Column: For drug companies, making shareholders happy is more important than treating the sick

Hypothetically speaking, if a drug company is sitting on a huge pile of cash, can it justify steadily hiking the price of a well-established medicine used by millions of people?

Actually, it’s not a hypothetical question at all.

Pharmaceutical giant Eli Lilly said Monday it will spend $8 billion — in cash — to acquire Loxo Oncology, maker of a promising cancer drug that costs nearly $33,000 a month. That $8-billion price tag represents a roughly 68% premium over Loxo’s closing share price Friday.

Meanwhile, Lilly has been steadily jacking up prices for its insulin, Humalog, used by millions of people with diabetes. Lilly and just two other companies, Novo Nordisk and Sanofi, control almost the entire $27-billion global insulin market.

Humalog has been around since 1996. When it was introduced, it cost patients $21 a vial, which is about a month’s supply. Since then, Lilly has raised the price more than 30 times. The cost of a vial is now approaching $300.

That’s a more than 1,000% price increase.

Full disclosure: I have Type 1 diabetes and rely on Humalog to keep me alive, so I’m not a bystander in this conversation.

Nor am I unbiased when I look at Lilly shelling out $8 billion in cash for a drug that costs cancer patients a small fortune. I wonder what message the company is sending people like me.

Are sky-high insulin prices just a handy way of subsidizing acquisition of another drug that costs sick people even more?

Put another way, do drug companies have a responsibility for the well-being of their patients or solely for their shareholders?

Craig Garthwaite, a healthcare economist at Northwestern University’s Kellogg School of Management, had a ready answer to that last question.

“They’re in business for their shareholders, full stop,� he told me.

When a corporation such as Lilly sees an opportunity for increased revenue, Garthwaite said, that’s where it will allocate its financial resources.

“Whether you like it or not, that’s what publicly traded companies do,� he said.

Yeah, I get that.

But I also take Lilly at its word when it declares, as it does on its website, that the company “unites caring with discovery to create medicines that make life better for people around the world.�

Lilly also states that its core values include “mutual respect, openness and individual integrity,� and that “respect for people includes our concern for all people who touch or are touched by our company: customers, employees, shareholders, partners, suppliers and communities.�

Note the order there. Customers come first. Shareholders are third in line.

I asked a Lilly spokesman to comment on the misgivings some people with diabetes might have over the Loxo deal. I asked whether the company cared to explain its $8-billion all-cash purchase in the context of ongoing increases in the cost of insulin.

I received no reply.

Had anyone gotten back to me, I’m sure they would have noted, correctly, that very few insulin users pay the full list price, thanks to health insurance and discount programs.

At the same time, however, a growing number of people with diabetes say they’ve been forced to cut back amid a tripling of insulin costs in recent years by all makers.

A Minnesota mother told CBS News last week that her 26-year-old son died because he couldn’t afford his daily insulin doses, which had soared in cost to $1,300 a month. He started rationing to get by.

The young man fell into a diabetic coma while alone in his apartment and subsequently died.

“My son died because he could not afford his insulin,� said Nicole Smith-Holt. “Nobody to be there with him, to hold his hand or to call for help.�

I know it’s naive to expect a publicly traded company to place public welfare before profits.

I know Lilly is hardly alone among companies raising prices while simultaneously holding gobs of cash (hi, Apple!). And I can’t think of a single pharmaceutical company that has ever lowered the price of a major branded drug.

“As long as we have for-profit drug companies, these companies will need the free capital to move in new directions,� said Joel Hay, a pharmaceutical economist at USC.

William Comanor, a professor of health policy and management at UCLA, observed that big drug companies rely on smaller firms to do the heavy lifting on research and development. When the little guys come up with something, they get bought out.

“There are no simplistic answers here,� he said.

But a maker of lifesaving drugs isn’t the same as a maker of, say, tennis shoes. If Kanye West can get away with charging hundreds of dollars for a pair of his Yeezy sneakers, more power to him. Nobody needs to buy them.

People with chronic illnesses have no such choice. They buy their meds or they face serious health issues, possibly death.

Other developed countries use the economic power of single-payer insurance plans to keep drug prices down, or they limit how much a drug company can charge beyond a reasonable profit.

The American way is to let pharmaceutical companies charge whatever they like and pretend that “the market� will protect patients, although it never has and never will.

“What we hope is that Eli Lilly can please shareholders while pleasing patients by making them healthy,� said Sean Nicholson, director of Cornell University’s Sloan Program in Health Administration. “In a perfect world, that would be the case.�

But you already know what he said next.

“Healthcare is not a perfect world.�

I don’t begrudge a company like Lilly sitting on a pile of money while raising drug prices, or spending part of its hoard on potentially lucrative new acquisitions (such as a drug you can dangle in front of cancer patients for $33,000 a month).

But don’t look me in the eye and tell me you define yourself by your “caring� attitude, or that you’re making “life better for people around the world.�

Tell me you’re making big bucks off my misfortune and the sad plight of millions of other sick people.

Tell me the truth.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to [email protected].