Tucked into the next-to-last paragraph of a February New York Times editorial, “What’s good healthcare worth?” you’ll find the following thought: “It may make sense to forgo innovations a growing number of people can’t benefit from in exchange for a program that sets fair prices at the outset and doesn’t leave people rationing low-tech essentials or begging for donations to cover basic costs.”
In other words, life-saving drugs and technologies have become too expensive. Because Americans don’t want to pay higher Medicare taxes or insurance premiums to pay for these drugs — and fund medical breakthroughs — we’ll all have to do without.
This argument is especially infuriating because it’s based on a false premise — that the cost of drugs and treatments is so excessive, people are being denied their benefits.
Biopharma has for years underwritten programs to ensure all patients, regardless of economic status, have access to new drug discoveries. Yet our critics continue to point to isolated cases such as the Martin Shkreli and Turing Pharmaceuticals debacle. And then they harp on the imbalance between drug prices in the U.S. and elsewhere in the world, ignoring the benefits of having advanced medical care.
Now we’re hearing an even more troubling complaint: that high drug prices represent a vast corporate conspiracy.
Recently we witnessed Sen. Chuck Grassley (R-IA) haul up before Congress a host of execs from prominent companies including AbbVie, AstraZeneca, Johnson & Johnson, and Bristol-Myers Squibb. Some critics likened this to the investigation of big tobacco in the 1990s.
However, instead of dodging issues as Grassley may have anticipated, these leaders addressed pricing issues by pointing out how the rebates demanded by middlemen artificially skew prices to consumers. This isn’t a biopharma observation. The Trump administration already proposed forcing third parties to pass along rebates directly to patients.
In the fight to remake U.S. healthcare, let’s make sure the focus remains on developing breakthroughs and ensuring access to these treatments
However, we need to keep in mind pharma profits are anything but obscenely high. An analysis last year by John LaMattina in Forbes showed that from 2014-2016, biopharma profits were around 16%.
Compare that with 32% profits in computer sciences and 27% in the beverage industry and you’ll see why pharma stocks are no longer high fliers. You’ll also understand why it’s becoming harder to fund the R&D that’s the lifeblood of our industry.
Our critics have to realize that with the shift toward personalized medicine, old economies of scale are vanishing. Of all new U.S. drug approvals in 2018, 42% were for drugs tailored for specific patients, such as those with certain tumor biomarkers.
These drugs are not only often more effective than traditional chemotherapy, but also usually safer and better tolerated. But they aren’t cheap and never will be.
Shrinking biopharma profits may delight our critics, but if you’re one of the millions hoping for more effective cancer treatments or significant progress against Alzheimer’s, it’s bad news. And that’s because no matter how much our critics deny it, continued research depends on fair prices.
In the fight to remake U.S. healthcare, let’s make sure the focus remains on developing breakthroughs and ensuring access to these treatments — not on a desire to punish the industry responsible for these extraordinary advances.
Sander Flaum is principal of Flaum Navigators.