EXPENSIVE PHARMACEUTICALS MBAA 2014

Page 1
Why Are Pharmaceuticals
So Expensive?
EXPENSIVE PHARMACEUTICALS MBAA 2014
Price tags on pharmaceutical drugs
continue to provide sticker shock to an
already nancially struggling market.
When a person is su!ering with a
condition that no available medicine
can e!ectively treat, the idea that a
new drug is on the way can be
exci ti ng. Unfortunatel y, wi th the
mo n o p o l y p r i c i n g t h a t o f t e n
accompanies new drugs, the cost can
be too far out of reach for the patient
and has the potential to drive up
insurance premiums for everyone.

The idea that money shouldnt determine whether or not a person gets the proper care
is prevalent here. Most regular people simply cant a!ord to pay the cost of many of
these new drugs. Even if they sell everything they own and use that money only for
pharmaceuticals, some could still never a!ord them.

This issue remains a sore spot because of the many treatable illnesses from which low-
income people have died. However, wealthier people successfully pushed through the
same ailments by taking these more expensive drugs. What is the point of having these
innovative, life-saving medications if they are out of reach of such a large percentage of
the population?

For instance, Sovaldi, a
groundbreaking drug
that treats hepatitis C,
has shown to cure
most patients who use
it for a 12-week period.
The problem is that this
miracle drug comes
with a steep cost -
$1,000 per pill to be exact. A full treatment would cost $84,000, and would supply the
full 12 weeks of medication. Thats more than most people make from their salary in
two years.

One report stated that if every American with hepatitis C took this medication, they
would spend a total of $227 billion a gure uncomfortably close to the amount that is
currently spent on all pharmaceuticals combined ($260 billion). The company that
makes Sovaldi has stated that the cost of this cure for hepatitis C is not as steep as it
seems because the cost of taking other hepatitis C medications is extremely high as
well. They believe that a comparison of total price of both methods will show the public
why the benets outweigh the cost.

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EXPENSIVE PHARMACEUTICALS MBAA 2014
O#cials at pharmaceutical companies cite the cost of research and development as a
major contributing factor to the cost of medications. Creating pharmaceuticals is an
expensive endeavor, as about 95 percent of all drugs never make it to the market,
failing in clinical trials.

It can cost billions of dollars to launch one new drug when you consider the research,
sta#ng and experimentation involved. Multiply that by the number of attempts to
launch a new product (successful or failed), and youll nd that number is in the
billions.

Cl i ni cal t r i al s ar e an
enor mous par t of t hi s
equation. Phase III clinical
trials are mandatory for the
FDA approval of a good
portion of new drugs, and
they equal slightly less than
half of all pharmaceutical
research and development
costs. If calculated only by
the number of drugs that
actually get approved, that
number jumps to about 90
percent.

Some phar maceut i cal

companies are said to view their prices as a way of regaining some of what was lost
during the numerous failed attempts at developing pharmaceuticals. This seems to be
a portion of the reason the cost of pharmaceuticals is as high as it is. Whether they
really need to be that high is another question.

Money cant buy happiness, but it can denitely buy more time or better quality for
your life if you happen to have a life-altering health issue that can be treated with
medication. Who wouldnt shell out big bucks to save their own life or that of a loved
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Benets to the Consumer
Is Science Enough to Justify the Expense?
EXPENSIVE PHARMACEUTICALS MBAA 2014
one? The problem is that not
everyone has big bucks to shell
out. Should their life su!er or be
cut short solely because of
nances? It doesnt seem so,
considering we are in this great
country wi th an enormous
amount of fantastic medical
evolution happening all around
us.

On the surface, it also seems

the pharmaceutical companies
are well aware of this fact and
develop their price structures
accordingly. Still, quality of life
and increased life span are two justications used by representatives of big
pharmaceutical companies, and they have expressed their belief at how unfair it is for
patients and insurance companies to complain about the prices when the medication
o!ers such great benets.

Its true that these companies hold the key, and they believe we should be thankful for
the fact that there is a treatment for many of these ailments. Still, someone would be
stumped trying to explain to a sick patient why they cant be treated due to cost when
the pharmaceutical companies have the answer right in their hand.

Drug makers have no competition during the time they are protected by patents. Even
though patents are good for 20 years, it can take upwards of eight years to get the
drug approved through the FDA. So by the time the drug hits the market, there may
only be a few years left on the patent.

Some believe this short monopoly period is a contributor to the high price of
pharmaceuticals, as the makers will only have a limited time to charge monopoly prices
before being forced to be competitive. This too is an unsettling revelation, because
while patients are waiting on a generic alternative, people are bankrupting themselves,
or worse, skipping treatment because there are no a!ordable treatment options.

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The Monopoly
EXPENSIVE PHARMACEUTICALS MBAA 2014

Marketing for pharmaceuticals is a $300 billion industry worldwide, and it is only

expected to rise. The largest 10 pharmaceutical companies have a collective hold of
$100 billion of this market by themselves, and they benet from prot margins of
around 30 percent. Pharmaceutical companies spend about one-third of their revenue
on marketing, which is twice the amount they spend on research and development.

Marketing is an essential element in promoting any business, but many believe this
astronomical number not only represents the highly frivolous way in which these dollars
are spent but that they are also not conducive to a sustainable business, serving only
to drive up the price of drugs.

Its obvious that most (if not all) of these reasons and justications are serving to raise
pharmaceutical prices, but these questions remain: Are pharmaceutical prices fair? Do
they have to charge $1,000 per pill to cure hepatitis C? If so, why are Canadians paying
$650 for the same pill? Furthermore, how were other countries able to negotiate a price
of $900 for a 12-week course? Thats less than the cost of one of these pills in the
United States.

Some say this means that all of the reasons and speculations above are just poor
excuses to squeeze money out of the American public while providing lower-cost, easy
medications to our foreign counterparts. Others say its because there is nothing
stopping them from charging whatever they want no cost control. Still, drug makers
want the public to understand all of the steps taken to create the medications as well
as take into consideration their life-changing benets.

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Their Massive Marketing Vehicle
EXPENSIVE PHARMACEUTICALS MBAA 2014
Americas healthcare system is already the largest in the world by a long shot. Not just
the pharmaceutical industry, but the healthcare industry in its entirety. But while the
cost of pharmaceuticals in the United States could seemingly take a dip without
a!ecting the livelihood of the drug makers, some believe that forcing them to lower
prices by way of cost control would cause innovation to plummet and be even more
dangerous, decreasing life expectancy.

As it stands, a little relief would go a long way, and we will hopefully see some type of
positive changes in the relationship between patients, insurance companies and drug
makers as our healthcare system evolves.

end in sight to fees created in hospitals and other healthcare facilities to o!set the
costs of running that facility, according to data from the long-term budget
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