Blog RSSBlog.

05/03/2015

“Reasonable Profits” For Pharmaceutical Manufacturers?

With
the recent success of the blockbuster drug Sovaldi© (Gilead Sciences, Inc.), the
manufacturer’s stock price has quintupled in the last four years.
This supports the views of some that pharmaceutical prices in America should be
subject to greater government scrutiny and controls like other industrialized
countries.

High
profits within the pharmaceutical industry are nothing new. “Historically
[before the recent recession], the drug industry in America has been the
top
performing
[sector] in terms of return on revenues (average 18.6%) and return
on assets (average 17.7%) compared to 4.9% and 3.9% respectively for median
companies in the Fortune 500 industries.” 

The
extremely high costs of drug research and development (R&D) are often cited
as the principal rationale for allowing an above average return and minimizing
government price controls.
However, studies have shown that “[as t]o the question of whether
pharmaceutical drugs costs are justified by R&D, the answer is no.
Pharmaceutical firms do indeed invest money in R&D, as do other production
and service firms, but this investment does not account for their large ongoing
profit, which ranges from 2.5 to 37 times the non-pharmaceutical industry
average over time.”

Such
begs the question: How high are profits that are too high? Or perhaps, what is
a reasonable rate of return for drug companies? Or, if the Congress were to
intervene because profits are excessive,
what options might be available
without unreasonably regulating an already heavily regulated industry?

As
a compromise, perhaps it would be prudent to tax pharmaceutical industry “excessive
profits” at a higher rate? Excessive profits taxes or excise taxes have been
used in the United States during wartime to minimize the risk of
war-profiteering or war-related windfall profits. “The first effective national
excess profits tax was enacted in 1917, with rates graduated from 20 to 60
percent on the profits of all businesses in excess of prewar earnings but not
less than 7 percent or more than 9 percent of invested capital.” 

Of
course, the pharmaceutical industry will resist any such public policy shift
that might be interpreted as discriminatory. But with the federal and state governments bearing a greater and greater proportionate
share of the costs of providing prescription drugs to patients, sooner or
later, the Congress and state legislatures must face reallocation questions for
the current system to survive and be sustained over time.

The Alden March Bioethics Institute offers a Master of Science in Bioethics, a Doctorate of Professional Studies in Bioethics, and Graduate Certificates in Clinical Ethics and Clinical Ethics Consultation. For more information on AMBI’s online graduate programs, please visit our website. 

This entry was posted in Health Care, Pharmaceuticals and tagged , , , . Posted by Hayley Dittus-Doria. Bookmark the permalink.

Comments are closed.