Public trusts drug companies but…

KEY TAKEAWAY: The public sees profits made by pharmaceutical companies as a major factor contributing to the price of prescription drugs. Majorities of the public trust pharmaceutical companies (either “a lot” or “somewhat”) to be good stewards in terms of developing new effective drugs (71 percent), and offering reliable information to consumers about drug safety and side effects (65 percent) as well as drug efficacy (61 percent).

There was a fake news post this week on social media about a possible cure for cancer. What alarmed me wasn’t the story itself but the fact that a lot of people felt that pharma companies are keeping a cure for cancer down to continue to make money. There is a lot that’s wrong with pharma but according to KFF the public still trusts pharma to develop life-saving drugs.

The biggest disconnect and hurdle to trusting pharma continues to be drug pricing. 79% of people feel that drug prices are unreasonable. The cry over the cost of prescription drugs is so loud that healthcare is becoming a major debating point in the next election.

Drugmakers historically have blamed higher prices on the costs of research and development. And it is true that R&D is expensive, with companies typically spending more than they ultimately make in profits, according to Axios. But such figures can be misleading. Marketing costs have grown substantially, according to an article in the Journal of the American Medical Association. Between 1997 and 2016, industry spending on marketing grew from $17.7 billion to $29.9 billion, largely owing to direct-to-consumer ads and marketing to health professionals to promote medicines.

Even with major R&D spending, pharma companies remain highly profitable. They have the tenth highest average after-tax profit levels of more than 100 different industries. And according to figures from Axios, while drug companies bring in 23% of health care’s U.S. revenue, they make 63% of the total profits.

The drug industry provides a better life for millions of people but the industry has changed over the last 15 years from one that was focused on patients to one that’s focused on making more money for shareholders. The latest compensation package give to Pfizer’s CEO should be a warning to all of us.

Change is going to be forced on the industry by an angry public demanding action on drug prices. These changes are going to result in thousands of layoffs within pharma and the cutting of expenses. Those CEO’s who know this can better prepare for their company to meet the challenges of the future. Those who don’t care because their compensation is tied to the stock price will take the money and run.