It has been drilled into our heads that Big Pharma needs Big Profits to pay for its innovations. That is a barefaced lie. They want the money to buy small creative, risk-taking bio-tech firms who do all the innovating….all paid for by funds from the NIH, university grants or venture capitalists.
Enter Big Pharma who uses its wealth to gobble up the small innovator, and with patent protection giving them no competition, is free to charge predatory prices and rake in obscene profits. Since the innovation was already done for them, their resources are free to go to paying off competitors to delay entering their domain, marketing and sales, prolonging patents, settling litigations, paying dividends and exorbitantly compensating management. Since they get hold of the drug when the patent clock has been ticking for a while, they are very skilled at prolonging the lives of patents and paying off competitors to delay entering their domain.
Profits go to launching, marketing and sales, settling litigations, paying dividends and exorbitantly compensating management. What little research and development they do goes to finding new uses to expand markets for existing drugs. Innovations come from small creative risk-taking bio-tech firms funded by the NIH, university grants or venture capitalists. In 2018, small firms discovered 64% of drugs launched. When a giant company sees a no-risk, patented blockbuster product developed by the small firm that close to crossing the finish line, it swoops in and makes it its own.
I’ll show you how it works starting with the world’s best-selling drugs Humira, Ibrutinib and the Covid-19 vaccine:
Humira (Adalimumab) began in 1991. It was a joint venture between two small firms, one in England, the Cambridge Antibody Technology Group (CATG), and the other in Germany, Knoll of BASF Pharma. A giant firm, Abbott Labs (AbbVie ). bought Knoll along with Humira for $6.9B.
When Abbott Laboratories first launched Humira, in 2002 the drug cost $522 per 40-mg syringe. AbbVie hiked the prices more than two dozen times. Humira now costs $2,984 per syringe, an increase of 572%, AbbVie has collected more than $115 billion in Humira sales since 2010. Their patent was due to expire in 2016, but AbbVie successfully managed to fend off would-be competitors Amgen and Samsung Bioepsis until 2023.
The development of Ibrutinib follows the same course. Scientists at Celera Genomics, a small firm, discovered a molecule that inhibited the action of an enzyme found in a certain blood cell. They saw no clinical application for this molecule but Pharmacyclics, a bigger firm, did. In 2006 picked up Celera‘s discovery program for $3M and began testing it. In 2011, after the drug had completed Phase II trials, Johnson & Johnson‘s subsidiary company Janssen paid Pharmacyclics for slightly less than $1B and joined them as a co-developer.
FDA approved the drug in 2014 and AbbVie bought Pharmacyclics in 2017 with Ibrutinib for $21B. The story of Ibrutinib is a replay of Humira’s… small fish being eaten by a succession of bigger fish until the fish has a product of value. Then, the giant fish comes along. When Abbvie bought Ibrutinib in 2013, the cost of a year’s treatment was $99K. Eight years later, with no changes made except the price,it was up to $181K.
AbbVie didn’t need these huge profits for innovation. That had been done years earlier for them. They used the astronomic profits to spend $50B between 2013-18 on dividends and stock buy-backs. Executive compensation during that period was $66.8M/year at a time when their research and development expenses were $508,000/year.
Covid-19 vaccine development follows the same game plan. A giant company hitches its wagon to a much smaller innovating biotech company. The Pfizer’s Covid-19 vaccine was developed by a biotech company in Germany, Bio-N-Tech. Their research fed on forty years of successive discoveries starting in the late 1980s in the Salk Institute. No single biotech group, and certainly no pharmaceutical giant, can claim invention of the mRNA vaccine.
Big Pharma takes advantage of seriously flawed patent laws to make profits, not innovations. We need to turn a deaf ear on the blather fed to us that high prices are needed to generate innovations. Innovations don’t occur overnight. There are no big bangs. There are a series of very little bangs, usually originating in University’s basic science labs and then progressing through decades of incremental progress passing through many hands. Big Pharma doesn’t enter the picture until the drug is about to cross the finish line. They then use their big bucks to buy the drug, company and all, monetize it and claim the glory.
It’s time to accept the fact that high prices generate nothing more than high profits