Pharmaceutical companies must make decisions based on profit.

Abstract

To criticize pharmaceutical companies for researching and marketing medications for some diseases but not others is akin to criticizing Victoria's Secret for biasing their line of products primarily toward women. Regardless of what a company is selling, they are in the business of making money and satisfying their fiduciary duties. Whether the company is pedaling widgets, cigarettes, or other companies, at the end of the day the company's future existence depends on the bottom line of the income statement. Pharmaceutical companies are no different. They are in the business of making money by selling pharmaceuticals. As with every company, for them to exist, they must ensure that the result of the following equation is greater than zero: For them to operate, the management must generate the highest level of profitability possible to fulfill its fiduciary duty of maximizing shareholder value. Chandrasoma argues that pharmaceutical companies have an obligation to society to produce medicines that address all afflictions and to avoid discriminating against a particular disease or condition. But pharmaceutical companies have to discriminate because, like other commercial enterprises, every day they must answer the following question: can we afford this venture? This decision must be based purely on sales and costs. As any consumer knows, pharmaceuticals are expensive to purchase. Treatments for HIV infection can cost thousands of dollars per year. The reason for these high costs is the tremendous amount of time and money necessary to develop, approve, and distribute these medications. Over the past 10 years, Bristol-Meyers Squibb has spent more than 10% of its total sales on research and development.1 Merck alone spent more than $9.4 billion on research and development between 1996 and 2000.2 To put things in perspective, Merck could hand every American citizen a $5 bill or purchase every good produced in Tanzania for less than they have spent in 5 years on research and development. Once the research and development is complete, pharmaceutical companies can expect to spend many billions more on clinical trials, political lobbying, and other costs associated with launching a new product. On top of that, they must wait, on average, 10 years to begin selling the products and recouping cost. The revenue generated from a successful product must recover the cost of not only that product's research and development but also the cost of failed ventures. Companies can either charge phenomenally high prices for drugs that affect relatively small patient populations (for example, patients in the United States with AIDS or multiple sclerosis) or charge a more commercially viable price for drugs that address the needs of a huge portion of the population (for example, those with erectile dysfunction or allergies). Based on the medical system that is currently in place, insurance companies are more likely to lobby against high-priced treatments to ward off the consequent increase in reimbursement costs and subsequent hikes in premiums. As such, it is much more commercially viable to produce “little blue pills” for $10 a pop that appeal to (statistically) every man at some point in his life. Is there a solution? As usual, the answer is “It depends.” Like the problem, the solution can be addressed from the cost and sales side. From the cost side, if the pharmaceutical companies are relieved of their fiduciary duty or are supplied with the research money necessary to generate these drugs, they will be elated to capitalize on any opportunity possible. Similarly, if the insurance companies will alter their lobbying strategies and verify that they will pay high prices for cutting-edge drugs for rare sicknesses, the scientists and researchers at the pharmaceutical companies will gladly return to the lab. Pharmaceutical companies are easily vilified, but the decisions they make regarding drug production are based on fiduciary instead of medical decisions. Although the system is admittedly flawed, to scapegoat any one component is counterproductive to long-term progress in health care.