Last week's news that Hillary Clinton will crack down on healthcare companies inflating the price of necessary - not to mention decades old - treatments sent biotech stocks tumbling in the US. While debate rages over the influence of wannabe politicos on the stock market, it clearly tapped into the social conscious about healthcare companies chasing profits at the expense of the patients they claim to be serving.
Profits in pharmaceuticals have long been a contentious issue. According to research conducted by the BBC, last year five global pharma companies - Pfizer (US:PFE), Roche (CH:ROG), AbbVie (US:ABBV), GlaxoSmithKline (GSK) and Eli Lilly (US:LLY) - made a profit margin of 20 per cent or more. As mankind battles some of the deadliest diseases, it's hard to make the call between essential profits and the lining of executives' pockets. In the past, drug companies have justified the high prices they charge for medicines by claiming their research and development (R&D) costs are huge. This is certainly true, and the cash injection needed from investors (always to be returned at a later date) is not to be underestimated. On top of that, the success rate of drugs in development which make it to commercial launch and turn a profit is said to be extremely low. This is where it emerges that the amount spent on marketing new drugs often exceeds the initial development costs.
There is also the argument that successful drugs - cures even - can save money in the long term. Last year, US group Gilead Sciences, arguably the largest biotech in the world, came under fire for its Hepatitis C drug Solvadi which costs $1,000 a day for 12 weeks' worth of treatment. At that price point, US health insurance companies resisted covering it and only the sickest patients could qualify.
But this is a specific trend to the US. In Europe, Canada and Australia governments set the price as part of a bureaucratic process - similar to how electricity or water are priced in regulated utility markets. These governments don't believe in propagating the idea that if a patient can't afford something, their odds of dying go up. Each country can use a different process, but the goal is common. Both parties are trying to balance the pursuit of profit with making effective treatments widely available and affordable.
The process in the UK runs through the National Institute for Clinical Evaluation (NICE). NICE deliberates and decides at what point a new treatment is cost-effective - ie, when it will save the NHS money in the long run by preventing further disease. NICE analyses multiple drugs, surgeries and scanning devices every year before telling healthcare manufacturers what it's willing to pay for a service.
But the tricky equilibrium between profits, prices and politics isn't just affecting the biotech and pharma sector. Consumer goods giant Reckitt Benckiser (RB.) has suffered a profit squeeze in India after the government refused to adjust price controls on products such as aspirin and condoms.
RB has held ambitions for India to become its third-largest market after the US and UK for some time, and has done strategic M&A in the country to ensure this is the case. But the government there imposed renewed price controls over nearly 350 healthcare products in 2013, which took the price of condoms to between 6p and 8p apiece. RB - which owns the Durex brand - said Indian authorities were distributing millions of these products, heavily subsidised, to India's poor to spread the message of sexual health. As part of an ensuing legal challenge, RB claimed its products were not just aimed at this end of the market and were often designed for purposes beyond simply safe sex. But the authorities refused to budge, meaning RB makes next to nothing in terms of profit. It's therefore reluctant to throw any money at marketing such products, which management said undermines the government's aim to spread a safe sex message in any case.
The same is true of Disprin, a common aspirin tablet sold by RB in India. Price controls have deterred marketing efforts on this product, too, which RB argues restricts patients' knowledge about the wider benefits of taking the medication.
