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Smart Thinking blog

Insights and expert advice on the key issues facing today’s pharma marketer

Profit: the ugly, dirty truth?

“My shareholders expect me to make the most profit. That's the ugly, dirty truth.”

Alan MaineOne of the most infamous quotes (of many) from a certain Martin Shkreli, the so-called ‘Pharma Bro’, currently serving seven years for fraud in the federal prison in Fort Dix, New Jersey.

A touchstone for industry detractors and critics, profit or rather what is seen as an excess of profits, strikes right at the heart as to why pharmaceutical companies are often seen as the bad guy.

Profit and healthcare are never natural bedfellows. Why, the refrain often goes, should anyone make a profit out of someone being ill?

There is no getting away from it. Outside Wall Street, profit is a sensitive and touchy subject for pharma companies. It even sits uneasily for many people in the industry.

Industry communicators take a wide path away from speaking about profit in non-investor circles. Although the true margin of profits made by comparison to other industries and sectors is comparatively high, it is not the highest by any means, being outstripped by tech and banking in particular.

While profit is in the spotlight, it’s the linked issue of the price of medicines that is most under scrutiny around the world. The price of new medicines is commonly defended by companies by reflecting on the need for return on the cost of discovery and development, and the value these new medicines will deliver to patient care, quality of life and health systems.

Less frequently we hear about other factors such as the economic risk taken in new drug development, and the fact that new medicines only have a limited time on patent before generic, and now biosimilar, drugs can enter the market at vastly lower prices in most countries.

Profit shouldn’t be the reputational millstone that most people think it is. We shouldn’t forget that profit has an important and positive role to play in the future of bioscience and advancing medicine. That role is two-fold.

Firstly, the prospect of good profits needs to be held out for those areas where research, and discovery, is difficult and uncertain, such as in new antibiotics and Alzheimer’s.

Companies need to be able to confidently address the risks that are inherent in the chances of finding new therapies. If the prizes are not big enough, the risks of the research and development investment cannot be offset against failure, or the possibility of uncertain returns. In the case of research for new drugs to combat anti-microbial resistance, it has been decades since a truly new innovative class of antibiotics has made it to market. Uncertain and challenging science has seen only 5% of phase I trials succeed through the pipeline and lead to a licensed product. The absence of a sustainable market-place to mitigate risk in research and development costs explains why so many global players have left the field.

On anti-microbial resistance (AMR), the incentive structures offered up by governments globally so far have lacked ambition and fundamental insight into how the market drives pharma to invest and take on the risk associated with developing a new medicine. We have a global declaration on AMR, which has a recognition that any new drugs would have to be limited in how they were prescribed, but correspondingly little action from governments to implement market-based incentives. It’s not a recipe for delivering the vast investment into antibiotics research that is needed.

Secondly, profit can play a role in driving investment to those areas where society wants progress, such as in cancer and rare diseases. Society wants cancer to be beaten. It wants those afflicted by the myriad of rare diseases to be treated and, increasingly, cured. High prices for cancer drugs and drugs for rare diseases are often controversial. But we must be mindful of the fact that healthy returns are generating the huge sums of research investment advancing the world’s ability to win the war against cancer and take advantage of our knowledge of the genome to treat and cure rare disease.

It’s a reality that profits drive investment. It’s a natural rule of the market that investment and capital flows to where profits are. Dr Madsen Pirie of the Adam Smith Institute writes: “High profits encourage others to enter and start up in competition… Moreover high profits motivate others to start up new ventures in the hope of doing likewise.”

Again, more profit equals more options, more players, more cures.

That said, high profits are not the answer to all the world’s drug development needs. Many have pointed to market failure in the discovery of new treatments for neglected diseases such as sleeping sickness and leishmaniasis. Global solutions still need to be found for diseases where a return on investment for the private sector model will never be found, but partnership with global pharma is still vital in these areas.

And won’t high profits bankrupt global health systems that are already creaking under the pressure of increasingly ageing populations? Global figures show medicine spending as a percentage of health budgets in most developed countries to be around the 10-15% mark. Further, the market is self-correcting - limited patent life, and that other benefit of healthy markets - competition - also help self-regulate profits and spending.

Medicine spending needs to be put into perspective. It is also notable that medicines are subject to the forensic scrutiny of price and value conducted by health economists, whereas the vast majority of health spending goes largely unchecked by detailed value studies.

A long-term and balanced view of profit is needed, because drug discovery and development is a long-term process. It seems easy to attack pharma companies for their profits, but no one should lose sight of the fact that profit is the fuel needed to advance medical science.

Alan Maine is senior director of Health Public Affairs at Edelman.

In association with

Edelman

3rd May 2018

From: Sales, Marketing

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