The Economic Effects of a Psoriasis Cure

A report on whether a psoriasis cure would be produced or hidden away for money.

Occasionally, I’ll hear someone say something to the effect of, “there will never be a cure for psoriasis, because the drug companies will lose too much money. They want to keep us sick so we’ll keep buying their steroids.” (I’ve heard this about cancer and several other diseases, as well.) People Who Believe There’s No Money In A Cure (PWBTNMIACs from now on) are, in my opinion, just about always mistaken. PWBTNMIACs tend to ignore certain monetary “facts of life,” patent law and/or believe there’s a conspiracy, among other flaws in their basic arguments.

Let’s look at the conspiracy aspect, first. PWBTNMIACs seem to fall into one of three categories as far as conspiracy theories go:

Conspiracy Towards Suppression: This is the rarest. It posits that there’s a tremendous conspiracy to suppress a psoriasis cure that is known, at this point in time, to work, without any doubts, for most if not allpsoriatics. Everyone supposedly knows about the cure, all the pharmaceutical company executives, staff, and researchers. They supposedly send thugs around to intimidate people who might squeal on them, or introduce a different psoriasis cure to the marketplace. Perhaps they wipe their butts with the original research results, and laugh all the way to the bank to deposit the profits from the “poisons” they sell us. These people are pure evil.

Conspiracy Towards Ignorance: This is probably the most common. In this conspiracy, there is no known cure for psoriasis, but the drug companies fund no research into a possible cure for fear of losing their profits from the drugs that “don’t ever work.” Other than the fact that there is no known cure, the pharmaceutical industry executives and practices are portrayed almost exactly as in the “Suppression” scenario, above.

Individual Willful Ignorance: This isn’t so much a “conspiracy” theory, because each individual drug company in this theory tries on its own to avoid finding a cure. There’s no collusion between the drug companies, but the result is the same: a cure will never be found, because all the pharmaceutical giants are actively trying to not find one in order to maintain their bottom lines.

There are, of course, variations on the above three, but the major ideas are all there. Why are any of these things improbable, at best? Because in the true conspiracies, there would undoubtedly be a paper trail somewhere, there would be evidence of “thuggery,” there would be something, somewhere, that pointed to a conspiracy (there would also be a complete lack of psoriasis research, which there isn’t). Sure, absence of evidence is not evidence of absence, but psoriasis has been around far longer than any drug company has, and hundreds of thousands of people throughout the last 100-plus years would have had to have been “in on it.” Claiming that there might be evidence somewhere, but nobody’s found it yet due to some “code of silence” is akin to claiming that dozens of multinational drug companies are better at keeping things secret than any government or other major organization in the world has ever been.

We can’t forget that pharmaceutical giants are staffed and led by people. People with morals and ethics and consciences. The PWBTNMIACs almost always posit that these attributes are absent in the thousands of people who are in on the scam, or that at least the “thugs” they use are (who, by the way, are so good as to silence every possible leak — better even than Mob hitmen or any other assassin in recorded history). The people who run drug companies also have families and friends, and so for every 50 of them, we ought to be able to find at least one psoriatic or psoriatic loved one (unless, of course, they only use the Cure for their family and friends, and then intimidate or bribe them into silence, as well).

But probably the biggest flaw when presented with the true conspiracy theories is that the “pharmaceutical industry” is often thought of by the PWBTNMIACs as one big company. It’s really a bunch of big companies, that actively compete against one another for our health-care dollars (yes, sometimes a few companies will conspire together, usually in some sort of “price fixing” scam, but this isn’t about something so pedestrian as price fixing). If one is highly successful with an asthma medication, then others who are also making asthma medications see less profits themselves, and this is one of the reasons why we see drug advertising everywhere. If all these companies were one big happy family, there would only ever be one asthma medication (for example) on the market at any given time — the one the pharmaceutical industry “forces” on us due to their monopoly.

Which brings us to patent law. The drugs made by pharmaceutical companies are, at first, patented. The companies spend millions on the patents, so that other drug companies won’t steal their new drug ideas while they’re being tested. If they were afraid of just some “little guy” cooking up the drugs in his basement and making money curing psoriasis, it’d be a heck of a lot cheaper to send a “thug,” with either a gun or a million bucks in bribe money, take your pick. No, the drug companies spend hundreds of millions dollars developing and testing the drugs they manufacture, a patent is for protection from the other drug companies.

