Public-Private Parternships as a way to ensure a sustainable, innovative and value-driven supply of novel treatments
Authors: Christine Bartunek. Publication date: March 21, 2021
In October, Novartis published updated results of what is considered one of their most controversial products. It is to say, the Swiss pharmaceutical endured significant uproar when it received the F.D.A.’s approval in May 2019 to market the Zolgensma® vaccine — which also goes by the name of AVXS-101 — at a list price of $2.125 millions. The gene therapy treats spinal muscular atrophy type 1 (SMA-1), which is declared to be the principal genetic killer of children under two years old. Moreover, Zolgensma® is a pioneer in this field. It only faces partial competition from Spinraza, which merely provides incremental health improvements for the patient. Moreover, it comes with a down payment of $750,000, followed by yearly payments of $350,000 per year. Hence, the total cost, which is an estimated $4 million per decade, tremendously reduces the degree of competition between the two treatments. However, this does not necessarily justify the price tag of Novartis’ product on ethical grounds. Thus, this issue renders it appropriate to assess the latter’s cost from a moral standpoint, more precisely, from that of a utilitarian perspective.
Balancing profit and accessibility
The public immediately claimed that Novartis’ sole purpose was to generate revenues, which is essentially in line with the firm’s characteristic of being a for-profit business. Nevertheless, this does not automatically imply that the company is not aware of its social role. Indeed, soon after the federal approval, they launched the Global Managed-Access Programme, which is based on the distribution of a hundred treatments to infants on a lottery basis, aiming for the highest possible level of equity. Furthermore, from the analysis of their financial statements, it appears they actually reached lower revenues in 2019 compared to previous years, while research & development costs were substantially higher, both in absolute terms and relative to revenues. This increasingly confirms the firm’s innovation-based mindset with a strong commitment to contributing to social welfare.
A cost-effectiveness analysis
A discussion on the ethics of pharmaceutical pricing calls for a more thorough understanding of the pricing mechanism behind the treatment. Since Zolgensma® deviates from the typical vaccine due to the lack of competition and its ground- breaking impact, it has been priced according to a cost-effectiveness analysis. In a communication to investors in November 2018, the Swiss firm declared that AVXS- 101 could induce savings in medical costs further down the line combined with more than 13 quality-adjusted life years (QALY). Summing up, it would equal a cost of $4 million according to U.S. standards. Nonetheless, the executives were quick to disclose that they were targeting a lower price.
Public-private partnerships as a way to ensure a profitable R&D model
Perhaps too much attention is given to Novartis as the villain in this pricing debate. As a matter of fact, they have conceded substantial revenues in order to ensure a fair degree of accessibility to the medical cure, to serve as many patients as possible. This raises the question whether policy makers could be held liable for the soaring prices in today’s pharmaceutical scene. Indeed, this controversy is the outcome of a larger state failure enabling global access to healthcare. Firstly, the lack of fiscal aid for private research in the U.S. pushes high prices to remain the primary catalyst behind progress in the sector. Moreover, the root of the problem lies in a disharmony between the State and private pharmaceutical companies, stemming from a misalignment of research objectives.
In the pursuance of a system where the needs of the public control the development and price-setting of medicines, several solutions arise, albeit utopian in the short run. A first resolution lies in the implementation of public-private partnerships based on national needs. In this model, public actors define the main medical areas in need of improvement, advocating the public interest. The main backbone is the set of enforceable contractual obligations with clear-cut performance requirements, along with the upfront communication of the state’s willingness to pay for a successful answer. Another framework is proposed by the aligned development of drugs on a supranational level, for example, at the E.U. level. This would rely on a collaboration with public research centres, inducing fiercer competition for private pharmaceutical companies. These institutes have the advantage of being able to set lower prices thanks to the reduction of overheads such as sales, marketing, salaries, and bonuses. It would also allow to fill the gaps the private sector is reluctant to invest in. A third solution can be found in the application of patent funding. Due to the fact that patents are the main driver behind monopolies in the industry, state bodies could establish a fund to acquire the patents for promising treatments from private manufacturers. The final research and development processes are further carried out by public partners. As soon as the product is finalised, manufacturers are able to purchase a license to produce and sell the drug, under the conditions that it ascertains the highest quality, security, and accessibility at the lowest possible price. This grants citizens the chance to receive the best possible medical solution. At last, we could move to consider drugs as a complete public good. In this scenario, the business plan of private pharmaceutical firms is oriented towards the delivery of drugs in their best possible form, maintaining to some extent the benefits of competition. The development is entirely based on the research priorities established by the government. This strategy, however, requires current systems to be completely overthrown.
Discussion
This leads us to conclude that Novartis’ practices are not as unethical as the public believes them to be. It is clear that their focus is on stakeholders, rather than shareholders. They actively listen to the public opinion and, as a consequence, introduce tailored arrangements, such as the Managed-Access Programme. A possible cause for the negative image around their processes originates from their lack of transparency. Furthermore, the responsibility of the high prices for treatments such as gene therapies is not unitary, as stated above. While more medical products of the sort are making their way to the market, urgent adjustments ought to be made to current public health systems, in order to ascertain a sustainable supply of novel treatments to citizens. A reasonable start is the adoption of a public-private- partnership model, managing the entire research and distribution process. This system allows for greater transparency and is more apt to fairly allocate resources, maximising social welfare.
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