A few days ago, on July 14, 2020, the European Commission reported that the pharmaceutical company ASPEN had decided to propose a reduction, on average, of 73% in the prices of various cancer drugs (Alkeran, Leukeran, Purinethol, and others). This reduction, to a third of the current prices, would avoid the sanction of the Commission, for violation of article 102 of the Treaty on the Functioning of the European Union. It is a very important step, in itself, and because it shows a path.
Article 102 prohibits the abuse of a “dominant market position”, including the imposition of an “excessive, unfair price”. It is the first time that the European Commission has analyzed whether the prices of a medicine are "excessive", due to a dominant position in the market. "Dominant position" refers to the fact that the company has a monopoly, it is the only supplier, without competition. This dominant position may derive from a patent, which prevents competition (the marketing of generics) for a certain number of years, or it may also occur in the case of non-patented generic drugs (as is the case with ASPEN), because the Company has purchased from other manufacturers its lines of this product, or for other circumstances.
The European Commission opened an investigation on May 15, 2017, following complaints by consumer associations. In 2014 the Italian consumer association, Altroconsumo, denounced the abusive price increase that Aspen had forced on some of its products. From there, first the Italian competition authorities, and then the Commission, have responded.
What is relevant in this case is that for the first time the Commission was wondering if the price of a medicine was excessive. And, for the first time, he concluded that it was.
To see if a price is excessive, he analyzed the "manufacturing costs" of the product, and the "sales revenue" and the "benefits" of the company. It found that prices were 300% higher than costs, including a "reasonable rate of return, a reasonable rate of profit", and that the company's profits far exceeded the benefits of other similar companies in the industry. As simple as that.
In view of the conclusions, and the threat of sanction, ASPEN agrees to lower its current prices to one third, close to cost, with a reasonable profit.
This exercise that the European Commission has done in the case of ASPEN should also be done in other generic drugs that have a monopoly situation, and should be done, especially in all patented drugs, which, by definition, have a monopoly, a “dominant position in the market”. The Commission, and the countries, should check whether companies, taking advantage of this dominant position, are charging "excessive prices".
In the case of medicines under patent, to see if the prices are excessive, the cost of manufacturing and also the cost of research and development of the medicine should be studied. Calculating these costs, direct and indirect, is perfectly possible, looking at the expenditure on research staff, equipment, consumables, facilities, etc., and estimating the number of products sold annually to estimate what allocation of these expenses should be made on prices, over the years of patent protection.
The data we have, of some medicines in which we know the manufacturing and research costs, shows that there are prices 10,000% above the manufacturing and research costs. They are clearly "excessive" prices.
The global data of pharmaceutical companies in the European Union shows the same evidence: manufacturing costs, 21% of total sales; R&D costs, up to 15% of total sales (including failed and unsuccessful investigations, including innovative research and incremental research, etc.). They add up to 36% of total sales. If we added a profit of 10%, 3.6 points, we would reach 39.6% of total sales. Adding administrative and translation costs similar to other industrial companies, we reached 55%. The rest are excessive profits. We are talking about "excessive prices" worth more than 75 billion euros in the European Union, which would deserve a similar investigation to the one done with ASPEN. Nothing more and nothing less: we have to analyze costs, sales, profits, and compare with companies in other industrial sectors.
To do this investigation, the Commission would need a team of competent staff, and that costs money. Let's say you spend 10 million euros a year on that task, isn't it worth it if you can save us 75 billion € each year?
Let's not forget that some generic and biosimilar companies are raising prices excessively, or abandoning markets, because, by comparing the prices of effective off-patent drugs with abusive prices of new drugs, they want to do the same.
This type of research would lead us to the conclusion that it is necessary to change the financing model of R&D for drugs, prohibiting monopolies, because it is proven that it is not possible to maintain a balance in prices, when the health and the life of people depend on that product, because the ambition of greater profit presses to obtain the maximum possible price. So the model must be changed.
Sometimes we think that things are the way they are and cannot be changed. That the interests are too strong and it is impossible to achieve a more reasonable balance. In the case we are commenting on, it is noteworthy that a citizens' initiative can get the EU Competition Authorities to force excessive prices for medicines to be reduced, showing a way for social and professional organizations: things can change.
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