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

It’s easy to attack pharmaceutical giants for their eye-watering profits, but list prices for new medicines don’t give the full pictureu0026nbsp;

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?

We can’t have an industry that’s supposed to fulfil such an essential social task acting purely in profit-centric terms

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. 

The global pharmaceutical industry spends close to £200bn a year on research and development 

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.