    CommitteesMeetingMaterials/Drugs/AntiviralDrugsAdvisoryCommittee/
    UCM382913.pdf (statement by Lynda Dee).
    ---------------------------------------------------------------------------
        ``I'm actually cured of HCV using sofosbuvir, and I'm
    really elated to see this day come. And I think that most
    everybody in the HCV community feels that way.'' \551\ However,
    she had concerns about price:
    ---------------------------------------------------------------------------
        \551\ Id.

            I also hope that--you know, it's America. There are no
            rules about what you can charge. But it would be a
            shame that this drug would not be accessible to people
            because it cost too much. I would urge you. I would say
            I would beg you to consider pricing this drug
            reasonably. We all know that it's going to be cost-
            effective, but that scale of what's cost-effective is I
    ---------------------------------------------------------------------------
            think an unreasonable way to look at it.

            I mean, if the price of telaprevir \552\ and boceprevir
            \553\ I think is already exorbitant. I mean, if you
            could price it even close to what those drugs are, I
            think that would be reasonable under the circumstances,
            and you'd still make a fortune. The volume that you're
            going to get for this is I think it's outstanding. . .
            .
    ---------------------------------------------------------------------------
        \552\ The cost of a 12-week treatment of telaprevir is $49,200,
    which does not include the cost of pegylated interferon and ribavirin,
    which are used in combination with telaprevir. Hepatitis C Online,
    Medications to Treat HCV, Telaprevir (Incivek), available at http://
    www.
    hepatitisc.uw.edu/page/treatment/drugs/telaprevir-drug (last visited
    Sept. 28, 2015).
        \553\ The cost of boceprevir is $26,400 for a 24 week course,
    $35,200 for a 32 week course, and $48,400 for a 44 week course. These
    prices do not include the cost of pegylated interferon and ribavirin,
    which must be used in combination with boceprevir. Hepatitis C Online,
    Medications to Treat HCV, Boceprevir (Victrelis), available at http://
    www.hepatitisc.
    uw.edu/page/treatment/drugs/boceprevir-drug (last visited Sept. 28,
    2015).

            [T]hank you for the good work and I hope we can get
            this drug out to people and as many people that need it
            as possible.\554\
    ---------------------------------------------------------------------------
        \554\ FDA Meeting Transcript at 215-16 (statement by Lynda Dee).

        An early call for lower pricing was also made during a day-
    long meeting between the FPC and Gilead at the company's Foster
    City, California, headquarters. Gilead was represented by
    McHutchison, David Johnson, vice president of marketing for the
    liver diseases business unit, Janice Tam, medical affairs, Coy
    Stout, vice president for managed markets; Bill Guyer, medical
    affairs; Cara Miller, medical affairs; and Michele Rest,
    medical affairs.\555\ The coalition planned to urge Gilead to
    set the price for Sovaldi at or below the roughly $60,000 price
    of Victrelis and Incivek, protease inhibitors that were then
    the prevailing standard of care.\556\
    ---------------------------------------------------------------------------
        \555\ Appendix D, Ex. 13, Meeting Agenda, HCV Fair Pricing
    Coalition Meeting (Oct. 3, 2013) (prepared by Cara Miller).
        \556\ Appendix D, Ex. 14, Meeting Agenda, ``FPC Gilead 10-3-13
    Meeting Agenda (FOR FPC ONLY)'' (Oct. 3, 2013) (prepared by Lynda Dee).
    ---------------------------------------------------------------------------
        Gilead's account of the meeting matches the FPC's agenda.
    Johnson sent a detailed summary of the FPC meeting to many of
    the company's most senior officials. Johnson described the
    meeting as a ``collaborative'' dialogue, noting ``they also
    emphasized that they want both a reasonable price and a
    comprehensive patient support program,'' and specifying that
    ``they hope Gilead will price sofosbuvir at or below current
    SOC ($60K).'' \557\ The email went on to foreshadow concerns
    that many state Medicaid programs would raise after the
    approval of Sovaldi and Harvoni:
    ---------------------------------------------------------------------------
        \557\ Appendix E, Ex. 53, Email from Cara Miller to Gregg Alton,
    FW: FPC Ad Board Feedback (Oct. 4, 2013), GS-0020133, at GS-0020133--
    GS-0020134.

            While they understand the clinical value of sofosbuvir
            (and believe it is a ``very good drug''), they feel the
            cost-effectiveness argument will not matter in the
            current environment as states, insurers, physicians and
            patients are focused on the ``right now'' costs and not
            what the potential cost-savings may be down the road.
            This will be particularly true as more new compounds
            become available. They also are focused on the
            potential impact of a high price on VA/Correctional
            formularies--particularly as they expect Merck and
            Vertex to significantly lower the price for boceprevir/
            telaprevir in advance of our launch. It's possible that
            when a patient hears a high price, they may immediately
            assume they can't afford treatment and not pursue any
            further dialogue with their physicians regarding
            treatment. Similarly, a physician may make a value
            judgment as to whether it is worth putting a patient
            with high-risk behaviors on treatment. Education of
            both physicians and patients is critical. Patients have
            to advocate for themselves so educating them on how to/
            what to ask for will be key. Currently, patients are
            getting majority [sic] of their information from media,
            not from their doctors. Additional barriers to care
            include a lack of federal leadership and policy, and
            routine testing for HCV.\558\
    ---------------------------------------------------------------------------
        \558\ Id. at GS-0020134.

    The email's recipients included high-level Gilead
    executives.\559\
    ---------------------------------------------------------------------------
        \559\ Coy Stout, Bill Guyer, Cara Miller, Jim Meyers, Kevin Young.
    Id. Other attendees of the meeting were Vice President for Public
    Affairs Amy Flood, Senior Vice President of Medical Affairs Hans
    Reiser, and Executive Vice President for Clinical Research and
    Development Operations Andrew Cheng. The email also was forwarded by
    Cara Miller to Executive Vice President, Corporate and Medical Affairs
    Gregg Alton. Id.
    ---------------------------------------------------------------------------
        A month later, according to minutes Dee provided to
    investigative staff, the coalition held a teleconference on
    December 6, 2013, the day that FDA approved Sovaldi. The
    minutes show that coalition members expressed
    ``disappointment'' about the $84,000 list price of the drug.
    Gilead was represented on the call by Guyer, Johnson, Miller
    and Stout.\560\
    ---------------------------------------------------------------------------
        \560\ Appendix D, Ex. 15, ``Gilead 12-6-13 Call Notes'' (prepared
    by Lynda Dee).
    ---------------------------------------------------------------------------
        On April 14, 2014, four months after Sovaldi had been
    approved by the FDA, the FPC sent a follow-up letter to Gilead.
    The letter was addressed to Stout and Rest, as well as Kristie
    Banks, senior director for business operations and contract
    compliance; Jim Drew, director, business operations and
    contract compliance and Flood.\561\ The letter reiterated the
    coalition's call for the company to lower Sovaldi's price to
    improve access for HCV patients:
    ---------------------------------------------------------------------------
        \561\ Appendix D, Ex. 16, Letter from Murray Penner, Fair Pricing
    Coalition, to Coy Stout, Vice President, Managed Markets, Kristie
    Banks, Senior Director, Business Operations & Contract Compliance, Jim
    Drew, Director, Business Operations and Contract Compliance, Amy Flood,
    Vice President, Public Affairs, and Michele Rest, Director, Public
    Affairs, Gilead Sciences, Inc. (Apr. 14, 2014).

            We should remind you of our original warning that, even
            though new DAAs are a major improvement that may be
            cost-effective in the long run, our healthcare system
            lacks this particular downstream thinking. Both
            government and industry payer programs operate under
            short-term budget constraints that are incapable of
            absorbing the costs of Sovaldi for every patient they
    ---------------------------------------------------------------------------
            cover who needs access to this medication.

            We had hoped Gilead would be satisfied with cornering
            the larger volume market. By all accounts, Gilead will
            dominate the DAA market for years to come. This has
            made Sovaldi's price all the more unconscionable.
            Gilead is already close to recouping the Pharmasset
            purchase price of Sovaldi, even before the fixed-dose
            combination with ledipasvir is on the market. We still
            hope Gilead will consider a larger volume market
            strategy--one that will make a respectable profit for
            the company, while being priced so that it is
            accessible for the millions of patients for whom
            Sovaldi is indicated.\562\
    ---------------------------------------------------------------------------
        \562\ Id.

        In all, the FPC's message on pricing was directly
    communicated to at least a dozen Gilead employees in a private
    meeting, public forum, phone conference, and letter, in
    addition to multiple press releases and media interviews given
    by coalition members that received national press attention.
        Early concern about Sovaldi pricing was not limited to
    patient advocates. On November 5, 2013, exactly a month before
    the FDA granted approval, Meyers sent an email to 16 people
    within the company with the ``Synopsis of feedback from top HCV
    advisors at AASLD.'' \563\ Meyers subsequently forwarded the
    email to John Martin, John Milligan, and Norbert
    Bischofberger.\564\ Over the course of six pages, Meyers
    summarized discussions with doctors attending the annual
    meeting of liver experts, which had been held during the first
    five days of November in Washington, D.C. Portions of the email
    touched on potential pricing issues the company could face:
    ---------------------------------------------------------------------------
        \563\ Appendix E, Ex. 54, Email from Jim Meyers to David L.
    Johnson, et al., Synopsis of feedback from top HCV advisors at AASLD
    (Nov. 5, 2013), GS-0020776.
        \564\ Id.; see also id. (email from Jim Meyers to John Martin,
    Synopsis of feedback from top HCV advisors at AASLD (Nov. 14, 2013));
    Appendix E, Ex. 55, Email from Jim Meyers to John Milligan, Synopsis of
    feedback from top HCV advisors at AASLD (Nov. 8, 2013), GS-0020765;
    Appendix E, Ex. 56, Email from Jim Meyers to Norbert Bischofberger,
    Synopsis of feedback from top HCV advisors at AASLD (Nov. 7, 2013), GS-
    0020753.

            Ira Jacobson was approached after the Gilead Symposium
            by a physician (GI) who works with Empire Blue Cross
            Blue Shield whom [sic] told him that Empire is ``scared
            to death'' by the pending launch of SOF. He indicated
            they put aside $500 million for the PI's and ended up
            spending $1.1 billion. When Ira asked the payer
            representative what they'd do with a decompensated
            cirrhotic who was prescribed 24-48 weeks of SOF + RBV,
            he replied ``we'd cover it for 12 weeks, it's on the
            patient after that.'' Ira was very concerned with this
            response. He went on to say that he was happy to help
            us in our efforts with payers in any way that he could.
            Mark Sulkowski volunteered that the buzz at AASLD is
            that SOF will be the highest priced pill in the history
            of the pharmaceutical industry. ''Everyone is
            speculating.'' [sic] \565\
    ---------------------------------------------------------------------------
        \565\ Id. (included in all emails above).
    ---------------------------------------------------------------------------

                      Controversy After the Price Was Set

        Following the drug's approval on December 6, 2013, news
    outlets trumpeted the arrival of Sovaldi and the potential
    positive benefits for long-suffering hepatitis patients.
    Multiple outlets, ranging from national newspapers to regional
    outlets and trade press, noted the high price, the controversy
    it had created, and the potential barriers it would pose for
    patients seeking access to the drug. On December 7, the New
    York Times reported:

            [T]he greater convenience and effectiveness comes at a
            price. Gilead said the wholesale cost of Sovaldi, which
            is known generically as sofosbuvir, would be $28,000
            for four week--or $1,000 per daily pill. That
            translates to $84,000 for the 12 weeks of treatment
            recommended for most patients, and $168,000 for the 24
            weeks needed for a hard-to-treat strain of the virus.
            ``This is unbearable to the health care system and it
            is completely unjustified,'' said Michael Weinstein,
            president of the AIDS Healthcare Foundation, which runs
            treatment clinics in the United States and abroad and
            has previously clashed with Gilead on the price of its
            drugs for H.I.V. The Initiative for Medicines, Access
            and Knowledge, a legal group based in New York,
            recently filed a motion to try to block patenting of
            the drug in India. If it succeeds, generic
            manufacturers in India will be able to manufacture
            cheap copies of the drug for distribution there and in
            some other developing countries. Gilead said the price
            was fair given the drug's higher cure rate and that the
            total cost for the 12-week regimen was ``consistent
            with, and in some cases lower than'' the cost of some
            other regimens for hepatitis C. It said it would offer
            financial assistance to some patients.\566\
    ---------------------------------------------------------------------------
        \566\ Andrew Pollack, New Hope in Hepatitis As F.D.A. Allows Pill,
    N.Y. Times, Dec. 7, 2013, at B1.

    ---------------------------------------------------------------------------
        Ten days later, the Columbus Dispatch (Ohio) reported:

            The advances come at a high cost. Sovaldi carries a
            wholesale-price tag of $1,000 a pill, or $84,000 for a
            full course. How much insurers will cover remains
            uncertain, as does when they'll pay for it. People can
            live normally with the virus and without serious liver
            damage. But once it starts to damage the liver--and
            especially after the onset of cirrhosis--treatment
            becomes more difficult. ``People will want to get rid
            of hep C because it's there, but whether everybody is
            going to be offered treatment at this cost, we don't
            know,'' [said Dr. William M. Lee, a hepatitis C expert
            and clinical professor of internal medicine at Ohio
            State University's Wexner Medical Center.] \567\
    ---------------------------------------------------------------------------
        \567\ Misti Crane, New Drugs Close in on Hep C Cure, Columbus
    Dispatch, Dec. 16, 2013, at 1A.

        On December 30, 2013, National Public Radio produced a
    story about Sovaldi titled ``$1,000 Pill For Hepatitis C Spurs
    Debate Over Drug Prices,'' in which reporter Richard Knox
    interviewed Alton and Camilla Graham, a former Vertex executive
    and hepatitis C specialist at Beth Israel Deaconess Hospital in
    ---------------------------------------------------------------------------
    Boston:

            RICHARD KNOX: Graham, who's at Beth Israel Deaconess
            Hospital in Boston, notes that Gilead paid $11 billion
            to acquire a smaller company that developed Sovaldi.
            She thinks Gilead should be allowed to recoup that
            investment. But . . .

            CAMILLA GRAHAM: You only need about 150,000 people to
            recover that cost. And so, you know, if you're treating
            two million people, once you've recovered your cost,
            then I think--I don't want to say it's unfair, but it
            does start feeling more exploitative.

            RICHARD KNOX: She thinks once Gilead has recovered its
            investment cost, it ought to cut the price of Sovaldi.

            GREGG ALTON: That's very unlikely that we would do
            that. I appreciate that thought.

            RICHARD KNOX: Again, that's Gregg Alton of Gilead
            Sciences.

            GREGG ALTON: Really you need to look at the big
            picture. Those who are bold and go out and innovate
            like this and take that risk, there needs to be more of
            a reward on that. Otherwise it would be very difficult
            for people to make that investment.

            RICHARD KNOX: Alton says Gilead will help U.S. patients
            pay for Sovaldi if they can't afford it and will charge
            far less for a course of the drug in places such as
            India, Pakistan, Egypt, and China, where most people
            with hepatitis C live.

            GREGG ALTON: I don't think we'll be able to get it into
            the low hundreds. But I think we can get it into an
            affordable range for them. It'll be from the high
            hundreds to low thousands for these types of markets.

            RICHARD KNOX: It took more than 10 years before many
            people in developing countries got access to life-
            saving HIV drugs. Advocates hope it won't take anywhere
            near that long to start curing hepatitis C.\568\
    ---------------------------------------------------------------------------
        \568\ Richard Knox, $1,000 Pill For Hepatitis C Spurs Debate Over
    Drug Prices, National Public Radio, Morning Edition (Dec. 30, 2013)
    (transcript available on LexisNexis).

        On January 6, 2014, the pharmaceutical trade publication
    ---------------------------------------------------------------------------
    FierceBiotech wrote:

            Thomas Wei of Jefferies & Co. had initially figured
            that Gilead would have to hit a peak sales estimate of
            $4 billion to justify the cost of Sovaldi. Analysts
            have recently been settling in around $7 billion after
            calculating the returns on a pill that will cost $1,000
            a day--or $84,000 for a 12-week course. But winning
            here has come at a cost that may be hard to calculate.
            Already whipped up by Gilead's steep prices on HIV
            drugs like the newly approved Stribild, some prominent
            nonprofits immediately took a swipe at Gilead's pricing
            strategy.\569\
    ---------------------------------------------------------------------------
        \569\ John Carroll, Sovaldi: Gilead Hits Pay Dirt with a
    Breakthrough Hep C Drug, FierceBiotech (Jan. 6, 2014), available at
    http://www.fiercebiotech.com/special-reports/sovaldi-gilead-hits-pay-
    dirt-breakthrough-hep-c-drug.

        On July 11, 2014, Gregg Alton, Gilead's Executive Vice
    President, Corporate and Medical Affairs, acknowledged, during
    an American Enterprise Institute forum, that the price of the
    drug had caused controversy and a ``challenge'' to the nation's
    ---------------------------------------------------------------------------
    medical system:

            A lot of what's happening here is we have a
            breakthrough, a quantum leap in the ability to treat
            Hepatitis C. We can do something today that we couldn't
            do last year and there's a cost associated with that.
            And I think that has challenged our system. But what I
            really want to say in closing is that despite all the
            challenges and some of the criticism that you may be
            hearing, and the friction, and I guess the shrill tone
            of the conversation, there's a positive side to this,
            which is we're going to cure more people of hepatitis C
            this year than we ever have before.\570\
    ---------------------------------------------------------------------------
        \570\ American Enterprise Institute, Discussion transcript, How
    Will We Pay for the Price of Cures?, at 35 (July 11, 2014), available
    at http://www.aei.org/wp-content/uploads/2014/07/-cost-of-
    cures_154738513625.pdf.
    ---------------------------------------------------------------------------

                   Responses From Medicaid Programs to Gilead

        Following the launch of Sovaldi, Medicaid programs in
    states across the country were wrestling with the combination
    of Gilead's high cost and the flood of patients who wanted to
    take advantage of the shorter treatment regimen.
        In recent years, a growing number of states have joined
    ``pools,'' in which several Medicaid programs join forces to
    increase their market power. There are three primary pools--
    National Medicaid Pooling Initiative (NMPI), Top Dollar (TOP$),
    and Sovereign States Drug Consortium (SSDC).\571\ Both NMPI and
    TOP$ are administered by Provider Synergies, LLC, a subsidiary
    of Magellan Health Services and the SSDC is administered by the
    member states.
    ---------------------------------------------------------------------------
        \571\ For more details, see Pharmaceutical Bulk Purchasing: Multi-
    State and Inter-Agency Plans, Nat'l Conf. of State Legis., http://
    www.ncsl.org/research/health/bulk-purchasing-of-prescription-drugs.aspx
    (last updated Jan. 2015).
    ---------------------------------------------------------------------------
        On May 11, 2014, Gilead offered three tiers of supplemental
    rebates to the Medicaid pools--6%, 8%, and 10%--that had been
    approved by the company's legal department.\572\ Each tier was
    tied to requirements that increased patient access, i.e., the
    higher the discount, the more access was to be provided:
    ---------------------------------------------------------------------------
        \572\ Appendix D, Ex. 17, Email from William Dozier, Senior
    Manager, National Accounts, Gilead Sciences, Inc., to Douglas M. Brown,
    Senior Director, Pharmacy Pricing & Value Based Solutions, Magellan
    Health Services (May 11, 2014).

            b  6% discount--Unique Position 1. Any PA [prior
            authorization] criteria imposed is consistent with and
            no more restrictive than the FDA approved label.
            Additional restriction for fibrosis score (Metavir) of
            F2-F4 [fibrosis levels two through four] is
            permissible. PA criteria may require prescriptions be
            written by Specialists (hepatologists or
    ---------------------------------------------------------------------------
            gastroenterologists, for example).

            b  8% discount--Unique Position 2. Any PA criteria
            imposed is consistent with and no more restrictive than
            the FDA approved label. PA criteria may require
            prescriptions be written by Specialists.

            b  10% discount--Unique Position 3. Any PA criteria
            imposed is consistent with and no more restrictive than
            the FDA approved label. Any PA criteria imposed shall
            not require prescriptions by Specialists. Of note,
            Gilead has stated that they are not detailing their
            hepatitis portfolio to non-Specialists.\573\
    ---------------------------------------------------------------------------
        \573\ Appendix D, Ex. 18, Email from Douglas M. Brown, Senior
    Director, Pharmacy Pricing & Value Based Solutions, Magellan Health
    Services to Matthew D. Lennertz, Magellan Health Services (May 19,
    2014). Brown told investigative staff that ``not detailing their
    hepatitis portfolio to non-Specialists'' meant that Gilead was not
    promoting Sovaldi to general practice doctors.

