Defensive Strategy

Pharmaceutical Pricing, Markets and Ebola

17 Oct 2014  

People love to attack pharmaceutical companies for setting high prices.

Dr. Sharon Levine, for example, an executive from Kaiser, recently criticized the $84,000 price of Solvadi, Gilead’s new hepatitis C drug, noting, “It’s an outrageous price.”

The problem is that the reason firms invest in developing new drugs is that there is an opportunity to set a high price and make a lot of money. If pharmaceutical companies can’t generate significant profits, then they won’t invest in R&D.

Pricing is particularly important when it comes to diseases with small patient populations. If you can’t charge a lot, there is no way to justify doing a big clinical trial on a product with only a few potential customers.

When there isn’t an opportunity to make money, companies don’t invest. This is one reason why we don’t have a treatment for Ebola.

For many years, Ebola broke out occasionally in just a few small villages in Africa. Scientists knew Ebola was a terrifying disease with the potential to spread quickly. Companies, however, didn’t invest in R&D for Ebola because there wasn’t much of a market. There were only a few customers. More important, companies couldn’t set a high price; most people and governments in Africa simply don’t have the resources to pay a lot for new therapies.

People should be careful about making snap judgments on the price of medical innovations. The easy answers, capping prices or refusing to pay for expensive treatments, will slow down medical research and innovation.

5 Responses

  1. priyavanjeri says:

    I absolutely agree with you. Governments are constantly criticizing pharma companies for shooting up prices but instead should divery their energy and resources towards developing drugs for such rare diseases at an affordable price. Then they would know the ground reality!

  2. Fabio says:

    How Pharmaceutical companies can help? Check it here

    If we didn’t need those companies, why government agencies and Universities didn’t work on a solution for Ebola?

    And btw, the drug used by Prof. Calkins as an example, Sovaldi (in combination with other new drugs) is a major advanced in curing HepC. Ask anyone who has been through treatment prior to 2014.

  3. Ebola outbreak is best example to re-state that healthcare can not be treated with mere wealth generation / business creation motive. Healthcare needs to be see beyond the boundaries of profit and loss. There are proven profitable healthcare sections that need to be more giving in nature to nurture not so profit giving areas of healthcare. Seeing every pharmaceutical product in isolation will lead to many more such overlooked and eventually sizable life threatening dangers. However, the questions remain – who decides to part with profit and loss concepts? Who does it first? Statutory requirements, crossing the boundaries, if imposed for R&D in healthcare solutions that ensure proactive efforts to manage not so monetarily lucrative yet patho-physiologically demanding may direct us to make more informed decisions, leading to timely control of catastrophic medical conditions.

  4. David says:

    I understand the rational but I am not sure it is completely built on facts … The fact that on one hand many pharmaceuticals companies are running into end of patents issues with no new drugs to replace their blockbusters other than slightly tweaked versions of the existing ones and on the other hand a lot of money is dedicated to advertising which is a way – I will teach no one here 😉 – to increase perceived value of the product, not necessarily actual value, seems to give a point to the other side of the argument (i.e. the money may not actually be spent that much for R&D …).

    I agree saying drugs are too expensive – period – and advocating for price fixing is at best naive and short sighted. But I believe there is a case to be made that large pharmaceuticals could better use some of their money focusing more on either reducing prices or investing more in R&D rather than in lobbying and advertising … I think the right way to go is not to impose a solution but rather influence the parameters. Rather than controlling price I’d rather regulate further (yeah, I guess I am a communist 😉 advertising and lobbying. I think the price of drugs would be better accepted if a larger piece of it were to go to R&D.

    I know I am probably naive but the fact that a significant part of the money I pay for my iPhone goes to advertising and marketing is to me totally fair game. And if the product doesn’t have enough real innovation in it, I am the sucker would bought it anyways! 🙂 I am a little less at ease when it is the money I pay for a drug, especially because unlike for the iPhone, it is almost impossible for me to gauge the real value of the product due to my lack of medical expertise … I’d rather see that money go to R&D.

  5. It always get me irritated that people complain about the prices of pharmaceuticals. Not considering, the cost of discovery, testing, manufacturing, quality and compliance, raw materials… I can go on. And oh, by this way, you get to live and have quality of life. But we can go back to 1901 and die at 40-45 years of age. No thanks.

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