A Dolon Institute presentation
Debate around pharmaceutical pricing and profitability is often framed around three criticisms: new medicines deliver limited clinical value, drug prices are not justified by R&D spending, and the pharmaceutical industry is excessively profitable. A critique of the critique: Pharmaceuticals value, price and profitability, a presentation from World Orphan Drug Congress, challenges these arguments, highlighting the importance of looking beyond headline statistics to understand the economics of biopharmaceutical innovation.
The presentation first questions the assertion that most new medicines provide limited clinical value. While payer assessments in countries including Canada, France and Germany show that only a proportion of new medicines receive the highest ratings for therapeutic innovation or added benefit, the report argues that this does not capture the cumulative value of incremental innovation. Improvements made over time can fundamentally change patient outcomes, even where individual advances may appear modest. Examples across HIV/AIDS, cardiovascular disease, cystic fibrosis and multiple sclerosis demonstrate how successive innovations can contribute to substantial improvements in survival and disease management.
The report then challenges the idea that pharmaceutical prices can be judged simply by comparing them with R&D expenditure. Price and revenue are not interchangeable, and looking at average or headline prices can obscure the economic reality of developing medicines. This is particularly relevant for orphan medicines, where patient populations are small and development carries considerable scientific, regulatory and commercial risk. Under the current EU incentives framework, the report highlights an average risk-adjusted net present value (rNPV) of only €22 million for orphan medicines, while 48% generate less than €10 million in annual EU sales.
The third critique, that pharmaceutical companies are excessively profitable, is also examined through a different lens. While some historical comparisons show pharmaceutical companies achieving high profit margins, the report highlights that profitability has declined over time and that comparisons can change significantly depending on the financial metric used. Accounting for R&D as an investment rather than simply an expense also materially affects measures such as return on equity.
The paper ultimately argues that simplistic conclusions about pharmaceutical value, pricing and profitability risk leading to poorly targeted policy. The economics of innovation are shaped by risk, time, patient population, scientific uncertainty, incremental advances and the incentives available to developers. This is particularly important in rare diseases, where the investment proposition can remain challenging despite substantial unmet need.