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Smart Thinking blog

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

The big picture

Cost talks should go hand-in-hand with value discussions

The big picture

So US Democratic Presidential hopefuls want to put the screws to the pharmaceutical industry by having them  'open up their books'. A little forensic accounting as it were - to see where the money is being spent and how much of it is going towards sales and marketing versus drug development versus clinical trials versus production. After Turing Pharmaceutical's egregious price increase on Daraprim from $13.50 per pill to $750 per pill, the proverbial wolves are at the door. What do we say to those wolves? Firstly, get in line - there are plenty of people who want to get at Big Pharma. Secondly, good luck.

And then, once they've done all the analysis, certain states like Massachusetts want to cap the cost of some specialty drugs with (presumably) some formula that magically computes the 'real' cost. At the risk of sounding repetitive: get in line and good luck.

I'm certainly not suggesting that drug prices and the manner in which they're calculated are fully transparent but the allocation of direct and indirect costs to a specific molecule at launch and the subsequent cost projections over its patent life are, at best, an exercise with a staggering standard deviation. And what of the endless debates and hand-wringing over the numbers? And what of the impact on speedy public coverage and reimbursement of life-saving therapies? And what of the impact on future innovation and drug discovery efforts? And, by the way, who gets to decide what profit margin is acceptable and how much can and should be charged?

Is this all worth it? I mean, for an 'input' that represents maybe 10% to 12% of the overall costs of any single health system in most OECD nations, how much can we save and at what trade off? If you're from the camp of 'every little bit helps' (and by 'little', I mean billions of dollars), then the effort is most certainly worth it. Even if you're in the 'it's just a drop in an ocean of water' camp, it's probably still worth it. And after all, we have to start somewhere with cost containment, don't we?

Who gets to decide what profit margin is acceptable?

So we take a $350,000 per year treatment for cystic fibrosis or a $200,000 per year treatment for some form of cancer and we cut it in half. Now tell me exactly how many more people can afford the drug? Ok, let's cut the cost of these drugs by two-thirds. And now how many people can afford these drugs? I know what you're thinking: you're thinking that I'm starting my calculations from the current prices and not the 'new' prices. Not a big difference really. What if the cost of that cystic fibrosis drug is over-inflated four-fold. Maybe its 'true' cost is $85,000 and not $350,000. Now, again, let's cut the price in half to $42,500 per year. How many households, private insurers or public budgets in OECD nations can afford a drug bill of $3,500 per person per month for one single drug?

In this very column, I wrote a piece in June 2014 about Solvaldi. I stated then that Sovaldi was probably a better fiscal deal than we think for the reasons cited in that article. And I said, 'don't take my word for it.' So some very smart people didn't take my word for it. They actually went out and did two separate economic evaluations and determined that Sovaldi and its close cousin, Harvoni are cost-effective.

I'm not saying that we accept these drug prices without negotiation (some have suggested that allowing Medicare in the US to negotiate with manufacturers might be a sure-fire method to curb rising drug costs). Clearly, we have to start somewhere. But let's look at the big picture and take into account the cost of patented medicines to the entire health system. And let's put some value on the fact that a great many of these therapies minimise or reduce hospital visits and stays which has an impact on a variety of factors, not the least of which are labour, ongoing testing and monitoring and capital equipment resource utilisation.

So, in the end, we save billions and make these newly-priced drugs available to a smaller increment of patients than we originally thought. We hope that the billions that we save are actually redeployed by the health ministry back into healthcare and that those billions don't end up in the transportation or education portfolio. We hope that the pharma companies whose revenues have now been impacted will continue to reinvest the same percentage of dollars back into R&D. And mostly we hope that every stakeholder across the healthcare spectrum actively participates in a meaningful way to contain costs.

Article by
Rohit Khanna

is managing director of Catalytic Health, a healthcare communications, advertising and strategy agency. He can be reached at:

17th February 2016

From: Sales



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