Posts tagged with: pharmaceuticals

The Manhattan Institute’s Proxy Monitor project is aimed at “shedding light on the influence of shareholder proposals on corporations.” It provides a thorough analysis of proposals made from 2008 – 2011 by activist investors — and believe it or not, only 35 percent of those proposals were related to corporate governance. Most of the shareholder proposals that these companies deal with are attempts to direct the company in a more green or pacific or fair direction, and they come from small shareholders who do this to dozens of companies.

A new report from Manhattan summarizes the trends — the growing social proposals, and how Dodd-Frank has playing into activists’ activities — and the proxy monitor website allows you to look at any shareholder proposal from the last few years. The proposals are enlightening. The Sisters of Mercy of the Americas have submitted proposals to the stockholders of Lockheed Martin and General Dynamics stating,

WHEREAS: Space has served as a sanctuary where, over the years, nations cooperate rather than confront one another. Satellites save lives…

RESOLVED: Shareholders request that, within six months of the annual meeting, the Board of Directors provide a comprehensive report on Lockheed Martin’s involvement in the space-based weapons program, at reasonable cost and omitting proprietary and classified information.

The well-meaning Sisters of St. Francis of Philadelphia, in a proposal to McDonald’s shareholders that made the news earlier this year, requested that,

WHEREAS,

The Affordable Care Act, signed into law on March 23, 2010, included federal menu-labeling legislation requiring the posting of calories on fast food menu boards….

RESOLVED: Shareholders ask the Board of Directors to issue a report, at reasonable expense and excluding proprietary information, within six months of the 2011 annual meeting, assessing the company’s policy responses to public concerns regarding linkages of fast food to childhood obesity, diet-related diseases and other impacts on children’s health.

Many other equally well-intentioned proposals have been filed, including repeated requests by the Sisters of Charity of St. Elizabeth that various pharmaceutical companies restrain their prices to “reasonable levels.” The Unitarian Universalists have requested that Pepsi Co. “create a comprehensive policy articulating our company’s respect for and commitment to the Human Right to Water.”

This is not to mention the numerous environmental proposals made by religious groups, requesting that the Rights of Humanity and of Mother Earth not be violated by carbon emissions and by the use of genetically engineered plants. Take, for instance, this statement from a proposal to Du Pont’s shareholders, concerning genetically engineered crops:

The right to food requires that we place the needs of the most marginalized groups, including in particular smallholders in developing countries, at the centre of our efforts

One might think the Sisters of Charity of St. Elizabeth were unaware that it has been the genetic improvement of crops that has saved millions of the world’s poor from starvation.

We’ll keep you posted on further developments, and the effects these proposals may have on companies’ performance.

Blog author: jballor
posted by on Wednesday, January 24, 2007

Last night the President spoke of “the challenge of entitlements” and said that “Social Security and Medicare and Medicaid are commitments of conscience — and so it is our duty to keep them permanently sound.”

“With enough good sense and good will, you and I can fix Medicare and Medicaid — and save Social Security,” he averred. The ability of the federal government to negotiate drug prices has been an aspect of the recent debate over Medicare that was brought to the fore in the recent “100 hours” legislative agenda.

A number of conservative commentators have come out against this idea, including Acton’s own Rev. Jerry Zandstra and Benjamin Zycher of the Manhattan Institute (HT: The Reform Club). These are just two voices in a chorus of criticism rising against federal negotiation (I use them just because they are the ones with which I’m most familiar. I don’t mean to pick on anyone in particular).

Both of their arguments seem to me to boil down to this: the government is an effective negotiator and the result of negotiation will be that drug companies will have less money coming in and therefore spending on research and development will suffer.

Zandstra says of successful negotiation, “if, in doing so, you dry up research and development dollars so you aren’t developing drugs to treat cancer and Alzheimer’s and other diseases — if you take the profit motivation away — have you done good? No, you really haven’t.”

Zycher writes, “Federal price negotiations will cause sharp price reductions, but this will yield less research and development investment in new and improved medicines over time.”

These claims fail at a number of points in my opinion. Zycher and Zandstra are probably right on the mere claim that federal negotiation of drug prices will produce a drop in pharma income. But that isn’t the datum that is most relevant to the policy discussion.

Once government has decided to tax us and spend our money on a particular program, I think it is government’s responsibility to spend that money as well as it can, to be good stewards of efficient and productive use of those funds. This is true regardless of whether or not the program itself is one that government should be undertaking. The question of whether the government should be doing or pursuing a particular program or agenda is a different one than whether the government should pursue these programs efficiently and well.

So, given that Medicare is an entitlement to which our government has committed itself, it seems to me that the government is responsble for administering it as cost-effectively as possible. The government needs to make our tax dollars stretch as far as they can. This should include negotiating lower prices paid for prescription drugs, regardless of the effect it might have on drug company profits or research budgets.

It is a separate question whether drug companies need federal support to achieve the current or higher levels of funding for research and development. But let’s assume for the sake of argument that pharma companies do need federal support to find new drugs for “Alzheimer’s and other diseases.” If that’s the case, then the argument for subsidizing pharmaceutical research should be parsed out from the question of drug price negotiation.

Refusing to allow the feds to negotiate prescription drug prices effectively creates a subsidy for drug companies…something I would think that Zandstra and Zycher would be against, at least in principle. But maybe not.

Drug companies are in fact struggling, it seems. Pfizer, for instance, is shutting down operations at three Michigan sites and laying of 2400 workers, as part of a broader layoff of 10% of its workforce. And perhaps the estimated “loss of about five million life-years each year” is sufficient reason to support government subsidy of drug research.