        The relatively small discounts, coupled with requirements
    to reduce restrictions for treatment, made the rebates
    difficult for states to accept because of the potential
    budgetary impact. Magellan's Douglas Brown, who negotiated on
    behalf of NMPI and TOP$, made reference to the dynamic when he
    ---------------------------------------------------------------------------
    shared the offer with states on May 19th:

            I'm happy to have this offer in place for those states
            that cannot otherwise manage utilization in this
            category and are experiencing a sharp increase in total
            spend. However, I expect most states to forgo this
            offer and continue to actively manage this category.
            Our negotiations with Gilead continue, especially for
            those states that require fibrosis scores of F3 or
            greater as well as other PA criteria.\574\
    ---------------------------------------------------------------------------
        \574\ Id.

        Less than three weeks later on June 5, 2014, Brown gave an
    update to Gilead's William Dozier, a senior manager of national
    ---------------------------------------------------------------------------
    accounts, warning of the backlash from state Medicaid programs:

            I would say that 20 of 25 states have no interest in
            the offer. [Connecticut] looks to take the 10% offer.
            The other four are debating the offer (but not rushing
            their decision).\575\
    ---------------------------------------------------------------------------
        \575\ Appendix D, Ex. 19, Email from Douglas M. Brown, Senior
    Director, Pharmacy Pricing & Value Based Solutions, Magellan Health
    Services, to William Dozier, Senior Manager, National Accounts, Gilead
    Sciences, Inc. (June 5, 2014).

        Gilead officials also directly met with and received
    written correspondence from representatives of individual state
    Medicaid programs, who indicated that access restrictions would
    follow and that some were already occurring. The Ohio Medicaid
    program raised concerns about the price of Sovaldi in a
    teleconference with National Accounts Manager David Kaufman and
    National Accounts Director Justin Crum on June 26, 2014. Price
    concerns were again raised in an in-person meeting that
    included the state's Medicaid director, John McCarthy, on
    September 24, 2014. The second meeting included Associate
    Director for Government Affairs Rebecca O'Hara, Associate
    Director for Medical Sciences Paul Miner and outside counsel
    Joshua R. Sanders.\576\
    ---------------------------------------------------------------------------
        \576\ Appendix D, Ex. 20, Letter from John B. McCarthy, Director,
    Ohio Department of Medicaid, to Peter Gartrell (Aug. 7, 2015).
    ---------------------------------------------------------------------------
        In addition to his meeting with Ohio Medicaid officials,
    meeting minutes show that Miner was in attendance on July 8,
    2014 when the Michigan Medicaid's pharmaceutical and
    therapeutics committee reviewed Sovaldi. Minutes show that
    Vanita Pindolia, the vice president, of ambulatory clinical
    pharmacy programs-pharmacy care management for Health Access
    Plan (HAP) of Michigan, spoke directly to the price of Sovaldi:

            Dr. Pindolia from HAP testified on behalf of the
            Michigan Association of Health Plans. She addressed the
            impact this medication will have on insurance premiums
            for both private and government programs and the review
            done by the Institute for Clinical and Economic Review
            (ICER) for California Technology Assessment Forum
            (CTAF). In the ICER report the cost effectiveness is
            addressed in terms of ``cost per additional Sustained
            Viral Response (SVR)''. Per ICER, if Sovaldi is
            reserved to patients with advanced liver disease then
            the cost of the drug is recouped as total healthcare
            savings at the 20 year mark; however if Sovaldi was
            used to treat all patients with positive HCV, only 66%
            of drug cost is recouped with total healthcare savings
            at 20 year.\577\
    ---------------------------------------------------------------------------
        \577\ Meeting Minutes, Michigan Pharmacy and Therapeutics Committee
    (July 8, 2014), available at https://michigan.fhsc.com/Downloads/
    PTMinutes-20140708a.pdf.

        The CTAF report Pindolia cited, was issued in March 2014,
    ---------------------------------------------------------------------------
    concluding:

            A majority of the CTAF Panel rated the new treatments
            as ``low value'' compared with older drugs due to the
            magnitude of the potential impact on health care
            budgets of treating large numbers of patients with
            these high-priced drug regimens. Because the financial
            impact of using these new drugs to treat all eligible
            patients with hepatitis C is untenable, policy makers
            should seek avenues to achieve reductions in the
            effective price of these medications. Panel members and
            outside experts nearly all agreed that for both
            clinical and cost reasons, not every patient with
            hepatitis C needs to be immediately treated with the
            new drugs. Informed, shared decision-making about the
            timing of treatment should be encouraged. Given the
            circumstances, it is reasonable to consider
            prioritizing treatment with the new drugs for patients
            who need urgent treatment and have some evidence of
            liver fibrosis but do not have advanced liver
            disease.\578\
    ---------------------------------------------------------------------------
        \578\ Institute for Clinical and Economic Review, California
    Technology Assessment Forum, The Comparative Clinical Effectiveness and
    Value of Simeprevir and Sofosbuvir in the Treatment of Chronic
    Hepatitis C Infection, at ES9 (Apr. 15, 2014), available at http://
    ctaf.org/sites/default/files/u119/CTAF_Hep_C_Apr14_final.pdf.

        Two days later, on September 9, 2014, Janet Zachary-Elkind,
    deputy director of the Division of Program Development and
    Management and a top official from New York State's Medicaid
    program, sent an email to Gilead's Vice President for
    Government Affairs Kacy Hutchinson that included a table that
    quantified the impact that Sovaldi was expected to have on the
    state's Medicaid program.\579\ The email reads:
    ---------------------------------------------------------------------------
        \579\ Appendix D, Ex. 21, Email from Janet Zachary-Elkind to Kacy
    Hutchison (Sept. 9, 2014).

            As you can see, if all beneficiaries with CHC were to
            be treated with Sovaldi, our total spend (amount paid
            to pharmacies) would be greater than the total annual
            pharmacy spend in the NY Medicaid program ($4.5B). The
            second chart identifies those beneficiaries that would
            meet the standardized criteria that we've developed. If
            all beneficiaries that meet our standardized criteria
            were to be treated, our total spend for Sovaldi would
            be equal to approximately 67% of our total annual
            pharmacy spend. While we can't predict the total number
            of people that will be treated with Sovaldi, we
            estimate that it will be somewhere between 10 and 20%
            of 35,010 (the number of members identified in the
            second chart) for this calendar year.\580\
    ---------------------------------------------------------------------------
        \580\ Id.

        On August 6, 2014 four company officials--Vice President
    for Government Affairs Kacy Hutchinson, Vice President of
    Managed Markets Coy Stout, National Account Director Justin
    Crum, and National Accounts Executive Manager Tyler Hunter--met
    ---------------------------------------------------------------------------
    with the Texas Health and Human Services Commission (HHSC):

            HHSC's former Executive Commissioner, Dr. Kyle Janek,
            expressed his displeasure with Gilead's pricing. He
            reminded the Gilead executives and representatives of
            the impact of their drug to the state budget. Given the
            size of the Texas Medicaid population, Dr. Janek also
            asked for a discounted rate. He referenced the Drug's
            availability at a fraction of the price in other
            countries and the likelihood that it would be cheaper
            for Texas to fly Medicaid recipients to those countries
            for treatment than to treat them in the U.S. Gilead
            executives and representatives explained that the
            company limited access to the drug in other countries
            to citizens of those countries and then defended their
            pricing model.\581\
    ---------------------------------------------------------------------------
        \581\ Appendix D, Ex. 11, Letter from Andy Vasquez, Deputy
    Director, Vendor Drug Program, Medicaid/CHIP, Texas Health and Human
    Services Commission, to Hon. Ron Wyden and Hon. Charles E. Grassley at
    2 (Aug. 14, 2015).

        The next month, Stephanie Tran, Gilead's Associate Manager
    for Medical Information, received a letter from the Texas
    Health and Human Services Commission requesting clinical data
    for Sovaldi and the drug that would eventually be marketed as
    Harvoni. The state was seeking more information as it
    considered clinical edits for HCV patients. ``With such a
    significant impact on the state health care budget, there is
    very little room for error,'' Andy Vasquez, the state's
    director for vendor drug programs wrote.\582\ ``. . . [T]here
    is still data that would be crucial to providing the most
    accurate representation of cost-effective treatment, based on
    available clinical evidence.'' \583\
    ---------------------------------------------------------------------------
        \582\ Id., Attachment 1.
        \583\ Id.
    ---------------------------------------------------------------------------
        In addition to the August meeting and letter to Tran,
    company officials had seven more meetings with Texas officials
    between October 21, 2014 and January 16, 2015 to discuss
    Gilead's rebate offers for Harvoni and Sovaldi. In addition to
    Crum, Hunter and Stout, additional participants included
    Associate Director for Medical Science Michelle Puyear,
    Associate Director of Government Affairs Erin Smith, and
    Director for Government Contracts and Pricing Kimberly
    Hawkins.\584\ In all, Texas raised concerns about pricing with
    at least eight different Gilead officials, yet, as cited above,
    the state's P&T Committee eventually designated Viekira Pak as
    the preferred therapy for HCV because ``AbbVie submitted more
    aggressive rebates.'' \585\
    ---------------------------------------------------------------------------
        \584\ Id., Attachment 2.
        \585\ Id. at 2.
    ---------------------------------------------------------------------------
        During a forum in October 2014 at The Brookings Institution
    in Washington D.C., advocate Ryan Clary bookended criticism of
    access restrictions imposed by commercial insurers and state
    Medicaid programs with criticism about Sovaldi's price. He
    called for lower prices for future HCV therapies, noting that
    they were a contributing factor to Medicaid programs
    restricting access to patients. Clary, the executive director
    of the National Viral Hepatitis Roundtable, an advocacy
    sponsored by several pharmaceutical companies, including
    Gilead,\586\ delivered his remarks while sitting next to
    Gilead's Chief Operating Officer, John Milligan:
    ---------------------------------------------------------------------------
        \586\ National Viral Hepatitis Roundtable, Sponsors, available at
    http://nvhr.org/content/members/sponsors (last visited July 16, 2015).

            The public programs, the state Medicaids, that's a
            different story. These are programs who are not in the
            business to make a profit off of health care; they are
            in the business to provide health care to low income
            people, many in vulnerable populations, who are in a
            safety net program and do the best they can with
            strapped budgets. And they are having a real hard time
            providing access to Hep C treatment. They don't pay
            $84,000, they get significant price relief, but they
            are still having issues. The problem with the state
            Medicaids is they reacted so quickly to the P.R.
            campaign and the misinformation and quickly implemented
            really harmful--not all Medicaids, many--harmful
            restrictions, that are blanket restrictions, that are
            discriminatory particularly toward people who either
            currently or have recently injected drugs--and those
            are folks who probably would like to be cured of
            Hepatitis C and not be transmitting to others--so that
            needs to be dealt with. And as far as the price, my
            organization and our colleagues have been on record,
            the price of Sovaldi is expensive, it is too high. The
            rationale makes sense, but when you look at the sheer
            number of people who have Hepatitis C, who we know have
            Hepatitis C, and you look at the cost of treating
            everybody and curing everybody, we are not going to do
            it in the next couple years, we know that--time to get
            through that misinformation--but that's a really high
            cost. And we've encouraged lower prices, we're hoping
            that the next wave of prices--and it's not just Gilead,
            we have other companies coming on board--really look at
            the access problems we're having, understand that price
            does play a factor treatment access and make decisions
            based on that. It's a fantastic drug. This all comes
            from the spirit and the hope that we can cure everyone
            with Hepatitis C who wants to be treated. I vote for
            the option of treating everyone with Hepatitis C.\587\
    ---------------------------------------------------------------------------
        \587\ The Brookings Institution, Event, The Cost and Value of
    Biomedical Innovation: Implications for Health Policy (Oct. 1, 2014),
    available at http://www.brookings.edu/events/2014/10/01-cost-and-value-
    biomedical-innnovation-hep-c#/full-event/.
    ---------------------------------------------------------------------------

                            Congress Raises Concerns

        In addition to the letter sent by Senators Wyden and
    Grassley that began this investigation, Gilead's CEO received a
    letter in March 2014 from three senior members of the House
    Energy and Commerce Committee, Henry A. Waxman, Frank Pallone,
    Jr., and Diana Degette. The letter raised concern about the
    cost of Sovaldi, and its use with Olysio, in an attempt by
    providers to avoid the use of interferon:

            These costs are likely to be too high for many
            patients, both those with public insurance and those
            with private insurance. Because Hepatitis C is
            ``concentrated in low-
            income, minority patients,'' the affordability problems
            are likely to be particularly acute for state Medicaid
            programs and those patients served by these programs.
            Colorado and Pennsylvania have already announced that
            their Medicaid programs will be limiting use of the new
            drug to ``only the sickest patients,'' such as those
            already suffering from liver disease. California's
            Medicaid program is still considering how and when to
            reimburse for the drug. The large pharmacy benefit
            manager Express Scripts has said it is ``encouraging
            some doctors in its networks to delay prescribing
            Sovaldi.'' Even in cases where public or private
            insurers pay for the medication, it will impose
            substantial costs on taxpayers and could cause premium
            increases for those with employer or individual
            coverage.\588\
    ---------------------------------------------------------------------------
        \588\ Appendix D, Ex. 22, Letter from Hon. Henry A. Waxman et al.,
    to Dr. John C. Martin, Chief Executive Officer, Gilead Sciences, Inc.
    (Mar. 20, 2014).

        All told, officials from Gilead received communications
    from a number of policy makers, advocates, providers, and
    payers regarding concerns about the high price of Sovaldi and
    that because of the price, patients who could benefit would not
    receive the drug. In addition, many noted their concerns about
    the impact that its high price would have on public payers.
    While Gilead had predicted that a negative response from
    patients and advocacy groups was ``very likely'' at the price
    point it selected, it may have ultimately underestimated the
    extent of concerns. Investigative staff found that this
    negative response was directly communicated to Gilead from 2013
    through the present.
                 Section 6: A Competitor Drug Enters the Market

