Labour devouring itself 2: Pharmaceuticals, an infernal industry. Really?

Many years ago, I led a small team developing a financial reporting application for a new biotech company near Geneva.

It was a strange experience. We went through their existing ‘system’ – essentially a series of linked, and hopelessly confused, Excel pages – and put together a prototype for the customer to approve. But suddenly I realised I’d left out a key element.

“I’m not showing any revenue,” I said, and checking through all the Excel worksheets the company had supplied, asked with some shock, “I don’t see any revenue here.”

“Revenue?” they replied, “there isn’t any. We’ve only been going a couple of years. Maybe in eight more? Generally, it takes at least ten years to get a new product to market.”

“Ten years without revenue?” I exclaimed, “for a single product?”

“Well, to be fair, we’re hoping that the hundreds of molecules we’re working on will eventually enable us to generate two products.”

The figures were in front of me. Ten years would cost something like £200 million. If they emerged with two products, they each would have cost £100 million. They wouldn’t actually take them to market: they would sell them to one of the big pharmaceutical companies who would then invest much more money still to get the drug into production, announce it, promote it and start distributing it. I can’t see how the cost of each could possibly be under £200 million.

Why am I telling this story now? Because in the last piece I posted here, I talked about the sheer ugliness of the present dispute between wings of the Labour Party. Without hiding my sentiments, I tried to be relatively impartial between them. Today I’m throwing impartiality to the winds, and focus on one of the aspects I find particularly irritating in the Corbyn camp.

It’s particularly ugly of Corbynistas to make mileage of the fact that Owen Smith spent some time working for the pharmaceutical giant Pfizer. This, it seems, represents a blot on his character that can never be erased. Pharmaceuticals are evil, and the evil is contagious.

The infernal regions?

It’s a naively binary view of the world, where everything’s good or bad and there are no shades of grey. Naivety, however, is entirely forgivable – it can even be endearing. What really has me laughing wryly is the kind of comment I had from a Twitter correspondent, that the Pharmaceuticals are vile gougers because they charge pounds for pills that cost pence from generics suppliers. As my experience in Geneva showed, that’s a notion that reflects merely ignorance of the issues. To paraphrase one of the better lines from that iconic TV show The West Wing, it’s the second and all subsequent pills that cost pence. The first one, as I discovered in Geneva, cost at least £200 million.

The generics manufacturers never pay for the first pill.

So what does that say about Pfizer? Well, their published accounts suggest that in 2015 they made a profit (EBITDA) of $18.45 billion on revenue of $48.85 billion.

I’ve been in business for approaching forty years. When I was working for companies in which I was part-owner, we aimed for 20% profit on turnover but usually had to settle for 10% or less. It’s not at all rare for companies to scrape along on 3%.

Pfizer’s profit represents nearly 38%.

So they’re running extremely rich.

As Owen Smith puts it, “Yeah, I think medicines should be cheaper, generally. That’s the key criticism I have. I think medicines should be cheaper across the world.” Absolutely right. I like the impact of the generic suppliers, because they pressurise the big companies to cut their costs and generate more reasonable profits. We need more, and a Labour government should legislate to cut into this gravy train.

Smith also faces the accusation that his previous role as a spokesman for Pfizer, a private company supplying the NHS, proves his desire to privatise the service. Backers of this view suggest that somehow the NHS should produce its own pharmaceuticals. That strikes me as extraordinary: the NHS is there to deliver healthcare, not to carry out biotechnology research. That’s not their skillset. And they certainly don’t have the £200m and more it takes for the first pill. Again, as Smith argues, “It would bankrupt the NHS even if it were possible, which of course it isn’t…” But, he goes on, “it’s completely wrong to suggest that… I’m in favour of private provision. I’ve never been in favour of it.”

I like Smith’s attitude and believe he has the will to take the measures we need against excessive profits. He also has the knowledge of the industry to do it well. He understands both the cost of the first pill, and the unacceptably excessive profits of the industry.

Sadly, none of this is inspiring. It’s an argument based on evidence, it takes both sides of the problem into account, it attempts to think rationally about the real nature of the problem. In short, it’s grey and rigorous and less easy to follow than a simple declamation of radical slogans.

It’s so much easier just to say “the pharmaceutical companies are robber barons. Anyone who has ever spoken for them, as Owen Smith has, is hopelessly tainted. We need to reject everything they stand for.”

Much easier. Much simpler. And entirely summed by one of HL Mencken’s best lines: “For every complex problem there is an answer that is clear, simple, and wrong.”