R and D
Angry Bear has over the years described the Pharma industry and its spending on Rand D and stock buybacks, among other developments in comparing US health outcomes to other countries.
Via New York Times discussing this study at Ineteconomics.
US Pharma’s Financialized Business Model
JUL 2017 |
Price gouging in the US pharmaceutical drug industry goes back more than three decades. In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of “gouging the American public” with “outrageous” price increases, driven by “greed on a massive scale.” Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices. UK Prescription Price Regulation Scheme data for 1996 through 2010 show that, while drug prices in other advanced nations were close to the UK’s regulated prices, those in the United States were between 74 percent and 181 percent higher. Médecins Sans Frontières (MSF) has produced abundant evidence that US drug prices are by far the highest in the world.
The US pharmaceutical industry’s invariable response to demands for price regulation has been that it will kill innovation. US drug companies claim that they need higher prices than those that prevail elsewhere so that the extra profits can be used to augment R&D spending. The result, they contend, is more drug innovation that benefits the United States, and indeed the whole world. It is a compelling argument, until one looks at how major US pharmaceutical companies actually use the profits that high drug prices generate. In the name of “maximizing shareholder value” (MSV), pharmaceutical companies allocate the profits generated from high drug prices to massive repurchases, or buybacks, of their own corporate stock for the sole purpose of giving manipulative boosts to their stock prices. Incentivizing these buybacks is stock-based compensation that rewards senior executives for stock-price “performance.”
Like no other sector, the pharmaceutical industry puts a spotlight on how the political economy of science is a matter of life and death. In this paper, we invoke “the theory of innovative enterprise” to explain how and why high drug prices restrict access to medicines and undermine medical innovation. An innovative enterprise seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price. In sharp contrast, the MSV-obsessed companies that dominate the US drug industry have become monopolies that restrict output and raise price. These companies need to be regulated.
“The key cause of high drug prices, restricted access to medicines and stifled innovation, we submit, is a social disease called ‘maximizing shareholder value,’” the study’s authors concluded.
This concept, the authors said, is actually “an ideology of value extraction.” And chief among the beneficiaries of the extraction are drug company executives, whose pay packages, based in part on stock prices, are among the lushest in corporate America.
“There’s no shortage of spending on R&D in the U.S. economy, and no shortage of spending on life sciences, even though it has declined somewhat in real terms,” one of the authors, William Lazonick, a professor of economics at the University of Massachusetts, Lowell, said in an interview. “But there really is very little drug development going on in companies showing the highest profits and capturing much of the gains.”
The big pharmaceutical companies are largely comprised of small companies which were given US government assistance to set up mass production of penicillin for WWII.
‘Florey next visited his old friend Alfred Newton Richards, then vice president for medical affairs at the University of Pennsylvania. More importantly, Richards was chair of the Committee on Medical Research (CMR) of the Office of Scientific Research and Development (OSRD). The OSRD had been created in June, 1941, to assure that adequate attention was given to research on scientific and medical problems relating to national defense. Richards had great respect for Florey and trusted his judgment about the potential value of penicillin. He approached the four drug firms that Florey indicated had shown some interest in the drug (Merck, Squibb, Lilly and Pfizer) and informed them that they would be serving the national interest if they undertook penicillin production and that there might be support from the federal government.’
‘Florey had not patented penicillin, having been advised by Sir Henry Dale that doing so would be unethical.’
THE (AMERICAN) WORLD TURNED UPSIDE DOWN — NO CURE FOR HEART FAILURE FOR A PALTRY $30 MILLION SHORT?! AN INSANE VARIATION ON THE THEME OF MONEY DRIVEN MEDICINE?
Half a million Americans who die yearly from heart failure. There now there looks to be a stabilizing procedure for most all and an actual cure for many. From Sunshine Heart, C-pulse device email-news I get, all that may stand between the five million Americans and the rest of their lives is the $20-30 million they are short to fund final full clinical trials.
It goes like this. A trial with 20 very ill patients (stage III, stage IV HF, with at least one hospitalization and considered for another device) ended in 2012 with 5 complete cures (device removed), the majority improved and none worse.
Novel, implantable device ‘could slow, reverse heart failure’, Honor Whiteman, Tuesday 7 October 2014
”Around 50% of people who develop heart failure [5.2 million Americans] die within 5 years of diagnosis. But could a novel, implantable heart device change this? In a clinical trial, the C-Pulse – a cuff that wraps around the aorta and pumps blood from the heart around the body – has proved effective in reversing heart failure, even in some patients with severe cases.”
No problems with clots or strokes because the C-pulse balloon is outside the bloodstream. Implanted non-invasively too.
Sunshine Heart has been working up a final trial with 200 patients to win FDA approval but can’t seem to get past 100. Money seems the bigger obstacle.
“Unfortunately, there don’t appear to be easy solutions to Sunshine Heart’s primary problem – it lacks the resources of major cardiology companies like Boston Scientific (BSX), Medtronic (MDT), or St. Jude Medical (STJ) that could otherwise support and encourage enrollment. Getting the FDA’s permission to run an interim analysis would certainly help, and the shares do appear undervalued, but the company is…”
One email from Sunshine Heart (can’t dig it out now) made out private investors to be reluctant for fear any patent could be too easily worked around.
Here’s the thing. I figure 5 million currently terminal patients (we all know somebody) would gladly pony up $6 apiece. 🙂 More sensible path – government supporting this and all clinical trials from now on – possibly neutralizing big pharma’s biggest gouging excuse without hampering innovation (encouraging) – in this case, with 10,000 American deaths every week, pronto. Maybe states could get together and pitch in. Maybe GoFundMe. ??? Whatever, soon.
Finding sick people to participate in a clinical trial is way harder than a lot of people would think, particularly if you need patients in urgent need of treatment to validate fringe performance of your treatment or diagnostic test.
The unfortunate truth is that, even though there are plenty of stories out there of people actively seeking out experimental treatments of one sort or another, when you’re extremely sick, and in need of immediate treatment, signing up for a clinical trial for some diagnostic test or something is pretty low on your list of priorities.
In some cases we go to a specific partner for clinicals (usually a teaching hospital) and they give us assurances that they see plenty of patients with condition “x,” only to find that enrollment is at half the rate we expected. What do you do at that point? There are a limited number of options, all of which are expensive:
1. Extend the enrollment period for the trial. Do this long enough and people start dropping out.
2. Increase payments to patients for the trial, you can only go so high on this, lower than you might be willing to pay as a business.
3. Increase the number of sites, this gives you other potential problems.
4. Go somewhere with a large population of untreated very sick patients, even if it costs more to administer the study.
Option 4 might indicate somewhere with a large population of homeless people, like San Francisco.
For a large scale trial of an implanted device…I can only imagine the cost and the trouble convincing people to enroll.
This is a form of what some call “agency”. It happens in every industry in America. We went from corporations caring about customers, employees, communities and the bottom line to greed only. The greed is fed by shareholder value prioritization above all else. This enlists strategies for the short term including stock repurchases. R/D used to be the place where profits were invested, not any more.