23 ms·

I'm really past the whole "pharma need to charge high prices to fund research" line of argument. Aside from being factually untrue (research funding is dwarfed

I'm really past the whole "pharma need to charge high prices to fund research" line of argument. Aside from being factually untrue (research funding is dwarfed by marketing for example[0]), it is also arguing for a continued unhealthy relationship with pharmaceutical care. A large amount of research is currently publicly funded. Either via public academic research or directly. When that research bears fruit it is often given away almost at-cost (or below cost when you take into account the larger research landscape) to pharma companies who then privately profit off of it. Pharma companies are profiting off of your tax dollars and then turning around and profiting off of you too. Sure, the benefit exists, but this whole model is broken as all heck. We should just scarp for-profit pharma development as an industry, increase public funding of research, and drug production factories should be a modest profit venture (e.g. 20% of the wholesale cost). Looking more like the generics industry today, where they produce, they don't develop. Why do we need a private business to develop drugs at a 40%-1000%+[1] margin when the taxpayer could do it at nearly 0% margin? We've chosen to make it this way, other countries haven't, and we see plenty of drugs developed via public institutions around the world. [0] https://www.bbc.com/news/business-28212223 https://www.bbc.com/news/business-28212223 [1] https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/retail-margin-on-generic-drugs-may-be-as-high-as-1000-claims-study/articleshow/58252850.cms?from=mdr https://economictimes.indiatimes.com/industry/healthcare/bio...