After 20 years, a patent expires. This opens the market up to smaller pharmaceutical companies, who may produce cheaper “generic” versions of the drugs. The company which invented a drug may also continue to produce it, in the hopes that the “brand name” version will be picked, but insurance companies here in the U.S. want the consumer to have the generic versions in almost all cases, just because they’re cheaper. So, when the “life” of a patent is over, the drug company which invented it stands to lose income due to generic versions being produced by other companies. It is, therefore, important for the company to have newer, better “replacement” drugs ready when this occurs.

In the March 6, 2001, Washington Post Health Section, there was an article about how Eli Lilly just got FDA approval for a once-a-week version of its “hit” drug, Prozac. It’ll cost the consumer about $10 less a month than the current once-a-day pill they sell. Why is Lilly going to sell a cheaper drug? Doesn’t that violate the basic “premise” of a capitalistic company? They’re going to sell the once-a-week version because the patent will soon expire on the once-a-day version, and they are hoping that people will buy the once-a-week pill they’ve got a good, long patent on because it’ll be more convenient for the consumer than the once-a-day pill, for which they will soon have direct competition. So capitalism lives, after all.

But back to the hypothetical “cure” and its own economics. Will any company stand to lose money if a cure is found and produced? Yes, all those companies which don’t find that cure will lose income. But how much will they lose? That is the real question. (I’ll begin throwing some numbers around at this point in time. In almost every case, the numbers I have available to me are inexact, so for convenience, I will fudge the real numbers a little bit, but I will try to fudge the numbers in favor of the PWBTNMIACs’ theories. For example, if there are only two drug companies in the world, then each would take a much bigger loss of income if a cure were found than if there were 1,000 drug companies selling psoriasis drugs. A figure like 20 seems, to me, to be much more reasonable, but still on the low side, when you consider all of the different drugs for psoriasis available, so 20 is the number I’ll use.)

Okay, another limitation on this data is that I believe, even though not stated explicitly, that the most reliable numbers I have are for the U.S. only. This information comes from the National Psoriasis Foundation’s FAQ on psoriasis. So, we’ll assume we’re only talking about the U.S., especially since if we were to go world-wide, there’d be more companies involved and other factors which would be unfavorable to the PWBTNMIACs.

So, from the NPF’s FAQ, there are “over 7 million” psoriatics, [April 3, 2003, Update: The FAQ has been changed to read “over 4.5 million,” but I haven’t yet re-done these calculations] spending “between $1.6 and $3.2 billion” annually (I’m told this number includes doctor’s office visits, over-the-counter drugs, and other miscellany, but for the sake of the PWBTNMIACs, we’ll assume it’s spent on nothing but prescription drugs from major drug companies). Let’s call it seven million patients on the nose, and $2.8 billion to be on the high side and to make calculations easy.

With those numbers, each psoriatic spends $400 a year on psoriasis drugs. Given 20 drug companies supplying those drugs (and assuming each gets an equal amount of money — I can’t get exact figures here), each company grosses $140 million per year on psoriasis drugs alone. For 1999, Eli LillyBroken Link (a company selling to 179 countries and employing over 30,000 people) reports a total sales income of just a hair over $10 billion. If they were selling a psoriasis drug and were one of our hypothetical 20, then “losing” psoriasis customers would mean losing just 1.4% of their total gross earnings. Bristol-Meyers SquibbBroken Link made twice that in 1999, so the effect of losing any psoriasis customers would be half that, or 0.7%, to them. These do not represent huge losses.

The only way a psoriasis cure represents a large danger to any company involved in making psoriasis treatments today is if that company sells little else but psoriasis treatments. Both Lilly and Squibb, above, have their proverbial fingers in many different pies. But even small companies making coal-tar ointments have other diseases they can “fall back on” if psoriasis goes away (but they also don’t have the income to hire “thugs” or to bribe people, though, so they tend to be unimportant to the PWBTNMIACs’ theories — yes, if anyone gets hurt by a psoriasis cure, it’s the little guys, not the big powerhouse pharmaceutical companies who are supposedly the “evil” ones).

So, there’s little danger to any individual pharmaceutical company. Is there an economic incentive to develop a true cure? There most definitely is.

We’ve got to take patents back into account now, to show the real incentive. For argument’s sake (and the PWBTNMIACs’), we’ll say that once a drug gets to market, there are fifteen years left on the life of the patent. I believe it tends to be less than this, but again, I’m erring on the side of the “opposition,” since a shorter patent life means fewer years of guaranteed profits. Anyway, after the patent expires, predicting income on a drug will be pretty much impossible, since generic versions enter the picture, so I’m not even going to try. What’s important is the first fifteen years, anyway.

