Shareholders vs patients

or_449_abbvieKEY TAKEAWAY: When shareholders are prioritized patients usually find themselves on the short end of the stick.  Can the two ever live together?

On Feb. 10, Valeant Pharmaceuticals International Inc. bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%.  “Our duty is to our shareholders and to maximize the value” of the products that Valeant sells, said Laurie Little, a company spokeswoman. “Sometimes pricing comes into it, sometimes volume comes into it.”  This is an example of what’s wrong with pharma.

screenshot_273

The story that Express Scripts Holding Co.is seeking deals with pharmaceutical companies that would set pricing for some cancer drugs based on how well they work should be a loud wake up call to pharma.  The effort is part of a growing push for so-called pay-for-performance deals amid complaints about the rising price of medications, some of which cost more than $100,000 per patient a year. While we are still in the process of transitioning to a new era in healthcare the word that high drug prices are not the answer is getting louder and louder.

Pharmaceutical companies have the highest executive compensation and had the highest net profit margins (NPMs) of any healthcare sector and it could well be the highest NPMs for any industry including those outside of healthcare. Apple (for example) has an NPM of 21.61%. Is this acceptable?

9fb4576a-8552-4f8a-8545-df48eb1e7e3f.Full

The argument that high margins are needed to fund R&D is weak.  Most pharma R&D is fat with waste and bureaucratic layers that prevent innovation.  Should a pharma CEO get tens of millions of dollars in compensation while the good, hard working people who care about patients fight to do the right thing?

When I was at Lilly and we lost a major drug to patent protection and layoffs began our CEO took one dollar in compensation until we were able to weather the storm.  Today there are some CEO’s who continue to invest more in their companies much to the chagrin of Wall Street investors.  These are the companies that should be rewarded, but today investors want instant gratification while we absorb higher prices for Rx drugs.