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Pharma companies don't do their own R&D anymore, for the most part. The documentary, Drug$ (2018) does a tough takedown of the industry. Pharma companies acquir

Pharma companies don't do their own R&D anymore, for the most part. The documentary, Drug$ (2018) does a tough takedown of the industry. Pharma companies acquire drugs from indie or academic researchers. What pharma companies do is get the drugs FDA approved then market them, and at the highest price the market will bear (meaning that some people can't afford them). In other words, there are no R&D expenses. https://www.imdb.com/title/tt7394770/ https://www.imdb.com/title/tt7394770/

ThrustVectoring 8y ago
>at the highest price the market will bear (meaning that some people can't afford them) If anyone can't afford your drugs, this is an issue of insufficiently optimized price discrimination (as long as what they can afford is above the marginal cost of manufacture). There's often manufacturer's coupons for exactly this reason - make a compelling case about what you can afford, and the manufacturer will drop prices until you can give them some money instead of none.
- perl4ever 8y ago
  I'm no economist, but I strongly feel perfect price discrimination would be a rather terrible thing. You seem to be implying that it would be "sufficient". Imagine if the water you drink was priced at the maximum amount you would be willing to pay not to die of thirst. This would palpably be a terrible thing. All of us go around every day buying things that we think are worth substantially more to us than the money we pay. It seems to me like this is the whole value proposition of capitalism for human beings. I have always thought that free markets are useful, but I think that is only the case if they tend to drive producer surplus to zero and consumer surplus to the maximum. If there were no consumer surplus, as with perfect discrimination, then I don't see the point of economic activity. I sort of thought (because I read it somewhere) that orthodox economic theory implied that perfect free markets should drive economic profits of businesses to zero. And profits should be roughly equivalent to producer surplus. So we shouldn't be balancing consumer and producer surplus, let alone allocating the surplus all to producers.
  - ThrustVectoring 8y ago
    I agree with you there, lots of things should get competed down to low or no producer surplus. The problem is that you have to pick one of price discrimination, unaffordable medication, or unavailable medication. If you don't allow for price discrimination, then many new medications cost so much per patient with the relevant disease that your choices are to have an unaffordable average price charged to everyone, or just don't make the medication in the first place and let nobody have it. With price discrimination, you can keep the average price high by gouging those who can pay, and using that to subsidize those of more modest means. There's no choice here that's an unalloyed good. There's always tradeoffs. Price discrimination is just sometimes the lesser of several evils.
- taneq 8y ago
  Well that's one way to describe "any lifesaving treatment costs the sum total of resources that you can command".
  - ThrustVectoring 8y ago
    It's kinder than extending treatment on credit and then doing price discrimination via bankruptcy proceedings.
kokey 8y ago
It depends, on the chemistry research side the pharmaceutical companies still do a lot, if not most of the heavy lifting. Cheminformatics benefits from the big scale in these organisations and also do the of the type of thing discussed in this article. The same with other parts of this research, like having access to the fancy spectrometers etc. Finding and understanding new compounds with potentially useful properties is only part of R&D process, then developing the biology all the way through to making it a drug fit for human consumption is also quite risky because most of them fail and that's where the small companies come in who takes up that risk.
perl4ever 8y ago
It depends on what you consider a "pharma company". If the major companies acquire drugs, then it could still be argued (and I'm sure people do) that the drug prices, being dependent on patent rights, are indirectly paying for R&D. Just because it's not the same company doesn't mean that the ecosystem doesn't depend on the patent rights to finance the research. I'm not completely confident of the necessity of patent rights as they are, but it seems logical enough on the surface. I can't assume that entities which engage in transactions together are independent.
- geofft 8y ago
  It also doesn't mean the ecosystem is dependent, either. Disney made lots of money selling movies based on stories in the public domain. Just because a middleman exists doesn't mean the middleman is paying the ultimate source in proportion to the money the middleman takes. See also the story of the insulin patent: https://www.thelancet.com/journals/landia/article/PIIS2213-8587(17)30115-8/fulltext https://www.thelancet.com/journals/landia/article/PIIS2213-8... > [Frederick] Banting felt “…that as a physician who had taken the Hippocratic oath he could not be party to any patenting of a discovery. ... John J R Macleod, with whom Banting shared the 1923 Nobel Prize in Physiology or Medicine, similarly declined to be named on the insulin patent. However, neither [Charles] Best, a medical student who had yet to swear the oath to Hippocrates, nor [James] Collip, a PhD biochemist, faced any ethical dilemma and were named as inventors, although for $1, Collip and Best transferred all rights, title, and interest to the Governors of the University of Toronto. Banting, Best, Collip, and MacLeod all believed that insulin should be made as widely available as possible, without any barriers such as cost.... (ht https://www.vox.com/science-and-health/2017/5/12/15621952/insulin-price-increases https://www.vox.com/science-and-health/2017/5/12/15621952/in... ht 'steveklabnik yesterday on Twitter) I think the proper conclusion is "no information" - the fact that redistributors are being paid what they're paid does not tell us anything positively or negatively about the necessity of them being paid what they're paid. You'd need to look at their actual costs, and more importantly the market of those costs: if they stopped paying researchers, what would the market effect be? (Perhaps they could fund research grants instead of discoveries, incentivizing everyone to work on the problems most interesting to them regardless of profitability, and thereby increasing research into cures for rare diseases.)
adrianmonk 8y ago
> What pharma companies do is get the drugs FDA approved That's the D part of R&D, isn't it?