ikeboy 7y ago
You're looking at the wrong data. You need to look at return on capital. Right now the return on capital in pharma is below the cost of capital and it's trending towards zero. The inevitable result is significantly lower funding for research. https://endpts.com/pharmas-broken-business-model-an-industry-on-the-brink-of-terminal-decline/ https://endpts.com/pharmas-broken-business-model-an-industry...
- amluto 7y ago
  This suggests that something is very wrong with the market. The costs of development and production (even ignoring failures) are way below revenue, which means that return on capital should be very positive. Somehow most of the money is going into overhead. One might debate whether the overhead constitutes corruption, but it should be able to be reduced.
  - toomuchtodo 7y ago
    I don’t demand my roads, libraries, or other public goods turn a profit. I wouldn’t demand the same of public pharma research (NIH, DARPA). Perhaps the market is not designed for this sort of endeavor (drug research). Let government stand in where the market has failed.
    - fjp 7y ago
      "Markets" are poorly designed for health care/research investment in general. Just like roads, education, general science research, etc... It just doesn't play well with being largely run with a profit motive. That's not to say there's on place for the private sector there, but there is massive friction between a profit motive in drug research and you know, building a more healthy society. See the "new Adderalls" like Vyvanse that offer no benefits over Adderall, but Adderall's patent is up so it can be made by generics and isn't as profitable anymore.
      - zip1234 7y ago
        Competition is what drives down costs in a market. If costs are going out of control, perhaps there is something in the current system that is preventing competition? Lack of price transparency?
        fjp 7y ago
        Lack of price transparency is an issue. There's waaay too many misdirections and misaligned incentives between the price a consumer pays for a drug and the manufacturer's pricing. But again, market-based solutions are just not appropriate for essential health care. You would pay ANYTHING to not die - there's no price elasticity of demand. Every other developed country has figured out that this is simply immoral.
        conanbatt 7y ago
        Competition drives down profits, not necessarily costs. If you passed a law that funds pharma startups to produce drugs, you would reduce profits and increase costs (through taxes). Cost goes down with increased productivity. Competition sometimes brings that, sometimes it doesn't. Economics can be complex!
- behringer 7y ago
  I believe they like to call that "Hollywood accounting."
- robbiemitchell 7y ago
  This is some random person's calculation of industry returns. A person who says he works for a pharma company and doesn't link to any actual data. https://www.linkedin.com/in/kelvinstott/ https://www.linkedin.com/in/kelvinstott/
  - ikeboy 7y ago
    He has sources for the data. You can look those up.
- mumblemumble 7y ago
  This analysis you link leaves plenty of room for either or both stories to be correct. Perhaps the marketing and R&D departments compete internally for budget. They certainly do at every other company I've worked at. And drug marketing is peculiar. One would expect demand to be largely inelastic, so it's odd to see marketing spend on par with that of soft drinks in the industry. Nor can we safely assume that whatever portion of demand is driven by marketing is beneficial from a public health perspective, given that overtreatment is known to be a serious problem in the USA, and that a significant motivator for overtreatment is patient pressure on health care providers.
throwaway55554 7y ago
The problem is convincing Americans. There is a significant population of people who would never vote for this because it would benefit those who don't work and pay taxes. They are so stubborn about this that they are willing even to let pharma prices exceed their own grasp.
- malandrew 7y ago
  One of the reasons I don't vote for it is because the current system benefits billions of people that don't pay any US taxes. Most of the rest of the world greatly benefits from positive externalities from US medical R&D. Billions of people elsewhere in the world plus Americans in 20+ years when patents expire if far greater than ~40 million people in the US in the present
stochastician 7y ago
Comments like this always make me sad. Not just because I disagree with them (I do!) or that I think they are claiming certainty about facts in dispute (I think they are ! [1, 2] ) but because they make no mention of trade-offs. We can vehemently disagree about these things, get our information from different sources, and advocate for different policies, but hopefully we can all agree that there _would_ be tradeoffs? What might be the downsides to the proposed approach ? Do we think this would result in reduced innovation? In fewer potential cures? [1] https://blogs.sciencemag.org/pipeline/archives/2019/05/28/where-drugs-come-from-a-comprehensive-look https://blogs.sciencemag.org/pipeline/archives/2019/05/28/wh... [2] https://blogs.sciencemag.org/pipeline/archives/2014/11/11/marketing_and_rd_again https://blogs.sciencemag.org/pipeline/archives/2014/11/11/ma...
- throwlaplace 7y ago
  whenever anyone casts doubt on the idea that healthcare (or pharma) could be cheaper (and implicitly that the tradeoffs would be worth it) my simple response is: then please tell me how does every other western nation accomplish it? overall healthcare goals are met and for less money (in aggregate and individually) all around the world. in which way is america exceptional except insofar as exactly that here business tries to extract as much as value as physically possible. invariably someone will say something like "wait times" but it never pans out (just yesterday i was looking for data on this and it's simply inconclusive).
  - craftinator 7y ago
    100% agree. If we didn't have data about any of these other Western country's healthcare systems, then arguments like "maybe that's just how much it costs" or "there are tradeoffs between market driven and government driven" are plausible. However, that is simply not the case. The money goes >somewhere<, to >someone<, and with wealth inequality being quite high in the US, I imagine you can identify where a large amount of that money is going. Extremely rich pharma Bros are a great example of how the market has failed in the pharma industry.
  - Mirioron 7y ago
ptah 7y ago
> research funding is dwarfed by marketing for example i really believe pharma advertising should be banned
- ollie87 7y ago
  It is where I live, so weird visiting the US and seeing "ask your doctor for" adverts. If I asked my GP for a specific medication they'd look at me like an alien.
  - mattrp 7y ago
    They do that pretty much no matter what planet you live on :)
    - Murrawhip 7y ago
      Nope, it's only legal in US and New Zealand.
      - chimeracoder 7y ago
        Consumer advertising for pharmaceuticals is legal only in the US and New Zealand. Direct-to-doctor marketing is legal almost everywhere else, and it's by far what pharmaceutical companies spend more money on.
      - mattrp 7y ago
        Sorry that’s not what I meant... it was a joke of course but I was saying if you suggest any course of treatment to a doctor you’re going to get a hairy eyeball in response. I wasn’t saying anything at all about the places where ads are allowed.
  - m_ke 7y ago
    Yeah it's really weird walking around NYC and seeing most of ads be from hospitals, colleges, pharma and lawyers.
rayiner 7y ago
Ironically, insulin is a great example of why your premise is false: Insulin replacement was developed a century ago, being first discovered by a government entity (U of Toronto). Private companies commercialized the treatments in the 1940s and 1950s, developing long acting forms that could be administered in a single injection per day. Since then, pharmaceutical companies have made continuous improvements with fewer side effects: https://www.hopkinsmedicine.org/news/media/releases/why_people_with_diabetes_cant_buy_generic_insulin https://www.hopkinsmedicine.org/news/media/releases/why_peop... Note that nobody is proposing to give people the versions of the drugs developed by public entities, or even the long out-of-patent earlier versions of the drugs. That’s strong evidence of the fact that the improvements developed by private companies were really important. Moreover, the only thing stopping companies from making cheap generic insulin is the government itself: > Patents on the first synthetic insulin expired in 2014, but these newer forms are harder to copy, so the unpatented versions will go through a lengthy Food and Drug Administration approval process and cost more to make. When these insulins come on the market, they may cost just 20 to 40 percent less than the patented versions, Riggs and Greene write. Instead of “scrapping” the industry, wouldn’t it make more sense to, as a first step, get rid of regulatory roadblocks that prevent competitors from producing out of patent drugs? Moreover, as to your claim that “other countries” do things differently—your only example is India, which does essentially no pharmaceutical R&D. Western European countries also rely on for-profit pharmaceutical development. Pharmaceutical spending as a percentage of GDP is about 2% in the US and Japan, 1.8% in Canada, and 1.5-1.6% in Germany or France: https://data.oecd.org/healthres/pharmaceutical-spending.htm https://data.oecd.org/healthres/pharmaceutical-spending.htm. European countries negotiate hard on drugs like insulin, but for the most part they pay a lot too. As to your broader point of “why do we need private businesses to do this?” It’s a mistake to mix up the products being made with the process by which the products are developed. Just because people need drugs more than search engines doesn’t mean that the government is more qualified to develop drugs than search engines. It’s two completely different things. Drug development is high tech work. If the government could do it well, while squeezing out the profit margins, there would be no reason for the government not to run Google or Netflix. After all, why do we need a “private business” like Apple to develop iPhones with 50% margins “when the tax payer could do it at nearly 0% margin?”
