If you believe that drug prices are so high because of R & D, Big Pharma has done their job. And they're going to be in your pocket for a long, long time.
If you believe that drug prices are so high because of R & D, Big
Pharma has done their job. And they're going to be in your pocket for a
long, long time.
…
Article comments
— go to most recent comments26 - Hal Pawluk
How is it different? Just look at it - seems perfectly clear to me.
My post was not on the entire universe of drug industry issues.
I'll likely get into other aspects at some time. That time might be hastened if you were to post an item detailing your position on Lessig's topic.
27 - Craig Lyndall
Maybe I will. In the meantime, the price-discrimination is an actual cost that can't be measured in dollars easily, but it is an actual cost. You sit here going over the cost. You can't ignore the cost of doing this kind of pricing and you also need to have an understanding of monopoly pricing, which in it's limited form with the patent situation is necessary.
28 - Patrick
The issue of pricing is complex. What is easy is to look at low costs in Canada v. US and say something is wrong in that. I agree, that doesn't seem right. OK, how do you fix that? Canada has socialized medicine, which means that Canada's govt. limits the costs associated with what they will pay for. There are also limitations to socialized medicine. They have longer waits for treatement in Canada. Some drugs available in the US are not available in Canada.
The risk of limiting drug company profits here in the US is that could stifle drug innovation. Drug companies can sell cheap drugs in Canada, and continue to come up with new drugs because they can count on the profits from the US. It could all break down if the US limits those profits though. Not all drug companies profits are sky high. Just take a look at Wyeth (on of the top 15 drug companies in the world). Look at Schering Plough. Everyone looks at the top tier, but there are a lot of companies out there researching drugs with no revenue, holding out for the discovery they may make that might be able to bring a drug to market 10 years from now.
Cutting profit incentives may save us money today, but what will it mean to healthcare 10-15 years from now when drugs that could have been brought to market don't happen?
29 - Patrick
Hal, was reading some of Public Citizens stuff and had some problems with some of their ideas.
Drug companies will shift priorities: The top U.S. drug companies actually take more of their income as profit (18.5 percent in 2001) than they spend on R&D (12.5 percent). Partially reversing this ratio can compensate for reduced profits due to price cuts.
Why would they do that? Might they not cut R&D spending?
Experience in Europe: To control drug costs European countries either impose price controls or limit drug company profits. Yet European drug companies " such as Glaxo, Aventis, AstraZeneca and Roche " are very successful, highly profitable and just as innovative as U.S. companies. From 1990-1999, European-based companies introduced 183 new chemical entities to the world market whereas U.S. drug companies introduced 161.
I agree, Glaxo, Aventis, AZ & Roche are very profitable, but where do their profits come from? Are their profits coming from the US market? If thats the case, then this point should't even be considered. Ask why very large facilities for these "foreign" companies are in Philadelphia, RTP, Bridgewater, Delaware and Nutley.
Future research costs will decline: Drug company R&D is getting more sophisticated and cost-efficient. Technological advances in areas such as genomics and combinatorial chemistry allow researchers to investigate many more new molecules than they could in the past. This will allow manufacturers to reduce costs and increase their chances of finding promising new drugs.
Future research costs will go down, true, but you can't expect lower current prices on future savings, can you?
R&D is the drug industry’s lifeblood: Without research, the drug industry cannot discover new and potentially lucrative drugs. It is counterintuitive that the industry would reduce R&D. If anything, the reduction of drug prices could intensify R&D prompting companies to come up with more discoveries that would sustain profitability despite reduced prices.
So thoughts of declining profits would encourage even more investment? I know the NIH budget is $27 billion, pharma spends about $32 billion as it is, if they know they will make less money in the future, why would they increase the $32 billion? Also, couldn't cutting their profits encourage me-to drug research, as that is less risky? Keep in mind that while me-to drugs do provide profits, they are not going to provide mega-blockbuster drug profits. They might take market share, but they will never own the market for that indication.
