Why High Pharmaceutical Prices are a Necessity

It may sound counter-intuitive, but high pharmaceutical prices are absolutely necessary if we want to reward high financial risks and if we want to encourage research. High prices are even needed to reduce the overall healthcare budget in the longer term.

Today, the debate is led by an incredible short-sighted view, with many blind spots for the simple reason that in healthcare, the profits made by the pharmaceutical industry, and the prices asked for individual medicines appear to be obscene and driven by greed. Anyone is entitled to this view but it is wrong.

First, let me say that my perspective is European, not US-based. In Europe, we have such a thing as universal health coverage, and our reimbursement systems are largely organised based on solidarity: we all contribute a little so that those who really need healthcare access, can do so without being blocked by the costs incurred.

Let's first address Health Technology Assessment (HTA), and some of its major flaws. HTA looks at the value of an innovative treatment today, based on prices today, and based on today's healthcare budget and today's patient population. HTA is very much focused on the 'here and now'. What HTA does not do, is to think from an overall health research policy perspective. That is outside their remit, so naturally they don't even think about it.

The first question they should ask is: what can we do to encourage investors to take this incredibly huge risks to block significant amounts of money with uncertain returns. This is taken for granted by many, that shareholders and investors are willing to spend huge sums of their finances on highly risky ventures. The only reason investors do this, is because they hope to be significantly rewarded. If they are rewarded like investors in food, telecommunications or space research, they will go to these much less risky businesses with their money. Unfortunately, nobody interested in healthcare access, asks this question about the importance of investors. Money is dirty, and has no place in healthcare (yet at the same time everybody is fighting for budgets, fees, salaries, distribution margins and investments). But think about this: who will invest in pharmaceuticals if the return is at the same level as other businesses? Nobody. That's right. Nobody. How will the patient benefit from that? It beats me.

Last month, Deloitte published a report that shows that the projected returns of 12 of the world’s top drugmakers were at an eight-year low of only 3.2% (Source: Deloitte, "Measuring the Return from Pharmaceutical Innovation 2017"). According to Forbes, the average return on equity for key industries from 2014 – 2016 shows that biopharma’s profits stand at 16.2%, significantly lower than Computer Sciences (31.6%), Beverages (27.4%), Aerospace/Defense (23.0%), and Trucking (19.1%) while modestly higher than Software System/Applications (15.2%) and Healthcare Support Services (14.4%) (Source: Forbes, Jan 23, 2018).

There is only one thing that attracts investors, and that's high returns. Decreasing the price of innovative medicines is not going to help.

Second, governments invest almost nothing in health research by comparison, and the European Union and its member states are among the worst-in-class. Member States invest nothing in basic research in health, let alone in the applied research that results in new treatments. The only way to make national governments pay for health innovation, is through high prices of newly developed technologies. That at least is a guarantee that around 20% of that revenue is directly invested in research. For every euro invested in the reimbursement of a new drug 20 eurocent goes to research. The mathematics are simple: reduce the price of the product by 30%, and it will generate 6% less investments in future research. Increase the price of the drug, and more money will flow to research, more money will go to investors who will want to invest more in pharmaceuticals. The top-20 pharmaceutical companies spend around USD billion 93.7 on research, while all worldwide health research investments by public sources reaches only USD 51.2 billion. So if the price of innovation goes down, innovation goes down too. The public authorities will never fill that gap. And that's why it's good to integrate health research policy as an additional aspect of Health Technology Assessments. If you want to reduce global research investments, the policy measure is clear: cut pharmaceutical prices.

Third, HTA does not look at the innovative promise of new treatments. It looks at value now, and drugs are compared with older drugs - and not always relevant ones - in order to drive prices down. In fact, the opposite should happen. If innovative treatments hold a promising future, because they work in a different way than previous treatments, they should be encouraged, even if the overall medical result is not a real breakthrough in the strictest sense. The only way to encourage research in that direction, is to pay a premium price for that treatment that goes beyond its current health economic value. Typically, this is completely outside the remit of HTA agencies, yet from a patient and health outcomes perspective, it is absolutely critical.

Fourth, HTA looks at every disease in the same way, i.e. calculated on the patient population itself. That is of course understable in the US, where patients have to pay for their treatments individually, but it does not make sense in Europe. A patient with an orphan disease should have equal access to healthcare as a patient with breast cancer. If you calculate it per patient, the costs of orphan drugs will be huge (today around 140,000 € for new treatments). But this is a ridiculous calculation. The question to ask is how much are we, as society, willing to pay to offer patients treatments for the first time ever. If 500 patients in Belgium suffer from this orphan disease, the total cost will be 70 mio €, or 6,3 euro per inhabitant of Belgium. Even if I do not have this disease, it seems fair to contribute to help these patients by drinking a few beers less in the course of a year. I am willing to contribute to the 1,1 million euro treatment for very rare diseases, as with the now defunct Glybtera. Who cares about that amount? With only 200 patients in the EU, that would only make 0.4 euro per inhabitant. That's peanuts. Good ideas get killed for the wrong reasons.

Fifth, HTA only looks at this year's or next year's budget. Why not think about the value of innovation over a 20-year period. And make a real health policy analysis of what it might mean to approve this drug now at a high price, and then significantly reduce it after loss of exclusivity. The prices of generics are still far too high. Manufacturing drugs is relatively cheap. So are the logistics of distribution. They don't run any business risks comparable to innovators: they just see what generates money, and then copy it. The difference between an innovative pharmaceutical company and a generic company is like the difference between William Shakespeare and a printer of books. Once the plays are written, and success is apparent, it's easy to reproduce.

So, in sum: why are high prices absolutely important for patients and health outcomes?

• High prices reward the high financial risks made by investors
• High prices attract new investors to participate in new research
• High prices generate immediate revenue to spend on new research
• High prices are the only means to persuade policy makers to invest more in health resarch

I can understand that people hate the arrogance and the money of the pharmaceutical industry. I can understand that there is a level of distrust. And it sounds unfair or even crazy to give even more money to the guys who already have all the money. I can understand these positions, but as an oncologist in the Netherlands said last year: "for the price of this drug I can hire 25 nurses", the only possible answer is : "yes, indeed, but as a patient, I'd rather have an effective treatment that is expensive, than the care of 25 more nurses without an effective treatment". Don't loose the patient perspective!

So think about the big picture. Think about the whole system (from investor to patient), and how it works, how it has generated incredible successes so far, at a relatively cheap and affordable cost. Millions are alive in Europe for a meagre 400 euro in pharmaceutical expenses per inhabitant, who wouldn't sign for that?

Success needs to be rewarded. And the higher the price, the better the future will be.