- 7y ago
klaudius 7y ago
Pharma companies are profiting off of your tax dollars No. Pharma companies are paying taxes collectively which are then used to fund basic research they can all benefit from. Another way to do it would be to form a consortium like SEMATECH [1]. If the government didn't tax and regulate companies and people so highly they would have more left over to join voluntary associations and do the same thing. [1] https://en.wikipedia.org/wiki/SEMATECH https://en.wikipedia.org/wiki/SEMATECH
- zentiggr 7y ago
  Wow, you believe companies actually pay taxes? Ok, a bit hyperbolic, but really. A half a century of deregulation and tax breaks isn't making this _worse_ for companies.
  - klaudius 7y ago
    Yes, companies pay taxes. Company owners also pay taxes on dividends, capital gains or distributions. Most taxes are paid by minority of relatively well off people. My point is that SEMATECH shows you can have a voluntary consortium where different parties fund an organization and then collectively benefit from it. Government does that, but on a more general level and it's not based on voluntary interaction (you must pay taxes, otherwise if you resist arrest you will be murdered). I'm responding to people who complain how companies are ripping the public off, when in reality it's the government that takes almost half of GDP in developed nations. If the government took less in taxes, then companies would have more left over to fund a voluntary consortium which would do similar things that NIH and NSF do.
nodesocket 7y ago
My mother has diabetes and pays quite a bit for her insulin in California. I however am not sure government enforced price caps are the way to go. Today, people neglect to factor in the law of unintended consequences, and instead stand on a pedestal of moral superiority argument. What happens if price caps do reduce research. It’s no coincidence that the US has the best pharma companies and develops some of the most effective drugs in the world.
- throwlaplace 7y ago
  >law of unintended consequences otherwise known as the lets-keep-the-status-quo-because-i-can-afford-it argument. >It’s no coincidence that the US has the best pharma companies and develops some of the most effective drugs in the world lol best pharma companies according to share values or according to how many people they help?
- petschge 7y ago
  Ah, yes. The famous American pharma companies Roche, Novartis, Bayer, GlaxoSmithKline and Sanofil come to mind...
  - nodesocket 7y ago
    Yes... Johnson & Johnson, Pfizer, AbbVie, Bristol-Myers Squibb, Eli Lilly, Biogen, Abbott, the list goes on and on.
    - chungus_khan 7y ago
      If the US only competes with and does not clearly and utterly surpass Europe (while serving the American people much less effectively), then how can your argument stand?
- jwbwater 7y ago
  Agree price caps are not the solution. Don't agree about US big pharma. Novartis is a Swiss multinational, Roche also Swiss, Bayer is a German multinational, Glaxo Smith Kline is a British multinational... Big pharma is a global, or at least Euro-American effort.
amluto 7y ago
This whole cost plus percentage model doesn’t work — it encourages people to drive up costs to increase profit. I see no reason that pharma manufacturing can’t be done just regular contract manufacturing. The Zika vaccine is a prime example. The US developed the ZIPV vaccine at public expense, and then, for some mind boggling reason, they offered an exclusive license to Sanofi. Imagine if Apple outsourced iPhone manufacturing by giving Foxconn and exclusive license! The US could have solicited bids to manufacture the vaccine and accepted more than one, thus resulting in multiple sources without any IP exclusivity.
- zentiggr 7y ago
  > for some mind boggling reason, What, never seen corruption at work? Somebody at Sanofi, or connected to them, was connected elsewhere, and hey, there's your license :) (No, no cash payment.... but my kid really wanted to get into Harvard, maybe a limited endowment/scholarship? You know somebody, right?) We humans are predictable.
  - jwbwater 7y ago
    This is why I have low expectations of government solutions to high healthcare costs. How about a radical experiment in price transparency like we have with every other commodity? Rather than the US healthcare system becoming more like the UK's NHS, the opposite is happening[1]. The crony capitalists are winning and they are hoping we give their government buddies more control over our lives. [1]Episode 105 of a podcast called the Accad and Koka Report.
dehrmann 7y ago
> When [publicly funded] research bears fruit it is often given away almost at-cost Publicly funded research should be given away, royalty-free, to the public. Universities aren't in the business of...business.
- Someone1234 7y ago
  But it isn't. It is licensed to an exclusive drug manufacturer who has a de facto monopoly on the new drug. If it were protected with drug patents then those patents licensed for free to all generic manufacturers, that would be a massive improvement.
  - eigenrick 7y ago
    That's because the drug manufacturer has to spend a billion dollars performing clinical trials which might still fail. Even with some research already performed, this is still a huge risk. Not to mention the fact that the research still needs to be turned into something producible and consistently deliverable to the patient.
    - larkost 7y ago
      No one is arguing that drug companies don't have work, and a lot of it, to do developing a promising drug (that is generally what comes out of university research) into a marketable one. Nor is anyone saying that that process is cheap. However, the amount of money that goes into finding those promising drugs (collectively, including all the failures in those stages) is much greater than the work that drug companies do in testing and developing them (collectively, including failures). Right or wrong, most of that research is government funded, and then the (monetary) rewards of all that spending generally flow entirely to the drug companies (often with some reward going to the University who hosted the research). So the drug companies wind up with Hughe effective subsidies, and little of the down-side of early drug development or basic research.
snapetom 7y ago
Do you have historical data? Because in the BBC article, it mentions patents, and how drug companies have a limited number of time to make up profits. The article states drug companies have 10 years to make it up, but I think that's even shorter in the US. I was taught in my health econ class that it's 5 years in the US simply because of the FDA approval process. R&D money spent is cyclical, and GlobalData's report may just be a down cycle where pharma is just trying to recoup past R&D costs. There's also a large number of drugs that are not approved from past years. Pharma has to recoup those costs, too. From purely a health econ standpoint, that recovery window offered by the patent system is the main reason we are where we are today.
GrumpyNl 7y ago
We should start open sourcing for meds.
- jwbwater 7y ago
  It would be interesting if there was a way to inform people about effective options that are not profitable enough to receive much attention in our current system.
Ericson2314 7y ago
I'm fine with purely public research funding, but if we need extra incentives for "last mile" applied research, drug bounties are wholely better for the public and pharmaceutical industry alike.
- jonlucc 7y ago
  Disclaimer: I work in big pharma as a biologist and nobody asks me anything about pricing or broad strategy I don't hate the idea of bounties, but someone has to decide what bounties to offer, and the current system for deciding that is whether money can be made in that area. It's not perfect, but at least broadly it means that there is an incentive for treatments for conditions that affect a lot of people and ones with a high cost of disease without treatment. The thing I could see easily being missed by bounties (or maybe worse, being subject to being lobbied by pharma companies with a drug in the chamber) is drugs that start for one indication, but pivot or expand to another, and drugs that are second or third in class. There is undoubtedly some value to a second in class drug that is more efficacious and safer, and line extensions are also helpful for expanding the use of a drug in market.
  - Ericson2314 7y ago
    Good answers. I would say research grants and bounties are both subject to regularity capture. Bounties are high stakes and thus more worth being corrupted, but also fewer and hopefully more in the public eye and so exposed to more scrutiny. But, as I led with, I'd be fine with just purely public research leading to generic drugs. Drug bounties are just the "post-capitalist" fallback plan if the old school state-bureaucratic approach isn't work.
dominotw 7y ago
