Why we may be stuck with high drug prices

UnknownKEY TAKEAWAY: A byproduct of industry consolidation is debt and the only way to decrease debt is by selling higher priced drugs and charging higher prices for newly approved drugs.

The average long-term debt-to-equity (D/E) ratio common for companies in the drugs sector is 70.66 based on trailing 12-month data as of May 12, 2015. The drugs sector is composed of more specialized industries, including drug delivery, drug manufacturers – major, drug manufacturers – other, drug-related products and drugs – generic industries.  For every $1 of shareholders’ equity, companies in the drugs sector have $70.66 in total liabilities. Since the drugs sector is highly capital-intensive, companies in this sector have high D/E ratios.


This is bad news.  It means that CEO’s are going to have to become balance sheet watchers and cater to Wall Street to ensure that stock prices remain high.  For patients it means, in all likelihood, that pharma is going to focus on the bottom line, not on their needs and wants. For support patients are going to have to turn more to each other.

I believe high debt is already having a negative effect.  This week, in meeting with clients, concerns were voiced about 2016 budgets, especially digital marketing.  One client, who wanted and needs to redo their product website, has taken that project completely off the table and another has postponed a program with a major health portal because of budget concerns.

It seems that “spending” while incurring heavy debt is not on the menu in 2016.  I also believe that there will be more layoffs in 2016 as there is quite a bit of anxiety among pharma employees.

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