30 - Hal Pawluk
I have no idea what those ideas might be, as I haven't read anything on their site except for scanning the page with the story about the Tufts study. That was the only source I had with the NIH data.
Providing a link to that page is not an endorsement by me of anything they may think, believe or do. And since there may be a propensity for jumping to conclusions on BC, I'll try to avoid them in the future :-)
31 - Patrick
I actually like PC's section on medical malpractice, but hey, you have to make a lot of noise to get noticed I guess.
32 - Timo
Here's a good source of info on the current David & Goliath war over American's rights to reimport drugs from Canada if they can'ta fford domestic prices. www.rxsanity.org
33 - Klug
Dear Mr. Winn:
You mentioned above:
" 'what incentive would anyone have to come up with new drugs?' Gee, I doubt most kids growing up become scientists because they want to discover something that their company can patent and make a lot of money from. I suspect most kids who become scientists do so out of a thirst for knowledge, or a desire to help people. THe profit motive is not the only motive, and I suspect it's not even the biggest one."
--
Speaking as a current graduate student in organic chemistry, I can assure you that the profit motive, if not the biggest, is the most universal of all motives among all students. (It most likely is the biggest, incidentally.) Do you know how long it takes and what kind of investment of money it takes to become a research scientist in medicinal chemistry?
It takes four years of college, five years of Ph.D. studies (if you're lucky) and likely a two year post-doctoral fellowship to be hired into the drug industry. During that time, students are accumulating debt and foregoing better salaries elsewhere.
I might add that graduate students in the sciences are lucky enough to be paid during this time, but not paid very well. I earn around $20k a year for working six days a week with average ten hour days. (I might add that I get paid better than most around the country and my hours are not atypical.) I do not get any societal benefit from being a chemist (unlike the God-like treatment I would get if I were a medical student or a physician.) The only benefit I get (other that the respect of my peers, of course) is money.
--
I write all of this to assert to you three things: First, there aren't enough American students going into the sciences (medicinal chemistry included.) Second, those students that do go are motivated, yes, by a thirst for knowledge, but also knowing that being a scientist is at least somewhat lucrative in the future. Third, by forcing drug company profits down, you are killing R&D and either lowering my future salary or removing my job altogether.
34 - Hal Pawluk
Klug: by forcing drug company profits down, you are killing R&D
Making the drug companies live in a competitive market would not kill R & D, and you'd still find work, though maybe not at quite the wages you're anticipating now.
I do think you need to read my original post again: most of the research is paid for by taxpayers. The drug companies then cherry-pick the drugs they want to develop further.
Cutting their profits from the 18% they enjoy now to something closer to the level in, say, the semiconductor industry wouldn't necessarily reduce R & D much. If they can spend more on supporting the value of management stock options than on R & D, they have plenty of wiggle room.
35 - Klug
Dear Mr. Pawluk:
Unfortunately, we are at a classic impasse, where we disagree on the effects of cutting drug company profits. My brief experience working for a Pfizer subsidiary tells me that the moment the profits look like they're taking a dip, R&D money tightens like a nervous sphincter. (Forgive the analogy, if you please.) Research projects are ended and efforts are only placed on the surest of sure bets. Sure, the bosses might take a pay cut, but really, when was that the response of any modern company? (Besides, any pharma company worth its salt could burn through one Fortune 500 CEO's salary in six months. If you've gone to that, it's too late.)
As for your second point, I cannot find any documents to prove or disprove your assertion. (That's not your fault, it seems that Public Citizen doesn't have a copy of this NIH document online. Feel free to prove me wrong.) What do you mean, cherry-pick? And what do you mean by government support?
If you're saying that drug companies take advantage of initial discoveries by NIH-funded academic scientists, yes, then they cherry-pick. If you're arguing, however, that the government pays for most of the research that turns the idea into a pill that you put into your mouth, though -- you're wrong. Some, yes, most, no.
Taxpayers pay for basic science; drug companies risk their money for applied science. There's a crucial difference there.