Intelligence sq had a debate on this a while ago https://www.intelligencesquaredus.org/debates/blame-big-pharma-out-control-health-care-costs https://www.intelligencesquaredus.org/debates/blame-big-phar... Good arguments from both sides. > Pharma companies are profiting off of your tax dollars and then turning around and profiting off of you too. > the taxpayer could do it at nearly 0% margin? Adds lots of nuance to blanket/false statements.
joey_bob 7y ago
Wait, so government funding supports the drug through the whole discovery and FDA validation process then just hands it off to the pharma companies? That seems broken
- jonlucc 7y ago
  No, that's exceedingly rare. That kind of thing that only happens for super rare diseases, maybe like the ebola vaccine that was quickly developed over the past few years, where the economics are very upside down for companies to do the development. What is way more common is that scientists from around the world, mostly funded by public money produce research that might implicate a particular pathway or target for a particular disease. Scientists in companies see those publications and try to verify the result, then make a drug for it. The process of making the drug, testing tens of thousands of compounds, making sure efficacy and safety margin are maximized, running clinical trials, and producing the drug with good yields is almost always done by companies. The government can do stuff like funding studies on new uses for off-patent drugs, fund various parts of that development, and reduce regulatory burden to tilt the economics for companies to make drugs for a disease, but that mostly happens to do stuff that wouldn't happen in the normal system in which companies have to make money making drugs. Disclaimer: I work in pharma, but in biology, not anywhere near the budget-making
gdubs 7y ago
The numbers don’t support their argument that r&d expenses drive the prices, so they’ve shifted to saying that prices reflect the drugs “value”. Even on this, the numbers don’t really agree. But to jump on to your main point — people don’t realize just how much their tax dollars have already paid for the development of these drugs. Having a healthy competitive market to take these things the last mile is good — but these companies are incredibly deceptive when it comes to how much they’ve benefited from public investment.
Consultant32452 7y ago
Food is far more important for human survival than medicine. Somehow we're able to allow a free market with for profit food producers and distributors. Lots of research is done to make better/heartier foods. Prices are quite reasonable for food with stable inflation. Almost no one thinks it'd be a good idea to nationalize food research, production and distribution. The solution seems clear to me: take a look at the relatively less important drug industry and change the regulations such that it operates more like the incredibly important food industry.
- idoh 7y ago
  The market for food is not at all like the market for medicine. The main difference is that food is far more fungible than drugs are. If a patient is suffering an illness, there may be only one drug that will help, whereas if one needs calories, or vegetables, there are many more options. Having said that, there is a reasonable argument to be made that the FDA and the patent situation stifles innovation and that most definitely should be looked at.
  - deleted 7y ago
    [deleted]
  - Consultant32452 7y ago
    Off patent drugs are fungible in the sense that if Tylenol starts charging too much I can buy acetaminophen from anyone. Drug patents only last about 10 years. Fix evergreening at the patent office and your concerns are taken care of. Fixing evergreening is a much smaller action than cannibalizing an entire industry, which should be a last resort.
    - idoh 7y ago
      Makes sense to me. If evergreening is fixed, then theoretically in ten years time every drug on the market right now could be available as a generic at generic prices.
      - 7y ago
lastpingstandin 7y ago
I seem to recall that the reason marketing costs seem high relative to R&D is that large firms typically acquire much smaller firms, small firms which invested a ton of money developing a drug but without the means of distributing it. When a company like Pfizer acquires said company, none of the R&D spending of the smaller company gets absorbed into Pfizer's balance sheet. In 2006, the pharma entire industry spend 12 billion in marketing, but 58.8 billion on r&d. Simply looking at individual large companies' doesn't do this justice. http://phrma-docs.phrma.org/sites/default/files/pdf/marketing_and_promotion_facts_071108_final.pdf http://phrma-docs.phrma.org/sites/default/files/pdf/marketin...
rhino369 7y ago
>research funding is dwarfed by marketing for example In an industry with high fixed costs, marketing may in fact reduce the cost per consumer. Using software as an example, you can't just take the marketing costs per customer and subtract that from the price. If 1,000,000 in marketing brings in 3,000,000 in extra revenue, that marketing didn't cost customers anything. It could even allow the software company to charge less per copy. There are some real differences between software and medicine. And I'm not sure increasing users of a drug is a good thing in many cases. But I doubt prilosec commercials are increasing the price I pay.
- learnstats2 7y ago
  > In an industry with high fixed costs, marketing may in fact reduce the cost per consumer. I do not believe this is generally true. In any case, it clearly doesn't apply to insulin provision for diabetes patients - a captive market.
- charwalker 7y ago
  My doctor prescribes my medication, not my software. Why would anything more than a journal article with technical information released for the benefit of the medical community be needed? The US is one of like 2 countries that even allow TV commercials for drugs, yet all those other countries (and their Not for Profit or universal healthcare systems) work better than the US. If I'm told to ask my doctor if [DRUG] is right for me, shouldn't they already be aware of the option and if beneficial brought it up vs staying quiet and endangering my health? The marketing budget is way out of line.
  - conanbatt 7y ago
    > My doctor prescribes my medication, not my software. Why would anything more than a journal article with technical information released for the benefit of the medical community be needed? Because it requires time and effort to educate providers on state-of-the-art medications and the marketing that goes to them is often educational. I understand the frustration around the healthcare situation in the US, but the argument that marketing is bad, or that profits are bad, or that the private market cant service are frankly trying to reinvent the economic wheel.
reaperducer 7y ago
I was with you up until this part. other countries haven't Ummm... you do realize that most big pharma companies are European, right? Bayer is German, GSK is British, etc...
cgiles 7y ago
I work in medical research and mostly agree with this, but there are two major problems I see preventing this from becoming a reality: 1) Academic medical research is simply not well tooled, right now, to do the later stages of drug development. What pharma does well and academia does not, is basically optimization of candidates. They do it through high-throughput screens and medicinal chemistry. Those things are very expensive and not publishable, so...academics don't do them. And everyone with the expertise works in pharma. 2) Clinical trials are freaking expensive. My institute has developed several drug candidates and the same process necessarily applies every time. The public-funded researcher basically HAS to either sell the patent to pharma or start a company and raise the many millions required to do a trial. The amount of money required is way out of range of current grant funding. If they want to see their drug get to patients, and of course they do, there is literally no other way right now except partnering with pharma. When I get a chance to talk to politicians about how to fix this, I always make the same pitch. Step #1 should be to give a huge wad of money to the FDA. Say $1B/yr. Then you tell the FDA: every year, pick the 50 most promising drug candidates. Publicly fund the clinical trials, and the public will own the patent. Give some cash to the inventor and the institute to incentivize them to do this scheme and not sell to pharma. Politicians, both left and right, look at me like I'm from Mars when I propose this. Those on the left think high drug costs are all about greed and not our broken system, and those on the right have unwavering faith that "free" markets will always solve everything. And with insulin specifically, there is another problem: diabetics won't take the generic insulin that has been off-patent for years now. They must have the fancy and more convenient version. Mark my words, the fact that Americans must always have the absolute best thing, cost be damned, will become a major issue if we ever get single-payer.
- keldaris 7y ago
  > Politicians, both left and right, look at me like I'm from Mars when I propose this. Those on the left think high drug costs are all about greed and not our broken system, and those on the right have unwavering faith that "free" markets will always solve everything. Do you think they actually believe any of this nonsense? I would have assumed the rehearsed political phrasing is just the public veneer over something to the effect of "and if I endorse this, X lobby group(s) will steer Y amount of PAC funding to my primary opponent and eat me alive".
conanbatt 7y ago
> Why do we need a private business to develop drugs at a 40%-1000%+[1] margin when the taxpayer could do it at nearly 0% margin? Why not apply this principle to everything else? Food, software, etc.

