Former Merck CEO Prods Industry on Drug Pricing

I was in Philadelphia shooting a story for an upcoming episode of "The Business of Innovation" on CNBC. It's a piece about big pharma and we went to Philly to interview the still very busy former CEO of Merck (MRK) (two CEOs ago), Dr. Roy Vagelos.

Earlier this week, for example, he was quoted in a prominent story in The New York Times about a task force he chaired on the relationship between pharma and medical schools. Wednesday, though, Dr. Vagelos delivered a keynote speech at the annual meeting of the International Society for Medical Publication Professionals.

For those in the industry who might be curious how the 78-year-old who was introduced as the "senior statesman of the pharmaceutical industry" is doing, he told me he runs about five miles four times a week--outside, by the way, not on a treadmill. He's also Chairman of biotech companies Regeneron (REGN) and Theravance (THRX). Thirty years ago Dr. Vagelos ran the lab at Merck that discovered the molecule which led to the first statin or modern cholesterol fighter, Mevacor.

Anyway, his address touched on several issues facing pharma, but I wanted to pass along what he had to say about the thorny subject of drug pricing. He devotes a chapter to it in his book, The Moral Corporation: Merck Experiences.

In Wednesday's speech Dr. Vagelos said, "Most drugs are a terrific bargain." And he believes that high prices are justified if the drug offers high value. But value, of course, can be subjective. Dr. Vagelos was diplomatic enough not to identify the company from behind the lectern--you can probably figure which well-known biotech he's referring to--but he went on to say that he has a problem with the $50,000 price tag for a drug that adds four months of life.

"There is a shocking disparity between value and price and it's not sustainable," he said. "The industry will bring about government price controls which will be devastating for the industry," Dr. Vagelos added. And if the feds don't step in, he believes market forces will.

In answer to a question, Dr. Vagelos said, "I don't care what the cost is, it's inappropriate. The industry has a black eye. And the market will correct that." Drug and biotech companies, including the one he's talking about, say they need to charge those prices to recoup their investment and to pay for research and development of something better.

In addition to lowering prices on certain drugs, Dr. Vagelos also thinks pharma needs to be even more philanthropic: "When important drugs are introduced companies will have to make arrangements to get them into the developing world."

Besides saving lives he believes the humanitarian gesture will generate goodwill in countries and regions that in the not-too-distant future could become lucrative growth markets for the industry. It would also go a long way, Dr. Vagelos argued, toward recovering and restoring big pharma's "credibility."

That's his word, not mine.

Comments

[User 166626:]

Merck is the only co. (?) that does not score (groove) their pills and has them in odd shapes making it almost impossible to break in half. 60mg pills cost only slightly more than 30 mg pills --breaking them in half for a 30mg dose would save a lot of money for the user.

2008 May 02 04:57 PM

[Fairness:]

With the direction the medical care and the pharmaceutical industry is going, reevaluating its moral stand and humanitarian role is an absolute must. Nowadays it is more and more questionable why are these industries still allowed to be “for profit” establishments.

Profiteering based on people’s health-sickness and life-death matters are not just completely unacceptable and a total shame; it’s plain wrong. Yet, this is exactly what is going on. It is only a matter of time, until the society will turn against such profiteering and hopefully governments will follow suite. Today, seeing the deluge of medication ads (mostly for prescription drugs) on the TV is disturbing. Why hasn’t that been banned yet? All those loopholes need to be closed! Now! This is a huge sign that profiteering and not humanitarian reasons are driving the industry’s development; that has to change.

2008 May 05 01:01 PM

[solar jim:]

I'm not arguing for or againt lower prices. I just want to point out something.

We live in a country whose economy is more market oriented than centrally run (govt) oriented. As a result, you have for profit companies in the pharma industry. The reason to incorporate is to make money. Period. That's the one responsibility a "company" has to abide by. As long as medicine continues to be a for profit business then the way it is will continue ad infinitum. Putting restrictions on profit motive will make future investment (R&D) more expensive relative to future profit. Ultimately, This means that their are some drug candidates that are not as risk free in developing and these will be the ones not pursued. Breakthroughs wont stop, but they will come at a much slower pace.

Personally, I think people are having an argument over the wrong question/issue. It's not about legislating the prices that companies can charge. It's about whether pharma should be allowed to be for profit companies. Non-profits could still invest for R&D as current Co's do and still charge less because they don't need to make all these billions of dollars of profits every year.

2008 May 07 08:49 PM

[Genentech fan:]

Dr. Vagelos points the finger at Genentech for charging "unsustainable" prices for a cancer drug that is utilized by mere thousands of patients rather than the millions of patients Merck's statin drug is sold to. As a result, Merck only has to charge each patient several hundred dollars a month to earn 2-3 times the revenue that Genentech earns from Avastin. Perhaps Dr. Vagelos would have only drug companies in business that research and discover only "mainstream" drugs for the masses (that mediate pain but also cause heart attacks) and not the lifesaving drugs like Herceptin for breast cancer that has saved thousand of women's lives. Dr. Vagelos conveniently forgot to point out that Merck has reaped tens of billions more in revenue from the same system that he says can't sustain the cost of Avastin.

2008 May 14 11:11 AM