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Why would insulin be a natural monopoly? It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not su
by HarryHirsch 6y ago
Why would insulin be a natural monopoly?
It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic.
That's common to all commodity medical supplies. Remember the IV saline shortage after Hurricane Maria took out the manufacturers on Puerto Rico? That doesn't need FDA approval (the facility does need inspection though), but you don't spin up a sterile bulk manufacturing facility in 6 months because of upfront costs that will take an eternity to recover.
You can only really make money in the US market
{{citation needed}}
You can fleece the US citizen only so much. Elizabeth Warren showed in 2004 how stretched he is, and it has only gotten worse since. The rest of the world may pay less but it's bigger. Also, when you can justify the cost to the public authorities it will be paid - note that a course of glecaprevir/pibrentasvir Hep C protease inhibitor is 26 kUSD in the US and a comparable 27 kGBP in Britain. A heap of money, but beats the liver transplant, both in cost and quality of life.
The bigger threat to pharma is the poor return on investment. Information technology pays off faster and with lower risk. Goldman Sachs suggested the government step in, they are the only ones with big enough pockets. The suggestion is sound.
- BurningFrog 6y ago> It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic. That's precisely what I'm saying! If we agree on the facts, our difference seems to be that I don't consider FDA regulations "natural". They can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin.
- HarryHirsch 6y agoThey can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin. That's just nonsense. The other highly inelastic market is oil, there are massive price excursions when supply and demand are not matched. Have you seen what happened when oil demand dropped this spring? Prices completely fell off a cliff! Demand will not increase just because new capacity enters the market, instead prices will drop to make everyone unprofitable, including the new entrant, who will never be able to recover the initial investment.
- BurningFrog 6y agoIt sounds like we agree that prices would fall. Since the problem we're talking about is the very high prizes for insulin etc in the US, does that mean we agree this would be a solution for that problem?
- HarryHirsch 6y agoNo. You'd see volatility and a price drop until someone goes bankrupt, and then the system is back where it was before. Good luck finding an investor for that. Why the market fetishism? The state of affairs needs price controls. Prices do drop with innovation. Consider the praziquantel story. The compound was discovered in the early 1970s by a Bayer-Merck joint venture as part of a discovery effort for tranquilizers. It wasn't psychoactive but very efficaceous against flatworms (schistosoma and tapeworm) and then promptly shelved because of its high price, the synthetic route was complicated. South Korea had a schistosoma problem at that time and couldn't pay Bayer for the compound or patent license, in the early 1970s Korea was still a threshold country, so at first they pirated it and then, because the original isoquinoline route required expensive starting materials the Koreans developed their own route. The glycine route made it possible to produce it cheaply for their own people and also opened up the worldwide veterinary market. This was actually the foundation for the Korean chemical industry. The market works. It's well understood, just it works not in the way you think.
- BurningFrog 6y agoI strongly disagree with your view of how markets and prices work, but I think we've have to agree to disagree here. Thanks for the chat!