ikeboy 7y ago

You're looking at the wrong data. You need to look at return on capital. Right now the return on capital in pharma is below the cost of capital and it's trending towards zero. The inevitable result is significantly lower funding for research. https://endpts.com/pharmas-broken-business-model-an-industry-on-the-brink-of-terminal-decline/ https://endpts.com/pharmas-broken-business-model-an-industry...

amluto 7y ago
This suggests that something is very wrong with the market. The costs of development and production (even ignoring failures) are way below revenue, which means that return on capital should be very positive. Somehow most of the money is going into overhead. One might debate whether the overhead constitutes corruption, but it should be able to be reduced.
- toomuchtodo 7y ago
  I don’t demand my roads, libraries, or other public goods turn a profit. I wouldn’t demand the same of public pharma research (NIH, DARPA). Perhaps the market is not designed for this sort of endeavor (drug research). Let government stand in where the market has failed.
  - fjp 7y ago
    "Markets" are poorly designed for health care/research investment in general. Just like roads, education, general science research, etc... It just doesn't play well with being largely run with a profit motive. That's not to say there's on place for the private sector there, but there is massive friction between a profit motive in drug research and you know, building a more healthy society. See the "new Adderalls" like Vyvanse that offer no benefits over Adderall, but Adderall's patent is up so it can be made by generics and isn't as profitable anymore.
    - zip1234 7y ago
      Competition is what drives down costs in a market. If costs are going out of control, perhaps there is something in the current system that is preventing competition? Lack of price transparency?
      - fjp 7y ago
        Lack of price transparency is an issue. There's waaay too many misdirections and misaligned incentives between the price a consumer pays for a drug and the manufacturer's pricing. But again, market-based solutions are just not appropriate for essential health care. You would pay ANYTHING to not die - there's no price elasticity of demand. Every other developed country has figured out that this is simply immoral.
      - conanbatt 7y ago
        Competition drives down profits, not necessarily costs. If you passed a law that funds pharma startups to produce drugs, you would reduce profits and increase costs (through taxes). Cost goes down with increased productivity. Competition sometimes brings that, sometimes it doesn't. Economics can be complex!
behringer 7y ago
I believe they like to call that "Hollywood accounting."
robbiemitchell 7y ago
This is some random person's calculation of industry returns. A person who says he works for a pharma company and doesn't link to any actual data. https://www.linkedin.com/in/kelvinstott/ https://www.linkedin.com/in/kelvinstott/
- ikeboy 7y ago
  He has sources for the data. You can look those up.
mumblemumble 7y ago
This analysis you link leaves plenty of room for either or both stories to be correct. Perhaps the marketing and R&D departments compete internally for budget. They certainly do at every other company I've worked at. And drug marketing is peculiar. One would expect demand to be largely inelastic, so it's odd to see marketing spend on par with that of soft drinks in the industry. Nor can we safely assume that whatever portion of demand is driven by marketing is beneficial from a public health perspective, given that overtreatment is known to be a serious problem in the USA, and that a significant motivator for overtreatment is patient pressure on health care providers.

throwaway55554 7y ago

The problem is convincing Americans. There is a significant population of people who would never vote for this because it would benefit those who don't work and pay taxes. They are so stubborn about this that they are willing even to let pharma prices exceed their own grasp.

malandrew 7y ago
One of the reasons I don't vote for it is because the current system benefits billions of people that don't pay any US taxes. Most of the rest of the world greatly benefits from positive externalities from US medical R&D. Billions of people elsewhere in the world plus Americans in 20+ years when patents expire if far greater than ~40 million people in the US in the present

stochastician 7y ago

Comments like this always make me sad. Not just because I disagree with them (I do!) or that I think they are claiming certainty about facts in dispute (I think they are ! [1, 2] ) but because they make no mention of trade-offs. We can vehemently disagree about these things, get our information from different sources, and advocate for different policies, but hopefully we can all agree that there _would_ be tradeoffs? What might be the downsides to the proposed approach ? Do we think this would result in reduced innovation? In fewer potential cures? [1] https://blogs.sciencemag.org/pipeline/archives/2019/05/28/where-drugs-come-from-a-comprehensive-look https://blogs.sciencemag.org/pipeline/archives/2019/05/28/wh... [2] https://blogs.sciencemag.org/pipeline/archives/2014/11/11/marketing_and_rd_again https://blogs.sciencemag.org/pipeline/archives/2014/11/11/ma...

throwlaplace 7y ago
whenever anyone casts doubt on the idea that healthcare (or pharma) could be cheaper (and implicitly that the tradeoffs would be worth it) my simple response is: then please tell me how does every other western nation accomplish it? overall healthcare goals are met and for less money (in aggregate and individually) all around the world. in which way is america exceptional except insofar as exactly that here business tries to extract as much as value as physically possible. invariably someone will say something like "wait times" but it never pans out (just yesterday i was looking for data on this and it's simply inconclusive).
- craftinator 7y ago
  100% agree. If we didn't have data about any of these other Western country's healthcare systems, then arguments like "maybe that's just how much it costs" or "there are tradeoffs between market driven and government driven" are plausible. However, that is simply not the case. The money goes >somewhere<, to >someone<, and with wealth inequality being quite high in the US, I imagine you can identify where a large amount of that money is going. Extremely rich pharma Bros are a great example of how the market has failed in the pharma industry.
- Mirioron 7y ago