        The emergence of an effective competitor--AbbVie's Viekira
    Pak--altered the market for HCV drugs, as evidenced by Gilead
    entering into substantial discounts with some payers. However,
    even with Viekira Pak's entrance, some state Medicaid programs
    asserted that Gilead continued to draw a hard negotiating line
    and did not offer steep enough discounts. Thus, concerns
    regarding price and access restrictions remain, and regulatory
    agencies have taken various actions that may further affect the
    market for HCV drugs.
        Gilead's products, Sovaldi and Harvoni, were the most
    widely used HCV treatments in the United States the year
    following FDA approval of Sovaldi in late 2013. The primary
    competitor to Sovaldi was Olysio, although the Johnson &
    Johnson drug was more frequently used as an off-label,
    interferon-free combination with Sovaldi than as a stand-alone
    treatment.\589\ Following Harvoni's approval by the FDA in
    October 2014, use of Olysio sharply declined, most likely
    because Harvoni provided an interferon-free single-pill
    treatment for genotype 1 patients that was significantly less
    expensive than the Sovaldi-Olysio combination.\590\ As the
    company prepared to release Harvoni, it was contemplating a
    similar contracting strategy to what it had employed for
    Sovaldi--a 4% supplemental discount for being listed on the
    preferred drug list, and generally 8% for allowing
    prescriptions for patients with F2-F4 fibrosis scores and 10%
    for allowing authorization to the FDA label (i.e., all
    patients).\591\
    ---------------------------------------------------------------------------
        \589\ Appendix D, Ex. 23, Troyen A. Brennan et al., CVS Health
    Corp., Analysis of ``Real World'' Sovaldi (sofosbuvir) Use and
    Discontinuation Rates, September 2014, at Table 1.
        \590\ Michelle Fay Cortez & Cynthia Koons, Johnson & Johnson
    Forecasts Profit Decline on Competition, Bloomberg (Jan. 20, 2015),
    available at http://www.bloomberg.com/news/articles/2015-01-20/johnson-
    johnson-earnings-beat-estimates-on-prescription-sales.
        \591\ Appendix E, Ex. 52, Gilead Sciences, Inc., HCV Wave 2
    Contracting Recommendations, September 9, 2014, GS-0019058, at GS-
    0019112.
    ---------------------------------------------------------------------------
        On December 19, 2014, the FDA approved Viekira Pak,
    manufactured by AbbVie.\592\ As discussed in Section 3 of this
    report, Gilead had expected Viekira Pak to bring competition to
    genotype 1 patients, the largest segment of the U.S. HCV
    market. Like Harvoni, Viekira Pak can be used without
    interferon, and clinical trials demonstrated that Viekira Pak
    offered comparable cure rates to Harvoni.\593\ However, unlike
    Harvoni, Viekira Pak is a multi-tablet regimen, rather than a
    single-pill treatment. CVS Pharmacy noted that a single-tablet
    regimen gave Gilead products the ``best clinical profile,'' but
    that ``there was not an appreciable clinical superiority of one
    product over another.'' \594\
    ---------------------------------------------------------------------------
        \592\ Press Release, U.S. Food and Drug Administration, FDA
    approves Viekira Pak to treat hepatitis C, available at http://
    www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm427530.htm.
        \593\ American Association for the Study of Liver Diseases and
    Infections Disease Society of America, HCV Guidance: Recommendations
    for Testing, Managing, and Treating Hepatitis C: Initial Treatment of
    HCV Infection, available at http://www.hcvguidelines.org/full-report/
    initial-treatment-hcv-infection (last updated Aug. 7, 2015).
        \594\ Appendix D, Ex. 1, Email from Ann Walker-Jenkins, Director,
    Federal Government Affairs, CVS Health Corp., to Peter Gartrell (Mar.
    9, 2015), attaching written response to investigative staff.
    ---------------------------------------------------------------------------
        Three days following Viekira Pak's approval, Express
    Scripts Holding Co., the nation's largest pharmacy benefit
    manager (PBM), announced that it would make Viekira Pak its
    preferred treatment for genotype 1 and would no longer cover
    Sovaldi and Harvoni for these patients.\595\ The deal was the
    result of AbbVie offering discounted pricing for Viekira Pak
    that exceeded discounts Gilead had offered up to that
    point.\596\ Reuters reported at the time that ``AbbVie narrowed
    the price gap to resemble what Western European countries pay
    for Sovaldi, which runs from $51,373 in France to $66,000 in
    Germany.'' \597\
    ---------------------------------------------------------------------------
        \595\ Caroline Humer, Express Scripts drops Gilead hep C drugs for
    cheaper AbbVie rival, Reuters (Dec. 22, 2014), available at http://
    www.reuters.com/article/2014/12/22/us-express-scripts-abbvie-
    hepatitisc-idUSKBN0K007620141222.
        \596\ Id.
        \597\ Id.
    ---------------------------------------------------------------------------
        Gilead responded in January and February by entering into
    discounting agreements for Harvoni and Sovaldi with CVS, \598\
    Anthem, \599\ Humana, \600\ Aetna, \601\ and UnitedHealth
    Group.\602\ Cigna \603\ struck agreements with Gilead for
    Harvoni only. Investigative staff could not verify the discount
    amounts because agreements between PBMs and drug manufacturers
    are confidential. However, in February 2015, Gilead announced
    that its ``gross-to-net'' deductions \604\ for HCV products
    increased from 22% in 2014 to 46% in 2015, as a result of ``the
    recent and ongoing round of negotiations with payers and
    PBMs.'' \605\ Peter Wickersham, then-senior Vice president at
    Prime Therapeutics, LLC, a PBM representing 26 million people,
    described the sudden, steep discounting as unprecedented:
    ``Wickersham said in his 20 years in the industry he had never
    seen prices for a brand-name drug category plummet so quickly
    after a competing drug was introduced.'' \606\
    ---------------------------------------------------------------------------
        \598\ Robert Langreth & Caroline Chen, Gilead Makes Exclusive Deal
    With CVS For Hepatitis C Drugs, Bloomberg Business (Jan. 5, 2015),
    available at http://www.bloomberg.com/news/articles/2015-01-05/gilead-
    makes-exclusive-deal-with-cvs-for-hepatitis-c-medicine.
        \599\ Robert Langreth, Gilead Strikes Hepatitis C Deal With Anthem,
    Bloomberg Business (Jan. 8, 2015), available at http://
    www.bloomberg.com/news/articles/2015-01-08/gilead-strikes-hepatitis-c-
    deal-with-anthem.
        \600\ Bob Herman, Humana Opts For Gilead In Hepatitis C Drug
    Battle, Modern Healthcare (Jan. 14, 2015), available at http://
    www.modernhealthcare.com/article/20150114/NEWS/301149943.
        \601\ Linda A. Johnson, Aetna Chooses Gilead Sciences Hepatitis C
    Drugs Over AbbVie's, San Jose Mercury News (Jan. 16, 2015), available
    at http://www.mercurynews.com/business/ci_27337565/aetna-chooses-
    gilead-sciences-hepatitis-c-drugs-over.
        \602\ Caroline Humer, UnitedHealth Backs Gilead's Harvoni As
    Preferred Hepatitis C Treatment, Reuters (Jan. 28, 2015), available at
    http://www.reuters.com/article/2015/01/28/us-unitedhealth-gilead-
    hepatitisc-idUSKBN0L12JP20150128.
        \603\ Press Release, Cigna Corporation, Cigna Signs Agreement With
    Gilead to Improve Affordability of Hepatitis C Treatment for Customers
    and Clients (Feb. 4, 2015), available at http://newsroom.cigna.com/
    NewsReleases/cigna-signs-agreement-with-gilead-to-improve-
    affordability-of-hepatitis-c-treatment-for-customers-and-clients.htm.
        \604\ Since filing its first Annual Report as a public company in
    1996, Gilead has recognized and reported its net revenue by deducting
    from gross revenue three major items: ``estimated product returns, cash
    discounts, and government programs and rebates.'' Gilead Sciences,
    Inc., Annual Report (Form 10-K) at 30 (Mar. 25, 1997), available at
    http://www.sec.gov/Archives/edgar/data/882095/0000912057-97-009728.txt.
    Gilead defined net product sales as sales ``net of estimated mandatory
    and supplemental discounts to government payers, in addition to
    discounts to private payers, and other related costs,'' in its annual
    report for fiscal year 2014. Gilead Sciences, Inc., Annual Report (Form
    10-K) at 58 (Feb. 25, 2015), available at http://www.sec.gov/Archives/
    edgar/data/882095/000088209515000008/a2014form10-k.htm. In 2013, Gilead
    forecast gross-to-net revenue deductions 17.9% for sofosbuvir during
    2014, which included an 8.1% deduction for mandatory discounts (such as
    Medicaid discounts), a 4.8% deduction for supplemental discounts (such
    as discounts made per the terms of commercial contracts), and a 5%
    deduction for ``Other'' discounts, including IMA fees, prompt payment
    discounts, the Medicare ``donut hole,'' and copay coupons. Appendix E,
    Ex. 36, Gilead Sciences, Inc., Sofosbuvir Pricing and Market Access
    Assessment, Response to Follow Up Questions (Aug. 26, 2013), GS-
    0013857, at GS-0013881, GS-0013883.
        \605\ Gilead Sciences, Inc., Fourth Quarter 2014 Gilead Sciences
    Earnings Conference Call, Webcast (Feb. 3, 2015), available at http://
    investors.gilead.com/phoenix.zhtml?p=irol-event
    Details&c=69964&eventID=5178585.
        \606\ Robert Langreth, Hepatitis Drug Prices Fall So Low, No
    Exclusives Needed, Bloomberg Business (Jan. 12, 2015), available at
    http://www.bloomberg.com/news/articles/2015-01-12/prime-covers-both-
    gilead-and-abbvie-liver-drugs-as-prices-plunge.
    ---------------------------------------------------------------------------
        CVS told investigative staff that successfully negotiating
    with drug manufacturers typically depends on market
    competition, stating, ``When single source drugs come to
    market, it is difficult to negotiate a lower cost because there
    is no market competition,'' but that ``[t]he entrance of
    alternative drugs in a class generally increases manufacturers'
    willingness to negotiate with payors.'' \607\ CVS, like Express
    Scripts, found that ``as new drugs came on to the market like
    Viekira Pak, we were able to negotiate discounts.'' \608\
    ---------------------------------------------------------------------------
        \607\ Appendix D, Ex. 1, Email from Ann Walker-Jenkins, Director,
    Federal Government Affairs, CVS Health Corp., to Peter Gartrell (Mar.
    9, 2015), attaching written response to investigative staff.
        \608\ Id.
    ---------------------------------------------------------------------------
        Some states also reached agreements with HCV drug
    manufacturers. In January 2015, Texas' Pharmaceutical and
    Therapeutics Committee selected Viekira Pak as the program's
    preferred drug, both because it viewed the drug as equally
    effective and ``because AbbVie submitted more aggressive
    rebates . . . Viekira Pak was more cost effective.'' \609\
    Texas was one of 13 state Medicaid programs that OHSU
    researchers identified as having selected Viekira Pak as the
    preferred drug as of May 5, 2015. By comparison, 12 state
    Medicaid programs selected Harvoni as their preferred
    drug.\610\
    ---------------------------------------------------------------------------
        \609\ Appendix D, Ex. 11, Letter from Andy Vasquez to Hon. Ron
    Wyden and Hon. Charles E. Grassley at 2 (Aug. 14, 2015).
        \610\ Appendix B, Table 2a.
    ---------------------------------------------------------------------------
        Despite the benefits of competition, many state Medicaid
    programs remained concerned about the cost of new HCV therapies
    (and the resulting costs). ``Through our multi-state rebate
    contract negotiating pool we have engaged HCV product
    manufacturers for various pricing level considerations.
    However, these efforts have been met with little to no
    success,'' Samantha McKinley, the pharmaceutical director for
    Kentucky's Medicaid program, wrote to Senators Wyden and
    Grassley on October 21, 2015.\611\
    ---------------------------------------------------------------------------
        \611\ Appendix D, Ex. 10, Letter from Samantha McKinley to Hon. Ron
    Wyden and Hon. Charles E. Grassley at 2 (Oct. 21, 2015).
    ---------------------------------------------------------------------------
        State Medicaid programs reported that obtaining suitable
    discounts from Gilead remained difficult even after Viekira
    Pak's entrance in the market. On October 2, 2015, Theodore
    Dallas, the Secretary of Human Services for Pennsylvania wrote
    that even with competition, Gilead's prices were not
    sufficiently reduced, and that the state has retained tight
    control over approving prescriptions:

            Initially, Gilead offered a very modest supplemental
            rebate for Sovaldi on the condition of a guarantee of
            unfettered access: no prior authorization, and no
            requirements for prescriptions to be written by, or in
            consultation with a medical specialist. When Gilead
            introduced Harvoni and AbbVie introduced Viekira Pak to
            the market, Gilead claimed willingness to negotiate
            supplemental rebates but negotiations were
            unproductive. Currently, Viekira Pak is designated as
            preferred on the [fee-for-service preferred drug list];
            Harvoni, Sovaldi, Daklinza and Technivie are designated
            as non-preferred. They are covered and available when
            determined to be medically necessary. All of the drugs,
            including Viekira Pak, require prior
            authorization.\612\
    ---------------------------------------------------------------------------
        \612\ Appendix D, Ex. 6, Letter from Theodore Dallas, Secretary,
    Department of Human Services, Commonwealth of Pennsylvania, to Hon. Ron
    Wyden and Hon. Charles E. Grassley at 3 (Oct. 2, 2015).

        On November 5, 2015, Andrew M. Slavitt, Acting
    Administrator for CMS, published a blog post concerning access,
    affordability, and innovation for prescription drugs in which
    he singled out the high cost of new, highly effective HCV drugs
    as an ongoing challenge.\613\ Slavitt wrote:
    ---------------------------------------------------------------------------
        \613\ Andrew M. Slavitt, ``Prescription Drugs: Advancing Ideas to
    Improve Access, Affordability, and Innovation,'' The CMS Blog (Nov. 5,
    2015), available at http://blog.cms.gov/2015/11/05/prescription-drugs-
    advancing-ideas-to-improve-access-affordability-and-innovation.

            A recent example of a much discussed, highly-effective
            drug is a therapy used by Hepatitis C patients.
            Hepatitis C, a debilitating and life threatening
            infection that leads to chronic conditions of the
            liver, has undergone a revolutionary improvement in
            cure rates with innovative new medicines. These
            medicines are changing the lives of many individuals,
            but they are also expensive, costing tens of thousands
            of dollars, sometimes even more than one hundred
            thousand dollars, per patient. These costs have
            strained personal as well as public budgets,
            particularly state health care budgets. Because state
            budgets generally need to be balanced every year, new
            drug treatments can surprise states with tens or
            hundreds of millions of dollars in new spending. As
            these costs often necessarily compete with other state
            programs like K-12 education, transportation, law
            enforcement, and public health programs, some states
            have made tough choices, including limiting access to
            these therapies.\614\
    ---------------------------------------------------------------------------
        \614\ Id.

        However, as Slavitt also noted, states have an obligation
    to provide treatment. CMS simultaneously issued a notice to all
    state Medicaid directors specifically related to HCV drug
    access to reinforce the point.\615\ As Slavitt explained in his
    post:
    ---------------------------------------------------------------------------
        \615\ Department of Health and Human Services, CMS, Release No.
    172, Medicaid Drug Rebate Program Notice, Assuring Medicaid
    Beneficiaries Access to Hepatitis C (HCV) Drugs (Nov. 5, 2015),
    available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/
    By-Topics/Benefits/Prescription-Drugs/Downloads/Rx-Releases/State-
    Releases/state-rel-172.pdf.

            Our notice to state Medicaid directors reminds states
            of their obligation to provide access to these
            promising therapies (consistent with section 1927 of
            the Social Security Act) based on the medical evidence,
            and that they have tools available to manage their
            costs.\616\
    ---------------------------------------------------------------------------
        \616\ Andrew M. Slavitt, ``Prescription Drugs: Advancing Ideas to
    Improve Access, Affordability, and Innovation,'' The CMS Blog (Nov. 5,
    2015), available at http://blog.cms.gov/2015/11/05/prescription-drugs-
    advancing-ideas-to-improve-access-affordability-and-innovation.

        The Agency also sent letters to HCV drug companies, Gilead,
    Johnson & Johnson, Merck & Company, Inc., and AbbVie, in which
    ---------------------------------------------------------------------------
    Slavitt wrote:

            Manufacturers also have a role to play in ensuring
            access and affordability. The agency believes it is
            important that state Medicaid agencies have access to
            the lowest available manufacturer prices in the market.
            Additionally, they should be given the opportunity to
            participate in discount or value-based purchasing
            arrangements offered by manufacturers.\617\
    ---------------------------------------------------------------------------
        \617\ Department of Health and Human Services, CMS, HCV
    Communication, Assuring Medicaid Beneficiaries Access to Hepatitis C
    (HCV) Drugs (Nov. 5, 2015), available at http://medicaid.gov/medicaid-
    chip-program-information/by-topics/benefits/prescription-drugs/hcv-
    communication.html.

        Additional factors may affect the U.S. market for HCV
    therapies. For example, as demonstrated this year by FDA safety
    warnings that were issued for Sovaldi and Viekira Pak. On March
    24, 2015, the FDA warned ``that serious slowing of the heart
    rate can occur when the antiarrhythmic drug amiodarone is taken
    together'' with Harvoni or Sovaldi in combination with other
    direct-acting antiviral HCV drugs such as Olysio or
    daclatasvir.\618\ The warning advised to avoid such co-
    prescriptions.\619\ On October 22, 2015, the FDA issued a
    warning that Viekira Pak and Technivie (approved for treatment
    of genotype 4 patients) ``can cause serious liver injury mostly
    in patients with underlying advanced liver disease.'' \620\ The
    FDA required new safety warnings reflecting the risk to the
    drugs' labels.\621\ While these warnings have not resulted in
    any of the drugs being pulled from the market at the time of
    this report, it is not known what impact they could have on
    practices and attitudes of patients, health care providers, and
    payers, which could affect competition in the market.
    ---------------------------------------------------------------------------
        \618\ FDA, FDA Drug Safety Communication: FDA warns of serious
    slowing of the heart rate when antiarrhythmic drug amiodarone is used
    with hepatitis C treatments containing sofosbuvir (Harvoni) or Sovaldi
    in combination with another Direct Acting Antiviral drug (Mar. 24,
    2015), available at http://www.fda.gov/Drugs/DrugSafety/ucm439484.htm.
        \619\ Id.
        \620\ FDA, FDA Drug Safety Communication: FDA warns of serious
    liver injury risk with hepatitis C treatments Viekira Pak and Technivie
    (Oct. 22, 2015), available at http://www.fda.gov/Drugs/DrugSafety/
    ucm468634.htm.
        \621\ Id.
    ---------------------------------------------------------------------------
        As such, the market for HCV therapies continues to evolve.
    Even as competition appears to have mitigated some of the
    pricing concerns discussed throughout this report, concerns
    about cost burden and access remain. In addition, future
    warnings or regulatory actions could further affect the HCV
    market.
                      Section 7: Conclusions and Questions

        This report is a case study of one company's experience in
    bringing a breakthrough therapy to market. Although it may have
    implications for other companies and other products, this
    report focuses only on the facts and circumstances of Gilead
    Sciences' introduction of sofosbuvir-based HCV drugs. Given
    that, despite the company's assurances of cooperation, Gilead
    failed to produce all relevant documents and supporting
    materials related to pricing, the staff's analysis of pricing
    decisions and strategies is necessarily based only on the
    documents and interviews that were provided by the company and
    from outside sources.
        Gilead acquired access to its sofosbuvir-based drugs
    through a multi-billion dollar acquisition and spent hundreds
    of millions of dollars more completing clinical trials and FDA
    approvals. While there were extensive discussions regarding
    return on those investments while Gilead was considering the
    acquisition of Pharmasset, there is scant evidence that return
    on these investments played a significant role in determining
    the pricing of these drugs. Similarly, the cost of
    manufacturing Sovaldi, which was nominal, played no part in
    establishing the price. In an interview, Gilead executive Jim
    Meyers, who played a lead part in making the pricing
    recommendation did not know the cost of manufacturing the drug.
        During the investigation, Gilead asserted that its primary
    concern in developing and marketing Sovaldi was to treat the
    largest number of HCV patients possible. For example, Gilead
    claimed that it shifted the emphasis of Sovaldi's Phase 3
    trials to focus more heavily on treating genotype 1 patients,
    which Meyers told investigative staff was done to help as many
    patients as possible--as many as 5 million people are infected
    with HCV in the U.S., of which roughly 70% are carrying
    genotype 1. In reality, Gilead's marketing, pricing, and
    contracting strategies were focused on maximizing revenue--even
    as the company's analysis showed a lower price would allow more
    people to be treated--not only for Sovaldi, but more
    importantly for its follow-on sofosbuvir-based product
    pipeline. Significantly, when confronted with the widespread
    initiation of access restrictions, Gilead refused to offer
    substantial discounts and did not significantly modify its
    contracting strategy to improve patient access.
        A key consideration in Gilead's decision-making process to
    determine the ultimate price of Sovaldi was setting the price
    such that it would not only maximize revenue, but also prepare
    the market for Harvoni and its even higher price. To that end,
    Gilead's goal throughout its pricing decision process appears
    to have been to identify the price just below the level where
    payers would place significant restrictions on patient access.
    Although it knew there would be some patient loss in the
    $80,000 to $85,000 per standard dosage range, Gilead's internal
    analysis indicated that it was a viable level for the majority
    of payers, and would also help secure what the company later
    referred to as ``market share leadership'' \622\ for Harvoni as
    a preferred future therapy and baseline price for the next wave
    of HCV drugs. The response to the launch price by payers
    appears to have been more severe than Gilead's expectations.
    ---------------------------------------------------------------------------
        \622\ Appendix E, Ex. 45, Gilead Sciences, Inc., 2015-2016 HCV
    Commercial Plan (Apr. 22, 2014), GS-0014083, at GS-0014085.
    ---------------------------------------------------------------------------
        While Gilead claimed in interviews with investigative staff
    that payers readily accepted the proposed $80,000 to $85,000
    price range during its pre-marketing surveys and focus groups,
    not a single one of the states, payers, or pharmacy benefits
    managers interviewed by staff investigators told us that it
    communicated assent in such surveys, nor did its organization.
    To the contrary, several experts and entities privately and
    publicly warned Gilead about the consequences of excessive
    pricing before introduction.
        Even though Gilead assumed that the final price
    recommendation of $84,000 would not result in significant
    patient access restrictions, it quickly became apparent that
    this assumption was incorrect as many public and private payers
    quickly reacted and adopted restrictions. Ultimately, these
    restrictions reduced the number of patients who could have
    received treatment.
        When presented with these access restrictions and pleas by
    both public and private payers for supplemental rebates or
    discounts to reduce the cost of HCV treatment for their
    respective patient populations, Gilead offered supplemental
    rebates and discounts of minimal value (on the order of 10% if
    all restrictions were lifted for Medicaid, for example). Only a
    handful of payers accepted these additional reductions. When
    payers proposed additional discounts, Gilead rejected them.
        When launching Harvoni, Gilead essentially executed the
    same revenue maximizing methodology that it used for Sovaldi,
    even though it was aware that such an approach could cause
    similar access challenges. Gilead always intended to extract a
    premium for this follow-on, all oral drug. Its acquisition
    advisor, during the run-up to Gilead's purchase of Pharmasset,
    called it a ``convenience bump.'' By elevating the price for
    the new standard of care set by Sovaldi, Gilead intended to
    raise the price floor for all future HCV treatments, including
    its follow-on drugs and those of its competitors. Its
    expectations were confirmed when AbbVie entered the market with
    its multi-drug, all oral Viekira Pak for genotype 1 at a base
    treatment price of $83,319, marginally below Gilead's prices.
    Gilead was able to maintain pricing power until Express
    Scripts, a major pharmacy benefits manager, entered into an
    agreement with AbbVie to make Viekira Pak its preferred
    genotype 1 HCV drug. Gilead quickly entered into its own
    agreements with other major benefits managers and payers
    including CVS Caremark and Anthem with what appear to have been
    substantial discounts. Industry sources have estimated these
    discounts to be on the order of 40% from the list price,
    although due to their confidential nature, those discounts have
    not been confirmed.

