
How expensive do prescription drugs need to be to fund research? - okfine
https://www.theatlantic.com/health/archive/2019/03/drug-prices-high-cost-research-and-development/585253/
======
entee
This is such a complicated issue, I'd highly recommend the following as a
primer:

[https://www.forbes.com/sites/matthewherper/2015/10/13/four-r...](https://www.forbes.com/sites/matthewherper/2015/10/13/four-
reasons-drugs-are-expensive-of-which-two-are-false)

Also Derek Lowe is invariably awesome in this space, one highlight:

[https://blogs.sciencemag.org/pipeline/archives/2019/02/05/ta...](https://blogs.sciencemag.org/pipeline/archives/2019/02/05/targets-
versus-drugs)

Drugs occasionally need to be expensive, particularly on-patent drugs, to make
the endeavor worthwhile. That said, it's a two-way street. Making drugs
insanely expensive (as has been happening more recently) is breaking the
implicit trust that those in the medical field must work hard to maintain.
Traditionally pharma was careful not to abuse the inherent "your money or your
life" dynamic, it seems these days that is breaking down. It's sad because for
very powerful drugs (i.e. gene therapy treatments) the cost is actually quite
high to even make the drug (I've heard quotes in the 100's of K even in the
1-2 M), which means the treatment has to be expensive. That said we need to
work hard to bring that down, and there's absolutely no place for the kinds of
shenanigans going on with insulin among others:

[https://www.nytimes.com/2019/01/18/opinion/cost-insurance-
di...](https://www.nytimes.com/2019/01/18/opinion/cost-insurance-diabetes-
insulin.html)

With abusive practices like this, how can you ask patients to trust you when
you say, "yes but this time I actually need it to be this high"?

~~~
bradleyjg
> "your money or your life"

> (I've heard quotes in the 100's of K even in the 1-2 M)

The thing is that no one+ has that kind of money. So it ends being your money
or _his_ life, over and over again. This has long since moved from the space
of individual decision making to public policy. But we in the United States
refuse to face up to that. We like to pretend that the doctor and patient
should be the only ones that have any say in deciding what to do and if anyone
outside that room balks at the price tag, no matter how high, they are an evil
insurance company or government bureaucrat that doesn't care about human life
or something. That's naive and silly. Spending $1 million of public or
collective funds on a single individual isn't something that should be done
automatically or that we should do out of a sense of guilt.

+Okay a few, but not enough to make a market.

~~~
DennisP
That's what insurance is _for_. When you buy insurance you're making an
agreement to socialize risk, so you're never faced with a $1M bill to save
your life.

~~~
bradleyjg
Health insurance, despite the name, isn’t insurance.

Insurance is paying small sums, at EV negative cost, to mitigate the risk from
a rare but very expensive cost.

Health insurance isn’t underwritten and pays out for routine expenses. It
isn’t insurance.

~~~
rejschaap
I think you are trying to say it is _more_ than an insurance, because it
_also_ pays out for routine expenses?

~~~
bradleyjg
No, it’s not a strict superset because of the underwriting issue.

~~~
DennisP
Even without underwriting it's still insurance, which is "a practice or
arrangement by which a company or government agency provides a guarantee of
compensation for specified loss, damage, illness, or death in return for
payment of a premium" according to Google's dictionary.

~~~
bradleyjg
If there was a soup kitchen that charged something, maybe on a sliding scale,
but not nearly enough to cover costs, it would meat the dictionary definition
of a "restaurant". Calling it that would nonetheless be misleading.

~~~
DennisP
Yes but in this case, virtually everyone agrees with the precise dictionary
definition of insurance and uses it in daily conversation all the time. Very
few would agree with you that health insurance without underwriting should not
be called insurance. Political discourse, everyday conversation, and the law
itself still call it insurance.

(And while I don't think you meant the comparison this literally, I'll point
out that health insurance companies do cover their costs. In fact, they're
generally quite profitable.)

------
Nf508
Interestingly in the case of the the Abiraterone example used in the article,
none of the R&D was even done by JNJ. The original work was done at The
Institute of Cancer Research, an academic/charity drug discovery institute.
JNJ actually only market this drug because of acquisitions rather than R&D
efforts. Which is the way that a lot of pharma is going these days, letting
smaller biotechs take the high risk of developing a therapeutic and buying
them up before FDA/EMA approval.

~~~
RHSeeger
I don't buy that argument. It's like saying I should sell something I bought
at the store for free, because I didn't pay the cost to make it directly
(someone else did, and I paid them).

The research had to be done, and JNJ bought the company that did it. The price
they had to pay was impacted by the cost of the research.

~~~
pbhjpbhj
But if the product you're selling in your store was made using charity? Or
gifted you by the government? then high prices couldn't be justified by R&D
costs.

~~~
RHSeeger
True, but remember that you're not just paying for the research cost of Drug_X
when you price Drug_X. You're also paying for all the research that failed,
that didn't produce a useful drug. If you spend 100 million researching 100
drugs, and one of them produces something you can sell, you don't need to make
back 1 million when selling that drug. You need to make back 100 million, plus
a profit.

