[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
                                 ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

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                          Washington, DC 20402-0001















                          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.

  
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    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]


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


                               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]

      

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


                               Appendix D

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



      

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


                               Appendix E

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]