Fighting Cancer Now a Matter of Money - When is a Profit Enough?

Those suffering from breast or lung cancer have something new to anguish over. In addition to dealing with chemotherapy, weakness and mortality, they now must worry if they have the resources necessary to pay for extremely expensive medicine. Not the $50,000 price tag associated with current therapies, but $100,000-for just one year's treatment.

That is what many cancer patients will have to pay for a course of Genentech's Avastin, a drug shown in clinical trials to extend the lives of late-stage breast and lung cancer patients by several months when combined with existing therapies.

Avastin is currently used to treat colon cancer, at a price of about $50,000 a year. But since it will be used at higher doses for lung and breast cancer the cost will double, to about $8,800 a month. Even though the additional cost of producing a higher dose is minimal, Genentech does not plan to reduce the unit price.

With a price this high, some cancer patients will be priced out of the treatment; namely, those without insurance and those with high deductibles. But even some patients with insurance are thinking hard before agreeing to treatment, as out-of-pocket co-payments for Avastin could easily run $10,000 to $20,000 a year.

Genentech is currently seeking FDA approval to sell the drug specifically for the treatment of breast and lung cancer. Until the FDA gives the okay to sell Avastin as treatment for these diseases, insurance companies will not pay for it and patients must sign a waiver agreeing to reimburse the hospital for the price of treatment.

Avastin went on sale during the first quarter of 2004 and had 2005 sales of $1.1 billion. With this new application it has a potential patient pool of hundreds of thousands of people, meaning its United States sales could grow nearly sevenfold-$7 billion by 2009. Genentech's profits are forecast to triple to $4 billion in 2009, as sales climb to $18 billion.

Herein lays the moral-ethical question: When is a profit enough?

In the past, drug manufacturers said high drug prices were necessary to recoup the large research and development costs associated with new drug development. For every successful drug that comes to market, dozens of other drugs in development could not be sold, for a variety of reasons: the drug did not perform as anticipated or perhaps could not gain FDA approval.

Genentech's reasoning for the high cost of an Avastin treatment for lung or breast cancer is decidedly different. The company and its majority owner, Roche, say the inherent value of life-sustaining therapies is the justification for a high price. With 2005 sales of more than $6 billion, pure profit also seems to be a motivator for the South San Francisco, CA-based firm.

"As we look at Avastin pricing, right now the health economics hold up, and therefore I don't see any reason to be touching them," said William M. Burns, the chief executive of Roche's pharmaceutical division and a member of Genentech's board.

Genentech's president of product development, Dr. Susan Desmond-Hellmann, said that Genentech set Avastin's price based on "the value of innovation, and the value of new therapies." To assist those who cannot afford treatment, Genentech has patient programs and last year contributed $21 million to charities that help patients with their insurance co-payments, she said.

Because of Genentech's status as a leading developer of cancer therapies, some doctors fear that the company's pricing plans for Avastin may encourage other companies to charge more for their own oncology drugs. If this happens, the overall costs of cancer treatments may rise to unsustainable levels.

Many medical professionals are opposed to the ever-rising costs of pharmaceuticals, but few are willing to discuss it. Efforts were made to reach local medical professional for comments. No pharmaceutical sales representatives were able to comment, as all major drug companies require employees to sign strict non-disclosure agreements. Pharmacists at chain pharmacies such as CVS and Walgreens are also not permitted to comment either on or off the record, and pharmacists at the local independent pharmacies contacted were hesitant to comment.

Robyn Gleason, MSN, MPH, ARNP, PhD(c) and Bethune-Cookman Nursing professor, was willing to comment. "They'll charge what the market will bear," she said in an interview. "I don't think the drug companies are justified in charging $100,000 a year for cancer treatment. But look at the cost of HIV drugs. It's no different."

"I'm sure it cost them a lot to develop this drug. But I'm not so sure it costs them enough to justify the $100,000 price," she added.

So why do drugs cost so much? Is it because of the huge R&D costs, or something else? A report by the U.S. consumer group Families USA refutes the long-standing pharmaceutical industry's claim that high prices are needed to sustain research and development-an argument not only advanced by industry, but by major industrial countries, the World Trade Organization, and even parts of the World Health Organization.