                  Potential Areas for Committee Consideration

        The evidence collected for this report presents the Senate
    Finance Committee with a warning for critical policy areas
    under its jurisdiction. The federal government has
    responsibility for billions of dollars in payments for
    pharmaceuticals through the Medicare and Medicaid programs.
    However the federal government is not the direct payer for
    either. In Medicare, payments for pharmaceuticals are made
    through prescription drug plans sponsors. In Medicaid, each
    state program is responsible for payments, with the federal
    government reimbursing a state-specific percentage, or
    ``match.'' The Finance Committee is responsible for policies
    that govern these programs and the intermediaries making
    payments on behalf of the federal government.
        The narrative in the case of Sovaldi is fairly
    straightforward: Pharmasset developed the drug that ultimately
    became known as Sovaldi. Gilead purchased Pharmasset and
    shepherded Sovaldi through the completion of the FDA approval
    process. Gilead engaged in a complex process in determining the
    price of Sovaldi, ultimately settling on a price that
    underestimated the reaction from both private and public
    payers. When the payer community reacted negatively to the
    price of Sovaldi during its initial period of monopoly pricing
    power, Gilead provided only limited price flexibility, which
    led to implementation of widespread treatment restrictions that
    limited access to the sickest patients. Roughly a year later,
    AbbVie received approval for its drug, Viekira Pak, and
    competition through third parties--Express Scripts and CVS
    Caremark--immediately extracted rebates and discounts from the
    previously set list prices of both products.
        One could argue that the system ``worked,'' in that a new
    entrant into the market impacted the negotiated cost of the
    ``first to market,'' or breakthrough, drug. In other words,
    competition worked to lower the cost of pharmaceuticals.
    Gilead's ability to set and hold the price for Sovaldi at a
    point that clearly caused stress to the payer community
    lessened with the entrance of a competitor. However, even as
    competition lowered prices for therapies, this report documents
    that concerns remain, particularly in the public payer
    community, about high costs for treating millions of people in
    the U.S. infected with HCV.
        There is no question that Viekira Pak's entrance into the
    market changed the status quo. It is true that aspects of the
    system worked, in this case, because AbbVie came to the market
    with a competitor drug roughly a year after Sovaldi's release.
    However, only looking at that one event in a vacuum ignores the
    impact of the efforts that Gilead had undertaken to change the
    HCV market as a whole.
        Sovaldi was a significant breakthrough for those diagnosed
    with HCV. However, comparing the drug with the previous
    standard of care is like comparing apples to oranges. At the
    most basic level, patients' ability to tolerate it meant that
    more patients could take it. This dramatic increase in market
    size and resulting revenue to Gilead was anticipated by the
    company. However, when payers attempted to extract rebates or
    discounts to ease cost concerns given the higher numbers of
    patients being treated, Gilead rebuffed those efforts. The
    result was that patients who could benefit from these drugs did
    not receive them due to the high cost. Those patient
    populations remain at risk and will, for the most part, still
    require treatment in the future.
        Accordingly, the public and private payer community
    continue to face a higher cost for the prevailing (new)
    standard of care, and higher overall costs because the new
    generation of HCV drugs is better tolerated and will most
    likely be far more widely prescribed.
        Understanding the significance of AbbVie's entrance into
    the market is critical. If no other company had developed a
    breakthrough competitor with similar clinical results, Gilead's
    de facto control of the market could have lasted much longer.
    The average time between a single source innovator entering the
    market and a generic manufacturer producing its equivalent
    product and bringing it to market is 12.6 years.\623\ Without
    successful competition, the costs to the public and private
    payers could have caused much more significant disruptions and
    access restrictions for years.
    ---------------------------------------------------------------------------
        \623\ Henry Grabowski et al., Recent Trends in Brand-Name and
    Generic Drug Competition, 17 J. Med. Econ. 207, 207-14 (Dec. 10, 2013),
    available at http://informahealthcare.com/doi/abs/10.3111/
    13696998.2013.873723.
    ---------------------------------------------------------------------------
        While it is premature to make specific legislative
    recommendations, several specific questions warrant public
    discussion:

      1)  What are the effects of a breakthrough, single source
            innovator drug on the marketplace?

        Among other things, this report reflects the reality that
    federal health care programs--notably Medicare and Medicaid--
    have little to no policy levers at their disposal to
    significantly impact the price of a single source innovator
    drug. This report found that not until reasonable competition
    entered the marketplace did Gilead's pricing incentives and
    behavior change. Not all expensive innovator drugs face
    competition so soon after launch, and thus the next expensive
    innovator drug could potentially create significant budgetary
    pressures for federal payers and lead to access restrictions
    for an extended timeframe. In light of Gilead's abrupt change
    in behavior when faced with competition, what policy levers are
    available to increase competition with a single source
    innovator or otherwise ensure single source breakthrough drugs
    are available to those who would benefit clinically?

      2)  Do the payers in the programs have adequate information
            to know the cost, patient volume, and increases in
            efficacy of a new treatment regimen?

        With respect to Sovaldi, cost drove much of the negative
    reaction to the introduction of the drug. Gilead argued that
    the price point for Sovaldi was less than that of the total
    cost associated with the previous treatment regime. The payers
    argued that the cost of Sovaldi was greater than any single
    treatment previously considered for HCV. What is clear is that
    payers were caught off guard by the price of the treatment
    regimen, especially when Sovaldi was used in combination with
    Olysio, driving the cost of treatment to approximately
    $150,000.
        With respect to volume, HCV impacts millions of Americans,
    the full count of which is unknown. In the case of Sovaldi,
    payers were overwhelmed by the cost of the drug in conjunction
    with the volume of patients now eligible for treatment. The
    volume was further driven by patients being warehoused in
    anticipation of new drugs, as well as aggressive marketing by
    Gilead and other manufacturers. Again, payers clearly did not
    anticipate the demand for Sovaldi, and it is possible Gilead
    itself was caught off-guard. However, if the latter is true,
    the company decidedly did not take action to self-correct, and
    instead remained committed to securing its original price from
    public and private payers alike, regardless of volume.
        While the Committee does not have jurisdiction over the
    approval process of drugs, the Committee's role as a
    significant payer cannot be ignored. If the payers do not have
    the opportunity to know what is coming and react accordingly
    with their plans and pricing, that is a problem. The Committee
    should explore ways to provide greater transparency in this
    area.

      3)  What role does the concept of ``value'' play in this
            debate, and how should an innovative therapy's value be
            represented in its price?

        The Committee should consider that cost, patient volume,
    and increases in efficacy ultimately speak to the concept of
    value. The Committee has worked exhaustively to inject the
    concept of value into the reimbursement regimes in Medicare.
    While the Committee has worked with value-based purchasing
    largely in Medicare Parts A and B, the Committee should turn
    its attention to ensuring that the program is getting value for
    the spending in Part D. The Congressional Budget Office has
    already shown that spending increases for Part D can lead to
    decreases in Parts A and B spending. But in the future, the
    Committee will also have to consider whether the payers in
    Medicare and Medicaid are doing enough to ensure that
    innovative drugs produce additional value that supports their
    additional expense.

      4)  What measures might improve price transparency for new
            higher-cost therapies while maintaining incentives for
            manufacturers to invest in new drug development?

        The Committee should explore the degree to which
    transparency could put downward pressure on pricing without
    exposing confidential, proprietary information about a new
    drug's scientific development. When confronted by dramatically
    higher costs, many payers restricted access. The Committee
    should examine ways to support manufacturers that direct their
    efforts toward expanding access to their cures.
        The process which a payer of health care services, whether
    it be an employer or the federal government, must go through to
    determine the exact price it will pay for pharmaceuticals is
    long, complicated, and often opaque. While most drug
    manufacturers publicly announce the ``price'' of their drugs,
    the actual amount paid by individual payers is kept secret for
    a variety of potentially legitimate reasons. However, there are
    reasons to believe that increased transparency in actual prices
    paid would better inform the public as well as help policy
    makers make more informed decisions. On the latter point, the
    public may be surprised to learn that members of Congress are
    forbidden by law \624\ to have access to information regarding
    price discounts and rebates agreed to by drug manufacturers as
    part of the Medicare and Medicaid programs. Congress and payers
    alike need more complete information on the ultimate prices
    paid.
    ---------------------------------------------------------------------------
        \624\ 42 U.S.C. Sec. 1396r-8(b)(3)(D).

      5) What tools exist, or should exist, to address the impact
            of high cost drugs and corresponding access
            restrictions, particularly on low-income populations
    ---------------------------------------------------------------------------
            and state Medicaid programs?

        The data contained in this report provides estimates of the
    number of Medicaid enrollees infected with HCV, the number of
    enrollees who received treatment, and the cost of that
    treatment to taxpayers. More often than not, states responded
    to the high need for--and high cost of--HCV treatments by
    imposing access restrictions leading to a fraction of the
    infected population actually receiving treatment. In addition,
    as shown in the report, this high cost, high need situation is
    expected to continue to strain state Medicaid budgets and
    affect decision-making around access. The Committee should
    explore the tools that states and the federal government can
    employ, or should be able to employ, to appropriately manage
    their patient populations, ensure timely access to medically
    necessary treatments, and address the financial constraints of
    new cures that enter the market.

                             Timeline of Key Events

    1987                              Gilead Sciences, Inc. (Gilead) is
                                       founded in Foster City, California.

    1992                              Gilead becomes a publicly traded
                                       company.

    1998                              Pharmasset, Inc. (Pharmasset) is
                                       founded in Tucker, Georgia.

    2006                              Pharmasset becomes a publicly traded
                                       company.

    2008                              Pharmasset spends $770,000 researching
                                       PSI-7977, a molecule being developed
                                       for the treatment of the Hepatitis C
                                       virus (HCV). PSI-7977 would become
                                       Sovaldi.

    2009                              Pharmasset spends $6.9 million
                                       researching PSI-7977.

    2010                              Pharmasset announces initiation of
                                       Phase 2a and 2b studies for PSI-7977.
                                       This announcement is the first public
                                       acknowledgement that the compound is
                                       being developed. The company spends
                                       $16.4 million researching the
                                       compound.

    May 13, 2011                      The Food & Drug Administration (FDA)
                                       approves Vertex Pharmaceutical's
                                       Incivek (telaprevir) through priority
                                       review, for the treatment of Chronic
                                       Hepatitis C (CHC) genotype 1 in adult
                                       patients with compensated liver
                                       disease (including cirrhosis), in
                                       combination with pegylated interferon
                                       alfa and ribavirin.
                                      FDA approves Merck & Company's (Merck)
                                       Victrelis (boceprevir) through
                                       priority review, for the treatment of
                                       CHC genotype 1, in combination with
                                       pegylated interferon-alfa and
                                       ribavirin, in adult patients with
                                       compensated liver disease (including
                                       cirrhosis).
                                      These drugs are the first direct-
                                       acting antivirals (DAA) to receive
                                       FDA approval. DAAs work by targeting
                                       enzymes within the RNA of HCV.

    September 2, 2011                 Gilead begins negotiations to acquire
                                       Pharmasset. Gilead's initial offer is
                                       $100 per share.

    November 1, 2011                  Pharmasset initiates Phase 3 trials
                                       for PSI-7977.

    November 6, 2011                  Pharmasset announces results of a
                                       Phase 2 trial in which all Hepatitis
                                       C (HCV) patients who used PSI-7977
                                       were cured of the disease.

    November 21, 2011                 Gilead announces agreement to purchase
                                       Pharmasset for $137 per share.

    December 16, 2011                 Pharmasset halts clinical trials for a
                                       second HCV drug, PSI-938. In response
                                       to the news, a Gilead spokesman tells
                                       the Wall Street Journal, ``[s]ince
                                       the announcement from Pharmasset
                                       regarding PSI-938 does not impact the
                                       development of PSI-7977, we do not
                                       believe the fundamental value of the
                                       deal has been impacted.''

    January 17, 2012                  Gilead completes its purchase of
                                       Pharmasset, Inc. for $11.2 billion.
                                       PSI-7977 becomes GS-7977.

    March 25, 2013                    Gilead begins its evaluation of
                                       pricing and access for GS-7977, which
                                       would be marketed as Sovaldi.

    May 6, 2013                       FDA grants Viekira Pak breakthrough
                                       therapy designation.

    October 10, 2013                  FDA grants Sovaldi breakthrough
                                       therapy designation. The designation
                                       would allow the company to include
                                       two additional Phase 3 studies,
                                       VALENCE and PHOTON-1, which provided
                                       data supporting treatment of genotype
                                       3 patients, and genotype 1 patients
                                       co-infected with HIV, respectively.

    November 22, 2013                 FDA approves Olysio (simeprevir)
                                       through priority review, for the
                                       treatment of CHC genotype 1 as a
                                       component of a combination antiviral
                                       treatment regimen.

    November 18-23, 2013              Gilead executives set the price of
                                       Sovaldi at $84,000.

    December 6, 2013                  FDA approves Gilead's Sovaldi
                                       (sofosbuvir) through priority review
                                       and with breakthrough therapy
                                       designation, for the treatment of CHC
                                       infection as a component of a
                                       combination antiviral treatment
                                       regimen.
    January 29, 2014                  The American Association for the Study
                                       of Liver Diseases (AASLD) and
                                       Infectious Disease Society of America
                                       (IDSA) issue recommendations that
                                       health care providers prescribe
                                       Sovaldi and Olysio in combination for
                                       genotype 1 patients who are not
                                       eligible to receive interferon.

    July 11, 2014                     Senators Wyden and Grassley send a
                                       letter to Gilead CEO John Martin
                                       seeking information about how the
                                       company priced Sovaldi.

    August 11, 2014                   Vertex Pharmaceuticals notifies
                                       providers it will discontinue sales
                                       of Incivek in October.

    October 10, 2014                  FDA approves Gilead's Harvoni
                                       (ledispasvir and sofosbuvir) through
                                       priority review and with breakthrough
                                       therapy designation, for the
                                       treatment of CHC genotype 1.

    October 28, 2014                  The National Association of Medicaid
                                       Directors sends letter to Congress
                                       raising concerns about the price of
                                       Sovaldi and Harvoni.

    November 5, 2014                  FDA approves Olysio-Sovaldi
                                       combination for treatment of patients
                                       with CHC genotype 1. The application
                                       for the combination was submitted by
                                       Johnson & Johnson.

    December 19, 2014                 FDA approves AbbVie Inc.'s Viekira
                                       Pack (ombitasvir, paritaprevir, and
                                       ritonavir, dasabuvir) through
                                       priority review and with breakthrough
                                       therapy designation, for use with or
                                       without ribavirin to treat patients
                                       with CHC genotype 1.

    December 22, 2014                 Express Scripts Holding Co., the
                                       nation's largest pharmaceutical
                                       benefits manager, announces that it
                                       has reached a deal to include Viekira
                                       Pak on its preferred drug list at a
                                       significant, but undisclosed
                                       discount. The deal sparks competition
                                       between AbbVie and Gilead.

    January 20, 2015                  Johnson & Johnson announces financial
                                       results for full year 2014. Sales of
                                       Olysio total $2.3 billion, largely
                                       attributable to co-prescriptions with
                                       Sovaldi. The company reports a sharp
                                       drop in Olysio sales during the
                                       fourth quarter of 2014, compared to
                                       the third quarter, which analysts
                                       attribute to competition from
                                       Harvoni.
                                      Merck notifies providers that it will
                                       discontinue sales of Victrelis by
                                       December 2015.

    February 3, 2015                  Gilead announces financial results for
                                       full year 2014. Net product sales for
                                       Sovaldi total $10.3 billion; net
                                       product sales for Harvoni total $2.1
                                       billion. The company announces that
                                       it expects the ``gross-to-net''
                                       discount for HCV drugs to average 46%
                                       in 2015, compared to 22% in 2014. The
                                       increase is attributed to recent
                                       agreements it has reached with
                                       payers. The company also announces a
                                       $15 billion stock buyback program,
                                       and initiates a 43-cent-per-share
                                       quarterly dividend.

    March 24, 2015                    FDA issues safety warning that Sovaldi
                                       and Harvoni, when used with other
                                       direct-acting antiviral drugs such as
                                       Olysio, can cause ``serious slowing
                                       of the heart rate'' when used with
                                       the arrhythmia drug amiodarone.

    July 24, 2015                     FDA approves Bristol-Meyer Squibb's
                                       Daklinza (daclatasvir) through
                                       priority review for the treatment of
                                       CHC genotype 3 in combination with
                                       Sovaldi.
                                      FDA approves AbbVie's Technivie
                                       (ombitasvir, paritaprevir, and
                                       ritonavir) through priority review
                                       and with breakthrough therapy
                                       designation, for use in combination
                                       with ribavirin for the treatment of
                                       CHC genotype 4 patients without
                                       cirrhosis.

    October 22, 2015                  FDA issues safety warning that Viekira
                                       Pak and Technivie can cause serious
                                       liver injury, ``mostly in patients
                                       with underlying advanced liver
                                       disease.''

    October 27, 2015                  Gilead announces third quarter
                                       financial results. For the first nine
                                       months of 2015, net product sales for
                                       Harvoni total $10.5 billion; net
                                       product sales for Sovaldi total $3.7
                                       billion.

    October 30, 2015                  AbbVie announces third quarter
                                       financial results. For the first nine
                                       months of 2015, net revenue for
                                       Viekira Pak totals $1.1 billion.

    November 5, 2015                  The Centers for Medicare & Medicaid
                                       Services (CMS) sends a letter to
                                       state Medicaid programs expressing
                                       concerns about continuing access
                                       restrictions for HCV drugs, and
                                       encouraging states to negotiate with
                                       pharmaceutical companies. On the same
                                       day, CMS sends letters to Gilead,
                                       Johnson & Johnson, AbbVie, and Merck,
                                       seeking information about the
                                       companies' negotiating practices.

                              Glossary of Key Terms

    AbbVie, Inc.                       Markets and sells Viekira PakTM and
                                        TechnivieTM.

    American Association for the       Medical societies that have issued
     Study of Liver Diseases/           clinical practice guidelines and
     Infectious Diseases Society of     best practices for treatment of
     America (AASLD/IDSA)               hepatitis C.

    Bristol Myers-Squibb Co.           Markets and sells DaklinzaTM.

    Cirrhosis                          Cirrhosis is a condition in which the
                                        liver slowly deteriorates and is
                                        unable to function normally due to
                                        chronic, or long lasting, injury.
                                        Scar tissue replaces healthy liver
                                        tissue and partially blocks the flow
                                        of blood through the liver. The
                                        buildup of scar tissue that causes
                                        cirrhosis is usually a slow and
                                        gradual process. In the early stages
                                        of cirrhosis, the liver continues to
                                        function. However, as cirrhosis gets
                                        worse and scar tissue replaces more
                                        healthy tissue, the liver will begin
                                        to fail. Chronic liver failure,
                                        which is also called end-stage liver
                                        disease, progresses over months,
                                        years, or even decades. With end-
                                        stage liver disease, the liver can
                                        no longer perform important
                                        functions or effectively replace
                                        damaged cells.

    DaklinzaTM (daclatasvir)           Developed by Bristol-Meyers Squibb.
                                        Approved in July 2015 for treatment
                                        of genotype 3 in combination with
                                        Sovaldi.

