WHO, a World Health Organization that examines pricing approaches adopted by the pharmaceutical industry and authorities responsible for the pricing of medicines, has a specific focus of medicines for the prevention and treatment of cancer. This report reviews pricing approaches applied throughout the “value chain,” which are activities required to bring medicines to patients, from R&D to service delivery. This report also reviews different time points of product life cycle from market launch to the entry of clinically substituted medicines (that is medicines with similar chemical structure and therapeutic effects, so-called “me too” medicines; and generic and biologically similar medicines.)
Critical of the Industry
WHO is critical of the current drug development and commercialization reality. In the report, they note that the industry’s current pricing approach “makes cancer medicines unaffordable, preventing the full benefit of the medicines from being realized.”
WHO purports in this study that $1 of research and development expenditures in the oncology sector generates a median of $14.50 sales income. The underlying theme could be the excessive profits that may drive drug makers.
As with any study critical of business, it will trigger responses. Big business focused publication Forbes chimed in on this report. Editorial scribe Wayne Winegarden challenged some of the underlying thinking in the report. Some points include:
- Although their title indicates a study of all cancer medicines approved by the FDA between 1989 and 2017, WHO actually eliminated 37% of the study population due to insufficient data associated with them. Perhaps the medicines were not commercially successful? Of course, if that was the case that would skew the results.
- The analysis summed up global sales numbers earned on the chosen cancer medications for the period of 1989 to 2017. However, Winegarden conveys simply summing up a stream of revenues over time is an inappropriate and meaningless calculation—it does not account for the time value of money—a fundamental financial principle. The net result, according to the Forbes scribe, is that WHO overinflates the revenue multiples.
- The study demonstrated a fundamental misunderstanding of the negotiation process that sets drug prices globally. Excluded were benefits associated with cancer medicines such as the benefits created by better cancer treatment and longer survival rates, reduction in other healthcare costs and the reduction in other social costs.
- They also failed to account for pharmaceutical companies’ actual cost of capital and mis-measured health care affordability.
Can we Have our Cake and Eat it Too?
There are undoubtedly truths in the critique above. Moreover, the drug makers in most cases are either publicly traded or controlled and owned by private equity groups. A fundamental driver in any corporate model is sufficient return on investment. In fact, TrialSite News believes that the burst of innovation in new drugs—from immunotherapies to new types of advanced cancer killing technologies—is the profit motive that goes to the winning companies. Moreover, the companies have no choice but to seek out and maximize profits. This is why managers are hired into these firms.
We are definitely living in a world where there appears to be some forms of economic class polarization with many doing incredibly well and many, many more doing not so well.
As entrepreneurs ourselves, we like the idea of a universal health access where the costs can be covered by some uniform pool—we could not incur that cost as a company and pass it along to the public. But we suppose the public will have to make up for the payment somehow—perhaps in higher corporate taxes. Then one ponders, at least in America, the high rates of obesity, Type 2 diabetes and potential cardiovascular disease, and we realize we will have to probably “socialize” the system even more.