4 ms·

Because we have to draw the line somewhere. "If you're in the health sector don't prey on sick people" is as good a place as any to draw that line. What's you

Because we have to draw the line somewhere. "If you're in the health sector don't prey on sick people" is as good a place as any to draw that line. What's your point? That since phone companies don't try their best to cure the world, nobody should do it?

barry-cotter 9y ago
Can you propose another way of financing the cost of drug discovery, research and testing for safety? The current system works reasonably well but if all you’ve got is outrage I would prefer at least outrage and a plan.
- cnewey 9y ago
  Read the findings from [1] - it appears that in a very considerable number of cases, there's actually a disconnect between the cost to research, develop, and produce a drug - and the price that's charged to customers (or insurance). The conclusion is that the price is mostly determined by "what the market will bear", rather than much else. This suggests (to me, at least) that in cases of a particularly expensive drug like Humira, a large proportion of the profits are not reinvested into R&D. [1]: https://jamanetwork.com/journals/jama/article-abstract/2545691 https://jamanetwork.com/journals/jama/article-abstract/25456...
  - barry-cotter 9y ago
    I suggest reading a microeconomics textbook. In the absence of price controls price will be set such that supply equals demand. It does not surprise me in the slightest that a drug that people really, really need and that is still under patent protection is very, very expensive. Prices are what makes supply equal demand. Blockbuster successes, massive profit makers are what pays for all the many, many failures of drug development. There’s quite a bit of research on the economics of drug development but the thing that I find the most convincing is that the big drug companies aren’t exceptionally profitable. They’re pretty much in line with what you’d expect of multinationals of their size, 10% or so profit on revenue per year. Scientific publishers like the accursed Elsevier earn supernormal profits, 33%.
    - cnewey 9y ago
      It appears that net profit (for AbbVie, at least) tends to sit quite comfortably between 20-30% most years - 24.27% last year, and hitting almost Elsevier-like levels (~32%) in 2009 [1]. That smells like profiteering to me. Add to that their particularly hostile approach to patent applications (100+ on Humira alone), and to me it appears that AbbVie perhaps has a vested interest in stifling innovation and charging large amounts of money for their products "because they can". [1]: http://financials.morningstar.com/ratios/r.html?t=ABBV http://financials.morningstar.com/ratios/r.html?t=ABBV
      - rayiner 9y ago
        That’s about the same profit margin as Google and Facebook and Apple. Are they “profiteering?” Saying that the “reasonable profit” for drug companies should be lower than tech companies, say 15%, is economically equivalent to saying we should impose a 50% tax on drug company profits. Which would be nuts. You tax products you want less of (cigarettes, sugary drinks) not ones you want more of.
      - barry-cotter 9y ago
        Call me when AbbVie is listed with Roche, Novartis, Pfizer or GlaxoSmithKline as one of the big pharmaceutical multinationals. A relatively small company having a blockbuster success and returning huge dividends to shareholders is why people are willing to invest in biotech/pharmaceutical startups at all. Every biotech startup formed around one drug that gets serious funding burns at minimum a decade of man years and at the beginning most of those man years are going to be researchers with doctorates. Absolutely nothing gets to market with that little investment and most of these companies fail. The point about the pharmaceutical sector’s profit margins is about the sector more than it is individual companies. Minnows that make supernormal profits expand and as they expand their profit margins decline because they use up the most profitable opportunities and move on to less profitable ones until there’s nothing left. This last bit never actually happens because things change fast and general equilibrium is never reached but that’s the tendency. Large profit margins attract competitors and in the meantime allow those enjoying them to grow. Re: “Profiteering” According to the theory of neoclassical economics, anti-price gouging laws prevent allocative efficiency. Allocative efficiency refers to when prices function properly, markets tend to allocate resources to their most valued uses. In turn those who value the good the most (and not just the wealthiest) will be willing to pay a higher price than those who do not value the good as much. https://en.m.wikipedia.org/wiki/Price_gouging https://en.m.wikipedia.org/wiki/Price_gouging
rayiner 9y ago
I’m not asserting that you’re drawing the line in the wrong place. I’m asserting that you’ve got the arrows backwards. Curing people and charging too much is >= not curing people at all.
- pubby 9y ago
  Humira doesn't cure diseases; it only treats them. Many drug companies have stopped funding cures because biologics like humira are just too profitable. Why charge a one time fee when you could bill someone for life?
  - rayiner 9y ago
    That’s oft-repeated but makes no sense. If you develop and patent a treatment, then that necessarily means that the cure—if it exists—is out there and unpatanted, for some other company to develop and sell. There is an economic incentive for them to do so, because a cure is obviously more valuable than a treatment. It would be very weird if you could somehow make a treatment more valuable than a cure by changing how you charge for it. By that logic, companies would never sell cars, only lease them.

