Transparency of Pharmaceutical companies

Prescription drug prices continue to rise to exorbitant figures globally, contributing to the ongoing debate on why these prices are of this magnitude and keep on rising. Due to a lack of transparency in the pharmaceutical industry it is yet unclear how drug prices are being established and justified. Pharmaceutical companies claim the high prices are the result of long and intensive research and development (R&D) and high levels of risk accompanied with the development of a new drug. It is however questionable whether the economic data presented by pharmaceutical companies support these claims and therefore justify the exertion of a high drug price. The goal of this report can be summarized in the following research question: To what extent do the economic data of pharmaceutical companies justify high budget impacts through the exertion of high prices? In addition, this research report explores to what extent net profits are reinvested into the development of new drugs. This research report combined qualitative and quantitative methods to enable a comprehensive evaluation of economic data presented in annual reports and financial databases. The pharmaceutical companies included in this study population consist of all companies that have a marketed drug in the Netherlands for which a financial arrangement was necessary for reimbursement to follow. A framework was constructed containing multiple variables which can be used to establish patterns and evaluate claims presented by the industry. An iterative process of annual reports review has led to the establishment of this framework. This framework consists of three main topics: reporting (1), variables (2), financial (3) and is used in answering the research questions regarding this study. The results have illustrated the differences in portfolio size, pipeline, product dependency and period of exclusivity in the sample which all contribute to different levels of risk and in the end influences the price determination of a drug. In addition, the average period of exclusivity in the sample is substantially higher than the theory and industry suggests. Some findings were consistent with the expectations. The results regarding the net profit/R&D ratio illustrate that in the sample, roughly an equal amount of money is spent on R&D as is being left as net profits in the company. The lack of sufficient non-financial information in annual reports relating to retained profits, shareholder payouts and R&D expenses make it questionable whether there exists a certain policy regarding R&D reinvestments and the presence of a correlation between profits and R&D expenses. Significant differences exist in portfolio size, pipeline, product dependency and period of exclusivity which all contribute to different levels of risk companies bear. Even though there is homogeneity in the sample as the study population only concerns drugs with a high financial risk, substantial differences have been illustrated between the individual firms. Therefore, individual firms should not be able to hide behind the general known risks of this industry that may only apply for smaller, more innovative firms.