No industry in America is more in need of disruption and innovation than pharmaceuticals. The United States is facing a serious shortage of prescription drugs that is putting lives at risk.
I learned this the hard way when the pharmacy called my mother and told her that it was unable to get one of her prescriptions; atenolol, because of a nationwide shortage. Atenolol is important because it can lower the risk of death after a heart attack in people that have high blood pressure.
The shortage is disgusting because atenolol is not an exotic, high-tech drug, it’s a generic product that been around for years. There’s no patent to pay and manufacturing is no more technologically challenging than making laundry detergent. Yet there’s a shortage which shows a serious problem with the pharmaceutical industry.
The Pharmaceutical Industry is Sick
What’s truly bothersome here is that atenolol is manufactured by some of the biggest names in prescription drugs according to Drugs.com.
That includes Teva Pharmaceuticals (NYSE: TEVA) which reported $23.37 billion in revenue and a loss of -$5.89 billion on June 30, 2017. Atenolol is also manufactured by Mylan (NASDAQ: MYL) which reported revenues of $12.01 billion and an income of $661.10 million on the same day.
These are supposedly major companies yet they cannot provide a steady supply of a product needed and used by tens of millions of people. Most of those customers have a steady means of paying for that product in the form of health insurance, much of which is financed by the government at taxpayers’ expense.
Around 129.726 million Americans have their health insurance paid for by three federal programs; Medicare, Medicaid, and CHIP alone. There are 68.61 million low-income Americans on Medicaid and CHIP alone, Medicaid.Gov reported. Another 55.3 million seniors and disabled receive Medicare and its prescription drug benefits.
What’s wrong with America’s Entrepreneurs?
Popular dogma dictates that entrepreneurs would be rushing to cash in on the drug market. After all prescription pharmaceuticals have tens of millions of customers, cheap finance from the government, and growing demand.
That is not the case; instead, there are shortages of hundreds of drugs according to the U.S. Food & Drug Administration. The shortages include drugs like varieties of penicillin; which was invented before World War II (nearly 80 years ago).
The pharmaceutical industry is clearly broken and in desperate need of new leadership. If any business needed visionary leaders like Elon Musk and Jeff Bezos, pharmaceuticals is it, yet they are nowhere to be seen.
Is Ideology the Problem?
One reason why innovators avoid pharmaceuticals is fear of politics and bureaucracy. Drug makers are that the mercy of the FDA and its’ masters in Congress. Yet that should not be a problem, many industries are regulated and attract visionary entrepreneurs.
The root of this fear is partially the ideological blinders worn by politicians and pundits on both sides of the aisle. Left-wing ideology blames “corporate greed” and demands witch hunts for evil tycoons gouging the sick with high prices. Right-wing ideology exalts “free enterprise” and demands government do nothing, even when the system is clearly broken.
A big problem here is that both mindsets make it easy for politicians to do nothing while stuffing their pockets with contributions from Big Pharma. Another roadblock to innovation is that entrepreneurs are afraid to get involved in drugs out of fear of being demonized or shaken down by politicians and journalists.
How Big Government and Big Business can fix Pharmaceuticals
Our leaders need to start cooperating on a serious effort to fix pharmaceuticals now. Fortunately, there’s a lot both big government and big government can do to fix the pharmaceutical industry.
Some steps government can take to fix Pharmaceuticals include:
- Set up a single-payer health insurance system to put the government in charge and give it leverage over the pharmaceutical industry. If the government pays the bills it is in control.
- Allow retailers and wholesalers to import generic drugs from countries like Canada. This would alleviate shortages and lower some prices.
- Finance the construction of new pharmaceutical plants in the United States. One way to do this to offer cheap-low interest loans to generic drug makers.
- Allow the Centers for Medicaid and Medicare to negotiate and set prices for drugs for Medicare. Currently, the Centers are banned from negotiating drug prices for Medicare.
- Limit drug patents to one or five years. This would make pharmaceuticals more competitive and force companies to start operating like normal businesses.
- Make it illegal to patent drugs developed with research paid for by the U.S. federal government. One way to do this would be to have the government itself own the patents and license them.
- Have Medicare purchase drugs directly from manufacturers when necessary and distribute them to retailers.
- Provide cheap finance to manufacturers of generic drugs in short supply.
How Big Retail can fix Pharmaceuticals
There is also a lot that business can do to fix pharmaceuticals and end prescription drug shortages. There is one obvious step that Big Business can take to clean up the pharmaceutical industry right now, integrate it with Big Retail.
Large retailers like Kroger (NYSE: KR), Walmart (NYSE: WMT), Walgreens (NASDAQ: WBA), Amazon (NASDAQ: AMZN), Costco Wholesale (NASDAQ: COST) and CVS Health (NYSE: CVS), should consider buying pharmaceutical houses and manufacturing generic drugs themselves. This is not as far-fetched as you think Kroger already owns 38 food-processing plants for a reason to maintain control of the supply and Walgreens owns some compounding pharmacies.
Since the retailers are dedicated to low prices and good customer service they would be able to change the dynamic in the industry. One reason why bread and milk are cheap is that companies like Kroger control the supply so they can make it that way.
Such an integrated business model would eliminate the pharmaceutical houses and ensure supplies for drugstores. It would also ensure lower prices and it would not cost that much. The first step would be to throw out the incompetent bums currently running those companies.
Mylan had a market capitalization of $16.81 billion and an enterprise value of $30.81 billion on September 29, 2017. Teva had a market capitalization of $17.83 billion and an enterprise value of $57.12 billion on the same day so it is a bargain.
Another step Big Retail can take is to simply refuse to do business with pharmaceutical houses that cannot supply drugs or charge prices that are too high. Use the power of leverage that ensures low prices in other fields in prescriptions.
The Sickness in Pharmaceuticals is a Threat to Capitalism itself
If Big Retail is not interested in doing this perhaps a billionaire like Warren Buffett or Bill Gates or hedge funds should think about buying up some pharmaceutical houses and change their operations.
Businesspeople that hate the idea of government solutions should take these steps right now. If do not politicians; like U.S. Senator Bernie Sanders (I-Vermont), a self-proclaimed “democratic socialist” or President Donald J. Trump (R-New York) an admirer of Britain’s National Health Service (NHS), will end up in charge of the drug business. Business may not like the solutions they offer.
Something has to be done soon because the sickness in the pharmaceutical industry has become a threat to capitalism itself and people’s lives. That situation should not be tolerated in any country.