7 ms·

One thing that is typically not mentioned in these debates is the fundamental structure of the industry. Let's say someone finds a research compound which looks

One thing that is typically not mentioned in these debates is the fundamental structure of the industry. Let's say someone finds a research compound which looks to be promising, and they start a new company to try to commercialize it. Often, they are looking at at least 1-2 decades to get that product to market. Assuming they don't sell out to a big company, they almost certainly have to go public before starting trials in order to amass the required funds. Normally, a public company is expected to show regular profits and growth. This is impossible for a new pharma company because they don't have a product yet, so they are expecting investors to foot the bill for years and years of development and trials. During this time, if the compound fails a major trial, the entire company can go under because it may be prohibitively expensive to start over again if there is a problem. Therefore, not only is there a massively delayed ROI but a lot of risk. As such, when a company gets something to market, investors expect massive profits for shouldering that risk and delay. It is simply not feasible for companies to charge small amounts of money because no investor could justify locking up capital / taking those risks for something other than a huge return.

Ericson2314 8y ago
That's why drug bounties, or even "promising compound bounties", can be good for researchers too.
JKCalhoun 8y ago
Maybe drug "companies" should be government entities then and not for-profit at all.
- deleted 8y ago
  [deleted]
- PrimalDual 8y ago
  I think the government can definitely fund certian types of research but in most developed countries the private sector commands so much more wealth that it would be a waste not to allow companies to develop drugs for profit. I would rather have expensive drugs than no drug at all. This isn’t even an argument about government efficiency but rather about the relative size of what can be done when the private sector is much larger than the government.
- Thriptic 8y ago
  That's a viable stance to take, but it's not without problems: 1. The time horizons involved don't work well with government. The US can't get anything done over a 20 year time horizon, and the highly delayed ROI means projects would always be first on the chopping block when it came to cost cutting. As a side note, currently we can't even agree to adequately fund basic research in the country, let alone drug development. 2. R&D would inevitably be politicized. Some senator would want disease X researched because their kid has it etc. Some tax payers won't want to fund disease Y. 3. It places R&D and regulatory in the same high level entity. That sets up all sorts of conflicts of interest. 4. It complicates international trade. What if the US develops most drugs. What should Europe be charged for them? Surely products can't be open sourced because one group of tax payers paid for them and would want ROI etc. 5. Similarly, who decides pricing for all the US buyers? Get ready for massively complicated procurement based on tons of different rules.
  - JKCalhoun 8y ago
    You mention problems, and to be sure there would be problems, but we're also awash in the problems of the current system as well. I am ignorant of these things so I have to ask if it is assumed that your assertions are common knowledge. For example: "the US can't get anything done over a 20 year time horizon". If international trade is a larger sticking point then I would suggest an international consortium? Like a WHO entity that collects dues from member states and member states in turn benefit from drugs produced? Just spit balling here to be sure.
    - ams6110 8y ago
      Lately, with respect to the government, I think it's fair to shorten the statement to simply "the US can't get anything done."
      - dnautics 8y ago
        And maybe that's not such a bad thing. There's a ton of space between "things companies" should do and "things government should do". In the US, the policy agenda is (still) broadly defined by tribalism along polarizing issues (e.g. abortion). In other countries, it's slightly less bad but the phenomenon is similar. If less social goods were coupled to politics the world might be a better place, but it also might take a paradigm shift where we don't dualize social activity into two bins: stuff you do because you make money doing and stuff you get done by taking from your neighbors because they "owe it to everyone".
- aaavl2821 8y ago
  One could make a pretty good argument that a government funded drug research system would end up with more expensive drugs (in the form of higher taxes) than a for profit system Drugs, as a whole, aren't that expensive today compared to other healthcare. They make up 9.8% of US health care expenditure, which is pretty much middle of the pack compared to OECD countries. Hospitals, largely "non profit" (but sometimes massively profitable) make up 35%. But drugs feel more expensive bc copays are typically higher for drugs than for medical care As it stands today the drug industry spends ~$200B a year to get 20-50 new FDA approved drugs a year. Virtually no fda approved drugs are developed solely by academia. NIH budget is $30-35B and on a steady long term decline. So you'd have a massive taxpayer expense just to build out that r&d function Then you'd have to build out manufacturing. And some sales and marketing analog -- even if you aren't trying to profit, somebody needs to go out and tell doctors about your new drug and share