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beautifulllamashark · 4 years ago

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The Big Pharma Dilemma

Over the last two decades, many large pharmaceutical companies are ethically conflicted when it comes to preserving their own wealth or providing life-saving treatments for the general public. As a society, we expect big pharma to deliver such medications and thus hold them to high ethical and moral standards. However, we have witnessed case after case of huge price gouging by big pharma companies. For example, the price of one year of cancer treatments has been increased tenfold from 2000 to 2012. Deflazacort, a steroid used to treat Duchenne muscular dystrophy in children, has seen a price increase of 6000%. Of course, big pharma’s actions indeed have consequences – a Gallup poll of the public’s opinion of various business sectors revealed that pharma scored the lowest (out of all sectors). This raises some questions as to why big pharma is gouging the prices of crucial and life-saving medications and how exactly the revenues from these expensive treatments are being spent. On the other hand, the rapid development of the COVID-19 vaccine by big pharma companies will essentially save us from this pandemic – by preventing hundreds of thousands of deaths, reviving global economic activity and, hopefully, allowing us to return to our normal lives. To get an idea of an outlook on just how money the pharma industry generates, these are the revenues projections for Big Pharma for 2026.

Big Pharma and Society – Why increase the price of life-saving medications?

The main role of Big Pharma from the point of view of the general public is to develop and provide new or improved medications for treatments. However, there are certain conditions for Society to benefit significantly from the development of new medications. Some of these conditions are:

· Low cost to be financially accessible.

· Produced in high enough quantities to avoid shortages.

· Stable in normal conditions to avoid the need of specialised equipment.

Since developing drugs that meet all the conditions is expensive, pharmaceutical companies usually decide to forgo the first condition and increase prices of drugs exorbitantly. This in turn decreases their benefit to Society, since only a small portion of patients can afford pricey treatments. The cost of drugs is in fact the main reason why people cannot obtain a certain drug, as can be seen in the following survey result. Pharmaceutical companies that buy the rights to drugs being produced by smaller companies need to get it approved by the FDA as a new drug – thus necessitating a high price as it may not be as profitable for several years. The cost of the new drug is to pay for it to get approved by the FDA, but to also bring more drug production into the U.S. by eventually generating a large profit. In cases of medications for rare diseases, some executives such as the infamous Martin Shkreli claim that increasing the price for these medications are to prevent losses.

Why should Big Pharma lower the price of medications?

Big Pharma’s defense for price gouging their product is, as Johnson & Johnson justified in their 2017 Janssen U.S. Transparency Report, “We have an obligation to ensure that the sales of our medicines provide us with the resources necessary to invest in future research and development”. However, this is not the case. Companies and the automobile industry are actually the ones who take up substantial spots in the top 25 worldwide companies that spend the most money on R&D. And, as previously mentioned, the number of new drugs approved by the FDA per billions of dollars spent has been declining. Many of the drugs that companies sell were not even developed by them.

The high price of medication has two adverse effects: the first being that many patients cannot take their medications. The second is that high prices take away from research priorities rather than making gains in healthcare, companies focus on making financial gains. The pharmaceutical industry has indeed broken its social contract with the public by use pricing strategies to maximize their profits bringing about the loss of a free market for their products.

How do pharmaceutical companies spend their money?

According to researcher Jack Scannell, the number of drugs approved by the FDA per billions of U.S. dollars spent has been halved every nine years leading to the question – how exactly is big pharma spending their revenue, when price gouging is considered?

A research article by Weiss et al. show that pharmaceutical companies balance their spending between manufacturing activities, R&D of new medications and the expansion of sales and marketing of current products. However, pharmaceutical companies extensively invest in sales and marketing rather than R&D, as mentioned before.

R&D, however, has been shown to boost stock prices and thus increase a company’s long-term value. Nonetheless, promoting existing products actually has a negative long-term effect on stock prices. In the short term, both R&D and sales promotion have shown to increase annual profits – although investment in R&D is considered to be higher risk. Thus, pharmaceutical company executives will typically increase their investments in sales and marketing to boost their annual profits in a reliable way, which will subsequently increase senior executives’ bonuses and the company’s reputation.

Our Perspective

Firstly, we believe that drug prices need to be more regulated by the government. Pharmaceutical companies still require enough revenue to research new drugs and promote existing ones but also must ensure that the public can have access to their treatments. We also believe that pharmaceutical companies should invest more in their own R&D, rather than buying existing drugs are selling it for astronomical prices. It would be in pharma executives’ own best interest to invest in R&D because it would bring about higher company value in the long-run and potentially generate short-term profits. This creates a win-win scenario for both the public and big pharma – we get to see progress and advancements in cutting edge treatments, and pharma companies and their senior executives can see a profit from their companies’ research in the future.

References

[1] The new drug dilemma: Does big pharma have a duty to humankind | or its shareholders? Financial Post. (2020). Retrieved 16 February 2021, from https://financialpost.com/investing/the-new-drug-dilemma-does-big-pharma-have-a-moral-duty-to-humankind-or-its-shareholders

[2] W Weiss D, Naik P, Weiss R. The 'big pharma' dilemma: develop new drugs or promote existing ones? Nat Rev Drug Discov. 2009 Jul;8(7):533-4. doi: 10.1038/nrd2923. Epub 2009 Jun 19.

[3] Herper, M. Why Did That Drug Price Increase 6000%? It’s The Law. (2017). Retrieved 17 February, 2021, from https://www.forbes.com/sites/matthewherper/2017/02/10/a-6000-price-hike-should-give-drug-companies-a-disgusting-sense-of-deja-vu/?sh=76a1d54771f5

[4] Cocoran, T. Big Pharma might save the world. (2020) Retrieved 16 February 2021, from https://financialpost.com/opinion/terence-corcoran-big-pharma-might-save-the-world

[5] Emanuel E. Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t Add Up. (2019) Retrieved 17 February 2021, from https://www.theatlantic.com/health/archive/2019/03/drug-prices-high-cost-research-and-development/585253/

[6] Davis, K. Big Pharma Has Broken Its Social Contract: How to Restore Fairness In Drug Pricing. (2016). Retrieved 16 February 2021, from https://www.forbes.com/sites/kennethdavis/2016/11/01/big-pharma-has-broken-its-social-contract-how-to-restore-fairness-in-drug-pricing/?sh=ca3950c2aa99

[7] Lupkin, S. A Decade Marked By Outrage Over Drug Prices. (2019). Retrieved 17 February 2021, from https://www.npr.org/sections/health-shots/2019/12/31/792617538/a-decade-marked-by-outrage-over-drug-prices

[8] Pollack, A. Drug Goes From $13.50 a Tablet to $750, Overnight. (2015). Retrieved 17 February 2021, from https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html

[9] Sagon, C. Medication, prescription drug PRICES worry Americans. (2016). Retrieved February 22, 2021, from https://www.aarp.org/health/drugs-supplements/info-2016/prescription-cost-worry-older-adults.html

[10] 90% Of Big Pharma Spent More On Marketing Than Research. (2015). Retrieved February 22, 2021, from https://naturalsociety.com/90-big-pharma-spent-marketing-research-2013-alone/

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