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Pharmaceuticals can be a license to print money

By Pete Dolack | Systemic Disorder | October 11, 2107

It’s no secret that the United States suffers from by far the world’s highest costs for health care. As the most market-oriented health care system among advanced capitalist countries, this is no surprise. Health care in the U.S. is designed to deliver corporate profits, not health care.

On that score, the U.S. system is quite successful. Pharmaceutical companies are at the head of the class in this regard, frequently justifying the spiraling costs of medications by citing large research and development costs that include the costs for drugs that don’t make it to market. There are many drugs that fail to survive testing and become a cost that will never be compensated, that is true. But are these failures really so high to justify the extreme costs of successful drugs?

It would seem not. Firmer proof of that lack of justification has been published by the JAMA Internal Medicine journal, which found that revenue for cancer drugs far outstrips spending on research and development. The article, “Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval,” prepared by Drs. Vinay Prasad and Sham Mailankody, found that revenue from 10 drugs (one by each of 10 companies) exceed those companies’ total research and development costs by more than seven times.

The total revenue hauled in from these 10 drugs did vary considerably. Two of them earned more than US$20 billion after approval. Both of these high performers cost less than $500 million in research and development costs. The revenue from each of the 10, however, exceeded costs, with widely varied margins. Still profitable: The median revenue of these 10 drugs was $1.7 billion, more than double the median development cost of $648 million, the JAMA Internal Medicine authors report.

The authors write that the median cost to develop a cancer drug represents “a figure significantly lower than prior estimates,” adding that their analysis “provides a transparent estimate of R&D spending on cancer drugs and has implications for the current debate on drug pricing.”

To obtain these figures, the authors analyzed U.S. Securities and Exchange Commissions filings for pharmaceutical companies with no drugs on the U.S. market that received approval by the U.S. Food and Drug Administration for a cancer drug from January 1, 2006, through December 31, 2015. Cumulative R&D spending was estimated from initiation of drug development activity to date of approval. Earnings were tracked from the time of approval to March 2017.

The sky’s the limit for pharmaceutical prices

The increase in pharmaceutical prices (blue) versus the general increase in commodities prices (red).

Another way of looking at this would be to examine the increases in the cost of pharmaceuticals against other products. Here again the numbers stand out. Using data gathered by the St. Louis branch of the Federal Reserve Bank, the consumer price index for pharmaceutical preparation manufacturing for the first quarter of 2017 was 747.8, with January 1, 1980, as the benchmark of 100. In other words, the price of pharmaceuticals is seven and half times higher than they were at the start of 1980. (See graph above.)

How does that compare with inflation or other products? Quite well — for pharmaceutical companies. That more than sevenfold increase in drug prices is an increase nearly two and half times greater than inflation for the period, and nearly four times that of all commodities.

So, yes, unconscionable price-gouging is the cause here. By the industry as a whole, not simply individuals like “Pharma Bro” Martin Shkreli, who might be an outlier in his brazenness but not in his profit-generation plan.

Although not the entire picture, this snapshot of corporate extortion plays a significant role in why the cost of the United States not having a universal health care system is more than $1.4 trillion per year.

Among 19 broadly defined “major” industrial sectors in the U.S., health technology is again expected to be found the most profitable for 2016, with a profit margin of 21.6 percent. Higher even than finance at 17 percent. When narrowing to more specific, narrowly defined industry categories, generic pharmaceuticals sit at the top with an expected 30 percent profit margin for 2016. Major pharmaceuticals rank fourth at 25.5 percent on a list in which health products and finance claim nine of the top 10 spots.

The sky’s the limit for pharmaceutical profits

That’s a repeat of 2015, when health technology had the highest profit margin of 19 broadly defined industrial sectors, at 20.9 percent, topping even finance, the second highest. When a separate study broke down profit margins by more specific industry categories, health care-related industries comprised three of the six most profitable.

Nothing new there, either. A BBC report found that pharmaceuticals and banks tied for the highest average profit margin in 2013, with five pharmaceutical companies enjoying a profit margin of 20 percent or more — Pfizer, Hoffmann-La Roche, AbbVie, GlaxoSmithKline and Eli Lilly. The world’s 10 largest pharmaceutical corporations racked up a composite US$90 billion in profits for 2013, according to the BBC analysis. As to their expenses, these 10 firms spent far more on sales and marketing than they did on research and development.

If those facts and figures aren’t enough, here’s another way of looking at excessive profits — a 2015 study found that, of the 10 corporations that have the highest revenue per employee among the world’s biggest corporations, three are health care companies. Two of the three, Amerisourcebergen and McKesson, both distribute pharmaceuticals, and the other, Express Scrips, administers prescription drug benefits for tens of millions of health-plan members. Each of these primarily operates in the United States, the only advanced-capitalist country without universal health coverage.

