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The problem with pharmaceutical investment

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(Courtesy of the MIMS Today facebook page)

I understand that most people don’t find the stock market quite as exciting as I do, so let me begin by saying that this is not a piece about investing. Rather, it’s an open-ended opinion about how we choose to allow healthcare companies to exist in our society.

By healthcare, I am referring more specifically to pharmaceuticals: companies that make drugs for consumption by patients for any number of ailments from back pain to stage-4 cancer. Many of these companies are public, meaning their stocks are bought and sold on public stock exchanges by investors. But, pharmaceuticals aren’t just like other companies, or at least they shouldn’t be.

When they look at a company of any nature, investors look for a few specific things. Perhaps one of the most crucial things any investor should look into is who the company is selling their product to. A toy company, for example, has a target audience of children, and thus they tailor their ads and products to attract that audience. It genuinely makes me uncomfortable to think of people with incurable diseases as a “target audience.” It feels somewhat manipulative to think of a group of people with brain tumors as the “addressable market.”

Further, the pharmaceutical industry cannot have an addressable market in the same way that other industries can think of their own target audiences. Again, using the toy company analogy, there’s a certain competitiveness that the company faces; it has to make things that consumers want to buy. Patients with incurable diseases don’t have as much flexibility with what they buy. They can’t choose not to buy the drug they need like they could a toy. It feels like cornering sick people into something they have to buy, and it feels wrong to think excitedly about this as an investor.

But I think the issue goes further than simply my squeamishness with the investor mentality. Where I think the issue changes to being just downright wrong is how public companies have to change their actions to appease shareholders in order to survive in a competitive corporate landscape.  In the case of companies that make drugs, placing profitability and competitiveness above everything else goes against anything I believe in. For example, patents on research play a huge role in both the technology and pharmaceutical industries. A patent effectively means that nobody else can claim that technology until the patent’s expiration. This affords the company pricing power, as well as something close to a market monopoly for a period of time. While this may not be terribly worrisome on any moral level for our consumer products, such as iPhone semiconductors, a different tone is struck when a company that makes drugs for leukemia patients is afforded that same luxury. The idea of companies legally blocking others from coming to market with products to benefit the same patient just doesn’t sit well with me. It feels like when it comes to healthcare, when something important has been discovered, the lives of patients should be the top priority.

On the subject of pricing, often a pharmaceutical drug will be the only drug on the market for a long period of time for a given “target audience” (there it is again.) While companies will find themselves in trouble for extreme price gauging (think Martin Shekreli,) it still happens to a wide degree. The prices that people, usually through insurance, pay for their prescription drugs are far beyond the cost of companies to make them. A prime example happened last fall when Mylan found itself in trouble for upwardly changing the prices of  EpiPens, a product that people’s lives depend on.

This is what separates pharmaceutical companies from others and this is what makes me uncomfortable about their presence as public companies. If Hershey’s decided it wasn’t making enough money and decided to charge $500 per chocolate kiss, you probably just wouldn’t buy them. But, with these products, you don’t have that choice. You can’t choose not to buy your EpiPen, because if you don’t have it when you need it, you might die. You can’t choose to stop taking the drugs that you need to survive.

The market for drugs doesn’t operate under traditional economic laws of supply and demand. There isn’t choice for consumers; these drugs are necessary. With the addition of patents blocking out competition, at least for a time, a given company is to be the only provider on the market, which allows the company to have extreme pricing power. Investors actually look for companies with this kind of position because they can make the most money. While investors aren’t wrong, I can’t help but feel this runs up against some moral barriers for me, and I can’t seem to move past it. I don’t pretend to have the final answer, but I’d like to see this be something we rethink as a society.

Michael Oliveira is a Collegian contributor and can be reached at [email protected]

1 Comment

One Response to “The problem with pharmaceutical investment”

  1. Jack on December 9th, 2017 1:26 pm

    So you don’t want the pharmaceutical companies to operate in a free market because the level of demand for their product gives them too much power? How do we still make these companies profitable so that people still go into them and we can continue to discover new drugs? Also, how do long do you think a pharma patent should last, and look at the length of a drug discovery and production phase. As well as how many drugs don’t make it out of those phases and the cost for failed and successful drugs alike. If its not profitable no one is going to make drugs.

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