with them very detailed data about how the drug works, what patients it works for, compared to the competition. Doctors can't stay on top of this themselves -- they are too busy and there's too much info Then you'd need to build out some administrative function and some way to decide what projects move forward at what stage. This is where publicly funded drug research would probably massively underperform private for profit r&d If you are making drugs for profit, you have a strong incentive to be efficient with your research. If not you go out of business. The more these decisions are driven by politics rather than profit motive, the less productive r&d is. And r&d cost and productivity is the reason drugs are expensive There's evidence that startups are 10x more productive at r&d than pharma and it isn't crazy to attribute a lot of that to less politics As of now something like 30-50% of published academic findings are thought to be false. 30%+ of all NIH money goes to "overhead", i.e. Profit to universities. And yields no fda approved drugs without private company investment
  - Pharmakon 8y ago
    One could make a pretty good argument that a government funded drug research system would end up with more expensive drugs (in the form of higher taxes) than a for profit system. That sounds like a pretty interesting argument, but I notice that you didn’t actually make it. The rest of your post is full of claims sans evidence, and a lot of numbers out of context. For example how many of those newly approved drugs are novel therapies vs. rejiggered stereochemistry to keep a patent or compete in an existing field? How many are significant improvements over existing therapies and not just potential profit centers?
- m0zg 8y ago
  Funny how HN contributors can be simultaneously in favor of not "socializing losses", and something like this where the taxpayer would pay for someone else's gleam in the eye (often a multi-billion dollar gleam) and there would be no accountability whatsoever if it doesn't pan out or runs over budget by a factor of like 5x (see just about any large, complex government project as an example). That 20 year deathmarch often ends in an FDA not approving your thing.
- cgag 8y ago
  Maybe the government shouldn't have created a system so bad that one would make such a suggestion.
- duxup 8y ago
  Or start out as a generic company as clearly there is room for SOMEONE to make generics that are reasonably priced.
- wpasc 8y ago
  NIH funding has been highly stagnant for sometime as well as NSF funding. Drug development and research timelines are much longer than any single politician's term. What successful government projects inspire your confidence that they would do a good job innovating for future medicines? Moon Landing? Look at NASA's budget changes to see the rewards for their efforts. Has this been successful anywhere? What purely run state enterprises that are charged with creating new and innovate things have been success stories? I think that while private enterprise has had a jaded role in healthcare, I'm not sure what the better alternative is.
sametmax 8y ago
It's true for new drugs, but insuline price have been multiplied by 5 during the last decade (https://www.ontrackdiabetes.com/type-1-diabetes/insulin-prices-still-high https://www.ontrackdiabetes.com/type-1-diabetes/insulin-pric...), which is a drug that should actually cost less to make, since we know it very well, and have a lot of demand now with the obesity epidemic.
- wpasc 8y ago
  What troubles me about insulin prices is that raising prices can simultaneously be used to satisfy shareholders with growing profits AND be used to fund new drugs (revenue from existing drugs obviously must fund the creation of new drugs). I am a little worried that if strict financial controls are put in place, then the companies will just turn into cash cows for existing drugs because a limit has been put on the profitability of new ones. I believe we need to trudge further and further because even though we are creating new therapies that are wildly expensive, we are moving closer to truly cost effective therapies and best-in-class therapies. Though, we are certainly not there yet. If someone can explain to me that my fears are unjustified about price controls diminishing capital invested into new treatments, I'd happily join the chorus of people calling for price controls in medicine (US citizen here with a chronic disease treated by TNF inhibitor which can cost 30K+ a year but through employer insurance, I pay nothing except for a copay which the manufacturer pays for).
  - dragonwriter 8y ago
    > What troubles me about insulin prices is that raising prices can simultaneously be used to satisfy shareholders with growing profits AND be used to fund new drugs (revenue from existing drugs obviously must fund the creation of new drugs). That's not obvious at all; there's no reason creation of new drugs couldn't be financed by raising capital through either debt or equity issues, which are then paid back, in effect, by the profits from the drug itself; in fact, a fair amount of drug development is funded that way, because it's done by startups which are acquired by major firms, if at all, only after doing much of the development work; obviously, that's how every firm’s first drug is financed. It may be that firms want to eventually shift business models, so at some point they take their existing stake of drugs and body prices so instead of paying off their own development, they are doing that and paying forward development, and after that switch to internal financing, but there is no reason that is obviously a necessity.

