If you've talked with anyone about healthcare recently, or read a few Big Pharma headlines in the past few months, you'll know that popular opinion of the health industry is often less than glowing, and skyrocketing drug prices has the reputation of drugmakers plummeting.
In this video segment from Industry Focus: Healthcare, Kristine Harjes and Todd Campbell talk about the one major issue that's brought the field's reputation from well-respected to what it is today: pricing debates and scandals. Listen in to hear what they have to say about how competitive pricing hurts and helps (really!) access to these drugs.
A full transcript follows the video.
This podcast was recorded on Feb. 17, 2016.
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 5,500% 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-hm. 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, drugmakers 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' (NASDAQ: GILD) 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.
Kristine Harjes owns shares of Gilead Sciences. Todd Campbell owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.