Kristine Harjes: A 2015 Harris Poll on corporate reputation found that Americans ranked Big
Pharma ninth out of 14 industries. That's right up there with insurance companies and
airlines as far as respect goes. Clearly, Big Pharma is maybe doing something wrong,
or something is not striking the right chord with the American public. Todd, can you highlight
a practice that you think might be raising these red flags for people who look at companies
through a moral lens? Todd Campbell: Hi, Kristine. You know, today's
topic, I'd be surprised if we didn't get a lot of listener feedback -- hopefully we will
-- with their opinions on the subject. It wasn't always like this. It used to be that
companies like Merck were some of the most respected companies out there. They're developing
medicines that save people's lives, and that's what people focused on. You're right, that
something has changed, and people now view them the way they view tobacco companies.
It's not healthy for the industry, if you will, and therefore, you could argue that
it's not healthy long-term for investors. I think that there are all sorts of things
that are going into that reputational decline in the industry, but probably one of the more
high-profile reasons why is the issue of drug pricing.
Harjes: Yeah, absolutely. Of course, this was brought into the public debate recently
with the whole Turing Pharmaceuticals ordeal. As many of our listeners are probably familiar
with, this guy, Martin Shkreli, the CEO of Turing, essentially bought up this old drug
and jacked up the price of it overnight 5500% of an increase, and seemingly for no reason.
Campbell: Right. This drug has been used for decades, and it's used to treat parasitic
infection. It's used in HIV patients to protect their central nervous system. It's not a top
seller, but it was a common drug, it was used. It only, at the time, cost $13.50 a pill.
Then, Turing steps in and they buy it, and that price jumps to $750 a pill virtually
overnight, with no improvement. It's like taking a car that's 15 years old and then
saying, "You know what, you have to buy this 15-year-old car for more than it cost brand
new." It made no sense. From a healthcare perspective, it made no sense.
Harjes: Mm-hmm. With that, this question of how drugs are priced and whether it's ridiculous
to be pursuing just a profit starts to become a national debate. You see all these other
healthcare companies come under fire, ones that do develop their own drugs in house and
then charge what some see as excessive fees for them, and particularly, drug makers that
have a model of mostly buying up other companies or other drugs and then bringing these new
treatments under their wing and raising the prices.
Campbell: We've got a couple different ways to think about drugs. You have drugs that
are developed internally by research and development teams or externally by research and development
teams that are then brought to the market and that actually make huge inroads into how
patients are treated or the patient outcome or whatnot, and then you've got these other
drugs that are maybe just tweaked a little bit. Maybe now instead of taking the pill
twice a day, you're taking it once a day, those kind of things. The debate then becomes,
"Well, should I be paying $1,000 a pill for something that maybe I only have to take once
fewer a day, or should I pay $1,000 a pill for a drug that now effectively cures a disease
-- for example, Gilead Sciences’ Hepatitis C drugs -- or should I never pay $1,000 for
a drug?" Harjes: Yeah, and of course, there is a really
complex ethical question underlying that, which is your whole premise of competition.
On one hand, $1,000 a pill sounds crazy, but what if there was some sort of cap where you
could only make $100 a pill? Some sort of line of, "This is the most profit you'll ever
have." Would we still have this drug at all? Would it then have been worth it for Gilead
Sciences to develop it? The other side of the coin is, you kind of want high prices
in the pharmaceutical industry so that there's incentive to innovate and improve standard
of care. Campbell: Yeah, and to that point, if you
look at it ... I'm a free market capitalist at heart, so I'm looking at it and I'm saying,
"Why is it that the United States oftentimes gets access to new medicine before other markets?
It's because we tend to reward innovation more than those other markets. If you set
price controls and you negotiate down the profitability of a particular drug for a drug
company, they're more likely to go to a market that they find more economically viable. You
can make the argument, absolutely, that because we reward innovation, we get innovation first.