Marion Paolini responds to Abbey Meller and Hauwa Ahmed’s article, “How Big Pharma Reaps Profits While Hurting Everyday Americans” (American Progress).
Marion Paolini, Ph.D., is External Innovation Manager at Servier BioInnovation. She is a biologist specializing in Oncology and Drug Delivery, trained in the Langer lab at MIT. Opinions published here are Marion’s and do not represent the views of her employer.
In a very recent past life, I was working as a researcher in academia. When I read an article like “How Big Pharma Reaps Profits While Hurting Everyday Americans” by Abbey Meller and Hauwa Ahmed, I find it misleading to read a claim like “Pharmaceutical companies receive substantial U.S. government assistance in the form of publicly funded basic research.” In the lab I was working for, which was part of an academic institution, private contributions, i.e. the pharmaceutical industry, foundations and individual donors, were actually our largest financial contributors, funding over 60 percent of research. The government (taxpayers) contributed to only about a third of the costs.
While I am equally outraged at the financial burden patients in the USA have to suffer from out-of-pocket healthcare spending, I found several arguments used by Meller and Ahmed misleading: on the price of drugs, on intellectual property practices to keep these prices high, and on the alleged public funding of industrial drug development.
Meller and Ahmed quote a study that highlights the importance of government funding (more precisely, NIH funding) on the translation of research into treatments for patients, meant to underline the importance of maintaining public funding of research. Although the amounts spent by the NIH on academic advances that led to marketed drugs seem large, translational research (the work that turns science into medicine) does not represent the majority of NIH’s budget. The NIH is funding mostly basic science, not the much more expensive process of drug development.
For example, what the study actually underlines is that NIH funding helps academics find new drug targets. If a disease is like a broken-down car, then the NIH points to the flat tire and suggests that fixing it would get it going, maybe demonstrating how to do it using a toy car. But the drug industry invents and validates the jack, a new tire, and all the other tools required to actually fix cars with flat tires. Finally, even if NIH did contribute to research projects that eventually led to the development and approval of drugs, NIH didn’t make a gift to the pharma companies developing the molecules: NIH funds academic labs, hosted by academic institutions, who retain the potential intellectual property and license it (for a price) to pharma companies.
Meller and Ahmed blame the high price of drugs (and, as a consequence, high out-of-pocket copayments) on the current administration’s corruption or collusion with pharma, as well as on pharma’s patent extension tactics. Missing are the authors’ views on the role of insurance companies in determining what prices patients pay for drugs.
First, on the evolution of the price of drugs, given the system of rebates paid by pharma to insurers, net price increases are actually far lower than reported: just 0.3% from 2017 to 2018. The authors also compare the profit margins of pharma companies with other industries to support the fact that drugs are more expensive than they should be. However, the authors selectively look at the most successful companies in the pharma sector, failing to take into account the losses of all those that tried and failed. One could argue that lottery winners are overpaid if you merely looked at the lucky person who paid $1 and win $100 million, yet that’s the whole point of the lottery, which actually harvests more from all the losers than it pays to the winners.
The net profit margin for the whole drug industry (pharma and biotech) is actually below 10%, in line with other industries. This discrepancy in profit margins between the top performers and the rest of the industry is exactly the same in the software sector.
To illustrate how price increases of some drugs can make out-of-pocket costs unbearable for patients, the authors choose the example of insulin: “A 2018 study commissioned by the Congressional Diabetes Caucus found that the price of insulin has doubled since 2012; in the 10 years prior, the price of insulin nearly tripled.” This is indeed an alarming situation that has caused the underground market for insulin to thrive, though sellers are usually patients re-selling their insulin to afford other copays. As a result, last year, Illinois capped out-of-pocket costs for a 30-day supply of insulin to $100. As hinted by such new policies, which regulate out-of-pocket costs rather than the price of drugs, shouldn’t this responsibility be shared with insurance companies who fail in providing true insurance to their patients?
Branded drugs (excluding generics) represent less than a tenth of healthcare spending but since healthcare insurance plans often require out-of-pocket copayments as high as 20% of the price of a drug, high out-of-pocket costs for drugs are indeed a burden for the American population. An obvious solution to relieve patients would be for insurance companies to cap or eliminate out-of-pocket costs entirely, as Peter Kolchinsky suggests in his recent book, The Great American Drug Deal.
So, while there are certainly abuses in the system that have to end (e.g, via Kolchinsky’s solution, contractual genericization), I believe Meller and Ahmed’s article somewhat misses the mark. Yes, some pharmaceutical companies are profitable, some more than others, but part of this profit is harnessed to fund basic research, translational research and drug development.