Do we need to regulate Big Pharma?

In Dutch newspaper NRC of July 23, 2022, Joost Smiers tackles the problem of the sky-high prices of medication. Do we still need Big Pharma? he asks. And he answers: no. We can do away with pharmaceutical industry and turn their knowledge into a public asset. Smiers is professor emeritus in political science at the Utrecht Academy of Arts (HKU) in the Netherlands.

Smiers doesn’t shy away from controversy. For instance, in 2009 he published a book arguing against copyright. But let’s be clear: he doesn’t favour the nationalization of pharmaceutical industries. In his proposal, these will continue to exist and develop medicines. But then in a regulated sector, where knowledge of medication is in the hands of the community and being marketed from there. Smiers does want to end the lack of transparency of pharmaceutical industries. Causing prices to be high; with money flowing from patients into the pockets of shareholders.

Big Pharma has become big and powerful

Pharmaceutical industry grew at a major pace particularly after World War II; the growth peaking in the ‘80s of the past century; after that, a major consolidation followed. Two handfuls of companies dominate the sector, globally. It is often said that Big Pharma companies perform little fundamental research themselves; in the public eye, they leave that area to universities and SMEs. But we can easily establish that just a few dozens of the more than 800 medicines approved by the powerful FDA this century, have been developed by research at universities. On the other hand, as soon as it comes to the development of a proven medicine to a saleable product, Big Pharma is in the driver’s seat. There is an important reason for this sectoral structure: the high and rising cost of medicine regulation; determined by the authorities that formulate the requirements. One billion dollars for the entire approval procedure is quite common. Small companies, let alone universities, cannot supply such an amount of money.

The flip side of the coin: major pharmaceutical companies are in a powerful position. Among others, Wikipedia mentions: their knowledge surplus vis à vis doctors (together with lobby activities and presents), financial support of (supposedly neutral) health care organizations, support to universities (with some control of curricula), and lobbies at official bodies and parliaments (Congress). And fraud is not uncommon. Wikipedia mentions five settlements in the US of over 1 billion dollars, primarily because of ‘off-label promotion’ (for purposes not officially recognized). On top of that, we run into the fundamental problem that we don’t know how much funds these companies spend on research, development, marketing and production. In short, to what extent medicine prices are being determined by out-of-pocket costs; and to what extent by corporate profit.

A radical solution

Smiers has a radical solution. We should not nationalize industries; but we should put an end to patents. We should place pharmaceutical discoveries with an official body (the so-called commons). The community will then decide ‘how, by whom and under what conditions that knowledge may be used’. Companies that make use of such knowledge, should be transparent in their cost calculations. This will result in a major reduction of medicinal prices. For we will eliminate the power of shareholders, supported by marketing. We might find support in the major price cuts that we witness as patents on medicines expire.

And then we didn’t even consider the consequences for people dependent on medicines that are now not being developed. For instance for people who suffer from ebola, zika and tropical infections. As Smiers puts it: ‘we should no longer let ourselves be ruled by the strategic and financial interests of big pharmaceutical companies’.

The solution of this problem is long overdue

If we should embark on the new system, present pharmaceutical industries will have to be bought out. At prices not determined by the market values of those industries, but by the real costs paid by them in the acquisition and development of their knowledge base. That will involve a lot of money. But, says Smiers, we will be able to pay such a sum because we will pay it just once. Whereas the cost of medicines in pharmacies will go down appreciably.

These are Smiers’ proposals. We credit him with reviving a problem of which the solution is long overdue. But do his proposals make sense? We agree: Big Pharma needs to change. It needs to reinvent itself, more or less like the motor car industry needs to reinvent itself. For the motor car industry is on the brink of a major change, towards electric propulsion, and now has to allow newcomers to enter the market.

What kind of money do we consider?

But alas, the parallel doesn’t hold. In the pharmaceutical sector, market forces play an unimportant role. We do not have a new concept of medicines production. We don’t see much coming from the side of homeopathy, natural medicines or traditional Chinese or Indian medicines. As industry moved from mainly synthetic medicines to biotechnologically produced medicines, this didn’t appear to be a game changer either. On the contrary, Big Pharma invested heavily in the new domain and now uses biotech’s complexity as an argument for further price increases. On top of that, market demand for new and better medicines is almost unlimited. Industry finds itself in a position where it can keep on growing, and determine its prices almost all by itself. A major cause being the public, we ourselves; because we don’t want to take into consideration the end of our own lives. Big Pharma happily exploits that state of affairs.

And yet, we don’t think that Smiers’ proposals will help resolve the issue. Just as a start, he doesn’t consider the amount of money required. That will be a major sum, hundreds of billions. Just have a look at the very large expenses by Big Pharma (next to their equally large income). And he doesn’t discuss the organizational aspects of his proposal. It will have to be executed at an international scale. Not a simple recipe for success.

Practical problems

If we should embark on his proposals, what will happen next? Medicine development costs have then become government expenses and will tend to follow the laws of such expenses. Costs will tend to grow all the time. The pharmaceutical sector will have grown into one of the major government areas of expenses, and the political and administrative resolve to spend that kind of money will be under strong scrutiny all the time. Expense cuts will be a continuous concern. And government regulation will strike. After all, we will be talking public expenditure. We will witness a major rise in rules and protocols; said to be conducive to success, and minimizing chances of failure. And will the regulated sector not be attractive to the wrong kind of talents? People, highly educated and expensive, attracted by the Valhalla of a sector not well-fathomed by the experts; who don’t have to fear their bosses’ judgments?

And then: is it true that many new medicines originate from publicly funded research? Smiers doesn’t mention examples or numbers; but the number of new medicines as a result of academic research is much less than half of what comes to the market (see above). And the costs of such a breakthrough never exceed a few percent of the total. By far the major effort (and funds) are required for the development of the discovery into a medicine in the pharmacy. Moreover, academic research is much more about new concepts than about specific new medicines. Rightfully so, because the Brussels bureaucracy will tend to judge publicly funded research into well-defined new medicines to be undesirable corporate support. And fortunately, academic researchers aren’t judged by their economic successes, but by the quality of their research.

Then, how can we do this?

How then will we be able to put some sense into Big Pharma? At least, we will need international action. Witness for instance the efforts to harmonize taxes. And by the way, here is the key for regulation of Big Pharma. A progressive profit tax would seem to be the road forward. We can call into existence such a scheme using existing means and structures. And then, we will not need to call into life an entirely new body for research and development of new medicines.

Moreover, tax schemes have the advantage that they are not specifically directed towards one single branch of the economy. That might be viewed as unfair or discriminatory. Apart from Big Pharma, there are more companies and economic sectors that make unreasonable profits. Like gambling, some sectors in the entertainment industry, and some major companies in ICT and social media. And then, new legislation in the area of monopoly control is long overdue already. We could easily fit Big Pharma into a new scheme. We might also have to change patent laws and the protection they offer, in the pharmaceutical sector. Although not long ago patent periods were too short in order to be able to earn back the development costs of a medicine. The US even considered a longer period of protection by the patent. But we could revert or adapt that, together with deliberation on new tax rules. Summarizing: we will allow Big Pharma to exist and thrive; but we will accentuate the rules along which these companies can operate.

Written together with Diederik van der Hoeven

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