November 10, 2015
Valeant’s drug pricing is just part of the reality of big pharma
The outrageously high and rapid price increases on critical medicines by Valeant Pharmaceuticals and Turing Pharmaceuticals have made headlines in recent weeks. Like Captain Louis Renault in Casablanca, society seems “shocked, shocked” to discover that a pharmaceutical company is price-gouging patients. But should we be surprised that a pharmaceutical company will maximize profits when there is sufficient market demand?
Valeant, which has been described as the Enron of the pharmaceutical industry, certainly employed deplorable market practices by purchasing strategically placed small companies and then rapidly raising prices on critical, rebranded “specialty” drugs. Such practices came to light in the aftermath of the misguided decision of Turing to increase the price of the antiparasitic drug Daraprim from $13.50 (U.S.) a pill to $750 overnight.
Thanks to cases such as Valeant and Turing, front-running Democratic U.S. presidential nominees Hillary Clinton and Bernie Sanders have seized public support by promising to crack down on business practices that result in quick and exorbitant pharmaceutical price increases. But let’s be real, the pharmaceutical lobby is hugely powerful and well funded, so it remains doubtful that such political rhetoric will translate into meaningful change.
Regardless of the business model employed, the fact remains that we have a long way to go toward ensuring better transparency and public accountability. The research-based pharmaceutical industry has had long-standing questionable practices for drug pricing where controls are lacking or are easy to game. There is very little transparency in the research and development process, which the industry uses to its advantage to justify how much it charges for medicines. Pricing strategies are frequently rationalized as means for recouping the high costs of R&D. However, there is a persistent and, indeed, almost impenetrable fog around the process. Developing new drugs is indeed risky, time consuming and costly, but there are vast differences in what the companies and their critics say about costs.
PhRMA, the U.S. association representing drug researchers and manufacturers, says it cost as much as$2.6-billion to develop a new therapy in the early 2010s. But where does this figure come from? What counts as “research and development?”
The industry likes to emphasize that it is in the business of health. This is desirable insofar as companies have incentives to develop drug therapies that are truly innovative and can help to treat and prevent illness. But what is inherently problematic is precisely the point that it is in the business of health. We see too many cases where the drive for profit, in an intensely competitive market, can foster unethical practices.
That’s why we need tighter government oversight. Companies, research-based and generic, need to be held accountable and punished for unethical practices in a meaningful way. Valeant’s desperate efforts to rehabilitate itself are probably being driven more by fear of its shares plummeting and the fact it is now the subject of a U.S. federal investigation than by a change in the company’s views on corporate citizenship.
The Valeant case is not a one-off, but representative of a larger reality. We need to talk about the fundamental political and market structures that allow companies to be bad corporate citizens in the first place.
Pharmaceuticals are essential for health and well-being. The United Nations supports the human right to health, which includes access to essential medicines. But governments are not doing enough to ensure that medicines are regarded as public goods or that the pharmaceutical industry is accountable to its clients (the patients who depend on their drugs) instead of its shareholders (who profit from them).
The bigger issue is whether it is perfectly fine to treat pharmaceuticals as ordinary market commodities or whether they should rather be recognized as essential public goods. Should governments allow the private sector alone to determine the dynamics and, therefore, the access issues that confront health systems around the world?
At the global policy level, advances have been made toward placing social responsibilities on business as a way of encouraging ethical behaviour. More than a decade ago, the UN Sub-Commission on the Promotion and Protection of Human Rights issued a document titled Norms On The Responsibilities Of Transnational Corporations And Other Business Enterprises With Regard To Human Rights. The UN Global Compact seeks to advance responsible corporate citizenship. In it, the world body called on companies and governments to “embrace, support and enact a set of values” defining a new era of corporate responsibility, without giving a clear view of how this proposal should be implemented. We clearly need to figure this out.
The outrage over Valeant and Turing has shown that society is not comfortable with some pharmaceutical-industry practices. With a new federal government in Canada, the timing is right for legislators to step up and make the industry start valuing patients over profits.
This article was originally posted in The Globe and Mail and can be accessed here.
Author – Jillian Clare Kohler, PhD is an Associate Professor and Director of Global Health at theLeslie Dan Faculty of Pharmacy and the Munk School of Global Affairs at the University of Toronto as well as the Director of the Collaborative Doctoral Program in Global Health. She is cross-appointed to the Dalla Lana School of Public Health. Her professional background includes in-house pharmaceutical policy work at Unicef, the World Bank, and the Pan American Health Organization (PAHO), where she did field work in a range of countries including Brazil, Bulgaria, Haiti, and Romania.
Photo – Flickr/Creative Commons – Rennett Stone