Ericson2314 8y ago

That's why drug bounties, or even "promising compound bounties", can be good for researchers too.

JKCalhoun 8y ago

Maybe drug "companies" should be government entities then and not for-profit at all.

deleted 8y ago
[deleted]
PrimalDual 8y ago
I think the government can definitely fund certian types of research but in most developed countries the private sector commands so much more wealth that it would be a waste not to allow companies to develop drugs for profit. I would rather have expensive drugs than no drug at all. This isn’t even an argument about government efficiency but rather about the relative size of what can be done when the private sector is much larger than the government.
Thriptic 8y ago
That's a viable stance to take, but it's not without problems: 1. The time horizons involved don't work well with government. The US can't get anything done over a 20 year time horizon, and the highly delayed ROI means projects would always be first on the chopping block when it came to cost cutting. As a side note, currently we can't even agree to adequately fund basic research in the country, let alone drug development. 2. R&D would inevitably be politicized. Some senator would want disease X researched because their kid has it etc. Some tax payers won't want to fund disease Y. 3. It places R&D and regulatory in the same high level entity. That sets up all sorts of conflicts of interest. 4. It complicates international trade. What if the US develops most drugs. What should Europe be charged for them? Surely products can't be open sourced because one group of tax payers paid for them and would want ROI etc. 5. Similarly, who decides pricing for all the US buyers? Get ready for massively complicated procurement based on tons of different rules.
- JKCalhoun 8y ago
  You mention problems, and to be sure there would be problems, but we're also awash in the problems of the current system as well. I am ignorant of these things so I have to ask if it is assumed that your assertions are common knowledge. For example: "the US can't get anything done over a 20 year time horizon". If international trade is a larger sticking point then I would suggest an international consortium? Like a WHO entity that collects dues from member states and member states in turn benefit from drugs produced? Just spit balling here to be sure.
  - ams6110 8y ago
    Lately, with respect to the government, I think it's fair to shorten the statement to simply "the US can't get anything done."
    - dnautics 8y ago
      And maybe that's not such a bad thing. There's a ton of space between "things companies" should do and "things government should do". In the US, the policy agenda is (still) broadly defined by tribalism along polarizing issues (e.g. abortion). In other countries, it's slightly less bad but the phenomenon is similar. If less social goods were coupled to politics the world might be a better place, but it also might take a paradigm shift where we don't dualize social activity into two bins: stuff you do because you make money doing and stuff you get done by taking from your neighbors because they "owe it to everyone".
aaavl2821 8y ago
One could make a pretty good argument that a government funded drug research system would end up with more expensive drugs (in the form of higher taxes) than a for profit system Drugs, as a whole, aren't that expensive today compared to other healthcare. They make up 9.8% of US health care expenditure, which is pretty much middle of the pack compared to OECD countries. Hospitals, largely "non profit" (but sometimes massively profitable) make up 35%. But drugs feel more expensive bc copays are typically higher for drugs than for medical care As it stands today the drug industry spends ~$200B a year to get 20-50 new FDA approved drugs a year. Virtually no fda approved drugs are developed solely by academia. NIH budget is $30-35B and on a steady long term decline. So you'd have a massive taxpayer expense just to build out that r&d function Then you'd have to build out manufacturing. And some sales and marketing analog -- even if you aren't trying to profit, somebody needs to go out and tell doctors about your new drug and share with them very detailed data about how the drug works, what patients it works for, compared to the competition. Doctors can't stay on top of this themselves -- they are too busy and there's too much info Then you'd need to build out some administrative function and some way to decide what projects move forward at what stage. This is where publicly funded drug research would probably massively underperform private for profit r&d If you are making drugs for profit, you have a strong incentive to be efficient with your research. If not you go out of business. The more these decisions are driven by politics rather than profit motive, the less productive r&d is. And r&d cost and productivity is the reason drugs are expensive There's evidence that startups are 10x more productive at r&d than pharma and it isn't crazy to attribute a lot of that to less politics As of now something like 30-50% of published academic findings are thought to be false. 30%+ of all NIH money goes to "overhead", i.e. Profit to universities. And yields no fda approved drugs without private company investment
- Pharmakon 8y ago
  One could make a pretty good argument that a government funded drug research system would end up with more expensive drugs (in the form of higher taxes) than a for profit system. That sounds like a pretty interesting argument, but I notice that you didn’t actually make it. The rest of your post is full of claims sans evidence, and a lot of numbers out of context. For example how many of those newly approved drugs are novel therapies vs. rejiggered stereochemistry to keep a patent or compete in an existing field? How many are significant improvements over existing therapies and not just potential profit centers?
m0zg 8y ago
Funny how HN contributors can be simultaneously in favor of not "socializing losses", and something like this where the taxpayer would pay for someone else's gleam in the eye (often a multi-billion dollar gleam) and there would be no accountability whatsoever if it doesn't pan out or runs over budget by a factor of like 5x (see just about any large, complex government project as an example). That 20 year deathmarch often ends in an FDA not approving your thing.
cgag 8y ago
Maybe the government shouldn't have created a system so bad that one would make such a suggestion.
duxup 8y ago
Or start out as a generic company as clearly there is room for SOMEONE to make generics that are reasonably priced.
wpasc 8y ago
NIH funding has been highly stagnant for sometime as well as NSF funding. Drug development and research timelines are much longer than any single politician's term. What successful government projects inspire your confidence that they would do a good job innovating for future medicines? Moon Landing? Look at NASA's budget changes to see the rewards for their efforts. Has this been successful anywhere? What purely run state enterprises that are charged with creating new and innovate things have been success stories? I think that while private enterprise has had a jaded role in healthcare, I'm not sure what the better alternative is.

