3 ms·

I hear this argument all the time but are there any drugs that are only profitable due to the price gouging going on in the US? Because it seems to me that the

I hear this argument all the time but are there any drugs that are only profitable due to the price gouging going on in the US? Because it seems to me that the price difference is so large, sometimes by a factor of 10 or more, that it doesn’t seem worth it to bother going through the approval process in any other country and yet pharmaceutical companies do so. So the NPV must be positive even when the price is lower. I also think if there were drugs that only exist because of high US drug prices that we would hear about them. Proponents of the exorbitant prices would be yelling from the rooftops about some specific miracle compound that was only possible to develop because of their tireless work at finding new and exiting ways to price gouge. Instead all I hear are these hand wavy arguments about research costs and whatnot. Where’s the beef?

mdorazio 5y ago
You can do this math yourself. The average drug costs about $1.3B to develop [1]. What's the profit margin per dose in your country of choice, times the number of expected doses before the patent runs out? I can pretty much guarantee the total of that is nowhere near [1], let alone high enough to satisfy shareholder expectations. The unfortunate truth is that drugs are expensive to develop, and the US market subsidizes them for the rest of the world. [1] https://www.biopharmadive.com/news/new-drug-cost-research-development-market-jama-study/573381/ https://www.biopharmadive.com/news/new-drug-cost-research-de...
- CoolGuySteve 5y ago
  Well conveniently there are 1.3 billion people in the OECD countries. A $1 per person tax burden for each new drug sounds downright reasonable.
- mdorazio 5y ago
  Replying to myself since apparently people don't like financial facts. If you read Pfizer's 10-K for 2019 (chosen for pre-pandemic numbers), the US accounted for 45% of their gross revenue compared to Western Europe's ~15%. If you discounted the US down to a similar per-person revenue level as Europe, the company would fluctuate between profitability and non-profitability quarter to quarter. I genuinely don't know what people want here - drugs aren't magically summoned into existence for free. If you want new drugs, someone has to cover the cost and the prices that the non-US world pays aren't nearly high enough to do that. You could lower the prices for Americans, but only if you simultaneously increase the prices for everyone else, too.
hansvm 5y ago
> Because it seems to me that the price difference is so large, sometimes by a factor of 10 or more The approval process is O(1%) of the total cost of development. > I also think if there were drugs that only exist because of high US drug prices that we would hear about them Maybe. I've grown wary of reading too much into the relative popularity of different phrases and arguments; it turns out people are complicated and prone to prioritizing points you might not care about, and even when those arguments are being made they often get lost in the noise of 8B other people. Humira probably isn't a bad example in any case (though without being inside a company it's hard to know for sure since you don't know if, e.g., they would have prioritized international approvals and sales if the US market couldn't be lucrative). Total international sales only eclipsed total R&D in the last few years, despite the drug having been around for a couple decades. I personally think the current level of price gouging for Humira in the US is excessive, but AbbVie would also have had to take a loss on it for nearly 20yrs without some level of price gouging somewhere.

mdorazio 5y ago

You can do this math yourself. The average drug costs about $1.3B to develop [1]. What's the profit margin per dose in your country of choice, times the number of expected doses before the patent runs out? I can pretty much guarantee the total of that is nowhere near [1], let alone high enough to satisfy shareholder expectations. The unfortunate truth is that drugs are expensive to develop, and the US market subsidizes them for the rest of the world. [1] https://www.biopharmadive.com/news/new-drug-cost-research-development-market-jama-study/573381/ https://www.biopharmadive.com/news/new-drug-cost-research-de...

CoolGuySteve 5y ago
Well conveniently there are 1.3 billion people in the OECD countries. A $1 per person tax burden for each new drug sounds downright reasonable.
mdorazio 5y ago
Replying to myself since apparently people don't like financial facts. If you read Pfizer's 10-K for 2019 (chosen for pre-pandemic numbers), the US accounted for 45% of their gross revenue compared to Western Europe's ~15%. If you discounted the US down to a similar per-person revenue level as Europe, the company would fluctuate between profitability and non-profitability quarter to quarter. I genuinely don't know what people want here - drugs aren't magically summoned into existence for free. If you want new drugs, someone has to cover the cost and the prices that the non-US world pays aren't nearly high enough to do that. You could lower the prices for Americans, but only if you simultaneously increase the prices for everyone else, too.

hansvm 5y ago

> Because it seems to me that the price difference is so large, sometimes by a factor of 10 or more The approval process is O(1%) of the total cost of development. > I also think if there were drugs that only exist because of high US drug prices that we would hear about them Maybe. I've grown wary of reading too much into the relative popularity of different phrases and arguments; it turns out people are complicated and prone to prioritizing points you might not care about, and even when those arguments are being made they often get lost in the noise of 8B other people. Humira probably isn't a bad example in any case (though without being inside a company it's hard to know for sure since you don't know if, e.g., they would have prioritized international approvals and sales if the US market couldn't be lucrative). Total international sales only eclipsed total R&D in the last few years, despite the drug having been around for a couple decades. I personally think the current level of price gouging for Humira in the US is excessive, but AbbVie would also have had to take a loss on it for nearly 20yrs without some level of price gouging somewhere.