Tunnah’s musings: Does pharma put profits before patients?
As the pharma industry repeatedly comes under fire for pricing new medicines out of the reach of cash-strapped healthcare systems, Paul Tunnah asks the difficult question of whether it should really be making so much money, when patients are losing out.
It’s a question that seems to come up on a daily basis: does the pharmaceutical industry place too much emphasis on making money at the expense of patients? Does the high price of new medicines stop patients accessing potentially life-saving treatments that either they, or their health system, cannot afford?
The answer to the second question is, sadly all too often, yes. For example, Roche has come under fire in recent weeks for refusing to cut the price of its novel breast cancer treatment, Kadcyla, which costs around £90,000 per annum in return for potentially granting patients six more months of life. Unsurprisingly, the UK’s National Institute for Health and Care Excellence (NICE) is refusing to fund it from the NHS budget, so it is only available to select patients who can benefit from the limited Cancer Drugs Fund.
When it comes to rare diseases, where the total number of patients may be only a few hundred or less, the gap between the cost of new medicines and affordability is often even greater. Take Alexion’s Soliris, which can transform disease management for atypical haemolytic uremic syndrome (aHUS) sufferers, but at a projected cost of over £300k per patient per year. These are numbers that make healthcare payers, in any country, who are grappling with stretched budgets, very nervous.
For sure, one of the emerging challenges here is that the costs around developing such genetically targeted personalised medicines and rare disease treatments remain high, while the volume of patients for them is low. Simple economics, therefore, tells us that the cost per patient has to be higher than a mass-market, less-specific drug, like statins.
But let’s be honest, pharma is still enjoying healthy profit margins, and so the conspiracy theorists latch on to these examples as proof of nefarious intent. Even for those of us who know better, they raise some difficult questions about whether pharma should be making so much money.
As a result, arguments emerge that industry profits should be more tightly regulated or even that organisations involved in drug development should be non-profit, to ensure financial gains cannot interfere with the ethical and important business of making new medical breakthroughs.
The thing is, there are actually some very good reasons why pharma should be profitable and I don’t think the above routes would actually help patients, if we consider the bigger picture. Here are a few reasons why:
Building pipelines for the future
Investment in R&D is critical for the next generation of medicines and when you look at the numbers, pharma stacks up well versus other industries for reinvesting in new products. Apple ploughs around 2 per cent of sales back into development, while pharma companies are typically reinvesting 10-20 per cent, with the average being around 16 per cent1.
In fact, when you compare across sectors, pharma is one of the biggest R&D spenders and when Booz & Company ran its 2013 Global Innovation Study, eight of the top 20 bigger industrial R&D spenders in the world were drug companies2.
Securing the best talent
Working in the pharmaceutical industry requires a unique mix of skills. Consider the average pharma marketer, who has to possess a level of scientific understanding of the medicines they are responsible for, plus commercial skills at least comparable to their peers in other industries that must be applied to a diverse range of customers. Look further up to the boardroom and the same balance of scientific and commercial acumen applies, combined with a strategic mind-set to tackle a rapidly changing health market and an ability to balance making money with behaving ethically.
Not easy. And if you want the best people, you have to pay competitive salaries, both within the industry and, as more talent comes in from outside, beyond.
Keeping investors happy
Whether a company is backed by private equity or public shareholders, being able to generate healthy profit margins is really, really important to maintaining investor interest and securing new funds. When it comes to the most innovative end of drug development, biotech companies are seen as a risky place for investors to park their money, which means they have to see potential for considerable upside to balance that investment out.
Wealthy private investors and venture capital firms might not always be viewed in the most favourable light but, without their money, there are many novel treatments that would never have seen the light of day. And how many of us have shares, either knowingly or via investment or pension funds, invested in the pharmaceutical industry, because it’s seen as a solid returner?
The reality is that the price of novel medicines could be drastically cut right now and the pharma industry would survive. But if we consider the above points in a longer term context, it would undoubtedly lead to cuts in R&D spend, loss of some talent to other sectors and less investment in the industry as a whole. In effect, we would be selling the family silver to help patients now, while punishing the patients of the future.
Think especially of patients in areas where there are no effective treatments right now. For them, the best scenario is surely to have as many well-funded drug developers as possible racing to be the first to get a novel treatment out.
It’s a tough argument, I realise, and one that has absolutely no merits for someone who is trying to access a desperately needed available medicine that is out of reach due to cost. Nor does pharma always get the balance right and, in some cases, the price of treatments could be cut without damaging longer-term effects.
But it’s a debate that needs to be had. So to come back to the first question: does pharma put profits before patients? I like to think not, but it does have to balance the needs of future patients with those of current patients.
As always, I welcome your thoughts and, until next month, stay well.
1. How Much Do Drug Companies Spend on R&D, Anyway? Corante, May 2013.
2. The 2013 Global Innovation 1000 Study: Navigating the digital future, strategy&, Oct 2013.
About the author:
Paul Tunnah is CEO & Founder of pharmaphorum media, which facilitates productive engagement for pharma, bringing healthcare together to drive medical innovation. It combines industry-leading content and social media engagement services with the globally recognised news, information and insight portal pharmaphorum.com, working with pharmaceutical companies, service providers and broader healthcare organisations to help communicate their thought leadership and connect them with relevant stakeholders.
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