ptah 7y ago

> research funding is dwarfed by marketing for example i really believe pharma advertising should be banned

ollie87 7y ago
It is where I live, so weird visiting the US and seeing "ask your doctor for" adverts. If I asked my GP for a specific medication they'd look at me like an alien.
- mattrp 7y ago
  They do that pretty much no matter what planet you live on :)
  - Murrawhip 7y ago
    Nope, it's only legal in US and New Zealand.
    - chimeracoder 7y ago
      Consumer advertising for pharmaceuticals is legal only in the US and New Zealand. Direct-to-doctor marketing is legal almost everywhere else, and it's by far what pharmaceutical companies spend more money on.
    - mattrp 7y ago
      Sorry that’s not what I meant... it was a joke of course but I was saying if you suggest any course of treatment to a doctor you’re going to get a hairy eyeball in response. I wasn’t saying anything at all about the places where ads are allowed.
- m_ke 7y ago
  Yeah it's really weird walking around NYC and seeing most of ads be from hospitals, colleges, pharma and lawyers.

rayiner 7y ago

Ironically, insulin is a great example of why your premise is false: Insulin replacement was developed a century ago, being first discovered by a government entity (U of Toronto). Private companies commercialized the treatments in the 1940s and 1950s, developing long acting forms that could be administered in a single injection per day. Since then, pharmaceutical companies have made continuous improvements with fewer side effects: https://www.hopkinsmedicine.org/news/media/releases/why_people_with_diabetes_cant_buy_generic_insulin https://www.hopkinsmedicine.org/news/media/releases/why_peop... Note that nobody is proposing to give people the versions of the drugs developed by public entities, or even the long out-of-patent earlier versions of the drugs. That’s strong evidence of the fact that the improvements developed by private companies were really important. Moreover, the only thing stopping companies from making cheap generic insulin is the government itself: > Patents on the first synthetic insulin expired in 2014, but these newer forms are harder to copy, so the unpatented versions will go through a lengthy Food and Drug Administration approval process and cost more to make. When these insulins come on the market, they may cost just 20 to 40 percent less than the patented versions, Riggs and Greene write. Instead of “scrapping” the industry, wouldn’t it make more sense to, as a first step, get rid of regulatory roadblocks that prevent competitors from producing out of patent drugs? Moreover, as to your claim that “other countries” do things differently—your only example is India, which does essentially no pharmaceutical R&D. Western European countries also rely on for-profit pharmaceutical development. Pharmaceutical spending as a percentage of GDP is about 2% in the US and Japan, 1.8% in Canada, and 1.5-1.6% in Germany or France: https://data.oecd.org/healthres/pharmaceutical-spending.htm https://data.oecd.org/healthres/pharmaceutical-spending.htm. European countries negotiate hard on drugs like insulin, but for the most part they pay a lot too. As to your broader point of “why do we need private businesses to do this?” It’s a mistake to mix up the products being made with the process by which the products are developed. Just because people need drugs more than search engines doesn’t mean that the government is more qualified to develop drugs than search engines. It’s two completely different things. Drug development is high tech work. If the government could do it well, while squeezing out the profit margins, there would be no reason for the government not to run Google or Netflix. After all, why do we need a “private business” like Apple to develop iPhones with 50% margins “when the tax payer could do it at nearly 0% margin?”

7y ago

klaudius 7y ago

Pharma companies are profiting off of your tax dollars No. Pharma companies are paying taxes collectively which are then used to fund basic research they can all benefit from. Another way to do it would be to form a consortium like SEMATECH [1]. If the government didn't tax and regulate companies and people so highly they would have more left over to join voluntary associations and do the same thing. [1] https://en.wikipedia.org/wiki/SEMATECH https://en.wikipedia.org/wiki/SEMATECH

zentiggr 7y ago
Wow, you believe companies actually pay taxes? Ok, a bit hyperbolic, but really. A half a century of deregulation and tax breaks isn't making this _worse_ for companies.
- klaudius 7y ago
  Yes, companies pay taxes. Company owners also pay taxes on dividends, capital gains or distributions. Most taxes are paid by minority of relatively well off people. My point is that SEMATECH shows you can have a voluntary consortium where different parties fund an organization and then collectively benefit from it. Government does that, but on a more general level and it's not based on voluntary interaction (you must pay taxes, otherwise if you resist arrest you will be murdered). I'm responding to people who complain how companies are ripping the public off, when in reality it's the government that takes almost half of GDP in developed nations. If the government took less in taxes, then companies would have more left over to fund a voluntary consortium which would do similar things that NIH and NSF do.

nodesocket 7y ago

My mother has diabetes and pays quite a bit for her insulin in California. I however am not sure government enforced price caps are the way to go. Today, people neglect to factor in the law of unintended consequences, and instead stand on a pedestal of moral superiority argument. What happens if price caps do reduce research. It’s no coincidence that the US has the best pharma companies and develops some of the most effective drugs in the world.

throwlaplace 7y ago
>law of unintended consequences otherwise known as the lets-keep-the-status-quo-because-i-can-afford-it argument. >It’s no coincidence that the US has the best pharma companies and develops some of the most effective drugs in the world lol best pharma companies according to share values or according to how many people they help?
petschge 7y ago
Ah, yes. The famous American pharma companies Roche, Novartis, Bayer, GlaxoSmithKline and Sanofil come to mind...
- nodesocket 7y ago
  Yes... Johnson & Johnson, Pfizer, AbbVie, Bristol-Myers Squibb, Eli Lilly, Biogen, Abbott, the list goes on and on.
  - chungus_khan 7y ago
    If the US only competes with and does not clearly and utterly surpass Europe (while serving the American people much less effectively), then how can your argument stand?
jwbwater 7y ago
Agree price caps are not the solution. Don't agree about US big pharma. Novartis is a Swiss multinational, Roche also Swiss, Bayer is a German multinational, Glaxo Smith Kline is a British multinational... Big pharma is a global, or at least Euro-American effort.

