It’s all too common: Critics decry the cost of drugs, arguing that important medicines are unaffordable. Some say that once a company “earns back” development cost in the market, the company should lower the price.
It would appear to be good logic. And it represents an evolution in critics’ thinking, opening a new frontier in their confrontations with industry. They’ve heard industry’s return-on-investment (ROI) logic and are following it to the next logical conclusion.
Unfortunately, it’s a flawed conclusion, not only on their part, but also on industry’s and on mine (I have, after all, made the ROI argument myself). The ROI defense of price is based on the notion that R&D is conducted using funds that must be “paid back” when the product is sold. However, today’s sales don’t “pay back” the cost of a medicine’s development. Rather, today’s sales “pay forward” on tomorrow’s medicines.
The ROI defense created the view that R&D is funded with something like a loan that must be paid back later. It makes sense that critics, many of whom had student loans or have home mortgages, would assume that companies make an investment in R&D and then pay it off with sales from the marketplace, just as they invested in their education or homes, and, once employed, paid off student loans or paid down mortgages.
However, in reality, by the time any drug is launched, the R&D, regulatory approval, scale-up and early marketing costs have already been paid in full. Yes, there are additional costs when the drug enters the marketplace, but they are small by comparison.
Paying for a medicine, therefore, does not return on the investment made in R&D. Rather, paying for a medicine is paying it forward on R&D for the next generation – of people and of medicines. We don’t pay back, we pay forward.
What does this mean for industry in the future?
ROI dug industry into a hole, and as the old adage says, “If you find yourself in a hole, quit digging.” Being more transparent with more detail about R&D or other operating costs won’t address critics’ challenges. Going forward, I plan to replace ROI-speak with a “pay it forward” paradigm and encourage companies to do likewise. Every company has a robust pipeline to serve as ample proof.
I will couple that with better messages to payers, the public, and in particular, to policy makers, about unmet health needs and industry’s role in creating new treatment solutions and encourage companies to do so as well. Far too many people setting policies (especially within governments) are young and healthy. They’ve not yet experienced the life, household, employment or economic consequences of disease. They do not know that every medicine could be improved and that virtually none – especially those for chronic conditions – cure. They need learn more about why pipelines and (even incremental) innovations are important.