Thanks for the response, Mr. Pawluk. Hopefully, this isn't a dead thread.
36 - Hal Pawluk
That's where it's handy to have the NIH doing a lot of the preliminary research - the drug companies can pick up the projects that showed the most promise on someone else's nickel. This pays off for the drug companies twice: once in the drugs that were discovered; once again in the dead ends that were followed and turned up nothing. Knowing where not to spend your money is as important as knowing where to spend it.
Yes.
No.
I understand that difference pretty clearly - my degree is in engineering, which I would never confuse with science. It was a long march between discovering that you could get thrust from combining two chemicals in a vented enclosure to generate thrust, and actually landing on the moon.
And I don't think we're at an impasse because I'm not trying to get you to do anything :-) I don't care whether we disagree or not and I don't care whether, if we disagree, I change your mind or not. I'm just laying some facts and opinions out for others to consider.
With that out of the way, you're right that the flinch reaction of management may be to cut expenditures in areas other than their personal perks, certainly in the short term (they may cut advertising first).
However, that can only go so far. They're only going to continue to get those perks as long as stockholders are happy with their performance, so they can't kill the goose that lays the golden egg, the development that brings new products to market. With enough reduction in taxpayer supported prices, they'd start looking at the management money, such as the $9.7 billion Pfizer spent in 2002 to support management stock options (as I said, more than their after-tax expenditure on research that year).
37 - Patrick
One thing to keep in mind about marketing and advertising expense. The goal of marketing is to increase revenue and thus profit. Marketing should not actually cause profits to drop (unless you do it poorly), it should cause revenue (and profits) to go up. If you squeeze profits, why would you drop or cut something thats purpose is to increase profits? (I know, companies do cut marketing when they are not doing well, sometimes companies do things that don't make a whole lot of sense.
38 - Hal Pawluk
You're right, Patrick, but I've spent a few years on the client side in marketing, and even more years as an outside consultant and advertising agency so let me tell you: many companies cut advertising when things start going wrong financially.
From their perspective, as far as I can tell, advertising is a huge expenditure and there are no directly traceable (dollar-for-dollar) results. They do the cuts, and sure enough, things don't change all that much for a short while.
My counter has been that "advertising doesn't cause sales", and that when times are tough it's time to let the other guys cut their budgets and take the competitors' market share by continuing to advertise.
It worked some of the time :-)
39 - Patrick
I think we agree of the advertising, kinda. Not saying that if profits were lowered, drug co's wouldn't cut advertising, but generally they tend to go across the board. (again back to companies not always doing the smart thing). While they probably shouldn't cut marketing, they do. While they probably shouldn't cut R&D, they probably would.
40 - Hal Pawluk
I've posted an update that reinforces the mythical quality of drug pricing supposedly based on research costs at:
http://blogcritics.org/archives/2004/02/12/111829.php
41 - Patrick
So pricing a product according to its value is strange?
I think the problem of healthcare costs is very frustrating. You look at Canada and their system of covering everyone at a lower level, and compare it to the US's system. Which one is better, which one is worse? Its not an easy answer, but the fact is you have to ration healthcare somehow. Not everyone in the world can have the "best" healthcare available. Maybe this isn't the place for my topic, but it gets at how to ration healthcare. A socialist system rations it in quality and speed of service. The average person in Canada is probably better off, but the quality is probably lower at the top end. In the US, the average is probably not doing as well in Canada, but if you can afford it, you can receive the best healthcare in the world.
If you take out financial incentives, there is no doubt that quality suffers. I have read that doctors in Canada are attracted to the US market because their level of reimbursement in Canada is regulated, thus lower. Some drugs are not available in Canada (too expensive) and the time to receive treatement is longer.
Would Pfizer stop R&D if you take their margins from 18% to 3%? Probably not, but you probably would stop companies like Imclone and other start ups. Would Amgen ever have been started if the profit potential had been 3%? Quite a few drugs out there that the big pharma companies end up selling come from these small companies.
