WHAT NOW? The Biden administration’s decision to support a temporary waiver of Covid-19 vaccine patents prompted instant outrage in the pharma sector, which argues that the move rides roughshod over their intellectual property rights and will discourage US innovation while sending jobs abroad. Biden’s top trade adviser Katherine Tai said that while the US government still “believes strongly” in intellectual property protections, it supported waiving patents for Covid-19 vaccines to help boost global production of jabs. This is the right and moral decision.
If, tomorrow, a cure was found for a deadly cancer that kills a lot of people how much would it cost and, more importantly, how much profit should the company that developed the product be allowed to make? Some say pharma should be allowed to make as much as they want because we live in a capitalist society but JAMA recently found out that price increases in branded drugs means that people will often go without their medications.
Some commercially insured patients who pay only prescription drug copayments appear to be insulated from increases in drug prices. However, more than half of patients pay deductibles or coinsurance and may experience substantial increases in out-of-pocket spending when drug prices increase. Among these patients, there was no evidence that manufacturer rebates to insurers are associated with patients’ out-of-pocket spending. Policies to rein in unregulated annual increases in list prices for brand-name drugs may have important consequences for patient out-of-pocket spending.JAMA
But what about the costs to develop new drugs and the failure rates?
Reducing high drug prices has become a major political concern—and a rare bipartisan cause for Democrats and Republicans to rally around.
The most telling data on a disconnect between drug prices and research costs has received almost no public attention. Peter Bach, a researcher at Memorial Sloan Kettering, and his colleagues compared prices of the top 20 best-selling drugs in the United States to the prices in Europe and Canada. They found that the cumulative revenue from the price difference on just these 20 drugs more than covers all the drug research and development costs conducted by the 15 drug companies that make those drugs—and then some
To be more precise, after accounting for the costs of all research—about $80 billion a year—drug companies had $40 billion more from the top 20 drugs alone, all of which went straight to profits, not research. More excess profit comes from the next 100 or 200 brand-name drugs.Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t Add Up
A study published in JAMA Internal Medicine examined the costs of developing 10 cancer drugs approved by the FDA from 2006 to 2015 and provided a strong contrast to the Tufts study from a year before. Its authors, from Memorial Sloan Kettering and the Oregon Health and Science University, used annual financial disclosures from the Securities and Exchange Commission for companies that had only one cancer drug approved but had on average three or four other drugs in development. They found that companies took an average of 7.3 years to win FDA approval, at a median cost of $648 million. Only two drugs had research costs over $1 billion. Adding in the cost of capital at 7 percent increased the median research and development cost to $757 million.
In a JAMA study, which included 63 of 355 new therapeutic drugs and biologic agents approved by the US Food and Drug Administration between 2009 and 2018, the estimated median capitalized research and development cost per product was $985 million, counting expenditures on failed trials. Data were mainly accessible for smaller firms, products in certain therapeutic areas, orphan drugs, first-in-class drugs, therapeutic agents that received accelerated approval, and products approved between 2014 and 2018.JAMA
Pharmaceutical companies often claim that the research costs of unsuccessful drugs also have to be taken into account. After all, 90 percent of all drugs that enter human testing fail. But most of these failures occur early and at relatively low costs. About 40 percent of drugs fail in preliminary Phase I studies, which assess a drug’s safety in humans and typically cost just $25 million a drug. Of the drugs that clear this first phase of testing, about 70 percent fail during Phase II studies, which assess whether a drug does what it is supposed to do. The research costs of these studies are still relatively low compared with overall R&D costs—on average, under $60 million a study.
Pfizer has claimed it did not rely on government money to develop its vaccine, but that’s not exactly true. Pfizer did not receive U.S. funding to develop its vaccine, as did Johnson & Johnson and Moderna, which received support from the National Institutes of Health. While Pfizer had already been investing in mRNA vaccines, it was most likely able to bring its coronavirus vaccine to market in record time in part because of recent and past government investment in mRNA research. (Pfizer’s German partner in its vaccine development, BioNTech, received a $445 million grant from its national government.)
From 2000 to 2018, 35 large pharmaceutical companies reported cumulative revenue of $11.5 trillion, gross profit of $8.6 trillion, EBITDA of $3.7 trillion, and net income of $1.9 trillion, while 357 S&P 500 companies reported cumulative revenue of $130.5 trillion, gross profit of $42.1 trillion, EBITDA of $22.8 trillion, and net income of $9.4 trillion. In bivariable regression models, the median annual profit margins of pharmaceutical companies were significantly greater than those of S&P 500 companies (gross profit margin: 76.5% vs 37.4%; difference, 39.1% [95% CI, 32.5%-45.7%]; P < .001; EBITDA margin: 29.4% vs 19%; difference, 10.4% [95% CI, 7.1%-13.7%]; P < .001; net income margin: 13.8% vs 7.7%; difference, 6.1% [95% CI, 2.5%-9.7%]; P < .001).JAMA
It’s estimated that Pfizer spent $2 billion developing the COVID vaccine and will earn $24 billion in revenue. How much profit is enough? Their CEO earned over $20 million while people who can’t afford drugs go without therapy.
President Biden made the right choice because the COVID vaccines need to be produced around the world tp get this pandemic under control. Of course, pharma is going to fight it because after all, it affected their stock price.