Does big pharma’s R&D justify high drug prices?

In June, five-month-old Arthur Mor­gan became the first per­son in the UK to be treat­ed with one-off gene ther­a­py Zol­gens­ma, man­u­fac­tured by Novar­tis. A sin­gle dose of the poten­tial­ly life-sav­ing ther­a­py for spinal mus­cu­lar atro­phy (SMA) is an aston­ish­ing £1.795m, mak­ing Zol­gens­ma the most expen­sive drug in the world.

Untreat­ed SMA, which caus­es mus­cle weak­ness and paral­y­sis, is the lead­ing genet­ic cause of death in chil­dren. Zol­gens­ma treats the root cause of the dis­ease; clin­i­cal evi­dence sug­gests it can sig­nif­i­cant­ly improve motor func­tion in young patients. 

The drug’s approval was a mile­stone for fam­i­lies with SMA, but it does raise the ques­tion: can phar­ma­ceu­ti­cal com­pa­nies jus­ti­fy such hefty prices for their med­i­cines?

For many peo­ple, the gut reac­tion is “no”. The phar­ma­ceu­ti­cal sec­tor has long been syn­ony­mous with cor­po­rate greed and there are plen­ty of exam­ples that paint the indus­try in a less than pos­i­tive light. In 2019, phar­ma giant John­son and John­son was fined $572m (about £460m at the time) for its role in the US opi­oid cri­sis.

Four years ear­li­er, Mar­tin Shkre­li, then Tur­ing Phar­ma­ceu­ti­cals CEO, sparked out­rage by jack­ing up the price of a cheap pill by more than 5000% when the com­pa­ny bought the rights to the treat­ment: Dara­prim, which treats a life-threat­en­ing par­a­sitic infec­tion, went from $13.50 to $750 overnight. 

“We can’t have an indus­try that’s sup­posed to ful­fil such an essen­tial social task act­ing pure­ly in prof­it-cen­tric terms,” says Diar­maid McDon­ald, co-founder of Just Treat­ment, a UK group rais­ing aware­ness of the impact high drug prices have on people’s lives. 

How­ev­er, some argue that pharma’s prof­its have a pur­pose beyond lin­ing share­hold­ers’ pock­ets. “The glob­al phar­ma­ceu­ti­cal indus­try spends close to £200bn a year on research and devel­op­ment for new treat­ments,” says David Wat­son, exec­u­tive direc­tor, patient access at the Asso­ci­a­tion of the British Phar­ma­ceu­ti­cal Indus­try (ABPI). The vast major­i­ty of this spend­ing won’t trans­late into returns for the sec­tor, he points out, because near­ly all poten­tial med­i­cines in devel­op­ment nev­er receive reg­u­la­to­ry approval. “Despite this, com­pa­nies per­se­vere,” he says.

Big pharma vs Covid

Few would dis­pute the val­ue of research and devel­op­ment through­out the coro­n­avirus cri­sis. Vac­cines man­u­fac­tured by com­pa­nies like Pfiz­er and AstraZeneca have changed the course of the pan­dem­ic. In Sep­tem­ber, England’s deputy chief med­ical offi­cer Jonathan Van-Tam announced that Covid vac­cines have saved 112,000 lives in the UK. Wat­son says com­pa­nies were only able to devel­op the jabs so quick­ly because of decades of R&D invest­ment. 

But McDon­ald believes we shouldn’t nec­es­sar­i­ly see phar­ma as our sav­iour. The indus­try was also able to devel­op vac­cines with unprece­dent­ed speed thanks to pub­lic sec­tor fund­ing. “All of that invest­ment was de-risked through advanced pur­chase com­mit­ments,” McDon­ald explains.

With gov­ern­ments pour­ing bil­lions into Covid-19 vac­cine pipelines, phar­ma­ceu­ti­cal com­pa­nies were pro­tect­ed from the usu­al finan­cial risks. It shows that invest­ing up-front in med­ical research can result in life-sav­ing treat­ments and vac­cines, says McDon­ald, who cam­paigns for suc­cess­ful clin­i­cal research to be reward­ed with grants and prizes rather than patents.