I am beginning to believe that the market can regulate drug prices better than the govt. can.
42 - Hal Pawluk
So pricing a product according to its value is strange?
Not a bit.
Read my original post again: I object to their making highly inflated claims, getting a huge free ride on taxpayer dollars, and profiteering rather than profiting while crying poor-mouth. Aside from that I'm sure they're very nice people, love dogs, children, etc.
Although I'm not totally sure, as after raising the price for an HIV drug 400%: "Abbott said in response that the price increase was long overdue because of Norvir's ability to enhance other therapies".[ Physicians Call for Abbott Boycott In Protest of Norvir Price Increase 2/12/2004]
As to which system is better the answer is simple: Canada's.
Canada spends far less on health care than the US yet their infant mortality rate is lower and life expectancy is higher than in the United States. I discussed this in The Myth of Better US Health Care 1/16/2004.
43 - Patrick
So Canada has a better system? I am not sure I would agree with you on that one, but I could be biased because I have health insurance.
I used to work with a guy who lived in Canada and he used to pay into our companies insurance plan. I knew that Canada provided insurance and couldn't figure out why he would do that. He told me that if anything "serious" happened to anyone in his family, he wanted to be able to bring them to the US for treatement.
Not sure if I would agree that Canada has a better system if it does not cover "serious" problems.
44 - Hal Pawluk
Would Pfizer stop R&D if you take their margins from 18% to 3%?
Your words, not mine - I never said take their profit down to 3%.
Read the piece again: I object to their falsely inflated claim for why drug prices are high and making profits (which include billions in taxpayer dollars) that even a Republican Congressman called "profiteering."
Probably not, but you probably would stop companies like Imclone and other start ups. Would Amgen ever have been started if the profit potential had been 3%? Quite a few drugs out there that the big pharma companies end up selling come from these small companies. ... I am beginning to believe that the market can regulate drug prices better than the govt. can.
What I'd like to see is an even field with other industries and an end to the "drug prices are so high because of R & D".
I'd like to seem them get the same kind of tax breaks as, say the semiconductor industry, and I'd like to see them pay back the government when they use government-funded research.
I'd also like to see drug industry corporate welfare, like the new Medicare bill, stopped.
At that point, with the market regulating drug prices as you suggested, the poor babies might have to suffer with a margin more like that in the semiconductor industry (currently about 11%).
Competition wouldn't stop startups. And our drug costs would be lower.
45 - Hal Pawluk
Not sure if I would agree that Canada has a better system if it does not cover "serious" problems.
An anecdote doesn't carry much weight.
46 - Patrick
I actually think the Medicare Reform work was pretty good. I agree that the govt. should be allowed to deal with pricing issues, but those issues will be shifted over to the insurance companies that pick up that on the back end. Was the reform perfect? No. Is Medicare better today than it was? Yes. Does it move more people into private insurance, yes. Is that a good thing, probably not. The only option is to go for a national health plan, and I just don't think that would ever fly in the US.
47 - Hal Pawluk
My thoughts on the Medicon Bill.
After reading that, you could read my update.
48 - Earl
Hal:
The "opportunity cost" issue is a non-starter here, and should not be counted as part of the cost of bringing a drug to market.
Sorry, but that is part of the economic cost.
The pharmaceutical companies are in the drug business because the opportunities were worse in other endeavors, such as semiconductors. I don't see the semiconductor industry (which is doing very well at the moment) whining about their R & D costs. What they are doing is exactly what the drug industry is doing - charging what the market will bear.
Right -- they charge what the market will bear. But here is the magic of capital: once the economic profit -- notably distinct from the accounting profit that you see on those annual reports -- hits 0, then the capital leaves the pharmacy industry. The OC is a clear part of the economic costs, because there is a guaranteed profit investing in government backed bonds. So the investment capital must be paid for bearing risk.