But if conservatives are in favor of government subsidies for drug companies, they need to make that argument stand on its own and separate it from the question of price negotiation. Government subsidy of drug R&D should be a separate question, complete with its own line-item and its own policy analysis.

Blog author: kschmiesing
posted by on Thursday, September 7, 2006

An interesting debate is going on over at Mere Comments. The main thread has to do with the morality of the Bush Administration’s approval of over-the-counter sales of the morning-after pill and the implications for Pennsylvania’s U.S. Senate race. Leaving those issues aside, I was struck by a comment from “Daniel C.”, claiming that the problem really presents an “excellent case for dismantling the Food & Drug Administration.”

It’s a question worth raising. I don’t know enough about the history or current practice of the FDA to judge definitively one way or the other, but I know that there exists significant discontent with its role as (ostensibly) the nation’s guardian of food and drug safety. For example:

1. It constructs unreasonable obstacles to the delivery of medical technology.
2. It stifles pharmaceutical innovation because regulators are biased toward caution as opposed to risk.
3. Its evaluation process is distorted by rampant conflicts of interest on the part of the experts it employs to evaluate new products.

Blog author: jballor
posted by on Monday, July 31, 2006

At least, the title of this post is typical of the mantra against the practices of drug pharmaceutical companies, according to Peter W. Huber’s “Of Pills and Profits: In Defense of Big Pharma,” in Commentary magazine (HT: Arts & Letters Daily).

Huber, a senior fellow of the Manhattan Institute, summarizes in brief the anti-drug company argument, and then goes on to examine what truth there is in such claims. He says of the difference between creating and administering drugs, “Getting drug policy right depends mainly on getting that difference straight—the difference, that is, between ministering to the sick and making medicines—and grasping its implications from the start. Big Pharma’s critics do not even try.”

He goes on:

Pricing is indeed the key. Whether the first pill typically costs $100 million or $1 billion to develop, replicating it costs less—a thousand times less, or perhaps a million times less. This slope—precipice, really—is far steeper than most of the other hills and valleys of economic life. It complicates things immeasurably. It also largely explains the gulf between the industry’s perception of reality and that of the critics.

Huber gives some explanation of the function of the price mechanism in pharmaceutical markets, and says, “Economists have established—as rigorously as things ever get established by the dismal science—that there is no efficient price, no ‘right’ price. Any scheme is, from one perspective or another, inefficient, unreasonable, or worse.” He argues that the high prices for boutique drugs like Viagra in the developed world help fund the provision of desperately needed drugs in the developing world. This is the situation created by so-called “price discrimination”.

The situation he says, is similar to that of airline travel: “Business travelers get soaked, college students fly almost for free, and the jumble of prices in between drives most people nuts. But the planes are packed full, and that drives the average price of a ticket way down. The rich fly, and the much less rich fly, too.” There is, I would think, a similar model at play in the work of plastic surgeons who charge Hollywood millionaires huge sums to do face lifts and tummy tucks, and then use a portion of the money they make doing that to do pro bono work for burn victims and deformed children.

The complexity of the pricing situation is what critiques of drug companies tend to ignore. Concludes Huber, “This kind of behavior is not aberrant or anomalous—it is an inevitable and essential part of groping toward the right price where there is no right at the end of the tunnel. Somehow or other, the average price of the pill has to end up high enough to pay off the up-front cost.”

If Huber’s analysis is correct, it is interesting to see how a nonprofit drug company, like the one profiled in today’s New York Times article, “A Small Charity Takes Lead in Fighting a Disease,” fits into the picture. The NYT article itself exemplifies many of the criticisms against pharmaceuticals that Huber summarizes.

Huber points to the vagaries of government regulation and private insurance, which greatly affect the drug market. One explanation for the situation that a nonprofit drug company like OneWorld Health attempts to address is that “big drug companies shun some drugs and embrace others because, collectively, the FDA, doctors, patients, insurers, and juries push costs higher, and prices lower, on some categories of drugs and not on others, to the point where some make economic sense and some do not.”

Indeed, OneWorld Health is working with a drug for black fever that, according to the NYT, administered “a series of cheap injections was identified decades ago but then died in the research pipeline because there was no profit in it.” There is, effectively, a partnership at play between for profit and nonprofit drug companies. OneWorld Health didn’t develop the drug in the first place, but on that point is dependent on the work of for profits.

Huber says:

Universities and small biotechs license their innovations to Big Pharma because they lack the capital, scale, and expertise required for mass manufacturing, because they wouldn’t know how to sell the same drug five times in succession (to the FDA, doctors, patients, insurers, and juries), and because a vast and swampy system separates pharmaceutical innovation from the treatment of real patients at prices that will cover cost and earn a profit. The little guys just don’t have what it takes to finish the job.

But OneWorld Health, in the case of the drug mentioned above (paromomycin), “has conducted the medical trials needed to prove that the drug is safe and effective. Now it is on the verge of getting final approval from the Indian government. A course of treatment with the drug is expected to cost just $10, and experts say it could virtually eliminate the disease. If approval is granted as expected this fall, it will be the first time a charity has succeeded in ushering a drug to market.”

Huber concludes that in the future “we will fare better, much better, if we streamline regulation, curb litigation, and unleash prices to make vaccines as alluring to Big Pharma as Viagra and Vaniqa.” But in the meantime, it may be that efforts like OneWorld Health can help at least some of those who fall through the cracks. Says Dr. Ahvie Herskowitz, one of the backers of OneWorld Health, “We fill a gap pharma companies cannot because they have to make a profit.”

And on the biggest obstacle to getting vaccines and drugs like paromomycin to those who need it, for profit and nonprofit drug companies seem to agree: “The government will be the biggest challenge,” says Dr. C. P. Thakur, a former Indian health minister who oversaw a OneWorld Health trial of paromomycin.