    Direct-acting antiviral drugs      DAAs act against HCV by directly
     (DAA)                              inhibiting viral activities
                                        including specific enzymes such as
                                        polymerase and protease. Among the
                                        DAAs are agents which specifically
                                        target the NS5A (replication
                                        complex), NS5B (polymerase) and NS3/
                                        4A (protease).

    Early virologic response (EVR)     A significant or complete decline in
                                        hepatitis C RNA levels by week 12 of
                                        treatment. Failing to achieve an EVR
                                        typically means that treatment has
                                        failed and a patient will not clear
                                        the disease.

    Fibrosis                           The liver can regenerate most of its
                                        own cells when they become damaged.
                                        However, if injury to the liver is
                                        too severe or long lasting,
                                        regeneration is incomplete, and the
                                        liver creates scar tissue. Scarring
                                        of the liver, also called fibrosis,
                                        may lead to cirrhosis.

    Genotype                           Hepatitis C is divided into distinct
                                        strains known as genotypes, which
                                        vary in geographic distribution and
                                        respond differently to treatment.
                                        Also referred to as ``GT.''

    Genotype 1                         The most common strain of hepatitis C
                                        in the United States, accounting for
                                        roughly 70%-75% of infections.

    Genotype 2                         The second most common strain of
                                        hepatitis C in the United States,
                                        accounting for roughly 15%-16% of
                                        infections.

    Genotype 3                         The third most common strain of
                                        hepatitis C in the United States,
                                        accounting for roughly 10%-12% of
                                        infections.

    Gilead Sciences, Inc.              Markets and sells Sovaldi and
                                        Harvoni.

    Gross-to-net price                 The difference between the gross--
                                        wholesale--price of a drug and the
                                        net price after deducting mandatory
                                        and supplemental discounts to
                                        government payers, in addition to
                                        discounts to private payers, and
                                        other related costs.

    Harvoni (ledispasvir/sofosbuvir)  Developed by Gilead as a fixed-dose,
                                        once daily, single tablet regimen of
                                        two agents. Approved in October 2014
                                        for treatment of genotype 1 without
                                        interferon or ribavirin. First
                                        interferon-free therapy. Also
                                        referred to as Wave 2 and ``SOF/
                                        LDV''

    Incivek (telaprevir)              Developed by Vertex. Approved in May
                                        2011 for treatment of genotype 1 in
                                        combination with pegylated
                                        interferon-alfa and ribavirin. Was
                                        among the first two direct-acting
                                        antivirals approved to treat
                                        hepatitis C, along with Victrelis.

    Interferon-alfa                    The first approved therapy for
                                        hepatitis C, this injectable drug
                                        works by boosting the immune system
                                        to effectively block new cell sites
                                        to which a virus can attach. It had
                                        major drawbacks for patients because
                                        it required frequent visits to a
                                        health care provider and was often
                                        accompanied by difficult side
                                        effects. Also referred to as IFN.

    Johnson & Johnson                  Markets and sells OlysioTM.

    Merck & Co.                        Marketed and sells Victrelis.

    NS5A Inhibitors                    Class of drugs including ledipasvir
                                        (part of Harvoni), ombitasvir (part
                                        of Viekira PakTM), and daclatasvir
                                        (DaklinzaTM), that inhibit the NS5A
                                        part of the virus that is required
                                        to create the replication complex. A
                                        unique class of antivirals that
                                        first allowed for all-oral regimens
                                        for hepatitis C.

    OlysioTM (simeprevir)              Developed by Johnson & Johnson.
                                        Approved in November 2013 to treat
                                        genotype 1. The AASLD/IDSA
                                        recommended in January 2014 that it
                                        be used in combination with Sovaldi
                                        for treatment of patients not
                                        eligible for treatment with
                                        interferon. The FDA approved its use
                                        in combination with Sovaldi in
                                        November 2014.

    Pegylated interferon-alfa          Interferon-alfa linked with
                                        polyethylene glycol, which prolongs
                                        its effect allowing once weekly
                                        injections. Pegylated interferon in
                                        combination with ribavirin was the
                                        standard of care for the treatment
                                        of hepatitis C for over a decade
                                        until 2014. Also referred to as PEG
                                        IFN or PEG.

    Pharmasset, Inc.                   Bought by Gilead in 2011, this
                                        company was the original developer
                                        of PSI-7977, the molecule that would
                                        become Sovaldi and be component of
                                        Harvoni.

    Polymerase inhibitors              Class of drugs, including Sovaldi,
                                        Harvoni and Viekira PakTM that work
                                        by disrupting the polymerase enzyme
                                        that mediates hepatitis C RNA
                                        replication.

    Protease inhibitors                Class of drugs including OlysioTM,
                                        Victrelis, and Incivek, that work
                                        by blocking the protease, which
                                        cleaves and processes viral
                                        polyproteins, an important part of
                                        hepatitis C's life cycle.

    Rapid virologic response (RVR)     When hepatitis C virus is
                                        undetectable at week 4 of treatment.
                                        Reaching RVR typically signifies
                                        high likelihood that a patient has
                                        been successfully cured of the
                                        disease.

    Ribavirin                          An antiviral drug discovered in 1972
                                        used for treatment of RNA viruses
                                        including hepatitis C. It was part
                                        of the standard of care until 2014
                                        and may be a component of current
                                        DAA-based regimens. Also referred to
                                        as RBV.

    Sovaldi (sofosbuvir)              Developed clinically by Gilead.
                                        Approved in December 2013 to treat
                                        genotypes 1, 2, 3 and 4. Also
                                        referred to as PSI-7977, GS-7977,
                                        SOF, and Wave 1.

    Standard of care                   Treatment accepted by medical experts
                                        as a proper treatment for a certain
                                        type of disease and that is widely
                                        used by healthcare professionals.
                                        Also called best practice, standard
                                        medical care, and standard therapy.

    Sustained virologic response       Hepatitis C virus RNA is undetectable
     (SVR)                              a set time after treatment--
                                        typically 12 or 24 weeks. Signifies
                                        that a patient has likely been cured
                                        of the disease.

    TechnivieTM (obmitasvir/           Developed by AbbVie. Approved in July
     paritaprevir/ritonavir)            2015 for treatment of genotype 4.

    Treatment experienced (TE)         Patient who has received treatment
                                        for a disease.

    Treatment naive (TN)               Patient who has not yet received
                                        treatment for a disease.

    Vertex Pharmaceuticals, Inc.       Marketed and sold Incivek.

    VictrelisTM (boceprevir)           Developed by Merck. Approved in May
                                        2011 for treatment of genotype 1 in
                                        combination with pegylated
                                        interferon-alfa and ribavirin. Was
                                        among the first two direct-acting
                                        antivirals approved to treat
                                        hepatitis C, along with Incivek.

    Viekira PakTM (obmitasvir/         Developed by AbbVie as a fixed-dose
     paritaprevir/ritonavir/            regimen of three agents active
     dasabuvir)                         against HCV. Ritonavir is included
                                        as a dose-boosting agent. Approved
                                        in December 2014 for treatment of
                                        genotype 1 without interferon or
                                        ribavirin.

    Warehousing                        The common, though informal, practice
                                        of doctors encouraging their
                                        patients to delay treatment close to
                                        the release date of a new therapy
                                        that is expected to be more
                                        effective or less burdensome (in
                                        terms of side effects). Typically
                                        results in a surge of patients using
                                        the new therapy.

    Wholesale Acquisition Cost (WAC)   The price of a drug before any
                                        discounts, deductions, or other
                                        costs.

      Letter from Senators Wyden and Grassley to John Martin, CEO, Gilead
                            Sciences (July 11, 2014)

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                          July 11, 2014

    Dr. John C. Martin,
    Chairman and Chief Executive Officer
    Gilead Sciences, Inc.
    333 Lakeside Drive
    Foster City, CA 94404

    Dear Dr. Martin:

        The Committee on Finance has jurisdiction of matters related to
    ``health programs under the Social Security Act and health programs
    financed by a specific tax or trust fund,'' as provided by Rule XXV of
    the Standing Rules of the Senate. These federal health care programs
    include Medicare and Medicaid, which together provide health care to
    over 100 million Americans and represent nearly $900 billion in annual
    federal spending.

        The Federal government is the health care industry's largest
    customer, and Congress has a responsibility to conduct oversight and
    ensure that taxpayer dollars are used wisely in a transparent market.
    Gilead received federal regulatory approval last year for Sovaldi, a
    drug developed to treat and cure the Hepatitis C virus (HCV). The drug
    has been hailed as a breakthrough treatment, and its commercial release
    is a welcome advance in medical research for the 3.2 million Americans
    infected with HCV and their families.\1\
    ---------------------------------------------------------------------------
        \1\ Centers for Disease Control and Prevention, Hepatatis C FAQs
    for the Public, http://www.cdc.gov/Hepatitis/C/cFAQ.htm#statistics,
    accessed July 10, 2014.

        Although Sovaldi has the potential to help people with HCV, at $
    1,000 per pill, its pricing has raised serious questions about the
    extent to which the market for this drug is operating efficiently and
    rationally. While a standard course of treatment for Sovaldi has been
    widely reported to cost $84,000 in the United States, Gilead will offer
    the drug in other countries for a fraction of the price. In Egypt, for
    example, Sovaldi could be offered for as low as $900 per course of
    treatment--a 99 percent discount of the price in the U.S.\2\
    ---------------------------------------------------------------------------
        \2\ Maggie Fick and Ben Hirschler, Gilead offers Egypt new
    hepatitis C drug at 99 percent discount, Reuters, March 21 ,2014,
    http://www.reuters.com/article/2014/03/21/us-hepatitis-egypt-gilead-
    sciences-idUSBREA2K1VF20140321, accessed July 10, 2014.

        The total cost of a course of this therapy also remains in
    question. The U.S. Food and Drug Administration dosage approval shows
    the price could be higher than the $84,000 for a standard treatment.
    Some patients with HCV genotypes 1 and 3 will require 24 weeks of
    treatment.\3\ The longer treatment regimen roughly doubles the cost-
    per-patient-per-treatment to $168,000 for Sovaldi, not including the
    additional cost of peg-interferon alfa and ribavirin used in
    combination treatments.\4\ HCV patients with liver cancer could require
    48 weeks of treatment.\5\
    ---------------------------------------------------------------------------
        \3\  U.S. Food & Drug Administration, Label for Sovaldi (NDA no.
    204671), December 6, 2013, http://www.accessdata.fda.gov/
    drugsatfda_docs/label/2013/204671s000lbl.pdf, accessed July 10, 2014.
        \4\ Leof, A., et al., (2014). Sofosbuvir for the treatment of
    hepatitis C and evaluation of the 2014 American Association for the
    Study of Liver Diseases treatment guidelines. Portland, OR: Center for
    Evidence-Based Policy, Oregon Health & Science University, p. 7-8,
    http://www.ohsu.edu/xd/research/centers-institutes/evidence-based-
    policy-center/med/upload/Sofosbuvir_for_HepatitisC_
    Final_5_19_2014.pdf, accessed July 10, 2014.
        \5\ Supra at note 3.

        The large patient population combined with the high price of each
    individual treatment creates a question as to whether payors of health
    care, including Medicare and Medicaid, can carry such a load. Health
    care experts recently estimated that Sovaldi alone could increase
    Medicare's spending on prescription drugs by $2 billion between 2014
    and 2015 if just 25,000 patients enrolled in the program's prescription
    drug benefit, known as Part D, receive prescriptions.\6\ That
    represents ``roughly 10 percent of Part D enrollees with the hepatitis
    C virus and about one-fourth of enrollees who have been diagnosed.'' If
    75,000 Part D enrollees took the drug during the same period, program
    costs would increase by $6.5 billion and premiums for all Part D
    enrollees could jump 8 percent, ``a bigger increase than in any year
    since 2008.'' \7\
    ---------------------------------------------------------------------------
        \6\ Tricia Neuman, et al., The Cost Of A Cure: Medicare's Role In
    Treating Hepatitis C, Health Affairs, June 5, 2014, http://
    healthaffairs.org/blog/2014/06/05/the-cost-of-a-cure-medicares-role-in-
    treating-hepatitis-c/, accessed July 10, 2014.
        \7\ Ibid.

        Sovaldi's cost also could dramatically increase the government's
    spending in other programs, including health care for prisoners with
    HCV. According to a recent survey, over 1.8 million people with
    hepatitis C are currently incarcerated.\8\ This represents up to 32.8
    percent of the total cases of HCV in the U.S.\9\ The Federal Bureau of
    Prisons within the Department of Justice has already approved Sovaldi
    for use in treating prison populations, and it is reported that it
    receives a 44 percent discount.\10\ Even with this discount, American
    taxpayers could end up paying billions of dollars buying Sovaldi to
    treat inmates infected with HCV.
    ---------------------------------------------------------------------------
        \8\ Varan, A.K., et al. ``Hepatitis C Seroprevalence among Prison
    Inmates Since 2001: Still High But Declining.'' Public Health Reports,
    129, no. 2 (March/April, 2014): 187-195. (http://www.
    ncbi.nlm.nih.gov/pubmed/24587554), accessed July 10, 2014.
        \9\ Ibid.
        \10\ Peter Loftus, New Hepatitis Drugs Vex Prisons, Wall Street
    Journal, April 24, 2014, http://online.wsj.com/news/articles/
    SB10001424052702304311204579510054146055222, accessed July 10, 2014.

        Given the impact Sovaldi's cost will have on Medicare, Medicaid and
    other federal spending, we need a better understanding of how your
    company arrived at the price for this drug. In order for a marketplace
    to function properly, it must be competitive, fair, and transparent. It
    is unclear how Gilead set the price for Sovaldi. That price appears to
    be higher than expected given the costs of development, and production
    and the steep discounts offered in other countries. An efficient market
    needs informed consumers to keep costs down. Consequently, we have
    directed our staff to investigate issues related to Sovaldi and
    Gilead's pricing of the drug. As part of this investigation, we are
    seeking information and documents related to the merger of Gilead
    Sciences, Inc. and Pharmasset, Inc., the original developer of Sovaldi,
    that was announced November 21, 2011, and the subsequent pricing of
    ---------------------------------------------------------------------------
    Sovaldi.

        The following document requests, questions and statements use
    ``Gilead'' to refer to Gilead Sciences, Inc., its board of directors,
    any subsidiaries and contracted third parties; ``Pharmasset'' is used
    to refer to Pharmasset, Inc., its board of directors, any subsidiaries
    and contracted third parties; ``Morgan Stanley'' refers to Morgan
    Stanley & Co., LLC, and all its subsidiaries. ``Barclays'' refers to
    Barclays Bank PLC, and all its subsidiaries, including but not limited
    to Barclays Capital. ``Bank of America Merrill Lynch'' refers to Bank
    of America Corporation, and all its subsidiaries, including, but not
    limited to Merrill Lynch. Any reference to ``Sovaldi'', ``PSI-7977'' or
    ``GS-7977'' refers to sofosbuvir, a drug used in the treatment of
    hepatitis C virus, and any other names or codenames used to refer to
    said drug, its predecessor, and related formulas, compounds, research
    or development projects. ``Supporting documents'' refers to, but is not
    limited to, emails, faxes, notes, minutes, memoranda, reports,
    forecasts, transcripts, charts, spreadsheets and government forms.

        Please answer the following questions and provide the following
    documents:

       1.  Please provide copies of all presentations, financial analyses,
            and supporting documents given to Pharmasset and/or to Gilead
            from 2010 to present from Morgan Stanley in its role as
            Pharmasset's financial advisor.\11\
    ---------------------------------------------------------------------------
        \11\ Pharmasset Schedule 14D-9, December 6, 2011, p. 8.

       2.  Please provide a copy of the fairness opinion prepared by Morgan
            Stanley in conjunction with Gilead's final offering price,\12\
            and all supporting documents related to or referencing the
            fairness opinion, including but not limited to assumptions
            about the pricing and market for PSI-7977.
    ---------------------------------------------------------------------------
        \12\ Ibid., p. 12-13.

       3.  Please provide copies of the three prospective commercialization
            forecasts prepared by Pharmasset's management ``in and prior to
            September 2011'' \13\ and all supporting documents.
    ---------------------------------------------------------------------------
        \13\ Ibid., p. 29-30.

       4.  Please provide copies of Pharmasset' s revised forecasts
            (prepared before the American Association for the Study of
            Liver Diseases conference in November 2011) \14\ and all
            supporting documents, including but not limited to assumptions
            about the pricing and market for PSI-7977.
    ---------------------------------------------------------------------------
        \14\ Ibid., p. 31-32. Referred to as the ``Updated Forecast'',
    management assumed PSI-7977 would be launched in the United States no
    earlier than the third quarter of 2014; that a course of treatment
    using PSI-7977 would be priced at $36,000 in the United States, and
    that European Union pricing would be 60% to 70% of the U.S. price.

       5.  Please provide copies of all communications between Pharmasset's
            board and its senior management regarding PSI-7977 and all
            supporting documents, including assumptions about the pricing
    ---------------------------------------------------------------------------
            and market for the drug.

       6.  In its final annual financial filing with the Securities and
            Exchange Commission (SEC), Pharmasset reported that its
            research and development costs totaled $176.7 million for the
            fiscal years ending 2009, 2010 and 2011, the period during
            which PSI-7977 was being developed.\15\ Of that total,
            Pharmasset attributed $62.4 million directly to the development
            of PSI-7977.
    ---------------------------------------------------------------------------
        \15\ Pharmasset, Inc., 10-K for the fiscal year ended September 30,
    2011, November, 14, 2011, p. 60.
    ---------------------------------------------------------------------------
          a.  Please provide an itemized accounting of Pharmasset's total
            research and development costs prior to the completion of the
            merger with Gilead on January 17, 2012.
          b.  Please provide an itemized accounting of Pharmasset's
            research and development costs directly attributable to the
            development of PSI-7977 prior to the completion of the merger
            with Gilead on January 17, 2012.

       7.  Gilead retained Barclays and Bank of America Merrill Lynch as
            its financial advisors for the acquisition of Pharmasset.\16\
    ---------------------------------------------------------------------------
        \16\ Gilead Sciences, Inc., and Pharmaset, Inc., Gilead Sciences to
    Acquire Pharmasset, Inc., for $11 Billion, November 21, 2011, http://
    gilead.com/news/press-releases/2011/11/gilead-sciences-to-acquire-
    pharmasset-inc-for-11-billion, accessed July 10, 2014.
    ---------------------------------------------------------------------------
          a.  Please provide copies of all communication between Barclays
            and Gilead relating to the valuation and acquisition of
            Pharmasset, including assumptions, projections, analyses,
            recommendations, and any related supporting documents about the
            pricing and market for PSI-7977.
          b.  Please provide copies of all communication between Bank of
            America Merrill Lynch and Gilead, relating to the valuation and
            acquisition of Pharmassett, including assumptions, projections,
            analyses, recommendations, and any related supporting documents
            about the pricing and market for PSI-7977.

       8.  Please provide all analyses, recommendations, and supporting
            documents related to the proposed valuation and acquisition of
            Pharmasset, including assumptions and projections about the
            price and market for PSI-7977. Please include all documents
            related to the following:
          a.  The September 2, 2011 meeting between Pharmasset and Gilead
            to discuss acquisition;
          b.  The October 7, 2011 proposal from Gilead to purchase
            Pharmasset for $125 per share;
          c.  The November 17, 2011 proposal from Gilead to purchase
            Pharmasset for $135 per share;
          d.  The November 20, 2011 proposal from Gilead to purchase
            Pharmasset for $137 per share.