amluto 7y ago

This whole cost plus percentage model doesn’t work — it encourages people to drive up costs to increase profit. I see no reason that pharma manufacturing can’t be done just regular contract manufacturing. The Zika vaccine is a prime example. The US developed the ZIPV vaccine at public expense, and then, for some mind boggling reason, they offered an exclusive license to Sanofi. Imagine if Apple outsourced iPhone manufacturing by giving Foxconn and exclusive license! The US could have solicited bids to manufacture the vaccine and accepted more than one, thus resulting in multiple sources without any IP exclusivity.

zentiggr 7y ago
> for some mind boggling reason, What, never seen corruption at work? Somebody at Sanofi, or connected to them, was connected elsewhere, and hey, there's your license :) (No, no cash payment.... but my kid really wanted to get into Harvard, maybe a limited endowment/scholarship? You know somebody, right?) We humans are predictable.
- jwbwater 7y ago
  This is why I have low expectations of government solutions to high healthcare costs. How about a radical experiment in price transparency like we have with every other commodity? Rather than the US healthcare system becoming more like the UK's NHS, the opposite is happening[1]. The crony capitalists are winning and they are hoping we give their government buddies more control over our lives. [1]Episode 105 of a podcast called the Accad and Koka Report.

dehrmann 7y ago

> When [publicly funded] research bears fruit it is often given away almost at-cost Publicly funded research should be given away, royalty-free, to the public. Universities aren't in the business of...business.

Someone1234 7y ago
But it isn't. It is licensed to an exclusive drug manufacturer who has a de facto monopoly on the new drug. If it were protected with drug patents then those patents licensed for free to all generic manufacturers, that would be a massive improvement.
- eigenrick 7y ago
  That's because the drug manufacturer has to spend a billion dollars performing clinical trials which might still fail. Even with some research already performed, this is still a huge risk. Not to mention the fact that the research still needs to be turned into something producible and consistently deliverable to the patient.
  - larkost 7y ago
    No one is arguing that drug companies don't have work, and a lot of it, to do developing a promising drug (that is generally what comes out of university research) into a marketable one. Nor is anyone saying that that process is cheap. However, the amount of money that goes into finding those promising drugs (collectively, including all the failures in those stages) is much greater than the work that drug companies do in testing and developing them (collectively, including failures). Right or wrong, most of that research is government funded, and then the (monetary) rewards of all that spending generally flow entirely to the drug companies (often with some reward going to the University who hosted the research). So the drug companies wind up with Hughe effective subsidies, and little of the down-side of early drug development or basic research.

snapetom 7y ago

Do you have historical data? Because in the BBC article, it mentions patents, and how drug companies have a limited number of time to make up profits. The article states drug companies have 10 years to make it up, but I think that's even shorter in the US. I was taught in my health econ class that it's 5 years in the US simply because of the FDA approval process. R&D money spent is cyclical, and GlobalData's report may just be a down cycle where pharma is just trying to recoup past R&D costs. There's also a large number of drugs that are not approved from past years. Pharma has to recoup those costs, too. From purely a health econ standpoint, that recovery window offered by the patent system is the main reason we are where we are today.

GrumpyNl 7y ago

We should start open sourcing for meds.

jwbwater 7y ago
It would be interesting if there was a way to inform people about effective options that are not profitable enough to receive much attention in our current system.

Ericson2314 7y ago

I'm fine with purely public research funding, but if we need extra incentives for "last mile" applied research, drug bounties are wholely better for the public and pharmaceutical industry alike.

jonlucc 7y ago
Disclaimer: I work in big pharma as a biologist and nobody asks me anything about pricing or broad strategy I don't hate the idea of bounties, but someone has to decide what bounties to offer, and the current system for deciding that is whether money can be made in that area. It's not perfect, but at least broadly it means that there is an incentive for treatments for conditions that affect a lot of people and ones with a high cost of disease without treatment. The thing I could see easily being missed by bounties (or maybe worse, being subject to being lobbied by pharma companies with a drug in the chamber) is drugs that start for one indication, but pivot or expand to another, and drugs that are second or third in class. There is undoubtedly some value to a second in class drug that is more efficacious and safer, and line extensions are also helpful for expanding the use of a drug in market.
- Ericson2314 7y ago
  Good answers. I would say research grants and bounties are both subject to regularity capture. Bounties are high stakes and thus more worth being corrupted, but also fewer and hopefully more in the public eye and so exposed to more scrutiny. But, as I led with, I'd be fine with just purely public research leading to generic drugs. Drug bounties are just the "post-capitalist" fallback plan if the old school state-bureaucratic approach isn't work.

dominotw 7y ago

Intelligence sq had a debate on this a while ago https://www.intelligencesquaredus.org/debates/blame-big-pharma-out-control-health-care-costs https://www.intelligencesquaredus.org/debates/blame-big-phar... Good arguments from both sides. > Pharma companies are profiting off of your tax dollars and then turning around and profiting off of you too. > the taxpayer could do it at nearly 0% margin? Adds lots of nuance to blanket/false statements.

joey_bob 7y ago

Wait, so government funding supports the drug through the whole discovery and FDA validation process then just hands it off to the pharma companies? That seems broken

jonlucc 7y ago
No, that's exceedingly rare. That kind of thing that only happens for super rare diseases, maybe like the ebola vaccine that was quickly developed over the past few years, where the economics are very upside down for companies to do the development. What is way more common is that scientists from around the world, mostly funded by public money produce research that might implicate a particular pathway or target for a particular disease. Scientists in companies see those publications and try to verify the result, then make a drug for it. The process of making the drug, testing tens of thousands of compounds, making sure efficacy and safety margin are maximized, running clinical trials, and producing the drug with good yields is almost always done by companies. The government can do stuff like funding studies on new uses for off-patent drugs, fund various parts of that development, and reduce regulatory burden to tilt the economics for companies to make drugs for a disease, but that mostly happens to do stuff that wouldn't happen in the normal system in which companies have to make money making drugs. Disclaimer: I work in pharma, but in biology, not anywhere near the budget-making

gdubs 7y ago

The numbers don’t support their argument that r&d expenses drive the prices, so they’ve shifted to saying that prices reflect the drugs “value”. Even on this, the numbers don’t really agree. But to jump on to your main point — people don’t realize just how much their tax dollars have already paid for the development of these drugs. Having a healthy competitive market to take these things the last mile is good — but these companies are incredibly deceptive when it comes to how much they’ve benefited from public investment.

