By BRIAN KLEPPER
In a recent essay, VIVIO Health’s CEO Pramod John guides us through four sensible drug policy changes and supporting rationales that could make drug pricing much fairer. Reading through it, one is struck by the magnitude of the drug manufacturing industry’s influence over policy, profoundly benefiting that sector at the deep expense of American purchasers. As Mr. John points out, the U.S. has the world’s only unregulated market for drug pricing. We have created a safe harbor provision that allows and protects unnecessary intermediaries like pharmacy benefit managers. We have created mechanisms that use taxpayer dollars to fund drug discovery, but then funnel the financial benefit exclusively to commercial interests. And we have tolerated distorted definitions of value – defined in terms that most benefit the drug manufacturers – that now dominate our pricing discussions.
The power of this maneuvering is clear in statistics on health industry revenues and earnings. An Axios analysis of financial documents from 112 publicly traded health care companies during the 3rd quarter of 2018 showed global profits of $50 billion on revenues of $636 billion. Half of that profit was controlled by 10 companies, 9 of which were pharmaceutical firms. Drug companies collected 23% of the total revenues during that quarter, but retained an astounding 63% of the profits, meaning that the drug sector accounts for nearly two-thirds of the entire health care industry’s profitability. Said another way, the drug industry reaps twice the profits of the rest of the industry combined.
The transatlantic stand-off between the two pharmaceutical giants, Pfizer and AstraZeneca, is over; possibly for good. With Pfizer having failed to conclude a £69bn deal with the British-Swedish multinational pharmaceutical firm, almost £7bn was wiped from AstraZeneca’s share value.
AstraZeneca’s board, which decided that Pfizer’s bid was inadequate, has subsequently been criticised by major shareholders for “failing to engage”. Pfizer meanwhile, has been accused of being driven purely by the lure of lower taxes, job cuts and budget reductions. We have rounded up the reasons why we think that Astra Zeneca were right to reject the takeover bid from Pfizer.
The proposed takeover had major implications for several sectors. From major health and pharmaceutical recruiters to manufacturers and research companies, all would have been affected by Pfizer’s huge takeover bid. Despite repeated initial assurances from Pfizer’s CEO, Ian Read, both AstraZeneca and Pfizer finally acknowledged in last week’s parliamentary select committee meeting that there would be cuts to both jobs and research.
Indeed, even before the failure of the bid, many academics, scientists and even union leaders were accusing Pfizer of being driven purely by the possibilities of a lower taxes and reductions to the research budget. Pfizer had already been described by a former boss of AstraZeneca as a “praying mantis” ready to “suck the lifeblood out of their prey”.
However, AstraZeneca’s current chairman, Leif Johansson said that the deal represented “a significant risk to shareholders.”