       9.  Please provide copies of all communications between Gilead and
            Pharmasset concerning the proposed valuation and acquisition of
            Pharmasset, including assumptions and projections about the
            price and market for PSI-7977. Please include all supporting
            documents related to the following:
          a.  The September 2, 2011 meeting between Pharmasset and Gilead
            to discuss acquisition;
          b.  The October 7, 2011 proposal from Gilead to purchase
            Pharmasset for $125 per share;
          c.  The November 17, 2011 proposal from Gilead to purchase
            Pharmasset for $135 per share;
          d.  The November 20, 2011 proposal from Gilead to purchase
            Pharmasset for $137 per share.

      10.  Please provide copies of the analysis of the fair value of the
            In-Process Research and Development (IPR&D) related to GS-7977
            cited in Gilead's 10-Q filed with the U.S. Securities and
            Exchange Commission (SEC) for the quarter ending March 31,
            2012, \17\ and all supporting documents related to the
            preparation of this valuation. Identify and describe the key
            assumptions in the IPR&D valuation.
    ---------------------------------------------------------------------------
        \17\ Gilead Sciences, Inc. Form 10-Q for the quarterly period ended
    March 31, 2012, May 4, 2012, p. 16.

      11.  Please provide copies of the analysis of the fair value of IPR&D
            related to sofosbuvir cited in Gilead's 10-K filed with the SEC
            for the fiscal year ending December 31, 2012, \18\ and all
            supporting documents related to the preparation of this
            valuation. Identify and describe the key assumptions in the
            IPR&D valuation.
    ---------------------------------------------------------------------------
        \18\ Gilead Sciences, Inc., Form 10-K for the fiscal year ended
    December 31, 2012, February, 27, 2013, p. 105.

      12.  Please provide an itemized accounting of research and
            development costs \19\ related directly to the development of
            sofosbuvir that was incurred by Gilead after the completion of
            the Pharmasset merger on January 17, 2012. This accounting
            should include separate line items for personnel costs,
            clinical studies, materials and supplies, licenses and fees,
            milestone payments under collaboration arrangements, overhead
            allocations, facilities costs and the value contracts with
            contract research organizations (CROs) related directly to the
            development of sofosbuvir.
    ---------------------------------------------------------------------------
        \19\ Gilead Sciences, Inc., Form 10-K for the fiscal year ended
    December 31, 2013, February 25, 2014, p. 60.

      13.  Before Gilead could complete its acquisition of Pharmasset, both
            companies were required to file pre-merger notifications with
            the U.S. Federal Trade Commission (FTC).
          a.  Please provide copies of Gilead's filing with the FTC, all
            documents provided to the FTC pursuant to 16 C.F.R. Sec. 803.1
            and 16 C.F.R. Sec. 803.2, all communications with the FTC
            related to the filing, and all supporting documents related to
            the filing.
          b.  Please provide copies of Pharmasset's filing with the FTC,
            all documents provided to the FTC pursuant to 16 C.F.R.
            Sec. 803.1 and 16 C.F.R. Sec. 803.2, all communications with
            the FTC related to the filing, and all supporting documents
            related to the filing.

      14.  Please provide copies of the marketing and pricing plans
            prepared for, and being used in, the launch of Sovaldi in the
            U.S. and internationally,\20\ including all communications and
            supporting documents related to the preparation of these plans,
            materials, and prices.
    ---------------------------------------------------------------------------
        \20\ Gilead Sciences., Inc., Form 10-Q for the quarterly period
    ended March 31, 2014, May 5, 2014, p. 29. Gilead's Selling, General,
    and Administrative expenses (SG&A) for the quarter ending March 31,
    2014, ``increased by $173.8 million or 46%, compared to the same period
    in 2013, due primarily to a $113.6 million increase in headcount and
    other expenses to support the ongoing growth and expansion of our
    business, which includes ongoing launches of Sovaldi in the United
    States and internationally as well as the anticipated launch of
    idelalisib.''
    ---------------------------------------------------------------------------
          a.  Looking forward, please describe how the commercial success
            of Sovaldi, as evidenced by first quarter sales, will affect
            marketing and pricing plans, including the cost of production,
            and future prices in the U.S. and internationally. If there
            will not be any effect, explain why.

      15.  Sovaldi is currently prescribed in combination with other
            medications, which increases the total cost per patient per
            course of treatment.\21\ Gilead has applied for approval to
            sell single-dose combinations of Sovaldi with other drugs.
    ---------------------------------------------------------------------------
        \21\ Supra at note 3.
    ---------------------------------------------------------------------------
          a.  If approval is granted for a single-dose combination drug,
            how will it affect the future price of Sovaldi?
          b.  Please provide copies of any pricing plans, marketing plans,
            or price estimates related to these pending combination drugs,
            and all supporting documents related to the plans and related
            forecasts.

      16.  Please provide copies of Gilead's estimates of the U.S.
            treatment cost-per-
            patient and U.S. cost-per-cure for each of the FDA's approved
            genotype-based treatment regimens for Sovaldi, including
            itemization of the cost of Sovaldi, the cost of combination
            drugs, and all supporting documents used in developing such
            estimates.

      17.  Looking forward, what are Gilead's expected changes in the
            treatment cost-per-patient and the cost-per-cure of Sovaldi-
            based treatment over the next five years for each of the FDA
            approval regimens for the U.S. HCV populations?

      18.  Oregon Health & Science University researchers reviewed
            treatment guidelines for Sovaldi jointly issued by several
            professional societies, concluding there is a ``substantial
            risk of conflict of interest influencing the recommendations
            from both individual panel members and funding sources.'' \22\
            The organizations' website shows 18 of the 27 panel members
            involved in developing the guidance for the American
            Association for the Study of Liver Disease (AASLD) and the
            Infectious Diseases Society of America (IDSA) disclosed either
            a direct financial relationship with Gilead or received
            institutional funding from the company.\23\ Both groups, and a
            third collaborating partner, the International Antiviral
            Society-USA (IAS-USA), have all received funding from
            Gilead.\24\
    ---------------------------------------------------------------------------
        \22\ Supra at note 4, p. 21.
        \23\ AASLD/IDSA, Recommendations for Testing, Managing, and
    Treating Hepatitis C, Disclosure Information, http://hcvguidelines.org/
    disclosure_information, accessed July 10, 2014.
        \24\ See AASLD 2012 Annual Report p. 29, http://www.aasld.org/
    aboutus/Documents/2012AnnualReport.pdf, accessed July 10, 2014; IDSA
    Industry relations, Grants and Contributions 2010-2014, http://
    www.idsociety.org/IDSA_Industry_Relations, accessed on July 10, 2014;
    IAS-USA Cases on the Web Grant Support, https://www.iasusa.org/cow-
    grant-support, accessed on July 10, 2014.
    ---------------------------------------------------------------------------
          a.  Please provide an itemized accounting of all payments from
            2009 to present between Gilead and/or Pharmasset and the
            following organizations:
             i. AASLD
             ii. IDSA
             iii. IAS-USA
          b.  Please provide an itemized accounting of all payments from
            2009 to present between Gilead and/or Pharrnasset and the
            expert panel members that developed the AASLD/IDSA treatment
            guidelines for HCV.\25\
    ---------------------------------------------------------------------------
        \25\ AASLD/IDSA, Recommendations for Testing, Managing, and
    Treating Hepatitis C, Disclosure Information, http://hcvguidelines.org/
    disclosure_information, accessed on July 10, 2014.
    ---------------------------------------------------------------------------
          c.  For each organization or individual identified in (a) or (b),
            provide:
             i. Date of payment
             ii. Payment description
             iii. Amount of payment
             iv.  Year-end or year-to-date payment total and cumulative
                total payments for each organization or individual
          d.  Describe any communications between employees of Gilead and
            the organizations and individuals identified in (a) and (b)
            regarding the AASLD/IDSA treatment guidelines for HCV. Please
            provide all supporting documents related to those
            communications.

      19.  Gilead's advertising and promotional expenses have increased
            from $116.6 million in 2011 to $216.2 million in 2013.\26\
    ---------------------------------------------------------------------------
        \26\ Supra at note 19, p. 96.
    ---------------------------------------------------------------------------
          a.  How much money does Gilead plan to spend on advertising and
            promotional expenses in 2014?
          b.  How much money does the company plan to spend on advertising
            and promotion of SovaIdi in 2014?
          c.  How much money did the company spend on advertising and
            promotion of Sovaldi prior to January 1, 2014?

      20.  Gilead has included Sovaldi in its patient assistance program ,
            which includes coupons for reducing the cost of patient co-
            pays.\27\ Gilead estimated that 30,000 patients were treated
            with Sovaldi during the first quarter of 2014: \28\
    ---------------------------------------------------------------------------
        \27\ Gilead, Support Path for Sovaldi, http://www.gilead.com/
    responsibility/us-patient-access/support%20path%20for%20sovaldi,
    accessed on July 10, 2014.
        \28\ Supra note at note 20. p. 27.
    ---------------------------------------------------------------------------
          a.  How many patients have been treated in the United States with
            Sovaldi to date?
          b.  How many patients in the United States have been assisted by
            Gilead's patient assistance program to date?
          c.  What percentage of patients does Gilead expect to be covered
            under this program?
          d.  What is the average outlay-per-patient in the patient
            assistance program?
          e.  What percentage of the patient's cost for Sovaldi will the
            payment assistance program cover for each of the FDA-approved
            treatment regimens?
          f.   What patients are eligible for this assistance? What
            patients are ineligible for this assistance?
          g.  There are a number of HCV-infected populations, such as those
            exposed through intravenous drug use, contaminated blood and
            those born to someone infected with the virus. Describe the
            patient populations expected to be covered by the Sovaldi
            patient assistance program.
          h.  How are the costs of this assistance accounted for within
            Gilead's financials, e.g. are they deducted as part of the
            company's Selling, General, and Administrative (SG&A) expenses?

      21.  Sovaldi is and will be sold in multiple countries, many of which
            are expected to receive significant discounts compared to the
            price in the U.S.
          a.  Please provide a list of all countries where Sovaldi is or
            will be sold, and the corresponding price or planned price for
            each country. Describe how the company reached the price for
            each country.
          b.  How are the revenue, costs and any discounts associated with
            international sales, such as Egypt, accounted for within
            Gilead's financials, e.g. are they deducted as part of the
            company's Selling, General, and Administrative (SG&A) expenses?

        Thank you in advance for your assistance in this matter. Please
    begin producing documents and information on a rolling basis no later
    than 14 days--and complete production no later than 60 days--after the
    receipt of this letter. Please contact our staff as soon as possible to
    discuss prioritizing the order in which responsive documents and
    information should be produced.

        Please direct any questions about this letter to David Berick,
    Chief Investigator, or Elizabeth Jurinka, Chief Health Policy Advisor
    for Chairman Wyden, and to Jason Foster, Chief Investigative Counsel,
    or Rodney Whitlock, Health Policy Director for Senator Grassley.

    Sincerely,

    Ron Wyden,
    Chairman                            Charles E. Grassley,
                                        Member

    =======================================================================

                                   Appendix A

    =======================================================================

                           State Data and Methodology

        To better quantify and qualify the financial impacts of Sovaldi and
    Harvoni on individual state Medicaid programs, investigative staff
    requested quantitative and qualitative data from all 50 states and the
    District of Columbia regarding a series of issues related to Hepatitis
    C virus (HCV) infections, pharmaceutical spending, interactions with
    Gilead Sciences, Inc., and the financial impact of Sovaldi and Harvoni
    on state Medicaid spending. State Medicaid programs were asked to
    provide:

        -  Total spending (pre-rebate) on Sovaldi and Harvoni in calendar
            year 2014 (CY 2014)
        - The number of prescriptions filled for Sovaldi and Harvoni during
            CY 2014
        -  The number of unique recipients who were dispensed Sovaldi and
            Harvoni during CY 2014
        - The top 25 drugs, in terms of aggregate spending, in CY 2014
        - The rank of Sovaldi and Harvoni in the state's pharmaceutical
            spending
        - The estimated number of enrollees infected with HCV
        - The estimated number of enrollees in each state's Medicaid
            program
        -  Whether the state signed a supplemental rebate agreement with
            Gilead in CY 2014

    What follows are descriptions of the data compiled by investigative
    staff.

        Supplemental Rebate

        State Medicaid programs were asked if the program agreed to a
            supplemental rebate with Gilead for Sovaldi during CY 2014.
            Federal law requires pharmaceutical manufacturers to return a
            rebate equal to either the difference between a drug's
            quarterly average manufacturer price (AMP) and the best price,
            or 23.1%, whichever is larger.\1\ In addition to these
            statutory requirements, companies can provide supplemental
            rebates to Medicaid programs. The supplemental rebates are
            typically used by companies as leverage to secure placement on
            states' preferred drug lists and increase market share.
    ---------------------------------------------------------------------------
        \1\ 42 U.S.C. Sec. 1396r-8(c)(1) (setting the basic rebate for
    single source drugs and innovator multiple source drugs).

        Forty-eight programs responded to this request, or were able to
            provide this information. The responses are noted in the column
            titled ``Supplemental Rebate for Sovaldi in CY 2014'' in Table
    ---------------------------------------------------------------------------
            1.

        HCV Enrollees in Medicaid

        State Medicaid programs were asked to provide information about the
            number of enrollees infected with HCV. Investigative staff
            believe these data are the most accurate available
            representation of the HCV prevalence within each program. The
            methods of data collection were not uniform; reports to
            investigative staff used varying levels of detail to describe
            how the data were collected. Investigative staff outlined these
            methods (where applicable) in notes detailing state-by-state
            data variations (see ``Data Variations by State'' after Table
            4). The data can be divided into three broad categories:
            diagnosed patients, population estimates, or hybrid figures
            based on a combination of diagnoses and estimates. In most
            cases, the figures were provided as a single number; in cases
            where there was a range, investigative staff used the lower
            bound, noting both the upper and lower estimates in the data
            variations.

        Forty-four programs responded to this request. The data can be
            found in the column titled ``HCV Enrollees in Medicaid'' in
            Table 1.

        Total Medicaid Population

        State Medicaid programs were asked to provide the program's
            enrollment. The data reflect enrollment estimates, average
            monthly enrollment, or total enrollment figures for CY 2014, a
            specific month or date, or other specified time periods. In
            some cases, programs reported separate fee-for-service (FFS)
            and managed care organization (MCO) population figures;
            investigative staff listed a single number for consistency and
            noted full descriptions in the data variations (see ``Data
            Variations by State'') when multiple numbers were submitted.

        Fifty programs responded to this request. The data can be found in
            the column titled ``Total Medicaid Enrollees'' in Table 1.

        Total Drug Spending Data

        State Medicaid programs were asked to provide a list of the top 25
            medications as ranked by total amount paid during CY 2014. The
            data do not reflect any required or supplemental rebates. For
            each medication, state programs were asked to provide (1) claim
            count, (2) wholesale acquisition cost (WAC), (3) drug quantity,
            (4) days of supply, and (5) the number of unique recipients. If
            Sovaldi did not fall within the top 25 medications by amount
            paid, state programs were asked to provide a separate line item
            with Sovaldi's rank and the above-
            requested information. Many state programs provided the same
            data for Harvoni and Olysio when they fell out of the list of
            top 25 medications.

        All programs responded to this request. Data highlighting total
            spending, rank by total spending, and the number of unique
            Medicaid recipients for Sovaldi, Harvoni and Olysio can be
            found in Tables 2, 3 and 4, respectively. The first three data
            columns for each table show figures specific to FFS programs;
            the next three columns show stand-alone data for MCO programs;
            the final three columns show combined FFS and MCO data in cases
            where states did not report separate data for each program.

        Individual state programs deliver Medicaid prescription drug
            benefits differently, which is reflected in the data. Twenty-
            eight states reported their total drug spending as all FFS; 13
            states reported separate spending data for FFS and MCO
            programs; other states provided a single top 25 list with
            combined FFS and MCO data. These differences are specified in
            each column, as well as in the data variations detailed in
            ``Data Variations by State.''

                             Table 1--Supplemental Rebates and HCV/Total Medicaid Enrollees
    ----------------------------------------------------------------------------------------------------------------
                                                                Supplemental
                                                                 Rebate for      HCV Enrollees in    Total Medicaid
                             State                             Sovaldi in CY        Medicaid         Enrollees
                                                                    2014
    ----------------------------------------------------------------------------------------------------------------
    Alabama................................................                No              6,200          1,031,000
    Alaska.................................................                No              1,200            130,000
    Arizona................................................                No             18,000          1,746,175
    Arkansas...............................................                No              1,381            902,378
    California.............................................                No            237,000         12,342,888
    Colorado...............................................                No              6,229          1,192,000
    Connecticut............................................                No             10,800            725,500
    Delaware...............................................                No              1,444            202,064
    District of Columbia...................................                No              5,461            247,201
    Florida................................................                No             17,230          3,429,343
    Georgia................................................               Yes              6,000          1,913,957
    Hawaii.................................................                No                  *            328,000
    Idaho..................................................                No                  *            274,541
    Illinois...............................................                No             15,520          3,000,000
    Indiana................................................                No              9,522          1,117,418
    Iowa...................................................                No              5,406            560,000
    Kansas.................................................                No                  *            422,576
    Kentucky...............................................                No             15,542          1,437,235
    Louisiana..............................................                 *                  *          1,292,942
    Maine..................................................               Yes              1,749            336,000
    Maryland...............................................                No             15,019          1,300,000
    Massachusetts..........................................                No             21,047          1,852,801
    Michigan...............................................                No             17,605          2,000,000
    Minnesota..............................................               Yes              5,600            939,902
    Mississippi............................................                No              1,711            703,015
    Missouri...............................................                No             13,000            947,250
    Montana................................................                No              2,930            167,621
    Nebraska...............................................                No                862            234,056
    Nevada.................................................                No              3,513            556,015
    New Hampshire..........................................                No              1,600            146,682
    New Jersey.............................................                No             19,919          1,675,640
    New Mexico.............................................                No              4,864            790,000
    New York...............................................                No             57,897          6,221,396
    North Carolina.........................................                No             19,246          1,840,215
    North Dakota...........................................                No                  *             81,000
    Ohio...................................................                No              6,500          2,936,891
    Oklahoma...............................................                No              6,416          1,025,312
    Oregon.................................................                No             10,898            999,496
    Pennsylvania...........................................                No             31,636          2,161,630
    Rhode Island...........................................                No              2,200            265,000
    South Carolina.........................................                No              4,000          1,200,000
    South Dakota...........................................                 *                  *            117,346
    Tennessee..............................................                No              9,772          1,360,000
    Texas..................................................                No             17,325          3,884,958
    Utah...................................................                No                  *                  *
    Vermont................................................               Yes              1,280            176,128
    Virginia...............................................                No             10,312          1,136,180
    Washington.............................................                No             23,310          1,535,509
    West Virginia..........................................                No             16,342            494,460
    Wisconsin..............................................                 *             14,800          1,200,000
    Wyoming................................................               Yes                700             85,000
    ----------------------------------------------------------------------------------------------------------------
    * Not available.
     State reported data vary by time period. For a full explanation, please see ``Data Variations by State''
      following Table 4 in Appendix A.

