Some say British drugs companies should be able to profit in order to reinvest in newer drugs for the greater good. Some say their profits come on the back of scientific fraud.
It is perhaps one of the great puzzles of British business. As a nation we spend less on medicines than our European neighbours, yet we have two of the largest and most successful pharmaceuticals companies in the world. GlaxoSmithKline and AstraZeneca have a combined market capitalisation of £123bn and contribute to a trade surplus of £3.4bn. Together with other British pharmaceutical businesses they export around £12.2bn of drugs.
Yesterday their success was underlined as Glaxo, whose chief executive is Jean-Pierre Garnier, revealed pre-tax profits of £1.753bn while AstraZeneca announced profits of $1.74bn (£986m).
The results, which come at a time of huge demand for flu vaccines to combat the pandemic threat of bird flu, have reignited the debate over the controversial industry. At the heart of the debate is the question of whether companies should be making vast profits out of what is essentially a healthcare service.
On one side, the Association of the British Pharmaceutical Industry argues that the private sector needs to be free to make profits that can be reinvested in newer drugs for the greater good. On the other side are the critics who point to an industry characterised by inflated profits on the back of scientific fraud at its worst and the suppression of negative clinical test results.
The House of Commons Health Select Committee launched an inquiry earlier this year into issues such as patient safety. Last month, the Office of Fair Trading announced a study into the system used to price-cap drugs sold to the NHS. Both come a year after a scandal involving Vioxx, the anti-pain arthritis drug sold by American company Merck. The drug, which at one time was hugely profitable, had to be withdrawn because of evidence that it doubled the risk of heart attack or strokes.
In the past fortnight, some of the world’s biggest manufacturers have reported their results. They serve to highlight arguments for and against the industry.
Swiss-based drugs firm Roche said last week that third quarter revenues rose 17 per cent, helped by the sales of Tamiflu, a drug regarded as the best treatment for bird flu. So successful have sales been that it has suspended deliveries to America in order to head off a run-off of stocks. Governments around the world are stockpiling the product to prevent a public health crisis.
The company has spent large amounts developing the drug and has now found it in demand to protect the public, but it has still managed to attract criticism for cashing in. Now it has agreed to license the drug to generic rivals. Generic drugs are non-branded copies of a branded drug. Over at Pfizer, the American giant, revenues have fallen five per cent compared to last year.
Sales have dropped because of a common menace that dogs the pharmaceutical industry: that companies cannot own exclusive rights to key products forever. In the case of Pfizer it has been making money out of COX-2 and NSAID, both of which are prescribed for arthritis. But recently it lost the exclusive patent rights.
The loss highlights a problem for another market — the biotech sector, in which long lead-in times as well as the cost and uncertainty associated with bringing new drugs to the market have caused the sector to flatline.
AstraZeneca, which has a market capitalisation of £40bn, highlights another issue. Yesterday it reported results which on the face of it should have sent its shares soaring.
It reported a 49 per cent leap in earnings for the third quarter thanks to strong sales of key drugs and a tighter control of costs.
Among the company’s best sellers are Nexium, Crester, Symbicort, Arimidex, and Seroquel, whose combined sales rose by 5 per cent.
Yet shares in the company actually fell. Robin Gilbert, an analyst at Numis Securities said: “The figures were very good. But the issue is partly about the pipeline of new drugs, which take a long time to come through.”
Worries grew in the City as it emerged that the company had dropped two experimental drugs from development, one for heart arrhythmia and one for incontinence. The decision to drop them followed unsatisfactory trials. There is also a feeling that it is involved in too many “copycat” patent disputes. Shares fell about 1.58 per cent in the first few hours of the London Stock Exchange opening to £25.48.
By way of contrast, Glaxo’s shares rose 2.51 per cent to £14.30 as it reported latest sales. It said sales have risen 20 per cent and that it was accelerating preparations to supply bird flu vaccines in the event of a pandemic.
Jean-Pierre Garnier highlighted vaccines as a huge growth area. Sales in America, which account for 11 per cent of its market, have been boosted by 20 per cent. He said that the launch of Fluarix to combat flu had helped sales. It is bringing forward other vaccines to combat flu, which is now at the top of the health agenda. Garnier said the company was developing H5N1, a prototype pandemic vaccine. It contains chemicals increasing the body’s immune response to the vaccine at a lower doses resulting in a greater capacity to supply the pandemic vaccine. At the same time, Glaxo said there is increased demand for anti-flu drug Relenza.
Given that Glaxo is performing well it is almost certain that it will continue to attract criticism, despite the issues the wider industry faces. But there are warning signs that too much battering of the sector could spell problems for the economy. The Association of the British Pharmaceutical Industry said this month that the balance of trade in medicines dipped over the first six months of the year. It claimed that part of the reason was that some manufacturers are finding Britain less globally competitive because other countries offered incentives for local manufacturers.
If Britain wants to keep its two leading companies healthy, it will have to keep a lid on a particularly British disease: knocking our best assets.