It’s true that patents give com­pa­nies a tem­po­rary monop­oly on pro­duc­ing a med­i­cine, which effec­tive­ly enables them to set the price as high as they like. But firms must con­sid­er a num­ber of fac­tors when assign­ing a price tag to a new med­i­cine, such as how well it treats patients, how many peo­ple will ben­e­fit and the price of sim­i­lar drugs. 

In the case of Zol­gens­ma, because SMA is a rare con­di­tion, the mar­ket for the med­i­cine is very small. And as the drug is only approved for treat­ing chil­dren under two, that shrinks the mar­ket even fur­ther, hence the eye-water­ing cost. But as chil­dren with the con­di­tion would need extreme­ly expen­sive med­ical treat­ment over sev­er­al years if they weren’t giv­en Zol­gens­ma, one could argue that the drug pro­vides clear val­ue as a one-time treat­ment. 

Look beyond the list price

In the UK, the Nation­al Insti­tute for Health and Care Excel­lence (NICE) deter­mines the val­ue of a new med­i­cine by work­ing out how much it costs to give a patient an extra year of “qual­i­ty life” com­pared to the cur­rent treat­ment offered. If the new treat­ment is deemed to be too expen­sive rel­a­tive to the ben­e­fits, it won’t be rec­om­mend­ed for use with­in the health ser­vice.

How­ev­er, this some­what inflex­i­ble sys­tem does mean that some patients lose out. This was the case in 2018 when cys­tic fibro­sis patients in the UK were denied Orkam­bi. The drug cost £100,000 a year per per­son and was then the only treat­ment for the con­di­tion. 

Health sys­tems don’t usu­al­ly pay the full “list price” for a new med­i­cine, says Leslie Gal­loway, chair­man of the Eth­i­cal Med­i­cines Group, a trade asso­ci­a­tion of small and medi­um UK phar­ma­ceu­ti­cal com­pa­nies. Many coun­tries have nego­ti­at­ed schemes that allow them to pro­vide med­i­cines to res­i­dents in more cost-effec­tive ways, though these true prices are con­fi­den­tial. In Octo­ber 2019, NHS Eng­land struck a deal with man­u­fac­tur­er Ver­tex that allowed peo­ple with cys­tic fibro­sis to get Orkam­bi on the health ser­vice.

Pre­vent­ing com­pa­nies from charg­ing extor­tion­ate prices for med­i­cines in the first place seems like a sim­ple solu­tion, but it might have unin­tend­ed con­se­quences. The US Nation­al Bureau of Eco­nom­ic Research found that cut­ting drugs prices by 40% to 50% would lead to 30% to 60% few­er R&D projects. It sug­gests that reform­ing the sec­tor in a way that doesn’t endan­ger inno­va­tion – and there­fore life-sav­ing treat­ments – would be chal­leng­ing.

In the UK, the 2019 Vol­un­tary Scheme for Brand­ed Med­i­cines Pric­ing and Access (known as VPAS) between the phar­ma­ceu­ti­cal indus­try, the gov­ern­ment and the NHS aims to strike a bal­ance between sup­port­ing inno­va­tion and ensur­ing patients can access med­i­cines at afford­able prices. Under VPAS, which runs until 2024, the NHS’s bill for brand­ed med­i­cines won’t grow by more than 2% a year. Phar­ma firms must foot the bill for any­thing above this spend. 

Such schemes show that the phar­ma­ceu­ti­cal indus­try does “an awful lot of good that peo­ple don’t see” says Gal­loway. There are no excus­es for bad behav­iour, such as Shkreli’s, he adds. But it’s hard to deny the crit­i­cal role the sec­tor plays in devel­op­ing treat­ments that improve, extend and save lives.