Consultant32452 7y ago

Food is far more important for human survival than medicine. Somehow we're able to allow a free market with for profit food producers and distributors. Lots of research is done to make better/heartier foods. Prices are quite reasonable for food with stable inflation. Almost no one thinks it'd be a good idea to nationalize food research, production and distribution. The solution seems clear to me: take a look at the relatively less important drug industry and change the regulations such that it operates more like the incredibly important food industry.

idoh 7y ago
The market for food is not at all like the market for medicine. The main difference is that food is far more fungible than drugs are. If a patient is suffering an illness, there may be only one drug that will help, whereas if one needs calories, or vegetables, there are many more options. Having said that, there is a reasonable argument to be made that the FDA and the patent situation stifles innovation and that most definitely should be looked at.
- deleted 7y ago
  [deleted]
- Consultant32452 7y ago
  Off patent drugs are fungible in the sense that if Tylenol starts charging too much I can buy acetaminophen from anyone. Drug patents only last about 10 years. Fix evergreening at the patent office and your concerns are taken care of. Fixing evergreening is a much smaller action than cannibalizing an entire industry, which should be a last resort.
  - idoh 7y ago
    Makes sense to me. If evergreening is fixed, then theoretically in ten years time every drug on the market right now could be available as a generic at generic prices.
    - 7y ago

lastpingstandin 7y ago

I seem to recall that the reason marketing costs seem high relative to R&D is that large firms typically acquire much smaller firms, small firms which invested a ton of money developing a drug but without the means of distributing it. When a company like Pfizer acquires said company, none of the R&D spending of the smaller company gets absorbed into Pfizer's balance sheet. In 2006, the pharma entire industry spend 12 billion in marketing, but 58.8 billion on r&d. Simply looking at individual large companies' doesn't do this justice. http://phrma-docs.phrma.org/sites/default/files/pdf/marketing_and_promotion_facts_071108_final.pdf http://phrma-docs.phrma.org/sites/default/files/pdf/marketin...

rhino369 7y ago

>research funding is dwarfed by marketing for example In an industry with high fixed costs, marketing may in fact reduce the cost per consumer. Using software as an example, you can't just take the marketing costs per customer and subtract that from the price. If 1,000,000 in marketing brings in 3,000,000 in extra revenue, that marketing didn't cost customers anything. It could even allow the software company to charge less per copy. There are some real differences between software and medicine. And I'm not sure increasing users of a drug is a good thing in many cases. But I doubt prilosec commercials are increasing the price I pay.

learnstats2 7y ago
> In an industry with high fixed costs, marketing may in fact reduce the cost per consumer. I do not believe this is generally true. In any case, it clearly doesn't apply to insulin provision for diabetes patients - a captive market.
charwalker 7y ago
My doctor prescribes my medication, not my software. Why would anything more than a journal article with technical information released for the benefit of the medical community be needed? The US is one of like 2 countries that even allow TV commercials for drugs, yet all those other countries (and their Not for Profit or universal healthcare systems) work better than the US. If I'm told to ask my doctor if [DRUG] is right for me, shouldn't they already be aware of the option and if beneficial brought it up vs staying quiet and endangering my health? The marketing budget is way out of line.
- conanbatt 7y ago
  > My doctor prescribes my medication, not my software. Why would anything more than a journal article with technical information released for the benefit of the medical community be needed? Because it requires time and effort to educate providers on state-of-the-art medications and the marketing that goes to them is often educational. I understand the frustration around the healthcare situation in the US, but the argument that marketing is bad, or that profits are bad, or that the private market cant service are frankly trying to reinvent the economic wheel.

reaperducer 7y ago

I was with you up until this part. other countries haven't Ummm... you do realize that most big pharma companies are European, right? Bayer is German, GSK is British, etc...

cgiles 7y ago

I work in medical research and mostly agree with this, but there are two major problems I see preventing this from becoming a reality: 1) Academic medical research is simply not well tooled, right now, to do the later stages of drug development. What pharma does well and academia does not, is basically optimization of candidates. They do it through high-throughput screens and medicinal chemistry. Those things are very expensive and not publishable, so...academics don't do them. And everyone with the expertise works in pharma. 2) Clinical trials are freaking expensive. My institute has developed several drug candidates and the same process necessarily applies every time. The public-funded researcher basically HAS to either sell the patent to pharma or start a company and raise the many millions required to do a trial. The amount of money required is way out of range of current grant funding. If they want to see their drug get to patients, and of course they do, there is literally no other way right now except partnering with pharma. When I get a chance to talk to politicians about how to fix this, I always make the same pitch. Step #1 should be to give a huge wad of money to the FDA. Say $1B/yr. Then you tell the FDA: every year, pick the 50 most promising drug candidates. Publicly fund the clinical trials, and the public will own the patent. Give some cash to the inventor and the institute to incentivize them to do this scheme and not sell to pharma. Politicians, both left and right, look at me like I'm from Mars when I propose this. Those on the left think high drug costs are all about greed and not our broken system, and those on the right have unwavering faith that "free" markets will always solve everything. And with insulin specifically, there is another problem: diabetics won't take the generic insulin that has been off-patent for years now. They must have the fancy and more convenient version. Mark my words, the fact that Americans must always have the absolute best thing, cost be damned, will become a major issue if we ever get single-payer.

keldaris 7y ago
> Politicians, both left and right, look at me like I'm from Mars when I propose this. Those on the left think high drug costs are all about greed and not our broken system, and those on the right have unwavering faith that "free" markets will always solve everything. Do you think they actually believe any of this nonsense? I would have assumed the rehearsed political phrasing is just the public veneer over something to the effect of "and if I endorse this, X lobby group(s) will steer Y amount of PAC funding to my primary opponent and eat me alive".

conanbatt 7y ago

> Why do we need a private business to develop drugs at a 40%-1000%+[1] margin when the taxpayer could do it at nearly 0% margin? Why not apply this principle to everything else? Food, software, etc.