Lack of transparency of R&D costs

© Mark Henley/Panos
Some pharmaceuticals companies persist in trying to justify the high price of treatments, notably anti-cancer drugs, by the “high costs” of research and development (R&D). To achieve this, they often cite the figure – whimsical and exaggerated – of 2.6 billion francs that would be required to develop a new molecule.

The estimation of the Drug for Neglected Diseases initiative (DNDi) – a non-profit-making organisation – is between 150 and 200 million francs, which is ten times less (!) taking also into account the failure rate.

An American study that appeared in November 2017 in the well-respected medical journal JAMA estimated the average cost of the development of a new molecule for cancer at around 650 million francs, while mentioning that the R&D costs are not only rapidly recovered, but also quickly multiplied by 10 within a few years. This level of return on investment is not observed in any other sector of the economy.

The pharmaceuticals industry is indeed acknowledged to be one of the most lucrative sectors in the economy, with the net profit frequently exceeding 20% of turnover.

Only the tobacco industry or the banking sector sometimes perform better.

An innovation system based on profit

The international system of patents is regularly criticised, as the monopolies resulting from the patents favours private interests rather than public need. Indeed, research and development (R&D) initiatives are mainly driven by opportunities for generating profit. This is especially problematic in a sector where there is a strong public interest, such as healthcare, as the dependence on market incentives creates gaps in some research areas (for example, neglected tropical diseases or antibiotics). The exorbitant prices resulting from this model is an obstacle to access to some treatments.

© Atul Loke/Panos

This market-directed R&D approach means that innovation is focused as a priority on illnesses suffered by wealthy patients. Little R&D is undertaken for those illnesses with limited economic potential – either because there are too few sufferers, or they are too poor. And when therapeutic advances are achieved, the drugs are often too expensive for most patients.

“Evergreening”: maximising profits at the expense of patients

The pharmaceuticals industry is acknowledged to be one of the most lucrative sectors in the economy, with the net profit frequently exceeding 20% of turnover.

In order to secure profits and gain market share, the pharmaceutical companies do not hesitate to multiply patents around the same substance, thus prolonging a product’s period of market exclusivity and delaying the competition of generics.

This practice, called “evergreening”, is an integral part of the sector’s business model. It threatens access of poor populations to vital drugs, and stifles the whole system of pharmaceutical discovery.

© Atul Loke/Panos

Price-fixing: the power of the pharmas

Independent analyses have identified the pharmas’ power to fix prices (“pricing power”) as one of the main causes of the explosion in the price of drugs. In Europe, the control of pricing being a national prerogative, each country strives to get the best possible “deal” within the framework of largely opaque bilateral negotiations.

In this situation, the pharmaceutical industry certainly has the whip hand.

Initially, in negotiating a high price with the United States. Subsequently, if required, by threatening not to commercialise the product (or by withdrawing from automatic reimbursement) if the price demanded by the authorities should be too low, or by initiating legal proceedings – and very often winning. Lastly, they may only disclose the reference price, a fictitious amount serving as a base for international comparison of prices between countries but not corresponding to the real price negotiated with each state.

Even if European countries try to join forces with the goal of negotiating together on better pricing (for example through the initiative “BeNeLuxA” or the “Valetta Declaration”), one has to admit that we don’t have a level playing field. The governments cannot fight against the famous “pricing power” of the pharmaceutical industry within the current framework of price-fixing.