The report, "Off the Charts: Pay, Profits and Spending by Drug Companies," documents that drug companies spend more than twice as much on marketing, advertising, and administration than they do on R&D. It also purports that company profits, which are higher than those of all other industries, far exceed R&D expenditures, and that drug companies provide lavish compensation packages for their top executives. These expenses have to be recouped, and as of late the method for that has been to charge more and more for drugs.

An outspoken critic of exorbitant prices is Dr. Marcia Angell, author of the book The Truth About Drug Companies: How They Deceive Us and What to Do About It. In her book Dr. Angell argues against the pharmaceutical industry's reputation as an "engine of innovation." According to Dr. Angell's research, the top U.S. drug makers spend 2.5 times as much on marketing and administration as they do on research.

She also found that a third of the drugs marketed by industry leaders were discovered by universities or small biotech companies and sold to the public at inflated prices. She cites cancer drug Taxol, which was discovered by the National Institutes of Health and then sold by Bristol-Myers Squibb at a treatment cost of $20,000 a year-20 times the manufacturing cost. Interestingly, Bristol-Myers Squibb pays the NIH only 0.5% in royalties.

The real test of legitimacy for extremely high prices is, how much profit are pharmaceutical companies making?

A PricewaterhouseCoopers study cataloged the profit per dollar of the largest, economy-driving industries. In the third quarter of 2005 the overall average was 18.5 cents of profit for every dollar of sales. The oil and gas industry earned 8.2 cents; banking, 18 cents; transportation a paltry 0.2 cents; and software, 9 cents. The pharmaceutical industry, however, earned 18.5 cents of profit for every dollar of sales-the highest of any industry.

Angell reports in her book that the top ten pharmaceutical companies make more in profits than the rest of the Fortune 500 companies combined. For many, this is evidence enough that too much is being charged for drugs.

Mandy Minor is the marketing director for St. Petersburg web design firm J Allan Studios.

Machinery Loss of Profit Policy :- Can Help Business Concerns

A close up view of: -

Machinery loss of profit

Despite all the precautions taken by managers, companies may suddenly find itself in a situation that threaten its survival, e.g. as a result of natural disasters, accidents, fire, industrial espionage, sabotage, damage to their reputation, or the failure of a supplier, the power supply or a telecommunications network.

It is well accepted fact that risks can never be entirely eliminated. However, while corporate managements cannot guarantee that losses will be precluded, they are at least expected to deal with loss events and the attendant aftermath in a satisfactory manner.

In addition to the traditional tasks of risk management - identifying, analyzing, reducing and transferring risks companies are thus increasingly being expected to prepare systematically to deal with loss events. A step for this purpose is machinery loss of profit.

Introduction

Under both machinery and fire insurance, indemnity is provided, in respect of damaged or destroyed machinery, solely for the material loss sustained by the insured. These types of insurance do thus not protect the insured against all the losses which arise in connection with a fire or the breakdown of machinery, since in most cases a material loss also causes an interruption or interference of the insured's business operations. The result is a financial loss in the form of lost profit and unearned standing charges. In many cases the loss sustained as a result of an interruption or interference of business operations by far exceeds the mere material loss.

An awareness of the need for insurance protection against the financial consequences of material damage arose at the beginning of this century, and the result was the introduction of the two variants, loss of profits following fire insurance and loss of profits following machinery breakdown insurance - also called machinery loss of profits (MLOP) insurance. As the size of modern production facilities increases, MLOP insurance is becoming more and more important. The individual production stages in modern processes are often accomplished by just one machine, the failure of which leads to substantial interruption losses.

Machinery loss of profit policy is just a replica of fire loss of profit policy. Like fire loss of profit is require standard fire policy same with MLOP. It requires machinery break down policy or boiler and pressure plant policy or eclectic equipment policy. In US it is known as Business interruption insurance. Sometimes it is also called as business income coverage or loss of profit insurance, is typically a rider or endorsement added to a business's property/casualty policy. As such, what's covered under the main property/casualty policy will determine what is and is not covered for business interruption. For example, P/C policies typically cover fire, but not floods or earthquakes, so if an earthquake damages the business, your business interruption coverage won't kick in unless insured have obtained additional coverage for earthquakes.

Need for MLOP

Business expert Ms.Meenakshi Gupta said this policy is must for every business organization as the market competitions is so tight that one minor loss can ruin the whole business.

The incident of machinery breaks down not only cause loss of property to industry but result in stoppage of work, resulting in loss of production and loss of fixed charges which ultimately results in loss of profit. To cover loss of profit because of machinery breaks down it requires a specific policy given with machinery break down policy or boiler and pressure plant policy or eclectic equipment policy.

The basic features of MLOP insurance will be dealt with.

1 Subject matter insured

MLOP insurance provides cover for the actual loss of profits sustained as a result of a business interruption caused by material damage indemnifiable under machinery insurance. MLOP insurance provides indemnity also in cases where the material loss amount falls below the deductible to be borne by the insured under the machinery cover. Basically speaking, a loss due to an interruption or interference of business operations is made up of the following factors:

1. The reduction in operating profit, i.e. the profit from selling the goods produced and traded by the insured and from rendering services.

2. The standing charges, i.e. the costs incurred entirely or in part if operations are interrupted or impaired. These comprise wages and salaries, including social security contributions if they continue to become due during the interruption; interest, economic depreciations, basic rates for third-party energy, expenses for the current upkeep of buildings and machines, rent, taxes and other non-specified working expenses, expenses for the preservation of vested rights, insurance premiums and other business expenses, e.g. guaranteed commissions.

3. Not included in standing charges, however, are turnover taxes and expenses for raw or auxiliary materials, fuels and goods purchased unless they serve to continue operations; excise taxes, freight charges, specified license and inventor's fees and similar expenses. Loss minimization costs are also covered if they lower the insurer's obligation to indemnify. These include expenses that avoid, minimize or terminate an interruption loss soon after the occurrence of material damage.

Loss minimization is of great importance in MLOP insurance. The following are examples.

1. Purchase/sale of semi-finished goods

2. Provisional repairs

3. Early overhauls

4. Purchase of non-identical (but compatible) machinery

5. Express, airfreight

6. Overtime work, additional shifts, work on Sundays

7. To accelerate repairs on undamaged machines to reduce the interruption loss

8. Rent of machinery (e.g. transformers, boilers, compressors)

9. Shifting of operations to alternative plants

10. Making up for the production loss after reopening

Coverage

Machinery loss of profit policy gives cover against consequential losses following loss or damage to the property insured under machinery breakdown and/or boiler and pressure plant insurance. This policy covers actual financial losses suffered by the insured due to business interruption arising from:

a) Reduction in turnover and

b) Increase in cost of working

The standard policy thus insures the loss of gross profits in the business because of accident to the machinery, boiler and pressure plant, electric equipment covered under respective policy.

What Can Be Insured?

Continuing Overhead Expenses: - which have to be met out of reduced earnings such as rent, taxes, interest on debentures, mortgages and loans.

Increase in Cost of Working: - necessarily incurred to overcome or to minimize the effects of damage upon the business such as renting of temporary premises, hiring of machinery or extra labour costs.

Loss of Profit: - which would be earned by industry if there was no damage to machinery.

Wages: - of employees not gainfully employed during the interruption period and payments to employees whose services are no longer required.

Indemnity Period

In contrast to a material loss, the loss of profits following a business interruption depends on the time factor involved. In other words, the longer the period for which operation is interrupted or impaired, the greater the loss of profits. For this reason it is essential to set a certain limit for the period during which the insurer is obliged to provide indemnity for an interruption loss. This is done by the insured specifying an indemnity period limit which represents the maximum time for which an insurer is liable for loss of profits. The period of indemnity begins on the date on which material damage could first be said to have occurred, as judged according to the recognized principles of engineering, at the latest, however, on the date when the loss of profits commenced. Generally the indemnity period limit is three, six, nine or twelve months. The basic rule is that the indemnity period limit should relate to the amount of time required for removing the interruption loss, i.e. for repairing the machinery damaged or for the delivery of new machinery in cases of a total loss, assembly and trial run. Higher premiums are, of course, charged for long indemnity period limits.

In other words the indemnity period commences with the date of damage and lasts till such a time as the business is restored to its pre damaged level or the period stipulated policy which ever comes first. The policy insures earnings of the business lost during the indemnity period. But in any case indemnity period will not exceed 12 months.

Graph showing relation of indemnity period with damage

Sum Insured

Sum insured is net profit plus standing charges. For calculating profit past years data are taken. It is difficult to calculate gross profit for future so it is allowed to increase gross profit by 50%.

Refund of premium is allowed if estimated figure is more then the actual figure but subject to that refund does not exceed 50% of premium collected.

Premium

Premium rates depend on the critical nature of the machinery covered by the breakdown or explosion policies; their relative importance and contribution to final output; the repairs, maintenance and stand by facilities available and the indemnity period opted.

Exclusions

1. Loss or damage to machinery or other items which are not listed in the list of machinery insured even if the consequence of material damage to an item indicated in the list of machinery insured is involved

2. Any restriction on reconstruction or operation imposed by any public authority

3. Shortage, destruction, deterioration and spoilage of or damage to raw materials, semi-finished or finished products or catalyst or operating media even if the consequence of material damage to an item indicated in the list of machinery insured is involved

4. Alterations improvements or overhauls being made while repairs or replacements of damaged or destroyed property are being carried out

5. Extension of repair period beyond 4 weeks on account of

a. Inability to carry or delays in carrying out repairs

b. Prohibition to operate the machinery due to import and/or export customs & other restrictions or by statutory regulations

c. Inability to secure or delays in securing replacement parts, machines or technical services

d. Transport of parts to and from the insured premises

6. Willful acts or Gross Negligence on the part of Insured &/or his employees

7. War or warlike operations, Civil Commotion, Strike & Locked-out workers

8. Nuclear reaction, nuclear radiation or radioactive contamination

9. Loss or damage caused by any faults or defects existing at the time of commencement of this insurance within the knowledge of the insured or his responsible representatives whether such faults or defects were known to Company or not

Time exclusion

Explosive factory, petrochemical, power plant and fertilizers 14 days exclusion where as in other industry it is 7 days.

Underwriting consideration

- Risk inspection report.

- Description of plant

- Date of make

- Work performed

- Alternative means of working

- Repair time

- Spare parts held

- Unattended plant

- Percentage of daily loss. Incase production is halted.

- Any alternative means of working available.

- Stand by machine.

- Breakdown experience.

The possibilities of loss minimization

The results of MLOP insurance depend to a great extent on the loss minimization measures taken. It is therefore quite obvious that this topic deserves special attention. Such measures for loss minimization are, for example, the hiring of substitute motors, generators, transformers, boilers, small turbines, etc. or the speeding up of repair work by carrying out complex welding operations even on high-alloy materials or using metalock and other special repair methods on the damaged components.

Terms used in policy:

The following terms used in this policy will be defined as follows:

a. Gross Profit is defined as the sum produced by adding to the Net Profit the amount of all insured fixed charges. If there is no Net Profit the amount of all insured fixed charges less that proportion of any loss from business operations as the amount of the insured fixed charges bears to all fixed charges.

b. Net Profit is defined as the net operating profit exclusive of all:

1) Capital receipts and accruals; and

2) Outlay properly chargeable to capital;

Resulting from the business of the Insured at the described location after due provision has been made for all fixed charges and any other expenses, including depreciation, but before deduction of any taxes on Profits.

c. Insured Fixed Charges are defined as all fixed charges unless specifically excluded in the declarations.

d. Sales are defined as the money paid or payable to the Insured for:

1) Goods sold and delivered; and

2) Services rendered;

e. Rate of Gross Profit is defined as the rate of Gross Profit earned on the sales during the twelve (12) full calendar months immediately before the date of physical loss or damage to the insured property.

f. Standard Sales are defined as the sales during that period in the twelve (12) months immediately before the date of the loss or damage to the insured property which corresponds with the period of indemnity.

Marketing aspect for betterment of MLOP policy in India

Capered to other products of engineering insurance, MLOP is very less in number. This product requires proper advertisement and making the small business owner aware of this policy. This policy is more suitable for small industrial sector of India which facing many difficulties. Agents are required to train about coverage and usages of policy, so that they will be in position to explain other. Special advertisement campaign is required.

Vishnu Ramdeo

MBA (Insurance)

National Law University

Jodhpur.

India

mr.Vishnu Ramdeo has done his garduation in B.com honours in accounting and finance. He has done his MBA in Insurance from National Law University, Jodhpur India. his intreset areas are insurance, taxation,investment,equity research and law.