A Pfizer exec explains the price tag of new drug innovation

Innovation doesn’t have to come with an in-office game room.
Innovation doesn’t have to come with an in-office game room.
Image: Reuters/Suzanne Plunkett
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We live in a time when creative work can be had on the cheap. Apple’s iTunes has unbundled albums and offers consumers the right to buy a song for as little as 99 cents. If even that is too much, consumers can simply stream music for free on platforms such as Spotify or Pandora. The battle between online retailers and book publishers has dramatically reduced the price of e-books, and the majority of newspapers and magazines give away digital versions of their content even as they struggle to figure out how to make enough money to stay afloat.

While the digital revolution has been a boon for consumers, it’s upended business models in the music and publishing industries. In many cases, it’s also made life more difficult for the artists and writers whose creativity and talent is the fuel powering all of these enterprises. We digital-age consumers have become so accustomed to online bargains that we expect to find what we covet for next to nothing—or maybe nothing at all—if we just search long enough.

This sense of entitlement has had an unexpected consequence: It’s distanced us from truly understanding the vast investment of time, effort, and money that creativity and innovation require.

And just as in the digital realm, the biopharmaceutical industry isn’t immune from the idea that our medicines should be free. One thing we can count on when we release a new medicine to market, no matter how effective its therapeutic benefits, is that its price will be a topic of debate.

Taking risks costs money

Ask the average person to name a few companies they think of when you mention creativity and innovation, and I bet the first ones you’ll hear are dynamic, consumer-facing technology trendsetters such as Google, Apple or Amazon. Chances are, neither Pfizer nor our peers will come up without at least a little prompting. And yet, the biopharmaceutical industry is very much in the creativity and innovation business. Like the three digital trendsetters I mentioned, we are only successful if we continually improve upon past successes and introduce new products.

I think one reason people don’t put us in the same category as the Apples, Googles, and Amazons of the world—even though we feel a kinship with them—is the obvious differences in our products and the way you acquire them. Digital products provide nearly instant gratification—search for what you want, and then download it on the spot or click to have it delivered to your door the next day. Medicines, on the other hand, require a doctor’s prescription to buy, and people aren’t usually thrilled to find out they need them. In other words, consumers come to digital trendsetters to make their lives more enjoyable. Individuals, caregivers, and the general public look to medicines for hope.

How much is that worth? As it happens, you can put numbers to that question. Life-saving or life-improving medicines are responsible for 73% of the increase in longevity over the past decade. And yet, they accounted for less than 10% of overall healthcare spending in the US in 2011. Between 1950 and 1994, cardiovascular mortality fell by two-thirds, and about one-third of that reduction has been attributed to pharmaceutical innovation.

That’s a pretty powerful argument for our kind of creativity and innovation. And yet, some claim our medicines are too expensive. What I would argue is simply that sticker shock isn’t the best way to evaluate the “fairness” of pricing models. Consider the recent furor over Sovaldi, the medicine released in December 2013 by Gilead to treat Hepatitis C. Here’s a chronic infection that afflicts 3.2 million people in the United States. For those in need of a liver transplant, treatment and surgery cost an estimated $300,000 over the course of a lifetime. Through intensive research and development, a new medicine arrives that is proven to cure 90% of those for whom it’s prescribed in just 12 weeks—and a course of treatment currently costs $84,000. That’s one-third of what treatment would cost otherwise.

To those who say that Sovaldi is expensive, I’d ask them to speak with a patient and ask them which form of treatment they prefer. I’m sure they’d choose the one that offers the opportunity of a permanent solution, in a fraction of the time.

Creativity and innovation pay off

Here’s the reality: Most of the medicines we develop in our labs will not make their way to patients. In fact, by one estimate, only one in 1,000 drugs that enter preclinical testing will ever reach the human testing stage. To make up for the risk and expense inherent in creating new medicines, the few medicines that are successful must cover the research and development costs of the many clinical failures that will never earn a single cent.

In any business that lives and dies by innovation, figuring out what to charge for a new and unique idea is a challenge. It’s easy to know how much a widget costs—raw materials, labor, overhead, and logistics are all relatively easily valued. But how much is a great idea worth? And how does that analysis change when the product in question has the power to affect people’s health and lives?

These are fair—and difficult—conversations for our society to have. But in this information-saturated world, it seems to me that profit has become a bad word in some industries of late. It’s easy to forget that profits serve an important purpose: they allow businesses to invest in the innovations of the future. They give creative people the freedom and incentive to push beyond the status quo and try out new, radical ideas that may well amount to nothing. Profits enable entrepreneurial companies and individuals to take the risks that ultimately change the world.