We’ve also got to take the growing psoriatic population into account. Because if psoriasis is never cured, the more psoriatics there are, the happier the drug companies will be under the PWBTNMIACs’ theories, then we’ll assume that no psoriatic dies over the next fifteen years, as well (once you’re cured, who cares if you die, you won’t be a repeat customer). So, according to the NPF’s FAQ, again, there are “About 150,000 to 260,000 new cases” each year. Call it 200,000, just for ease of calculation, since this number affects both “sides” about equally, I think.

Well, let’s assume that our 20 companies all being marketing their own patented psoriasis treatments (not cures, just palliative measures) at the same time — now. In the first year after a drug hits the market, then, we get the seven million existing psoriatics, plus 200,000 newly diagnosed patients, for 7.2 million total spending money on psoriasis, for $144 million for each of the 20 companies. 7.4 million patients in 2002, for another $148 million per company. Etc. Over fifteen years, this amounts to $2.58 billion for each of the 20 companies. Again, compared to overall profits for each of these giant pharmaceutical corporations, this will tend to be peanuts.

Now, what if right now, one of those 20 companies, or a start-up biotech who has never produced a drug before, invents a one-time pill that cures psoriasis, for life, in 100% of the patients. Since gene therapies aren’t ready for prime-time yet, after taking this hypothetical pill, you can still pass on psoriasis to your kids, so the rate of new diagnoses doesn’t change.

In the first year alone, that one company would get the entire income from 7.2 million customers, because of the patent they hold. For each of the next fourteen years, until the patent expires, the company would receive income from a paltry 200,000, though, since (again) there would be no “repeat customers.”

But what does this one-time-cure pill cost? With a real cure, in my mind, the sky’s the limit. I’ve talked to people who’d be willing to spend 10 Grand or more on a real cure. But let’s say the inventing company decides to price the wonder drug at just $500. A one-time cost just 25% more than each of our psoriatics were spending every year beforehand. Doesn’t sound too unreasonable, considering what this pill does.

At $500 per pill, with every one of the 7.2 million psoriatics jumping to take it, that one company stands to make $3.6 billion in the first year alone, while also depriving the other 19 (or 20, if it’s a new company) of the measly $144 million they each expected to make. Sure, over the next fourteen years, the company only rakes in $100 million for the 200,000 new cases each of those years, but the total over fifteen years — $5 billion — is almost twice what each of the 20 companies could reasonably expect to make in the same time frame without a cure. Still a drop in the bucket compared to a company’s total income in that time, but there are other perks.

The “break-even” point, the cost-per-cure-pill which would equal the $2.58 billion in income over fifteen years, works out to be $258. If the inventing company priced the cure at less than $258, they would, indeed, lose money for producing it (compared with the status quo of no cure, with just 20 companies competing). However, even at this price, it still represents a relative windfall of $1.88 billion in just the first year (compared to the $144 million figure, over thirteen times the income from psoriasis patients that first year). Coupled with the possible prestige of being the company to cure psoriasis, as well as being able to claim a probable Nobel-prize-winning researcher or two, it may very well be worth it to a company to drop the price even below the break-even point. At around $50 a pill, however, the income begins to go so low that one would be worried about being able to recoup the research-and-development and production costs.

And don’t forget the possibility of a start-up company that’s never sold any psoriasis drugs before. They certainly aren’t expecting to make $2.58 billion over fifteen years on drugs they already manufacture. Such a company, if they spent $400 million in R&D, salaries, and other expenses, could expect to net roughly $600 million over fifteen years by pricing the pills at just $100 each. Get in, make a load of money, and get out as soon as the patent expires. Sounds decent to me.

What if the cure doesn’t work for everyone? Pretty much the same thing as if some percentage of the psoriatic population just doesn’t want to take it. Since there may be no way to predict for whom the cure will work, it may be that everyone (or almost everyone) tries it, and that’s money in the bank. Otherwise, if there is a way to predict who it’ll work for (unlikely as that may be), we simply adjust the figures for the one company down by whatever percentage it works out to be, and the other companies’ income up — from zero, mind you — by the same percentage of the expected income had there been no cure. Of course, if some gigantic number of psoriatics avoid the cure pill — 90%, for example — then my calculations go out the window. I don’t think that’s reasonable, though.

As I said, I believe all these numbers are favorable to the PWBTNMIACs’ theories, but the results still favor developing and marketing any cure which is found. Compared to the current state of affairs, there is, most assuredly, an economic incentive to be the company to invent a cure for psoriasis, and if it’s a small or start-up company, that incentive is huge.