The key here is that any investor can simply realize those gains -- the normal rate of return -- by investing in government bonds with 0 risk. In order to gain investment capital, the pharmacy companies *have to offer gains > normal rate of return* -- significantly higher in fact, because of the risk born by the investors.
Boonton:
I think Blogcritics was correct to deduct the $400M 'opportunity cost'. This is very real in an economic sense but it is deceptive since it is easy to mistake it for an accounting cost, which it is not.
But it is a real cost, because if the pharmacy companies stop paying it to their shareholders the investment capital disappears. It has to be paid, ergo it is a real cost. Or perhaps you are willing to loan money to high-risk ventures for no return, or even a return equal to the interest on government bonds or bank accounts? If so, we should talk.
Klug: by forcing drug company profits down, you are killing R&D
Making the drug companies live in a competitive market would not kill R & D, and you'd still find work, though maybe not at quite the wages you're anticipating now.
See, here's your problem: you don't understand smart people. Take your average scientifically inclined person with an IQ of, oh, 130 and a good work ethic. There is lots of profitable work that person can do: software development, health care, R&D in numerous fields. Assuming that these people are rational actors, they will act in their own self-interest. Now, when you have huge direct (tuition, books, living expenses) costs to educate yourself and even higher opportunity costs (4-12 years of foregone wages), you have to pay people a premium to convince them to undergo this education. Stop paying the premium and you lose the people. Or do you think that you can convince people to speculatively invest a conservative $250K in education without high wages on the far side?
I do think you need to read my original post again: most of the research is paid for by taxpayers. The drug companies then cherry-pick the drugs they want to develop further.
They perhaps take the best ideas, but there remain immense further costs before they get a penny of profit.
Cutting their profits from the 18% they enjoy now to something closer to the level in, say, the semiconductor industry wouldn't necessarily reduce R & D much. If they can spend more on supporting the value of management stock options than on R & D, they have plenty of wiggle room.
You are free to forego using the drugs -- that will certianly cut their profits. But I don't see you doing that, do I?
Hal, I really think you need to read an introductory economics text. See, for example, Case and Fair, chapters 4,5,6,7.
-earl-
49 - Hal Pawluk
I've read the books.
What you need to do is put them down and take a look at what is actually happening in the real world.
It's profiteering, supported by taxpayers in addition to consumers.
50 - Dirtgrain
I don't see anyone complaining about the unnecessary waste in the Pharmaceutical industry in that they often are creating new drugs that don't do anything better than the old drugs. It's just a profit-making scheme (much like "New and Improved Raisin Bran: Now With Even More Raisins") that drives up costs for the people and our government. The PBS show, "Now With Bill Moyers," had an segment dedicated to issues like this: A Second Opinion - Marc Siegel on Drug Advertising. Dr. Marc Siegel, an Assistant Professor of Medicine at New York University, says the following:
But the company that makes Prilosec knowing that it's gonna lose a fortune, has come up with Nexium (PH). And now Nexium is loaded in the closet and its almost natural for a doctor to say, "Well I don't have Prilosec here anymore, but I do have Nexium and it's almost identical. It's made by the same company and it has the same effect." So the patient ends up switching almost inadvertently over to Nexium.
This process of drug laboratories creating these new compounds that are slightly different than the old compound. This happens every year there's a new drug on the market. Every year there's only a slight or no improvement. Every year the drug that was on the year before is forgotten about totally. Physicians almost don't even remember its name. And every year more and more millions of dollars are spent in advertising in order to promote the new kid on the block. There is an almost indecipherable difference between these new drugs and the drugs that came out before or that were out previously.
I smell a rip-off.Then there is "Glaxo Chief: Our Drugs Do Not Work on Most Patients." Aren't we getting bilked--in many ways?
51 - Earl
Hal:
I've read the books.
What you need to do is put them down and take a look at what is actually happening in the real world.
So basically you don't have an answer to the part about you not understanding economics, investing, the stock market, or risk?
Gotcha.
