The conversation around the cost of new medicines is not subsiding – and that is a good thing. We welcome this conversation because we believe that the longer and deeper the discussion goes, the better lawmakers and the general public will understand the true, profound value these new medicines deliver to America’s patients.
Still, there are distractions that slow the process.
We did so because to have an honest discussion about the cost of medicines, we need to recognize that not all companies are the same. We also did so because we believe that we have a responsibility to come to the table with solutions, and in order to do that, we must first diagnose the problem correctly.
A close examination of Turing and Valeant makes clear that they are essentially hedge funds masquerading as pharmaceutical companies. In fact, Valeant’s CEO boasted as much, saying that the company’s “strategy is quite different from traditional pharmaceutical companies” in that it has “consistently pursued profitable growth through diversification, strong execution and financial discipline,” rather than a focus on research and development investment and innovation.
The market agrees. One investor told Fortune that “Valeant isn’t merely a pharmaceutical company, but rather a ‘platform company’ that systematically makes acquisitions in order to increase its own value.” The analysis went on to compare Valeant to a ‘special purpose acquisition company’ – a shell company created for the sole purpose of buying other companies.
Similarly, Turing’s CEO made his career as a hedge fund manager before applying that same model to his new company: buy an older, off-patent medicine, increase the price dramatically and profit off the difference.
In stark contrast, the vast majority of innovative biopharmaceutical companies have research and development at their core. For example, while Valeant invests less than 3 percent of its total revenue in R&D, PhRMA membercompanies invest an average of 20 percent of total revenue in R&D, continuing a long history of drug discovery and innovation leading to increased longevity and improved lives for millions of patients.
PhRMA member companies alone invested more than $51 billion last year researching and developing new medicines for patients – far more than the entire operating budget of the National Institutes of Health. These investments are a reason why cancer death rates are down 22 percent since their peak, 99 percent of patients with early detected melanoma will survive, HIV/AIDS is now a chronic manageable condition, and hepatitis C is now curable in more than 90 percent of treated patients.
The firestorm around Turing and Valeant is causing some policymakers to advocate for sweeping change in public policies that risk slowing this progress and delaying the development of the next generation of treatments and cures for patients fighting Alzheimer’s, Parkinson’s and other rare and debilitating diseases. One proposal calls for federally determined price caps, potentially undermining the viability of important new medicines now in the pipeline.
These proposals ignore the reality of the highly competitive market for prescription drugs, where health insurance companies are able to negotiate deep discounts off the list prices of medicines, including more than 50 percent off the price of new hepatitis C treatments. A recent analysis from IMS Health found after accounting for discounts and rebates, net price increases in 2014 for branded medicines was the “lowest in the past five years.” And the federal government’s own actuaries recently projected that spending on medicines will continue to grow in line with overall health care spending through at least the next decade.
Yet we believe that there are things the government can do to address situations where competition is lacking – without thwarting researchers’ and scientists’ life-saving work.
The Turing situation is unusual in that there is no remaining patent life to prevent a generic competitor from entering the market, yet due to the small market size, there is no competition, leaving the maker free to raise the price astronomically – which it did.
In such cases, the government should act by clearing the backlog in generic drug applications at the Food and Drug Administration, which is preventing efficient market-based competition from generics manufacturers. Policymakers should also explore a range of incentives to enhance competition in these narrow circumstances – from tax incentives for generic manufacturers to vouchers for expedited review of generic drug applications to other regulatory reforms.
No industry or government can solve the world’s growing health care challenges alone. These are tough problems demanding practical solutions. It is the only way we can ensure a sustainable U.S. health care system that has the interests of patients at its core.
Ubl is president and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA).