9 ms·

Classic case of value-based pricing rather than cost-based pricing. From that perspective they've priced it quite competitively. But when their costs to manuf

Classic case of value-based pricing rather than cost-based pricing. From that perspective they've priced it quite competitively. But when their costs to manufacture are small and the process by which they develop drugs is so byzantine and opaque it's easy to see how people could get outraged. I wonder how long before someone gets the bright idea to claim eminent domain on drug (or other) patents for the sake of medicare. Pay the drug company back R&D, maybe 2x R&D and then let people start making generics. I'm not sure it's a good idea because it might well reduce investment in new drugs (developing drugs is like VC, you fail a lot and occasionally hit it out of the park) and that would be a bummer. But I could see it happening.

_delirium 12y ago
Since patents are entirely created by statute, if the government wanted to do that, wouldn't it be easier just to write in an exception to the law, e.g. giving Medicare usage of medical patents at a fixed-by-law royalty rate? The federal government trying to take back with eminent domain what it created itself seems pretty roundabout.
- refurb 12y ago
  The gov't kind of already does that for Medicaid. Manufacturers have to offer a 23.1% discount, plus further discounts if prices rise faster than inflation. That's why some drugs have "penny pricing", basically Medicaid pays $0.01 for each unit of drug because of the mandatory discounts.
- runeks 12y ago
  Exactly. It is the government that hands out the patent in the first place. If we, as a society, don't wish to pay $1000 per pill, we can simply have our governments instate a precondition in granting a patent for a drug, that the government has the right to set a maximum price. Now, the interesting question is: if this were the case -- if acquiring a patent on a drug means that you agree to the government setting a maximum price -- would this drug have ever been developed in the first place?
EpicEng 12y ago
This ignored the fact that the company which develops a successful drug is also developing drugs which will fail. That costs money too, and the successes have to cover the failures. That said... pharma companies are pretty greedy entities. I know a certain ex-pharma rep closely and she's no fan of her former employers. I can dislike the greed, but I can't blame a company for trying to make a profit.
- markdown 12y ago
  > I can't blame a company for trying to make a profit. 10% is a profit. 50% is a profit. Heck even 100% is an understandable profit. You can and should blame them for screwing humanity over and above what is reasonable.
  - viggity 12y ago
    No. What screws humanity over is a system where nobody is incentivized to producing new drugs. If it is so effin' easy, you do it. Go ahead. Raise the hundreds of millions of dollars and promise your investors "you know, we're only going to make twice your money back". Its not that simple. I'd rather have the option and have it be expensive as hell than not having the option at all.
    - anon1385 12y ago
      Research doesn't have to be funded by investors looking for a profit. Lots of medical research is funded by governments and non-profit organisations. For some diseases that is where the vast majority of funding research comes from.
  - msandford 12y ago
    My dad has worked on pacemakers, defibrillators, left ventricular assist pumps, all kinds of implantables. In this industry they regularly mark up their manufacturing costs 10x-20x because it takes minimum 5-10 years to get something through the FDA. Even if your design is 100% perfect the first time (which they never are). So a $5mm R&D project turns into a $50mm slog through approval and then you get to sell, what a few tends of thousands of units? Let's just say that you could somehow magically sell 50k units. That means you've got to charge $10k per unit just to cover the engineering & approval and stuff and that's before a DIME of profit. So a pacemaker costs $20k not because it's got $15k of raw materials inside of it but because the FDA says that it has to get approved and approval isn't cheap. I'm sure drugs are the same way. It might cost only a few dollars to actually manufacture the ingredients in a pill but the R&D necessary to know WHAT ingredients might have cost $100mm. So even if you sell a million of them they've got to cost $100 each before you take anything else into account. I am not suggesting that it would be OK for the government to basically just take the patents. But it also wouldn't surprise me if they did.
tzs 12y ago
> I wonder how long before someone gets the bright idea to claim eminent domain on drug (or other) patents for the sake of medicare Before doing anything that radical, why not repeal the ban on Medicare negotiating drug prices? The "Medicare Prescription Drug, Improvement and Modernization Act" of 2003, which created the medicare prescription drug program, explicitly prevents Medicare from negotiating prices with the drug companies. The drug companies and the insurance companies decide the prices, and Medicare is stuck with that. This is one of the big reasons Medicare pays a lot more for drugs than the VA does--the VA directly negotiates with the drug companies the prices it pays. There have been attempts to fix this. The House passed a bill in 2007 to do this, but Senate Republicans were able to stop it there. 6 Republicans joined Democrats in supporting it, but that was not enough to get the 60 votes needed to end debate, and the Republicans were ready to filibuster it if necessary. (They really hated it. Senator Cornyn of Texas said it was "a step down the road to a single-payer, government-run health care system"). President Bush promised a veto. President Obama made repealing the ban on negotiation one of the key points of his campaign for 2008, but had to drop it from the ACA to get drug makers on board, and since then there has been no chance of getting such a thing past the Republican House.
- gradstudent 12y ago
  > (They really hated it. Senator Cornyn of Texas said it was "a step down the road to a single-payer, government-run health care system"). President Bush promised a veto. I don't understand why Republicans have such a raging hard-on against universal healthcare. Pretty much every country that has implemented such a program agrees it is a Good Thing and worth funding through new taxes.
  - markdown 12y ago
    > I don't understand why... If American politicians sported their sponsors logos like nascar drivers do, things would become much clearer.
    - tptacek 12y ago
      The health care industry contributes substantially to both parties, even though the Democratic party supports single-payer. They contributed more to the GOP in the 2000s, but the GOP controlled the government for most of that time and held the presidency. Starting in 2008, health care resumed contributing more to the Democrats, as they did at the start of the Clinton administration. The idea that politicians assume public policy positions because they're captured by donors is sometimes true, but it's incorrect as often as not.
qq66 12y ago
I guess you're only planning on seizing successful R&D through eminent domain? If so, I think most people would use a stronger word than "bummer" to describe the consequently reduced R&D investment. Pharmaceuticals are a major component of the difference between healthcare today and healthcare in 1750.
- msandford 12y ago
  I'm not planning on it. I explicitly talk about the tradeoffs. I'm more speculating on what happens in politics which is "we do whatever we feel like and make up reasons why it's OK and legal" Which is more valuable: a definite life saved today or a potential life saved in the future? This is the constant struggle of everyone involved in economics. We never know the counter-factuals. Perhaps some drug company is on the verge of an HIV vaccine but because of the eminent domain seizure they stop the program and we get a hep-C cure but lose an HIV cure. That'a a "bummer" or "travesty" or "moral outrage" or whatever you want to call it.
belorn 12y ago
Should the state create incentives for future drugs tomorrow, or enable generic drugs that allow poor people to survive today. Its a moral question, with fairly easy statements: Deny cheaper drugs, and some people die today which could be saved. Allow cheaper drugs, and less future investments might happen outside state sponsored research. Over 30 Billion Dollars, about 1/3 of all biomedical research funding in the US is paid from tax money. The 2/3 that is left is divided between non-profit, hospitals, and drug companies. The one asking the state to grant patents is the drug companies, which is where the VC part kicks in. It is worth talking about if this is a good idea. The sacrifice need to be talked about, openly, and admitted. It would be good to see research that show how the world would look like if that part of the 2/3 which is paid from drug companies would shrink. Maybe ask, experiment and test what happens if the incentive model could use other incentives than state granted patents. Calculate how much wealth society would gain, and could be reinvested into research, if poor people with work debilitating sicknesses was allowed to buy generic and get treated.
- jimbokun 12y ago
  Probably be cheaper in the long run for the U.S. government to pay all $90B (according to your figure) for all drug research, end drug patents, and non-exclusively license the resulting drug research at a nominal fee to manufacturers.
wisty 12y ago
Australia solved this. It's called the PBS. Basically, an independent board of experts does a cost-benefit analysis on new drugs (note - they don't call it cost-benefit, but whatever). If the drugs are "worth it", then the Australian government massively subsidises them. If they aren't "worth it", then people can still get them, but they cost more. Insurance companies rarely pay for them. Patients can pay for them, but they'll usually find an alternative. Pharma companies then set their prices to a reasonable level. Effectively, you have a monopoly buyer (the government) and a monopoly seller (the patent holder). This is, in theory, far superior to the situation where there's a monopoly seller and a huge number of buyers. Of course, the US is doing God's work, by overpaying for drugs. This effectively subsidises drug research, and allows all the more socialist countries to freeload.
- lafar6502 12y ago
  funny, how do you think it works in 'socialist' countries? Pharma companies together with the government are giving pills for free? No, there's a national health insurance - a monopoly that is supposed to make rational decisions (in theory), but somehow ends up stuffing big pharma with taxpayer money. Exactly like those damn capitalists in the US
  - danielweber 12y ago
    You obviously set up a strawman by saying that the pills "aren't free." Most countries use their ability to violate patents as a threat to squeeze drug companies down to a price that exceeds their costs on a marginal unit, but less than their costs on an average unit. It makes sense for the companies to go along because something is better than nothing and they still have the US paying full fare. The US cannot get in on this, too, without destroying the drug industry, which depends on revenue from the American customer base. Other systems are possible, but one should demonstrate their effectiveness before destroying the old system. So, yeah, like the grandparent said, the US is "unfairly" subsidizing the rest of the world. It would be nice if other countries shared the load, but the US can't force them.
    - 12y ago

_delirium 12y ago

Since patents are entirely created by statute, if the government wanted to do that, wouldn't it be easier just to write in an exception to the law, e.g. giving Medicare usage of medical patents at a fixed-by-law royalty rate? The federal government trying to take back with eminent domain what it created itself seems pretty roundabout.

refurb 12y ago
The gov't kind of already does that for Medicaid. Manufacturers have to offer a 23.1% discount, plus further discounts if prices rise faster than inflation. That's why some drugs have "penny pricing", basically Medicaid pays $0.01 for each unit of drug because of the mandatory discounts.
runeks 12y ago
Exactly. It is the government that hands out the patent in the first place. If we, as a society, don't wish to pay $1000 per pill, we can simply have our governments instate a precondition in granting a patent for a drug, that the government has the right to set a maximum price. Now, the interesting question is: if this were the case -- if acquiring a patent on a drug means that you agree to the government setting a maximum price -- would this drug have ever been developed in the first place?

EpicEng 12y ago

This ignored the fact that the company which develops a successful drug is also developing drugs which will fail. That costs money too, and the successes have to cover the failures. That said... pharma companies are pretty greedy entities. I know a certain ex-pharma rep closely and she's no fan of her former employers. I can dislike the greed, but I can't blame a company for trying to make a profit.

markdown 12y ago
> I can't blame a company for trying to make a profit. 10% is a profit. 50% is a profit. Heck even 100% is an understandable profit. You can and should blame them for screwing humanity over and above what is reasonable.
- viggity 12y ago
  No. What screws humanity over is a system where nobody is incentivized to producing new drugs. If it is so effin' easy, you do it. Go ahead. Raise the hundreds of millions of dollars and promise your investors "you know, we're only going to make twice your money back". Its not that simple. I'd rather have the option and have it be expensive as hell than not having the option at all.
  - anon1385 12y ago
    Research doesn't have to be funded by investors looking for a profit. Lots of medical research is funded by governments and non-profit organisations. For some diseases that is where the vast majority of funding research comes from.
- msandford 12y ago
  My dad has worked on pacemakers, defibrillators, left ventricular assist pumps, all kinds of implantables. In this industry they regularly mark up their manufacturing costs 10x-20x because it takes minimum 5-10 years to get something through the FDA. Even if your design is 100% perfect the first time (which they never are). So a $5mm R&D project turns into a $50mm slog through approval and then you get to sell, what a few tends of thousands of units? Let's just say that you could somehow magically sell 50k units. That means you've got to charge $10k per unit just to cover the engineering & approval and stuff and that's before a DIME of profit. So a pacemaker costs $20k not because it's got $15k of raw materials inside of it but because the FDA says that it has to get approved and approval isn't cheap. I'm sure drugs are the same way. It might cost only a few dollars to actually manufacture the ingredients in a pill but the R&D necessary to know WHAT ingredients might have cost $100mm. So even if you sell a million of them they've got to cost $100 each before you take anything else into account. I am not suggesting that it would be OK for the government to basically just take the patents. But it also wouldn't surprise me if they did.

tzs 12y ago

> I wonder how long before someone gets the bright idea to claim eminent domain on drug (or other) patents for the sake of medicare Before doing anything that radical, why not repeal the ban on Medicare negotiating drug prices? The "Medicare Prescription Drug, Improvement and Modernization Act" of 2003, which created the medicare prescription drug program, explicitly prevents Medicare from negotiating prices with the drug companies. The drug companies and the insurance companies decide the prices, and Medicare is stuck with that. This is one of the big reasons Medicare pays a lot more for drugs than the VA does--the VA directly negotiates with the drug companies the prices it pays. There have been attempts to fix this. The House passed a bill in 2007 to do this, but Senate Republicans were able to stop it there. 6 Republicans joined Democrats in supporting it, but that was not enough to get the 60 votes needed to end debate, and the Republicans were ready to filibuster it if necessary. (They really hated it. Senator Cornyn of Texas said it was "a step down the road to a single-payer, government-run health care system"). President Bush promised a veto. President Obama made repealing the ban on negotiation one of the key points of his campaign for 2008, but had to drop it from the ACA to get drug makers on board, and since then there has been no chance of getting such a thing past the Republican House.

gradstudent 12y ago
> (They really hated it. Senator Cornyn of Texas said it was "a step down the road to a single-payer, government-run health care system"). President Bush promised a veto. I don't understand why Republicans have such a raging hard-on against universal healthcare. Pretty much every country that has implemented such a program agrees it is a Good Thing and worth funding through new taxes.
- markdown 12y ago
  > I don't understand why... If American politicians sported their sponsors logos like nascar drivers do, things would become much clearer.
  - tptacek 12y ago
    The health care industry contributes substantially to both parties, even though the Democratic party supports single-payer. They contributed more to the GOP in the 2000s, but the GOP controlled the government for most of that time and held the presidency. Starting in 2008, health care resumed contributing more to the Democrats, as they did at the start of the Clinton administration. The idea that politicians assume public policy positions because they're captured by donors is sometimes true, but it's incorrect as often as not.

qq66 12y ago

I guess you're only planning on seizing successful R&D through eminent domain? If so, I think most people would use a stronger word than "bummer" to describe the consequently reduced R&D investment. Pharmaceuticals are a major component of the difference between healthcare today and healthcare in 1750.

msandford 12y ago
I'm not planning on it. I explicitly talk about the tradeoffs. I'm more speculating on what happens in politics which is "we do whatever we feel like and make up reasons why it's OK and legal" Which is more valuable: a definite life saved today or a potential life saved in the future? This is the constant struggle of everyone involved in economics. We never know the counter-factuals. Perhaps some drug company is on the verge of an HIV vaccine but because of the eminent domain seizure they stop the program and we get a hep-C cure but lose an HIV cure. That'a a "bummer" or "travesty" or "moral outrage" or whatever you want to call it.

belorn 12y ago

Should the state create incentives for future drugs tomorrow, or enable generic drugs that allow poor people to survive today. Its a moral question, with fairly easy statements: Deny cheaper drugs, and some people die today which could be saved. Allow cheaper drugs, and less future investments might happen outside state sponsored research. Over 30 Billion Dollars, about 1/3 of all biomedical research funding in the US is paid from tax money. The 2/3 that is left is divided between non-profit, hospitals, and drug companies. The one asking the state to grant patents is the drug companies, which is where the VC part kicks in. It is worth talking about if this is a good idea. The sacrifice need to be talked about, openly, and admitted. It would be good to see research that show how the world would look like if that part of the 2/3 which is paid from drug companies would shrink. Maybe ask, experiment and test what happens if the incentive model could use other incentives than state granted patents. Calculate how much wealth society would gain, and could be reinvested into research, if poor people with work debilitating sicknesses was allowed to buy generic and get treated.

jimbokun 12y ago
Probably be cheaper in the long run for the U.S. government to pay all $90B (according to your figure) for all drug research, end drug patents, and non-exclusively license the resulting drug research at a nominal fee to manufacturers.

wisty 12y ago

Australia solved this. It's called the PBS. Basically, an independent board of experts does a cost-benefit analysis on new drugs (note - they don't call it cost-benefit, but whatever). If the drugs are "worth it", then the Australian government massively subsidises them. If they aren't "worth it", then people can still get them, but they cost more. Insurance companies rarely pay for them. Patients can pay for them, but they'll usually find an alternative. Pharma companies then set their prices to a reasonable level. Effectively, you have a monopoly buyer (the government) and a monopoly seller (the patent holder). This is, in theory, far superior to the situation where there's a monopoly seller and a huge number of buyers. Of course, the US is doing God's work, by overpaying for drugs. This effectively subsidises drug research, and allows all the more socialist countries to freeload.

lafar6502 12y ago
funny, how do you think it works in 'socialist' countries? Pharma companies together with the government are giving pills for free? No, there's a national health insurance - a monopoly that is supposed to make rational decisions (in theory), but somehow ends up stuffing big pharma with taxpayer money. Exactly like those damn capitalists in the US
- danielweber 12y ago
  You obviously set up a strawman by saying that the pills "aren't free." Most countries use their ability to violate patents as a threat to squeeze drug companies down to a price that exceeds their costs on a marginal unit, but less than their costs on an average unit. It makes sense for the companies to go along because something is better than nothing and they still have the US paying full fare. The US cannot get in on this, too, without destroying the drug industry, which depends on revenue from the American customer base. Other systems are possible, but one should demonstrate their effectiveness before destroying the old system. So, yeah, like the grandparent said, the US is "unfairly" subsidizing the rest of the world. It would be nice if other countries shared the load, but the US can't force them.
  - 12y ago