This is the part where you admit that either
1) that $400M is a real cost (since investors have to be paid to bear risk)
-or-
2) you would loan a pharmaceutical company money at the same interest rate you would get if you loaned it to the government
-earl-
52 - Hal Pawluk
The $400 million is not "a real cost."
When you do a pre-investment economic analysis, there is no other business that's going to generate the same returns as the drug industry.
Investing in other industries, you would have lost the "opportunity cost" of the huge potential gains in pharmaceuticals, not vice-versa.
53 - Earl
The returns from investing elsewhere are irrelevant, or at least don't matter to any intelligent investor. The only number that matter are returns *taking into account* risk. And yes, you can find similar returns -- after you take risk into account -- elsewhere.
Do you somehow believe pharmaceuticals don't involve risk? For a trivial counterexample, see fen phen -- that's 3.75B or some such straight out of the pockets of the shareholders.
-earl-
54 - Hal Pawluk
The returns from investing elsewhere are irrelevant, or at least don't matter to any intelligent investor.
I've tried to be patient but that's just pure nonsense. Their $400 million/drug claimed "opportunity cost" is based on theoretically investing elsewhere, maybe some magical kingdom that would turn their average $158 million investment into $558 million, but elsewhere.
What is your interest? Are you a lobbyist, ad guy, PR agent for the drug industry?
55 - Patrick
Hal, I read up on quite a bit on the research that the NIH does, and how it gives away that research to Pharma. One example I read about was Taxol, the cancer drug that BMS received from the NIH and sold for billions of dollars. Pretty interesting stuff, and at one point, the NIH was going to shut down its funding of Taxol because it wasn't going anywhere due to production problems, research problems and the like. BMS came in and was able to bring it to market. My point is, sure BMS saw huge profits there, but the fact is, the drug wouldn't be on the market today (and its generic versions) if BMS had not stepped up and got it. While not a perfect drug, it does help some cancer victoms. Not sure if all the NIH/Pharma interactions work like this, as data is hard to find, but seems to me like this one worked out pretty well.
56 - Hal Pawluk
It looks like I need to clarify: I have no objection to government involvement in drug research.
In fact, I was watching a show last night that indicated that NIH is only getting $28 billion this year, and my flinch reaction was: "Shit, we should at the least double that."
I think it's good to invest in the health of the society as part of government policy (what are governments for?). Most of the work isn't done by NIH, but is instead farmed out to universities and that's a good thing, too, in my opinion.
What I don't like is the sleaze involved in campaign contributions, lobbying and then the resulting corporate welfare give-aways on top of it all to Big Pharma (e.g., the latest Medicare bill), only to have Big Pharma stiff the consumers with huge prices and humongous profits while crying "Woe is us."
Or something along those lines :-)
57 - Patrick
I agree Hal, for smart people, sometimes pharma does some really stupid things. I think maybe they are looking at hospitals and the condition they are in, and want to make sure that they don't end up in the same cost cutting environment.
I think what this country needs to do is take a hard look at what healthcare costs really are. The debate of prescription drugs is the hot topic (and has been for quite a while) but it still is only 10-15 percent of overall healthcare spending.
Maybe what needs to happen is everyone looking at what healthcare costs really are, not just the co-pays, but learning how expensive things actually are. We don't provide a prescription drug benefit to all for a poor person with hypertension, but we do give that same poor person treatement in an emergency room for their stroke.
Also, smokers don't like the fact that they have to pay $4 a day for their cancer pill, but willingly shell out $5 a day for their smoking habit.
Something has to give, you can cut costs all you want, but personal responsibility will go a long way in "curing" our health crisis.
58 - Hal Pawluk
In a more macro view, I'm really bothered that for all the gobs of money we spend on health care we still have worse overall health as a nation (as measured by the generally-accepted standard metrics) than other developed countries (see my The Myth of Better US Health Care).
59 - Patrick
I totally agree Hal, its a very difficult problem. You can look at prescription drug costs, medical malpractice costs, the costs associated with treating illegal immigrants, the poor and it goes on and on.
