The standard talking point of many politicians is that pharmaceutical companies are greedy and government should control prices to keep drugs affordable. What is the truth?
Pharmaceutical companies make a lot of money – but they also spend a lot of money to develop their drugs. According to the business services consultancy Deloitte, the average cost of developing a new drug among the top 20 global biopharmaceutical companies rose 15% ($298 million) last year to approximately $2.3 billion. Worse for drug developers, the return on investment reaped by these companies for new drugs and vaccines plunged last year by 82% to 1.2% – the lowest percentage recorded in the 13 years Deloitte launched its annual reports on biopharmaceutical companies R&D – from 6.8% in 2021 and 10.1% in 2010, the first year studied by Deloitte. What other industry would tolerate a 1.2% ROI on a $2.3 Billion investment?
You won’t hear that part of the story in the news because these facts get in the way of the narrative of politicians that the high cost of drugs is due to corporate greed.
Senator Bernie Sanders (D-VT) held a hearing on insulin prices recently and it was contentious, as expected. But Grace-Marie Turner, writing for Galen.org, says it was also surprisingly informative and polite. Top executives of pharmaceutical companies sparred with executives of pharmacy benefit managers (PBMs), pointing fingers over who is responsible for high insulin prices that consumers encounter at the pharmacy. But the debate did illuminate the incredibly complex system of drug pricing.
Eli Lilly Chairman and CEO David Ricks explained that “Lilly hasn’t raised the list price for any of our insulins since 2017, the year I became CEO. In fact, we’ve only cut them.” Their new biosimilar, Humalog, is now available for $25 per vial. Sanofi CEO Paul Hudson said the average net price of Sanofi’s top insulin drug is lower today than it was in 2004 and that his company “returned 84% of our gross insulin sales to payors as rebates.”
The drug companies also are frustrated that the lower-priced version of their drugs seldom make it to PBM formularies. Senators questioned whether the PBMs prefer the higher prices because they get a percentage cut. PBM executives replied they always prioritize the drugs with the lowest price in their complex negotiations with health plans, labor unions, and insurers and pass 98% of rebates along to the customers. PBMs also are revising their formulary schedules to further reduce at-the -counter prices to patients “with an average member out-of-pocket cost below $9 for a 30-day supply of medication,” according to David Joyner, EVP of CVS Health and President, CVS Caremark.
“Today, more than 90% of the prescriptions dispensed are generics and represent a little more than 18% of total spend. And by using competition, generic prices have been deflationary over the last decade,” he said. “Securing affordability for the final 10% of name brand drugs is our focus.”
Democrats always want to blame the drug companies for high drug prices and always want to solve the problem by government intervention. But Senator Roger Marshall (R-KS) talked about the risks that more government intervention could impede innovation into better products – innovations that continue to extend the life expectancy of diabetics.
Some historical perspective is needed: The first insulins had to be injected multiple times during the day and night, with needles that had to be sharpened, boiled, and reused repeatedly. Today, injections are typically done once a day with throw-away needles that are pre-sterilized and affordable. Blood glucose levels that previously required blood drawing are now available without needle pricks. “The fact is that competition has produced better and better insulin products over time, and we are now seeing prices come down too,” according to Theo Merkel of the Paragon Health Institute in an article for National Review. “Congress should try to address narrow affordability problems where they exist but refrain from soundbite solutions that undermine competition in the long term.”
Unfortunately, the Senate Health, Education, Labor, and Pensions (HELP) Committee couldn’t resist marking up several bills designed to boost competition for generic drugs and increase transparency around PBMs and the insurers that use them. Sen. Rand Paul (R-KY) argued that the committee’s bills are likely to backfire and result in even higher prices.
Just as the Biden Administration repealed all Trump era policies that were effectively limiting illegal border crossings from Mexico, they also repealed a Trump administration solution that addressed the examples Senator Sanders and others raised about patients with lower incomes and no insurance suffering and even dying because they can’t afford their insulin. “A little-noticed policy that would have more directly helped the narrow population that is uninsured or still pays over $35 per prescription was repealed by the Biden administration with little fanfare,” Merkel writes.
He goes on to say, “The Trump administration finalized a rule requiring the nearly 1,400 federally qualified community health centers (FQHCs), which are clinics funded by the federal government to provide community care, to make available insulin at the heavily discounted price they receive under the 340B program (often under $15 per vial) to anyone under 350 percent of the poverty line (roughly $51,000 for a single person).” The option was shut down.
Turner writes, “Despite a sophisticated airing during the hearing of the complex pricing structures and generous patient assistance programs the drug companies offer that even give drugs away to those in need, Sanders concluded by saying ‘There is an enormous amount of greed in the system.”
Never let the facts get in the way of a good political narrative.