                                                                 Table 2--State Reported Medicaid Spending and Data for CY 2014--Sovaldi
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Sovaldi Rank--     Sovaldi Total       Sovaldi HCV
              State            Sovaldi Rank--FFS    Sovaldi Total      Sovaldi HCV     Sovaldi  Rank--     Sovaldi Total      Sovaldi HCV     Combined FFS/MCO      Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS         MCO           Spending--MCO    Recipients--MCO                      Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Alabama A                                 6        $11,903,250       151                         *                  *         *                         *                  *                  *
    Alaska A                                 50           $223,338         4                         *                  *         *                         *                  *                  *
    Arizona B                                 7           $313,031         4                         2        $23,891,674       259                         *                  *                  *
    Arkansas A                               15         $3,236,633        38                         *                  *         *                         *                  *                  *
    California B                             31        $21,866,410       280                         *                  *     1,359                         *                  *                  *
    Colorado A                                3         $8,537,340        93                         *                  *         *                         *                  *                  *
    Connecticut A                             1        $66,127,237       744                         *                  *         *                         *                  *                  *
    Delaware A                               20         $1,464,752        16                         *                  *         *                         *                  *                  *
    District of Columbia A                   32           $605,735         9                         *                  *         *                         *                  *                  *
    Florida D                                 2        $26,826,502       336                         2        $35,429,282       471                         2        $62,255,785                712
    Georgia A                                 1        $30,475,725       329                         *                  *         *                         *                  *                  *
    Hawaii E                                  *                  *         *                         1        $18,678,769       184                         *                  *                  *
    Idaho A                                  10         $1,739,667        18                         *                  *         *                         *                  *                  *
    Illinois A                                4        $18,819,196       208                         *                  *         *                         *                  *                  *
    Indiana C                                 *                  *         *                         *                  *         *                         2        $40,304,301                462
    Iowa A                                   53         $1,264,706        17                         *                  *         *                         *                  *                  *
    Kansas C                                  *                  *         *                         *                  *         *                         3        $11,316,299                137
    Kentucky D                               27           $515,424         6                         1        $47,322,123       506                         1        $47,837,547                511
    Louisiana B                               6         $5,645,304        67                         2         $5,419,841        60                         *                  *                  *
    Maine A                                   2         $6,943,323       133                         *                  *         *                         *                  *                  *
    Maryland B                              148           $472,145         9                         1        $29,321,884       348                         *                  *                  *
    Massachusetts B                           1        $41,471,082       492                         1        $52,038,369       549                         *                  *                  *
    Michigan A                              167           $800,482        16                         *                  *         *                         *                  *                  *
    Minnesota A                               1         $9,181,119       114                         *                  *       393                         *                  *                  *
    Mississippi D                            28         $1,951,548        23                         3         $5,715,467        66                        11         $7,667,015                 87
    Missouri A                                2        $32,988,645       359                         *                  *         *                         *                  *                  *
    Montana A                                 2         $3,721,163        39                         *                  *         *                         *                  *                  *
    Nebraska A                                6         $3,050,208        31                         *                  *         *                         *                  *                  *
    Nevada A                                  2        $11,882,983       126                         *                  *         *                         *                  *                  *
    New Hampshire A                          36            $84,677         1                         *                  *         *                         *                  *                  *
    New Jersey C                              *                  *         *                         *                  *         *                         1        $55,575,074                695
    New Mexico B                              6           $296,825         3                         1         $8,433,631       105                         *                  *                  *
    New York B                                1        $31,137,860       399                         1       $332,459,598     3,509                         *                  *                  *
    North Carolina A                          2        $38,952,473       473                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                           Table 2--State Reported Medicaid Spending and Data for CY 2014--Sovaldi--Continued
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Sovaldi Rank--     Sovaldi Total       Sovaldi HCV
              State            Sovaldi Rank--FFS    Sovaldi Total      Sovaldi HCV     Sovaldi  Rank--     Sovaldi Total      Sovaldi HCV     Combined FFS/MCO      Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS         MCO           Spending--MCO    Recipients--MCO                      Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    North Dakota B                            5           $562,542         9                         1         $2,081,450         *                         *                  *                  *
    Ohio B                                    2         $6,442,541       101                         5        $30,294,252       387                         *                  *                  *
    Oklahoma A                                1        $17,824,761       220                         *                  *         *                         *                  *                  *
    Oregon B                                 47           $558,280         9                         2        $10,003,701       135                         *                  *                  *
    Pennsylvania C                            *                  *         *                         *                  *         *                         2        $98,136,797              1,059
    Rhode Island B                           42            $84,010         2                         2         $5,383,450        60                         *                  *                  *
    South Carolina B                        250            $99,933         2                        13         $4,267,112        48                         *                  *                  *
    South Dakota A F                          5         $1,607,185        20                         *                  *         *                         *                  *                  *
    Tennessee A                               1        $29,015,258       321                         *                  *         *                         *                  *                  *
    Texas D                                   *                  *         *                       317         $1,145,688        13                       410         $1,145,688                 13
    Utah C                                    *                  *         *                         *                  *         *                         1         $5,583,957                 66
    Vermont A                                 2         $3,338,307        45                         *                  *         *                         *                  *                  *
    Virginia B                               18         $1,254,445        21                         7        $10,567,386       119                         *                  *                  *
    Washington A                              9         $2,143,021        31                         *                  *         *                         *                  *                  *
    West Virginia A                          32         $1,413,795        19                         *                  *         *                         *                  *                  *
    Wisconsin A                              54         $3,073,300        38                         *                  *         *                         *                  *                  *
    Wyoming A                                 2         $1,147,913        13                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    A State reported total drug spending data through its FFS program.
    B State reported separate total drug spending data for the FFS and MCO programs.
    C State reported combined total drug spending data for the FFS and MCO programs.
    D State reported combined total drug spending data for the FFS and MCO programs, as well as separate FFS and MCO total drug spending.
    E Hawaii reported combined total drug spending data for the FFS and MCO programs, but given Hawaii's Medicaid program is less than 1% FFS, the data is noted as MCO for our purposes (there was
      one unique recipient for Sovaldi in the FFS program).
    F South Dakota reported a duplicated patient count for Sovaldi recipients.
    * Not available or not applicable.

                                                                 Table 3--State Reported Medicaid Spending and Data for CY 2014--Harvoni
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Harvoni Rank--     Harvoni Total       Harvoni HCV
              State            Harvoni Rank--FFS    Harvoni Total      Harvoni HCV     Harvoni  Rank--     Harvoni Total      Harvoni HCV     Combined FFS/MCO      Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS         MCO           Spending--MCO    Recipients--MCO                      Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Alabama A                                 *           $756,162        24                         *                  *         *                         *                  *                  *
    Alaska A                                385            $31,812         1                         *                  *         *                         *                  *                  *
    Arizona B                                 *            $46,566         1                         *            $63,507         2                         *                  *                  *
    Arkansas A                                *                  *         *                         *                  *         *                         *                  *                  *
    California B                            164         $2,882,089        57                         *                  *       101                         *                  *                  *
    Colorado A                                *                  *         *                         *                  *         *                         *                  *                  *
    Connecticut A                             4        $16,724,290       319                         *                  *         *                         *                  *                  *
    Delaware A                              494            $61,250         2                         *                  *         *                         *                  *                  *
    District of Columbia A                    *                  *         *                         *                  *         *                         *                  *                  *
    Florida D                               888           $127,905         3                       142         $1,439,135        36                       236         $1,567,040                 39
    Georgia A                                15         $7,575,827       125                         *                  *         *                         *                  *                  *
    Hawaii E                                  *                  *         *                        30         $1,118,087        22                         *                  *                  *
    Idaho A                                 239           $118,169         3                         *                  *         *                         *                  *                  *
    Illinois A                              549           $188,987         8                         *                  *         *                         *                  *                  *
    Indiana C                                 *                  *         *                         *                  *         *                        23         $4,412,692                 74
    Iowa A                                  440           $162,876         3                         *                  *         *                         *                  *                  *
    Kansas C                                  *                  *         *                         *                  *         *                        26         $2,128,971                 49
    Kentucky D                                *                  *         *                        27         $5,871,678        92                        29         $5,871,678                 92
    Louisiana B                              38         $2,047,978        44                     1,070            $32,128         1                         *                  *                  *
    Maine A                                   *           $158,796        15                         *                  *         *                         *                  *                  *
    Maryland B                              155           $445,055        10                         8         $7,209,942       144                         *                  *                  *
    Massachusetts B                           4        $12,252,727       243                         *                  *         *                         *                  *                  *
    Michigan A                                *                  *         *                         *                  *         *                         *                  *                  *
    Minnesota A                               *                  *         *                         *                  *         *                         *                  *                  *
    Mississippi D                           250            $99,795         2                       131           $299,384         6                       185           $399,179                  8
    Missouri A                                *                  *         *                         *                  *         *                         *                  *                  *
    Montana A                                59           $321,285       280                         *                  *         *                         *                  *                  *
    Nebraska A                              144           $403,704         7                         *                  *         *                         *                  *                  *
    Nevada A                                 11         $2,763,618        55                         *                  *         *                         *                  *                  *
    New Hampshire A                           *                  *         *                         *                  *         *                         *                  *                  *
    New Jersey C                              *                  *         *                         *                  *         *                        24         $6,983,022                159
    New Mexico B                            111            $33,393         1                        40           $974,977        22                         *                  *                  *
    New York B                                *                  *         *                        22        $32,362,005       581                         *                  *                  *
    North Carolina A                          *                  *         *                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                           Table 3--State Reported Medicaid Spending and Data for CY 2014--Harvoni--Continued
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Harvoni Rank--     Harvoni Total       Harvoni HCV
              State            Harvoni Rank--FFS    Harvoni Total      Harvoni HCV     Harvoni  Rank--     Harvoni Total      Harvoni HCV     Combined FFS/MCO      Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS         MCO           Spending--MCO    Recipients--MCO                      Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    North Dakota B                            *                  *         *                         2           $901,124         *                         *                  *                  *
    Ohio B                                    *                  *         *                       627           $457,585        11                         *                  *                  *
    Oklahoma A                                *                  *         *                         *                  *         *                         *                  *                  *
    Oregon B                                131           $126,039         1                        55         $1,103,510        23                         *                  *                  *
    Pennsylvania C                            *                  *         *                         *                  *         *                       112         $2,962,739                 66
    Rhode Island B                            *                  *         *                         *                  *         *                         *                  *                  *
    South Carolina B                        220           $124,509         4                       352           $159,131         4                         *                  *                  *
    South Dakota A F                          *            $65,774         1                         *                  *         *                         *                  *                  *
    Tennessee A                             172         $1,046,544        21                         *                  *         *                         *                  *                  *
    Texas D                                   *                  *         *                         *                  *         *                         *                  *                  *
    Utah C                                    *                  *         *                         *                  *         *                         *         $1,073,705                 20
    Vermont A                               204           $126,240         2                         *                  *         *                         *                  *                  *
    Virginia B                              180           $133,606         3                       268           $458,679         8                         *                  *                  *
    Washington A                              *                  *         *                         *                  *         *                         *                  *                  *
    West Virginia A                         270           $224,919         5                         *                  *         *                         *                  *                  *
    Wisconsin A                               *                  *         *                         *                  *         *                         *                  *                  *
    Wyoming A                                 *                  *         *                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    A State reported total drug spending data through its FFS program.
    B State reported separate total drug spending data for the FFS and MCO programs.
    C State reported combined total drug spending data for the FFS and MCO programs.
    D State reported combined total drug spending data for the FFS and MCO programs, as well as separate FFS and MCO total drug spending.
    E Hawaii reported combined total drug spending data for the FFS and MCO programs, but given Hawaii's Medicaid program is less than 1% FFS, the data is noted as MCO for our purposes (there was
      one unique recipient for Sovaldi in the FFS program).
    F South Dakota reported a duplicated patient count for Sovaldi recipients.
    * Not available or not applicable.

                                                                 Table 4--State Reported Medicaid Spending and Data for CY 2014--Olysio
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                   Olysio Total        Olysio HCV
              State             Olysio Rank--FFS     Olysio Total       Olysio HCV     Olysio Rank--MCO     Olysio Total       Olysio HCV      Olysio Rank--        Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS                       Spending--MCO    Recipients--MCO   Combined FFS/MCO   Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Alabama A                                 *                  *         *                         *                  *         *                         *                  *                  *
    Alaska A                                  *                  *         *                         *                  *         *                         *                  *                  *
    Arizona B                                 *                  *         *                         *                  *         *                         *                  *                  *
    Arkansas A                              225           $342,455         5                         *                  *         *                         *                  *                  *
    California B                              *                  *         *                         *                  *         *                         *                  *                  *
    Colorado A                                *                  *         *                         *                  *         *                         *                  *                  *
    Connecticut A                             6        $14,407,876       221                         *                  *         *                         *                  *                  *
    Delaware A                                *                  *         *                         *                  *         *                         *                  *                  *
    District of Columbia A                    *                  *         *                         *                  *         *                         *                  *                  *
    Florida D                                35         $5,166,141        91                        32         $5,988,711       109                        32        $11,154,852                185
    Georgia A                                18         $6,175,803        97                         *                  *         *                         *                  *                  *
    Hawaii E                                  *                  *         *                         4         $4,615,489        69                         *                  *                  *
    Idaho A                                   *                  *         *                         *                  *         *                         *                  *                  *
    Illinois A                                *                  *         *                         *                  *         *                         *                  *                  *
    Indiana C                                 *                  *         *                         *                  *         *                        16         $9,299,691                155
    Iowa A                                    *                  *         *                         *                  *         *                         *                  *                  *
    Kansas C                                  *                  *         *                         *                  *         *                         *                  *                  *
    Kentucky D                                *                  *         *                        34         $4,990,572        79                        41         $4,990,572                 79
    Louisiana B                               *                  *         *                         *                  *         *                         *                  *                  *
    Maine A                                   *                  *         *                         *                  *         *                         *                  *                  *
    Maryland B                                *                  *         *                        17         $3,911,975        61                         *                  *                  *
    Massachusetts B                           8         $7,079,983       122                         9         $7,491,262       117                         *                  *                  *
    Michigan A                                *                  *         *                         *                  *         *                         *                  *                  *
    Minnesota A                               *                  *         *                         *                  *         *                         *                  *                  *
    Mississippi D                             *                  *         *                         *                  *         *                         *                  *                  *
    Missouri A                                *                  *         *                         *                  *         *                         *                  *                  *
    Montana A                               641            $22,561        28                         *                  *         *                         *                  *                  *
    Nebraska A                                *                  *         *                         *                  *         *                         *                  *                  *
    Nevada A                                  *                  *         *                         *                  *         *                         *                  *                  *
    New Hampshire A                           *                  *         *                         *                  *         *                         *                  *                  *
    New Jersey C                              *                  *         *                         *                  *         *                        22         $7,304,069                138
    New Mexico B                              *                  *         *                         *                  *         *                         *                  *                  *
    New York B                                *                  *         *                        15        $42,514,707       669                         *                  *                  *
    North Carolina A                          *                  *         *                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                            Table 4--State Reported Medicaid Spending and Data for CY 2014--Olysio--Continued
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                   Olysio Total        Olysio HCV
              State             Olysio Rank--FFS     Olysio Total       Olysio HCV     Olysio Rank--MCO     Olysio Total       Olysio HCV      Olysio Rank--        Spending--        Recipients--
                                                    Spending--FFS    Recipients--FFS                       Spending--MCO    Recipients--MCO   Combined FFS/MCO   Combined FFS/MCO   Combined FFS/MCO
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    North Dakota B                            *                  *         *                        13           $138,173         *                         *                  *                  *
    Ohio B                                    *                  *         *                         *                  *         *                         *                  *                  *
    Oklahoma A                                *                  *         *                         *                  *         *                         *                  *                  *
    Oregon B                              2,349                $30         1                        48         $1,302,597        23                         *                  *                  *
    Pennsylvania C                            *                  *         *                         *                  *         *                        24        $15,555,728                248
    Rhode Island B                            *                  *         *                         *                  *         *                         *                  *                  *
    South Carolina B                          *                  *         *                       146           $520,477         8                         *                  *                  *
    South Dakota A F                          *                  *         *                         *                  *         *                         *                  *                  *
    Tennessee A                               *                  *         *                         *                  *         *                         *                  *                  *
    Texas D                                   *                  *         *                     1,548           $136,186         2                     1,853           $136,186                  2
    Utah C                                    *                  *         *                         *                  *         *                        25         $1,121,245                 18
    Vermont A                                32           $819,966        12                         *                  *         *                         *                  *                  *
    Virginia B                              156           $155,985         4                       118         $1,204,435        19                         *                  *                  *
    Washington A                              *                  *         *                         *                  *         *                         *                  *                  *
    West Virginia A                           *                  *         *                         *                  *         *                         *                  *                  *
    Wisconsin A                               *                  *         *                         *                  *         *                         *                  *                  *
    Wyoming A                                 *                  *         *                         *                  *         *                         *                  *                  *
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    A State reported total drug spending data through its FFS program.
    B State reported separate total drug spending data for the FFS and MCO programs.
    C State reported combined total drug spending data for the FFS and MCO programs.
    D State reported combined total drug spending data for the FFS and MCO programs, as well as separate FFS and MCO total drug spending.
    E Hawaii reported combined total drug spending data for the FFS and MCO programs, but given Hawaii's Medicaid program is less than 1% FFS, the data is noted as MCO for our purposes (there was
      one unique recipient for Sovaldi in the FFS program).
    F South Dakota reported a duplicated patient count for Sovaldi recipients.
    * Not available or not applicable.

                            Data Variations by State

                                    Acronyms

    FFS: fee-for-service

    MCO: managed care organization

    CY: calendar year (Calendar Year 2014 = January 1, 2014-December 31,
    2014)

    FFY: federal fiscal year (Fiscal Year 2014 = October 1, 2013-September
    30, 2014)

    SFY: state fiscal year (State Fiscal Year 2014 = July 1, 2013-June 30,
    2014, unless otherwise noted)

    HCV: Hepatitis C virus

    ICD-9: International Classification of Diseases (ICD), maintained by
    the World Health Organization. ICD-9 refers to the ninth revision of
    these codes.

                                    Alabama

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Average monthly enrollment during CY 2014;
    HCV Enrollees in Medicaid: Enrollees with a claim indicating HCV
    diagnosis codes during the period July 2013-December 2014.

                                     Alaska

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Total enrollees during CY 2014 (none enrolled in
    managed care);
    HCV Enrollees in Medicaid: Estimate of enrollees infected with
    Hepatitis C based on available claims data.

                                    Arizona

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014 (Harvoni rank not available because Harvoni was not
    released until the fourth quarter of 2014);
    Medicaid Population: Enrollment during July 2015 (excluding the
    Medicare Savings Program and emergency services populations, 92.7% of
    the Arizona Health Care Cost Containment System (AHCCCS) population is
    enrolled in MCO's and 7.3% is in FFS);
    HCV Enrollees in Medicaid: Enrollees identified in the AHCCCS who have
    a claim or encounter with an HCV diagnosis attached to that claim or
    encounter.

                                    Arkansas

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Number of Medicaid beneficiaries during SFY 2014
    (July 1, 2013-June 30, 2014);
    HCV Enrollees in Medicaid: Estimated enrollees with a diagnosis code
    (Acute HCV, Chronic HCV, and Unspecified HCV) in medical claims history
    during January 1, 2013-January 23, 2015.

                                   California

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014 (unable to provide total spending and rank data for
    MCO population);
    Medicaid Population: Enrollment during March 2015;
    HCV Enrollees in Medicaid: Estimate of enrollees based on a 3% HCV
    prevalence of Medi-Cal adults.

                                    Colorado

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Estimates for both FFS and MCO populations
    combined;
    HCV Enrollees in Medicaid: Enrollees identified from claims and
    diagnosis codes during April 2014.

                                  Connecticut

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Total enrollment for June 2014;
    HCV Enrollees in Medicaid: Enrollees with HCV as primary diagnosis
    during July 2015.

                                    Delaware

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Total enrollment for June 2014;
    HCV Enrollees in Medicaid: Enrollees with an HCV diagnosis in their
    active profile between May 1, 2014 and April 30, 2015.