ThrustVectoring 8y ago

>at the highest price the market will bear (meaning that some people can't afford them) If anyone can't afford your drugs, this is an issue of insufficiently optimized price discrimination (as long as what they can afford is above the marginal cost of manufacture). There's often manufacturer's coupons for exactly this reason - make a compelling case about what you can afford, and the manufacturer will drop prices until you can give them some money instead of none.

perl4ever 8y ago
I'm no economist, but I strongly feel perfect price discrimination would be a rather terrible thing. You seem to be implying that it would be "sufficient". Imagine if the water you drink was priced at the maximum amount you would be willing to pay not to die of thirst. This would palpably be a terrible thing. All of us go around every day buying things that we think are worth substantially more to us than the money we pay. It seems to me like this is the whole value proposition of capitalism for human beings. I have always thought that free markets are useful, but I think that is only the case if they tend to drive producer surplus to zero and consumer surplus to the maximum. If there were no consumer surplus, as with perfect discrimination, then I don't see the point of economic activity. I sort of thought (because I read it somewhere) that orthodox economic theory implied that perfect free markets should drive economic profits of businesses to zero. And profits should be roughly equivalent to producer surplus. So we shouldn't be balancing consumer and producer surplus, let alone allocating the surplus all to producers.
- ThrustVectoring 8y ago
  I agree with you there, lots of things should get competed down to low or no producer surplus. The problem is that you have to pick one of price discrimination, unaffordable medication, or unavailable medication. If you don't allow for price discrimination, then many new medications cost so much per patient with the relevant disease that your choices are to have an unaffordable average price charged to everyone, or just don't make the medication in the first place and let nobody have it. With price discrimination, you can keep the average price high by gouging those who can pay, and using that to subsidize those of more modest means. There's no choice here that's an unalloyed good. There's always tradeoffs. Price discrimination is just sometimes the lesser of several evils.
taneq 8y ago
Well that's one way to describe "any lifesaving treatment costs the sum total of resources that you can command".
- ThrustVectoring 8y ago
  It's kinder than extending treatment on credit and then doing price discrimination via bankruptcy proceedings.

kokey 8y ago

It depends, on the chemistry research side the pharmaceutical companies still do a lot, if not most of the heavy lifting. Cheminformatics benefits from the big scale in these organisations and also do the of the type of thing discussed in this article. The same with other parts of this research, like having access to the fancy spectrometers etc. Finding and understanding new compounds with potentially useful properties is only part of R&D process, then developing the biology all the way through to making it a drug fit for human consumption is also quite risky because most of them fail and that's where the small companies come in who takes up that risk.

perl4ever 8y ago

It depends on what you consider a "pharma company". If the major companies acquire drugs, then it could still be argued (and I'm sure people do) that the drug prices, being dependent on patent rights, are indirectly paying for R&D. Just because it's not the same company doesn't mean that the ecosystem doesn't depend on the patent rights to finance the research. I'm not completely confident of the necessity of patent rights as they are, but it seems logical enough on the surface. I can't assume that entities which engage in transactions together are independent.

geofft 8y ago
It also doesn't mean the ecosystem is dependent, either. Disney made lots of money selling movies based on stories in the public domain. Just because a middleman exists doesn't mean the middleman is paying the ultimate source in proportion to the money the middleman takes. See also the story of the insulin patent: https://www.thelancet.com/journals/landia/article/PIIS2213-8587(17)30115-8/fulltext https://www.thelancet.com/journals/landia/article/PIIS2213-8... > [Frederick] Banting felt “…that as a physician who had taken the Hippocratic oath he could not be party to any patenting of a discovery. ... John J R Macleod, with whom Banting shared the 1923 Nobel Prize in Physiology or Medicine, similarly declined to be named on the insulin patent. However, neither [Charles] Best, a medical student who had yet to swear the oath to Hippocrates, nor [James] Collip, a PhD biochemist, faced any ethical dilemma and were named as inventors, although for $1, Collip and Best transferred all rights, title, and interest to the Governors of the University of Toronto. Banting, Best, Collip, and MacLeod all believed that insulin should be made as widely available as possible, without any barriers such as cost.... (ht https://www.vox.com/science-and-health/2017/5/12/15621952/insulin-price-increases https://www.vox.com/science-and-health/2017/5/12/15621952/in... ht 'steveklabnik yesterday on Twitter) I think the proper conclusion is "no information" - the fact that redistributors are being paid what they're paid does not tell us anything positively or negatively about the necessity of them being paid what they're paid. You'd need to look at their actual costs, and more importantly the market of those costs: if they stopped paying researchers, what would the market effect be? (Perhaps they could fund research grants instead of discoveries, incentivizing everyone to work on the problems most interesting to them regardless of profitability, and thereby increasing research into cures for rare diseases.)

adrianmonk 8y ago

> What pharma companies do is get the drugs FDA approved That's the D part of R&D, isn't it?