The extra layers represented by those three companies demonstrate that there are ample opportunities for corporate profiteering that contribute to extraordinarily high health care costs in the U.S., beyond drug manufacturing and insurance.

And because corporations have the ear of politicians and other government officials, it’s no surprise that one of the primary ongoing goals of the U.S. government for so-called “free trade” agreements, such as the Trans-Pacific Partnership, is to impose rules that would weaken the national health care systems of other countries. This was done in TPP negotiations at the direct behest of U.S.-based pharmaceutical companies, incensed that countries like New Zealand make thousands of medicines, medical devices and related products available at subsidized costs.

By far the most expensive system while delivering among the worst outcomes and leaving tens of millions uninsured, where tens of thousands die from lack of health care annually. That is the high cost of private profit in health care. Or, to put it more bluntly, allowing the “market” to decide health outcomes instead of health care professionals.

October 15, 2017 Posted by | Corruption, Deception, Economics, Malthusian Ideology, Phony Scarcity | , , , , , | 2 Comments

Why Opening Up Clinical Trials Data Is Good For Pharma Companies Too

By Glyn Moody | Techdirt | November 5, 2013

Earlier this year we wrote about how AbbVie, the pharma company spun out of Abbott Laboratories, had gone to court to stop the European Medicines Agency (EMA) from releasing clinical trials information about one of its drugs. Despite what AbbVie claimed, this was not commercially sensitive in any way, but simply basic data about safety and efficacy.

It’s often overlooked that this data is mostly obtained by testing new drugs on volunteer members of the public who take the medicines in order to establish their safety. By definition, these volunteers are putting themselves at risk. They selflessly offer to do that in order to advance medicine and confer benefits on society as a whole. That means the clinical data obtained from such tests belongs to the public that made them possible, at least from a moral viewpoint.

If a company seeks to prevent the free dissemination of that safety data, as AbbVie is doing in Europe, it is breaking the implicit compact it made with the people who agreed to try out its drugs. Those invited to take part in future trials of AbbVie’s drugs might then begin to ask why they should endanger their health and even lives purely to boost one company’s profits.

But even if AbbVie is resistant to the argument that it has a moral obligation to allow the clinical trials data to be released, and is not concerned that the public might think that it has something to hide, perhaps it will be won over by a recent article in The New England Journal of Medicine, written by four people from the EMA. This puts forward a quite different argument, that releasing test data will directly benefit pharma companies themselves, and offers a number of reasons why.

First, access to the full data sets of completed studies will lead to improvements in the design and analysis of subsequent trials.

Basically, the more information that drug companies have about what works and what doesn’t, the better they can design their future tests.

Second, lessons from past trials about the heterogeneity of treatment effects not only will streamline drug development but also may enhance a drug’s value in the marketplace. Identification of a population with high unmet need in which a new treatment may be more cost-effective than other available treatments can aid sponsors during reimbursement negotiations.

Again, the more information companies have about how different groups of patients responded to a drug, the easier it will be to spot particular sub-groups in the population who derive particular benefit. Selling products for that sub-group will be both easier, more profitable and more ethical than simply trying to sell to everybody, since the drug may be ineffective or even inappropriate for many of the general population.

Third, since several possible treatments for one medical condition are often available, comparative-effectiveness information is important to patients, prescribers, and sponsors seeking to position their products.

For a given condition, there may be several possible treatments. Making clinical test data available allows them to be compared, and the best one selected for future drug development, instead of investing huge sums in what may well be a relatively ineffective approach.

Finally, one of the inherent inefficiencies of data secrecy is the repetition of trials and projects that are doomed from the outset; drug developers may continue to pursue a given target even though clinical trials conducted by others have demonstrated the effort’s futility.

In many ways this is the most important reason. If the results of clinical trials are kept secret, companies run the risk of repeating the mistakes already made by others. Not only is that a waste of time and money that could be better spent on more fruitful avenues, it is putting test subjects at risk unnecessarily. As the NEJM points out:

In at least one documented case, the availability of data from completed trials could have spared trial subjects a potential health risk and saved millions of research dollars.

The article concludes:

A managed-release environment that allows sharing of patient-level data while ensuring patient privacy would create a level playing field for all stakeholders. What is sometimes labeled as “free riding” may ultimately pay dividends for innovative companies and for public health. It is ironic that the organizations that most resist wider access to data are the ones that stand to benefit so much from greater transparency.

In fact, this is no mere theoretical possibility. We know this approach works, because it is precisely what we see in the field of open source. Sharing the code freely creates a level playing-field that allows companies to innovate faster because they can build on the work of others. The rise of a multi-billion dollar software industry based around such sharing, and the unprecedented rate of innovation this drives, are yet more reasons that companies like AbbVie should be striving to promote, not prevent, the release and dissemination of clinical trials information as open data.

Follow me @glynmoody on Twitter

November 5, 2013 Posted by | Economics, Timeless or most popular | , , , | Leave a comment