By Toby James
Last month, American pharmaceuticals giant Pfizer had their ‘final offer’ for their proposed takeover of the British company AstraZeneca rejected. This offered shareholders £24.76 and 1.747 shares for each share they owned, valuing each share at £55 and the company as a whole at £69 billion, yet was rejected on the grounds that it “continues to fall short of the board’s view of value”.
This begs the question: How much is a share in AstraZeneca worth? Thankfully, this is something they are willing to divulge. When Pfizer made their previous offer, which valued each share at £53.50, AstraZeneca had stated that they would require at least a ten per cent increase to consider accepting the takeover. This would value each share at £58.55. With a company considering itself to be worth over £70 billion and valuing its shares at almost £60, the real question is not how much AstraZeneca’s worth, but whether companies supplying healthcare products, and saving lives, should be worth this much.
In other words, Is Big Business Beneficial Or Detrimental To Drug Production?
In the UK, many people, from senior board members at AstraZeneca to politicians were suspicious of Pfizer’s motives for the takeover. The main cause of suspicion: corporate tax is 15 percentage points cheaper in the UK than in the US. Despite Pfizer’s promises to keep British jobs and even to complete construction of AstraZeneca’s £300 million research facility in Cambridge, many people viewed the proposed takeover as a thinly veiled attempt at so-called ‘Tax Inversion’; ie, if your company is based in the UK, corporate tax is only 20 per cent as opposed to 35 per cent in the US.
This is understandable; the aim of a business is to make money. The aim of a pharmaceuticals company, however, should surely be to provide a service. Drugs are a necessity in the modern world, and even the most hardened capitalist would be hard pushed to wish to deny someone medical help on monetary grounds.
Doesn’t this mean that we ought to nationalise the drug companies? Reinvest all their profit into research and production? Some people certainly think so.
In South Africa, the left wing National Education, Health and Allied Workers Union (NEHAWU), called for the nationalisation of drug companies in January this year. This would hardly be a surprise, but it is worth bearing in mind that this union is the largest public sector union in South Africa.
Their calls for nationalisation were due to multinational drug companies’ plans to oppose legislation proposed to limit the power of drug patents. Once again, this is understandable. The aim of a business is to make money. The drug companies are merely trying to protect their intellectual property. South Africa’s proposed legislation would allow drug makers to produce cheaper versions of patented drugs, and would allow drugs to be registered as new finds, even if they are simply a new use for an old drug or an old drug with minor modifications.
Drug companies have reportedly spent $600,000 (about £350,000) on a publicity campaign opposing this legislation, incurring the wrath of not only NEHAWU, but also the South African Minister Of Health, Aaron Motsoaledi, who described their campaign as “A conspiracy of satanic magnitude”, and accused them of “[Sentencing] many South Africans to death”, comparing it to “Genocide”.
So could big business’s role in the pharmaceuticals industry actually be endangering lives? If so, it would seem obvious that drug companies should not be motivated by financial gain, and more by technical and pharmaceutical innovation. This is, of course, not to say that innovation is not the driving force behind GlaxoSmithKline, Pfizer, AstraZeneca and any other drug company on the market.
The issue is that the motives for innovation are largely based on capital. Companies want to produce new, lifesaving drugs, but only so they can sell them and make more money than their counterparts.
It is a romantic notion that big pharma should be run entirely by scientists, with all the money being spent on research, but what needs to be understood is what this research entails.
Drug research is not simple. The original discovery of a new drug alone can cost tens of thousands, and then it must be subjected to rigorous tests. The majority of drugs will fail many of these tests and need to be altered; otherwise people’s safety would be compromised.
In an industry constantly under fire for its tendency, indeed its necessity, to test drugs on animals, there must be financial incentives for a scientist to undertake these tests. There are reports of scientists receiving death threats for their research on primates; despite the drugs they developed having saved thousands of lives. In this sort of industry, financial incentive is a key motivation for continued work.
No scientist is purely altruistic, and while in an ideal world maybe there would be no profit made from saving lives, the involvement of money is a necessity for the advancement of science. Tests are not cheap, and, for the sake of innovation, as many drugs must be tested as possible, while, for the sake of safety, they must be tested in as many ways as possible. This, obviously, incurs huge costs.
No amount of passion and government grants can keep a business, indeed an industry, going as long as the motivation for profit can, and the drugs industry is an exceptional case. The research and development costs are vast, and it is entirely necessary to be turning over billions of pounds to pay for them.
The ethos of business may not be at home in drug development. Competition and profit may seem to take advantage of the ill, but the vast amounts of money required to further drug development can only be commanded by big business.
Whatever your opposition, and I myself have my reservations, we all need to accept that we owe big pharma a great debt. Not that we need to pay it though, they’re all rich enough.