I am coming to believe that the only way to fix the problem (if it can ever be fixed) is to stop taking half steps and just scrap it and build something new.
A national health plan is probably the way to go, and I would support that, where everyone pays into the system and everyone receives a base level of treatement. Hard choices will have to be made on what that base level is, but the fact is, not everyone in this country (or this world) can receive the "best" healthcare.
60 - Hal Pawluk
Check this out from the link I gave earlier:
The non-profit Institute of Medicine, an advisor to government on health care issues, has published a new report with recommendations that could make that happen.
61 - Earl
Earl:
The returns from investing elsewhere are irrelevant, or at least don't matter to any intelligent investor.
Hal:
I've tried to be patient but that's just pure nonsense. Their $400 million/drug claimed "opportunity cost" is based on theoretically investing elsewhere, maybe some magical kingdom that would turn their average $158 million investment into $558 million, but elsewhere.
Sorry, but you are being deliberately stupid. It doesn't matter if you can get a 50% return elsewhere, or even 100%, or even 1000% -- what matters is risk. You are attempting to compare potential returns without taking into account risk, which is pure nonsense. To reiterate yet again, you can stick, say, $400M into the bond market or a FDIC insured set of bank accounts and get a guaranteed, 100% sure return on investment. Therefore, anyone who invests in pharmacy companies -- and I hope you think there is risk involved -- requires a higher rate of return.
Hal:
What is your interest? Are you a lobbyist, ad guy, PR agent for the drug industry?
A brilliant return from someone who doesn't understand the argument. For your information, I'm a student who actually understands something about mathematics, economics, and science. I'm not involved in the drug industry in any way except that I used to write PCR analyzation software for a former employer, where I was exposed to the immense cost and risk of doing this type of research. If you don't believe me, feel free to follow my IP -- it resolves to charter cable out of Madison, WI. There's no pharma companies there that I know of. If you still don't believe me, I can email from my student account.
-earl-
62 - P6
Are they entitled to apply their rate of return to more money than they've actually spent?
That's the question, not whether or not the rate of return is appropriate.
63 - Patrick
Take a look at how low prices have affected vaccine production if you don't think lowering costs could limit the quality of drugs in the future.
64 - P6
Are you saying production is of lesser quality because the prices are low? Or just that they aren't making a necessary medicine because it's wouldn't be profitable enough?
The vaccines you're talking about aren't new, need no testing, there's nothing about them that require the large investment, very little risk involved…I don't know if that's the example you want to use.
65 - Patrick
P6, not talking about the quality of vaccines, am talking about the supply. Why are there shortages of vaccines? Is it because of low prices?
Also, there is limited research into new and novel vaccines, why is that? Could it be because of low prices?
66 - Hal Pawluk
"Why are there shortages of vaccines? Is it because of low prices?"
It certainly could be, bit I don't see how that has anything to do with the false claims of the costs to bring a new drug to market.
"Also, there is limited research into new and novel vaccines, why is that?"
Really? Which "new and novel" vaccines are these? The drug companies are keeping their research secret for competitive reasons.
67 - Patrick
Really? Which "new and novel" vaccines are these? The drug companies are keeping their research secret for competitive reasons.
Thats my point, there are not many "new and novel" vaccines. You can't sell something that is secret. The question is why are there few new and novel vaccines. Could it be that companies don't have incentives to bring new and novel vaccines to market due to price caps?
68 - Patrick
One other comment about "govt. sponsored monopoly power". This is a perversion of the term monopoly. Does Pfizer have a monopoly on the treatment of ED? Do they own this space, as a monopoly would imply? The only monopoly Pfizer has is a monopoly on its own product. Every company has a monopoly on its own products.
It is political hype (and bad hype) to say that drug companies are granted a monopoly. Do any drug companies have a market share of more than 20%? If not, how is that considered being a monopoly?
69 - Hal Pawluk
Earl, based on your comments, I have no trouble believing you to be student.