barry-cotter 9y ago

Can you propose another way of financing the cost of drug discovery, research and testing for safety? The current system works reasonably well but if all you’ve got is outrage I would prefer at least outrage and a plan.

cnewey 9y ago
Read the findings from [1] - it appears that in a very considerable number of cases, there's actually a disconnect between the cost to research, develop, and produce a drug - and the price that's charged to customers (or insurance). The conclusion is that the price is mostly determined by "what the market will bear", rather than much else. This suggests (to me, at least) that in cases of a particularly expensive drug like Humira, a large proportion of the profits are not reinvested into R&D. [1]: https://jamanetwork.com/journals/jama/article-abstract/2545691 https://jamanetwork.com/journals/jama/article-abstract/25456...
- barry-cotter 9y ago
  I suggest reading a microeconomics textbook. In the absence of price controls price will be set such that supply equals demand. It does not surprise me in the slightest that a drug that people really, really need and that is still under patent protection is very, very expensive. Prices are what makes supply equal demand. Blockbuster successes, massive profit makers are what pays for all the many, many failures of drug development. There’s quite a bit of research on the economics of drug development but the thing that I find the most convincing is that the big drug companies aren’t exceptionally profitable. They’re pretty much in line with what you’d expect of multinationals of their size, 10% or so profit on revenue per year. Scientific publishers like the accursed Elsevier earn supernormal profits, 33%.
  - cnewey 9y ago
    It appears that net profit (for AbbVie, at least) tends to sit quite comfortably between 20-30% most years - 24.27% last year, and hitting almost Elsevier-like levels (~32%) in 2009 [1]. That smells like profiteering to me. Add to that their particularly hostile approach to patent applications (100+ on Humira alone), and to me it appears that AbbVie perhaps has a vested interest in stifling innovation and charging large amounts of money for their products "because they can". [1]: http://financials.morningstar.com/ratios/r.html?t=ABBV http://financials.morningstar.com/ratios/r.html?t=ABBV
    - rayiner 9y ago
      That’s about the same profit margin as Google and Facebook and Apple. Are they “profiteering?” Saying that the “reasonable profit” for drug companies should be lower than tech companies, say 15%, is economically equivalent to saying we should impose a 50% tax on drug company profits. Which would be nuts. You tax products you want less of (cigarettes, sugary drinks) not ones you want more of.
    - barry-cotter 9y ago
      Call me when AbbVie is listed with Roche, Novartis, Pfizer or GlaxoSmithKline as one of the big pharmaceutical multinationals. A relatively small company having a blockbuster success and returning huge dividends to shareholders is why people are willing to invest in biotech/pharmaceutical startups at all. Every biotech startup formed around one drug that gets serious funding burns at minimum a decade of man years and at the beginning most of those man years are going to be researchers with doctorates. Absolutely nothing gets to market with that little investment and most of these companies fail. The point about the pharmaceutical sector’s profit margins is about the sector more than it is individual companies. Minnows that make supernormal profits expand and as they expand their profit margins decline because they use up the most profitable opportunities and move on to less profitable ones until there’s nothing left. This last bit never actually happens because things change fast and general equilibrium is never reached but that’s the tendency. Large profit margins attract competitors and in the meantime allow those enjoying them to grow. Re: “Profiteering” According to the theory of neoclassical economics, anti-price gouging laws prevent allocative efficiency. Allocative efficiency refers to when prices function properly, markets tend to allocate resources to their most valued uses. In turn those who value the good the most (and not just the wealthiest) will be willing to pay a higher price than those who do not value the good as much. https://en.m.wikipedia.org/wiki/Price_gouging https://en.m.wikipedia.org/wiki/Price_gouging

rayiner 9y ago

I’m not asserting that you’re drawing the line in the wrong place. I’m asserting that you’ve got the arrows backwards. Curing people and charging too much is >= not curing people at all.

pubby 9y ago
Humira doesn't cure diseases; it only treats them. Many drug companies have stopped funding cures because biologics like humira are just too profitable. Why charge a one time fee when you could bill someone for life?
- rayiner 9y ago
  That’s oft-repeated but makes no sense. If you develop and patent a treatment, then that necessarily means that the cure—if it exists—is out there and unpatanted, for some other company to develop and sell. There is an economic incentive for them to do so, because a cure is obviously more valuable than a treatment. It would be very weird if you could somehow make a treatment more valuable than a cure by changing how you charge for it. By that logic, companies would never sell cars, only lease them.