sametmax 8y ago

It's true for new drugs, but insuline price have been multiplied by 5 during the last decade (https://www.ontrackdiabetes.com/type-1-diabetes/insulin-prices-still-high https://www.ontrackdiabetes.com/type-1-diabetes/insulin-pric...), which is a drug that should actually cost less to make, since we know it very well, and have a lot of demand now with the obesity epidemic.

wpasc 8y ago
What troubles me about insulin prices is that raising prices can simultaneously be used to satisfy shareholders with growing profits AND be used to fund new drugs (revenue from existing drugs obviously must fund the creation of new drugs). I am a little worried that if strict financial controls are put in place, then the companies will just turn into cash cows for existing drugs because a limit has been put on the profitability of new ones. I believe we need to trudge further and further because even though we are creating new therapies that are wildly expensive, we are moving closer to truly cost effective therapies and best-in-class therapies. Though, we are certainly not there yet. If someone can explain to me that my fears are unjustified about price controls diminishing capital invested into new treatments, I'd happily join the chorus of people calling for price controls in medicine (US citizen here with a chronic disease treated by TNF inhibitor which can cost 30K+ a year but through employer insurance, I pay nothing except for a copay which the manufacturer pays for).
- dragonwriter 8y ago
  > What troubles me about insulin prices is that raising prices can simultaneously be used to satisfy shareholders with growing profits AND be used to fund new drugs (revenue from existing drugs obviously must fund the creation of new drugs). That's not obvious at all; there's no reason creation of new drugs couldn't be financed by raising capital through either debt or equity issues, which are then paid back, in effect, by the profits from the drug itself; in fact, a fair amount of drug development is funded that way, because it's done by startups which are acquired by major firms, if at all, only after doing much of the development work; obviously, that's how every firm’s first drug is financed. It may be that firms want to eventually shift business models, so at some point they take their existing stake of drugs and body prices so instead of paying off their own development, they are doing that and paying forward development, and after that switch to internal financing, but there is no reason that is obviously a necessity.