Monday, July 18, 2016

How To Encourage Pharmaceutical Innovation And Why It Is Important

Between 2006 and 2015 the S&P 500 grew 7.25% per year on average–if you had invested $100 in the stock market in the beginning of 2006 it would be worth nearly $188 by the end of 2015. Sounds great.
But, any investor during that period would surely feel less confident. After all, following the 36% decline in stock prices in 2008, a nervous investor might inaccurately conclude that the future is grim and that stock prices will never grow again. Alternatively, following the over 32% price surge in 2014, an overly exuberant investor might feel that prices can now only go up–only to be disappointed by the meager 1% growth in 2015.
The lesson here is that drawing long-term implications from short-term fluctuations will often lead to inaccurate answers. The same is true in the pharmaceutical market.
In misplaced attempts to address the problems with the U.S. healthcare industry, many analysts point to specific list price increases on specialty pharmaceutical drugs to claim that high drug prices are driving overall healthcare costs ever higher. Such proclamations misdiagnose the problem with the healthcare industry and risk future innovations that can address pressing healthcare needs.
It is true that the average price of medicines grew faster than average over the past two years. Over these two years, there was also a significant increase in new medicines. In 2015, 73 new brand name drugs were introduced, 43 of which were novel therapies. This followed 74 new brand name drugs being introduced in 2014, 45 of which were novel therapies.
While troubling practices by the likes of Martin Shkreli of Turing Pharmaceuticals garnered headlines, it should be expected that higher innovation comes with higher costs. And the average drug price increases accelerated during 2014 and 2015 in concert with the increase in new drugs.
It is also clear that many of these new drug innovations, such as Sovaldi and Harvoni, provide immense medical benefits to patients. Patients with hepatitis C now have access to a 12-week treatment with a 90% cure rate–prior to these drugs, there was no cure.

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