The fact is that "opportunity costs" are not an economic cost and do not affect profit and loss statements.
When I spend $100 on going to a rock concert instead of buying seven CD's, the cost of the CD's is an opportunity cost. The drug industry would have us believe that I'm out $200 during this transaction by adding my expenditure plus the opportunity cost. My bank account tells me I'm only out the $100 I actually spent.
Beyond that, in their claim of $802 million to bring a new drug to market, they also seem to have used a multiplier.
I'm willing to admit that they may spend $239 million pre-tax (see above). Even using their bad accounting, the total would have been $478 million rather than $802 million, although that's still not a valid claim for the cost of bringing the average new drug to market.
70 - Patrick
Hal, I usually ignore all the claims of the cost to bring a new drug to market, because I think they are really besides the point. But it is a fact that opportunity cost should figure in to the equation. If it doesn't, why do financial companies always stress what investing today means to tomorrows retirement fund?
Another question, if the profit margins of the drug companies are so unbelievable, why are their stock prices what they are? Shouldn't they be higher? Shouldn't their multiples be so much higher than they are compared to the rest of the S&P? Take a look at Pfizers stock performance, at their multiple, and you will see that it is not much different than Intel.
I agree that the pharma industry talks about R&D costs quite a bit, and also talk about the safety of drugs re-imported from Canada. I am not sure why they ever started that, as this is not the real issue in terms of pricing. Safety can't be assured here in the US, it can't be assured from drugs brought in from Canada. Products are usually priced according to the value they bring to its user. Maybe they figured it was easier to talk about safety and R&D than to talk about the basics of economics.
They fact is Americans probably do pay more for drugs than they should, not because of payoffs but because other nations have opted out of funding the R&D that is required for good drug discovery. I have no problem with 3rd world countries not having to pay for this, as they don't have the resources for this. I do have a problem with developed nations that are willing to provide low level medical coverage to their citizens. Sure, everyone has the same basic treatement, but I am not sure Americans are willing to suffer anything but the best healthcare in the world.
71 - P6
Patrick:
I don't remember ever seeing anyone say the alternatives to investing in drug research and development should not be considered. And that is what "calculating opportunity costs" is. That's ALL it is. It is not a dollar amount that is actually spent, and anyone who claims it is should be either kept far away from the company's books or locked away with them until he can prove he understands them.
72 - Hal Pawluk
But it is a fact that opportunity cost should figure in to the equation. If it doesn't, why do financial companies always stress what investing today means to tomorrows retirement fund?
No, it is not a fact, and in fact is wrong.
What you are talking about is a different issue - that of determing your potentially best Return On Investment (ROI) before making an investment.
Instead of going to that rock concert, you decide to invest that $100. At that point you look at mutual funds, CDs, semiconductor stocks, baseball cards, etc. and pick the one you think will give you the best ROI on your time horizon. (Do you want to cash out in a month, a year, 20years?). Whichever you pick, the alternative not chosen is not a cost.
"Opportunity costs" and "ROI" are apples and oranges.
73 - Patrick
But business is run on the basis of ROI. Maybe the argument should be is healthcare best left up to business.
74 - Hal Pawluk
Patrick, I don't understand your comments about the "new and novel vaccines."
Drug companies keep their research secret until they're ready to market the drugs to gain a competitive advantage. They are constantly bringing out new drugs (not necessarily vaccines), and I find them to be "new and novel" when they are introduced.
Is there some particular line of research you think they're not following because of cost? If so, there are a lot of those.
One thing they do is try to determine how many potential users there would be for a drug and if they don't see enough, they don't try to develop the drug, but that's "just business."
75 - Hal Pawluk
But business is run on the basis of ROI.
Which has absolutely nothing to do with the economic construct of "opportunity cost." There is no "but."
Maybe the argument should be is healthcare best left up to business.
That's so wrong it has to be a troll, so I'm out of here.
It was interesting while it lasted.