                              District of Columbia

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollment estimates for both FFS and MCO
    populations combined (Time period: January 1, 2014-April 30, 2015);
    HCV Enrollees in Medicaid: Estimate of enrollees with an HCV diagnosis
    during July 2015 (Additional estimate: 11,000 enrollees may be amenable
    to treatment).

                                    Florida

    Spending: Reported total drug spending data are combined FFS and MCO
    data, as well as separate FFS and MCO data, for CY 2014;
    Medicaid Population: Total enrollment on January 31, 2014;
    HCV Enrollees in Medicaid: Enrollees with at least one HCV diagnosis
    record between January 1, 2014 and December 31, 2014.

                                    Georgia

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollment for December 2014 reflects total
    enrollee count eligible for Medicaid and PeachCare;
    HCV Enrollees in Medicaid: Estimated enrollees in the FFS population
    with HCV.

                                     Hawaii

    Spending: Hawaii reported combined FFS and MCO data, but given Hawaii's
    Medicaid program is less than 1% FFS, the data are noted as MCO for our
    purposes (in CY 2014, there was one unique recipient for Sovaldi in the
    FFS program);
    Medicaid Population: Estimate based on December 2014 enrollment
    statistics;
    HCV Enrollees in Medicaid: No data provided.

                                     Idaho

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollees during CY 2014;
    HCV Enrollees in Medicaid: Estimate not provided.

                                    Illinois

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Projected Medicaid enrollment for SFY 2015 (July
    1, 2014-June 30, 2015), with approximately 1.2 million enrolled in an
    MCO and 1.8 million in FFS;
    HCV Enrollees in Medicaid: Estimated number of enrollees with HCV based
    on diagnoses submitted on medical claims during SFY 2014 (July 1, 2013-
    June 30, 2014).

                                    Indiana

    Spending: Reported total drug spending data are combined FFS and MCO
    data for CY 2014 (All Indiana Medicaid enrollees received pharmacy
    benefits through FFS program);
    Medicaid Population: Total enrollment for December 2014 (68.9% Managed
    Care/31.1% FFS);
    HCV Enrollees in Medicaid: Enrollees with an HCV diagnosis in 2014.

                                      Iowa

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Estimate for February 2015;
    HCV Enrollees in Medicaid: Estimate of enrollees.

                                     Kansas

    Spending: Reported total drug spending data are combined FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment during December 2014 (399,968
    enrolled in an MCO);
    HCV Enrollees in Medicaid: No data provided.

                                    Kentucky

    Spending: Reported total drug spending data are combined FFS and MCO
    data, as well as separate FFS and MCO data, for CY 2014;
    Medicaid Population: Total combined enrollment for CY 2014 (FFS:
    179,031, MCO: 1,301,166);
    HCV Enrollees in Medicaid: Enrollees identified with HCV from medical
    claims with an adjudication date of August 17, 2015 (Dates of service:
    January 1, 2014-December 31, 2014).

                                   Louisiana

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment on January 6, 2015;
    HCV Enrollees in Medicaid: No data provided.

                                     Maine

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollees during CY 2014 based on a January 29,
    2015 analysis;
    HCV Enrollees in Medicaid: Enrollees identified in Medicaid following
    an analysis of medical claims with an HCV diagnosis during CY 2014.

                                    Maryland

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Estimate for SFY 2015 (July 1, 2014-June 30,
    2015);
    HCV Enrollees in Medicaid: Estimated enrollees with an HCV diagnosis.

                                 Massachusetts

    Spending: Reported total drug spending data are separate FFS/Primary
    Care Clinician (PCC) Plan and MCO data for CY 2014 (Not all MCO's
    reported complete data for December 2014);
    Medicaid Population: Total enrollment for CY 2014 (1,037,108
    unduplicated FFS/PCC members; 815,693 unduplicated MCO members);
    HCV Enrollees in Medicaid: Estimated enrollees (MCO and FFS) with
    relevant diagnosis codes in their claims data; the 21,047 figure is
    based on the low end range estimates for the MCO (9,161-9,319) and FFS
    (11,886-12,471) populations.

                                   Michigan:

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Estimate of enrollees during CY 2014 (75% are
    typically enrolled in an MCO and approximately 600,000 are in the FFS
    program during CY 2014);
    HCV Enrollees in Medicaid: Enrollees having at least one Medicaid claim
    or encounter in Michigan's data warehouse with one of the following
    ICD-9 codes in
    FY 2014 (070.44 Chronic hepatitis C with hepatic coma, 070.54 Chronic
    hepatitis C without mention of hepatic coma, 070.70 Unspecified viral
    hepatitis C without coma, 070.71 Unspecified viral hepatitis C with
    coma).

                                   Minnesota

    Spending: Reported total drug spending data are FFS for CY 2014 (MCO
    reported data include MinnesotaCare enrollees);
    Medicaid Population: Combined average monthly enrollment during CY 2014
    for Medicaid enrollees (838,256) and MinnesotaCare (101,646);
    HCV Enrollees in Medicaid: Estimate of enrollees with HCV during
    September 2014 (approximately 1,300 in FFS).

                                  Mississippi

    Spending: Reported total drug spending data are combined FFS and MCO
    data, as well as separate FFS and MCO data, for CY 2014;
    Medicaid Population: Average monthly total enrollment for CY 2014;
    HCV Enrollees in Medicaid: Total enrollees having HCV during December
    2014 based on paid medical claims containing any ICD-9 code for HCV
    (Time period: January 1, 2013-December 31, 2014).

                                    Missouri

    Spending: Reported total drug spending data are FFS for CY 2014
    (Pharmacy benefit carved out, meaning all MCO and FFS enrollees are
    covered through the FFS program);
    Medicaid Population: Average monthly enrollment for October 2015;
    HCV Enrollees in Medicaid: Estimated enrollees with a diagnosis of HCV
    in their claims history on October 2, 2014.

                                    Montana

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Total enrollees during CY 2014;
    HCV Enrollees in Medicaid: Total enrollees with claims containing HCV
    diagnosis codes (070.41-070.49) with eligibility in June and July 2015.

                                    Nebraska

    Spending: Reported total drug spending data are FFS for CY 2014 (all
    outpatient prescription medications covered by FFS);
    Medicaid Population: Total average monthly enrollment during 2014;
    HCV Enrollees in Medicaid: Enrollees as of July 6, 2014, based on
    diagnoses submitted on medical claims for the following ICD-9 diagnosis
    codes (070.41, 070.44, 070.51, 070.54, 070.70, 070.71) during FFY 2013
    among FFS clients.

                                     Nevada

    Spending: Reported total drug spending data are FFS for CY 2014 (70% of
    Medicaid recipients are in MCOs);
    Medicaid Population: Total enrollment for December 2014;
    HCV Enrollees in Medicaid: Enrollees diagnosed with HCV during CY 2014.

                                 New Hampshire

    Spending: Reported total drug spending data are FFS for CY 2014
    (Sovaldi carved out of MCO and paid on FFS basis for CY 2014);
    Medicaid Population: Average enrollment for those with full Medicaid
    benefits in CY 2014;
    HCV Enrollees in Medicaid: Estimate of enrollees with an ICD-9
    diagnosis in CY 2013.

                                   New Jersey

    Spending: Reported total drug spending data are combined FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment on December 31, 2014;
    HCV Enrollees in Medicaid: Enrollees diagnosed between July 1, 2012-
    December 31, 2014.

                                   New Mexico

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Estimate of total enrollees during CY 2014;
    HCV Enrollees in Medicaid: Estimate of enrollees with HCV.

                                    New York

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment for March 2015;
    HCV Enrollees in Medicaid: Estimated enrollees with a diagnosis of
    chronic HCV as identified by ICD-9 codes (data extracted by SUNY
    Buffalo on June 3, 2014 with service dates December 13, 2013-April 30,
    2014).

                                 North Carolina

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollment during March 2015;
    HCV Enrollees in Medicaid: Enrollees diagnosed with HCV according to
    medical claims from July 1, 2013-July 28, 2015 (7,350 or 38.2% are
    dually eligible for both Medicaid and Medicare; 11,896 patients are
    eligible for Medicaid only).

                                  North Dakota

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: CY 2014 enrollment estimate including the FFS
    (65,000) and MCO (16,000) populations;
    HCV Enrollees in Medicaid: No data provided.

                                      Ohio

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment for December 2014;
    HCV Enrollees in Medicaid: Estimate of Medicaid patients infected with
    HCV.

                                    Oklahoma

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Total enrollment during CY 2014;
    HCV Enrollees in Medicaid: Estimated enrollees with a diagnosis of HCV
    during SFY 2014 (July 1, 2013-June 30, 2014).

                                     Oregon

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment on December 15, 2014;
    HCV Enrollees in Medicaid: Current enrollees (as of September 2014)
    with a chronic HCV-related diagnosis code (January 2010-September
    2014).

                                  Pennsylvania

    Spending: Reported total drug spending data are combined FFS and MCO
    data for CY 2014 (FFS: 29%, MCO: 72% during CY 2014);
    Medicaid Population: Current enrollees on July 2015, including those
    dually eligible for Medicare and Medicaid;
    HCV Enrollees in Medicaid: Estimate based on a 2014 University of
    Pittsburgh study estimating 46,397 non-dual eligible enrollees in
    Pennsylvania infected with HCV. Based on this model, 31,636, or 68%,
    have not been successfully treated.

                                  Rhode Island

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014 (approximately 6% of enrollees in FFS);
    Medicaid Population: Average monthly enrollment during CY 2014;
    HCV Enrollees in Medicaid: Estimate based on an average of total
    enrollees served in CY 2014, multiplied by a mid-range of incidence/
    prevalence information for HCV, and adjusted for adult population range
    (adjusted further if based on policy of treating Stage 3 and 4 disease
    only).

                                 South Carolina

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment on July 1, 2015 (63% in one of
    six MCO plans);
    HCV Enrollees in Medicaid: Number of enrollees with an ICD-9 diagnosis
    of HCV in their medical claims history.

                                  South Dakota

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Average monthly enrollment during SFY 2015 (July
    1, 2014-June 30, 2015);
    HCV Enrollees in Medicaid: No data provided.

                                   Tennessee

    Spending: Reported total drug spending data are FFS for CY 2014
    (Tennessee is a 100% managed care state, though pharmacy services are
    delivered through an administrative services only contract with a
    Pharmacy Benefit Manager, generally considered FFS);
    Medicaid Population: Estimate of total CY 2014 enrollment (including
    dual-eligibles);
    HCV Enrollees in Medicaid: Estimate for CY 2014.

                                     Texas

    Spending: Reported total drug spending data are combined FFS and MCO
    data, as well as separate FFS and MCO data, for CY 2014 (rank by total
    spending is the only difference between MCO and combined FFS and MCO
    data; Sovaldi, Harvoni and Olysio not in FFS);
    Medicaid Population: Average monthly enrollees during CY 2014 (includes
    all full-benefit Medicaid clients);
    HCV Enrollees in Medicaid: Enrollees with an HCV diagnosis code in the
    first 10 diagnosis code fields during SFY 2013 (September 1, 2012-
    August 31, 2013) claims/encounters data.

                                      Utah

    Spending: Reported total drug spending data are combined FFS and MCO
    data for CY 2014;
    Medicaid Population: No data provided;
    HCV Enrollees in Medicaid: No data provided.

                                    Vermont

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollment during December 2014;
    HCV Enrollees in Medicaid: Estimate of treatable enrollees with Chronic
    Hepatitis C (CHC), according to a model based on a 1.6% prevalence
    among the adult Medicaid population.

                                    Virginia

    Spending: Reported total drug spending data are separate FFS and MCO
    data for CY 2014;
    Medicaid Population: Total enrollment on December 31, 2014;
    HCV Enrollees in Medicaid: Enrollees during December 2014 with any
    diagnosis for HCV based on all available claims (January 2005-December
    2014).

                                   Washington

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: Enrollment during December 2014, of which 234,518
    enrolled in FFS and 1,300,992 enrolled in an MCO (approximately 15% FFS
    and 85% MCO);
    HCV Enrollees in Medicaid: CY 2014 estimate based on enrollee
    demographics and CDC published estimates of HCV prevalence data.

                                 West Virginia

    Spending: Reported total drug spending data are FFS for CY 2014;
    Medicaid Population: January 31, 2015 total enrollment figures for both
    FFS (291,846) and MCO (202,614) populations;
    HCV Enrollees in Medicaid: Enrollees diagnosed with HCV in the FFS
    program based on a January 31, 2015 analysis.

                                   Wisconsin

    Spending: Reported total drug spending data are FFS in CY 2014
    (Wisconsin carves out the pharmacy benefit from managed care; 69%
    enrolled in a managed care plan);
    Medicaid Population: Estimated enrollment during December 2014;
    HCV Enrollees in Medicaid: Estimate for Wisconsin enrollees with HCV.

                                    Wyoming

    Spending: Reported total drug spending data are FFS for CY 2014
    (Wyoming is 100% FFS);
    Medicaid Population: Estimate of annual enrollment during SFY 2014
    (July 1, 2013-June 30, 2014);
    HCV Enrollees in Medicaid: Enrollees with a diagnosis of HCV from a
    January 2014 query.

    =======================================================================

                                   Appendix B

    =======================================================================

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                                   Appendix C

    =======================================================================

                                 Monthly Part D Spending on Hepatitis C Drugs Since 2014
    ----------------------------------------------------------------------------------------------------------------
                                            Non-Gilead HCV
                    Month                        Drugs              SOVALDI           HARVONI         Grand Total
    ----------------------------------------------------------------------------------------------------------------
    Jan-14..............................        $28,442,376         $87,971,156   ..............       $116,413,532
    ----------------------------------------------------------------------------------------------------------------
    Feb-14..............................        $43,853,177        $172,286,950   ..............       $216,140,127
    ----------------------------------------------------------------------------------------------------------------
    Mar-14..............................        $76,366,244        $279,584,516   ..............       $355,950,760
    ----------------------------------------------------------------------------------------------------------------
    Apr-14..............................       $100,038,835        $335,657,011   ..............       $435,695,845
    ----------------------------------------------------------------------------------------------------------------
    May-14..............................       $117,118,858        $374,015,256   ..............       $491,134,114
    ----------------------------------------------------------------------------------------------------------------
    Jun-14..............................       $119,223,080        $362,401,672   ..............       $481,624,753
    ----------------------------------------------------------------------------------------------------------------
    Jul-14..............................       $123,297,596        $357,824,949   ..............       $481,122,544
    ----------------------------------------------------------------------------------------------------------------
    Aug-14..............................       $109,346,905        $307,513,498   ..............       $416,860,404
    ----------------------------------------------------------------------------------------------------------------
    Sep-14..............................        $98,500,726        $274,536,702   ..............       $373,037,428
    ----------------------------------------------------------------------------------------------------------------
    Oct-14..............................        $84,139,502        $243,317,636   $52,627,766          $380,084,904
    ----------------------------------------------------------------------------------------------------------------
    Nov-14..............................        $50,040,416        $160,278,599   $211,035,968         $421,354,984
    ----------------------------------------------------------------------------------------------------------------
    Dec-14..............................        $41,520,872        $151,573,035   $436,228,838         $629,322,745
    ----------------------------------------------------------------------------------------------------------------
    Jan-15..............................        $31,306,240        $111,180,236   $484,972,311         $627,458,787
    ----------------------------------------------------------------------------------------------------------------
    Feb-15..............................        $33,999,630        $108,632,947   $552,282,193         $694,914,770
    ----------------------------------------------------------------------------------------------------------------
    Mar-15..............................        $39,714,722        $121,356,036   $702,916,231         $863,986,988
    ----------------------------------------------------------------------------------------------------------------
    Apr-15..............................        $36,506,518        $114,514,855   $686,400,733         $837,422,106
    ----------------------------------------------------------------------------------------------------------------
    May-15..............................        $31,753,078        $104,467,097   $636,896,854         $773,117,030
    ----------------------------------------------------------------------------------------------------------------
    Jun-15..............................        $30,554,998        $109,482,553   $653,142,640         $793,180,191
    ----------------------------------------------------------------------------------------------------------------
    Grand Total.........................     $1,195,723,772      $3,776,594,704   $4,416,503,535     $9,388,822,010
    ----------------------------------------------------------------------------------------------------------------
    Source: CMS Chronic Conditions Warehouse, http://ccwdata.org.
    Note: Spending data are prior to rebates.

                       CY2013 Part D Spending on HCV Drugs
    ------------------------------------------------------------------------
              Drug Name                             Spending
    ------------------------------------------------------------------------
    INCIVEK......................                              $177,000,000
    ------------------------------------------------------------------------
    INTERFERON...................                              $138,000,000
    ------------------------------------------------------------------------
    VICTRELIS....................                               $45,000,000
    ------------------------------------------------------------------------
    RIBAVIRIN....................                               $18,000,000
    ------------------------------------------------------------------------
    SOVALDI......................                               $14,000,000
    ------------------------------------------------------------------------
    OLYSIO.......................                                $2,000,000
    ------------------------------------------------------------------------
    Grand Total..................                              $394,000,000
    ------------------------------------------------------------------------
    Source: Centers for Medicare & Medicaid Services, Office of Enterprise
      Data and Analytics.
    Notes: Spending data are prior to rebates; Olysio was approved by the
      FDA on November 22, 2013; Sovaldi was approved by the FDA on December
      6, 2013.

                       CY2014 Part D Spending on HCV Drugs
    ------------------------------------------------------------------------
              Drug Name                             Spending
    ------------------------------------------------------------------------
    SOVALDI......................                            $3,106,960,981
    ------------------------------------------------------------------------
    OLYSIO.......................                              $833,253,319
    ------------------------------------------------------------------------
    HARVONI......................                              $699,892,572
    ------------------------------------------------------------------------
    Other........................                              $158,635,267
    ------------------------------------------------------------------------
    Grand Total..................                            $4,798,742,139
    ------------------------------------------------------------------------
    Source: CMS Chronic Conditions Warehouse, http://ccwdata.org.
    Notes: Spending data are prior to rebates; Harvoni was approved by the
      FDA on October 10, 2014; ``Other'' includes Copegus, Pegasys, Pegasys
      Proclick, Moderiba, Intron-A w Diluent, Victrelis, Intron-A, Rebetol,
      Rebetron, Peg-Intron, Sylatron, Peg-Intron Redipen, Ribavirin,
      Virazole, Infergen, Ribatab, Ribapak, Ribasphere, Incivek, Ribasphere,
      and Ribapak.

                  CY2015 Part D HCV Spending (Through June 30)
    ------------------------------------------------------------------------
              Drug Name                             Spending
    ------------------------------------------------------------------------
    HARVONI......................                            $3,716,610,962
    ------------------------------------------------------------------------
    SOVALDI......................                              $669,633,723
    ------------------------------------------------------------------------
    VIEKIRA PAK..................                               $93,767,208
    ------------------------------------------------------------------------
    OLYSIO.......................                               $88,907,976
    ------------------------------------------------------------------------
    Other........................                               $21,160,002
    ------------------------------------------------------------------------
    Grand Total..................                            $4,590,079,872
    ------------------------------------------------------------------------
    Source: CMS Chronic Conditions Warehouse, http://ccwdata.org.
    Notes: Spending data are prior to rebates; ``Other'' includes Copegus,
      Pegasys, Pegasys Proclick, Moderiba, Intron-A w Diluent, Victrelis,
      Intron-A, Rebetol, Rebetron, Peg-Intron, Sylatron, Peg-Intron Redipen,
      Ribavirin, Virazole, Infergen, Ribatab, Ribapak, Ribasphere, Incivek,
      Ribasphere, and Ribapak.

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                                   Appendix D

    =======================================================================

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                                   Appendix E

    =======================================================================

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]