~~~
lasereyes136
This is patently false. Without regulation, all goods are priced by what the
market will bear. It might be true that if successful drug doesn't make enough
to cover the cost of failed drugs the company will go out of business but that
has nothing to do with pricing.

The problem is that without competition drug companies can keep raising the
price as long as enough people will buy it at the new price so that they make
more money than all of the people buying it at the old price. That is why
really old drugs that have been around for a long time have their prices
increase. Not because there was some new research but because the lack of
alternatives means they can just do it.

------
apo
Patent expirations don't factor into this article very much, but there's this:

 _The simple explanation for excessive drug prices is monopoly pricing.
Through patent protection and FDA marketing exclusivity, the U.S. government
grants pharmaceutical companies a monopoly on brand-name drugs. But monopolies
are a recipe for excessive prices. A company will raise prices until its
profits start to drop._

That monopoly is very fleeting.

By the time a drug makes it to market, it's typically been about ten years
since the patent was issued. That gives a drug company about 8 or so years of
exclusivity before any other drug maker can produce the drug without
infringement.

~~~
refurb
Indeed. Companies have a limited time to recoup costs. Once the patent runs
out, that $10,000 drug turns into a $500 drug. Forever. That benefit can't be
ignored.

~~~
brixon
There are many ways to extend the patent or the effect of the patent:
[https://www.upcounsel.com/how-long-does-a-drug-patent-
last](https://www.upcounsel.com/how-long-does-a-drug-patent-last)

~~~
refurb
There are and some of them are an abuse of the system. However, most drugs
pretty quietly go generic.

A good example is Lipitor. For Pfizer it brought in over $11B per year in
revenue. Cost was around $150 per month. You can now get a month’s supply for
$5.94 according to GoodRx. That’s a 96% reduction in the cost.

------
rossdavidh
The answer will always be, "more expensive than they are now". It's not like
there will ever be a point at which more money, if available, could not in any
way be used for some kind of drug research that might be useful. It's like
saying "how much money do you need in order to keep from ever dying?" There
will always be health problems, and there will always be some at least semi-
plausible way in which we could spend money to try to research a way to at
least ameliorate the condition.

So, this doesn't mean we shouldn't spend some money, or even a lot. But, it
will never be enough, so at some point we will have to say, "we could spend
more, and it might give us a little more life, but let's not."

I don't think we're remotely ready for that conversation.

~~~
supertrope
[https://www.nytimes.com/2009/07/19/magazine/19healthcare-t.h...](https://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html)

"Why We Must Ration Health Care" by Peter Singer. New York Times Opinion
Section.

Unfortunately this is a very difficult conversation to have between people and
their physicians, between family members, and with ourselves. It ties into
another very difficult discussion of facing death. In a democracy the lowest
common denominator argument wins out with catchy slogans, in-group signaling,
burying uncomfortable facts, avoiding short term sacrifice, and/or wielding
anecdotes instead of rational analysis. Thus the rationing happens when it is
least effective - during a crisis when significant human, monetary, and time
resources are drained. And not much earlier when some planning and hard work
could greatly ease the burden.

~~~
refurb
When people always ask "how come healthcare is so much more affordable in
countries outside the US?", the correct answer is rationing.

If you need joint replacement surgery in Canada, you can expect a wait of many
months to years. Canada has made the call that they will put a certain dollar
amount into joint replacement and if the demand is higher, then people will
just have to wait.

Same thing with the latest and greatest drugs. Some countries just say "no".

If you want an affordable healthcare system in the US, then rationing has to
be a part of the equation. As others have pointed out, we already ration in
the US, but trustfully, if you have good insurance, you'll get very good care
in the US. The question is whether all that extra care is actually producing
better outcomes.

~~~
nine_k
Rationing also makes some outcomes summarily worse.

If you have a relatively minor problem, you're put in a line. For months (or
years) of waiting, your problem becomes worse, and when you finally get to be
treated, the treatment is much costlier and less effective.

This is to say nothing about your actual suffering from the problem, and from
knowing that it's deliberately not being treated.

~~~
thatoneuser
Joint replacement waiting a few months likely won't cause that much harm. I
mean it can but it's statistical probably justified. And in fact it's
guaranteed that these systems are trying to balance that.

------
samcday
If you’re going to rip sick people off to pad your bottom line and reward your
executives and shareholders, at least have the courage to be upfront about it.

It’s weird to say this, but maybe the world needs more Martin Shkreli’s. That
way there’s no room to doubt the motivations of virtually all large drug
companies (at least in the US).

------
thewhitetulip
I saw a show earlier this week, an insulin shot costs 2$ in rest of the world
and 100+$ in the US.

Isn't this loot?

~~~
vonmoltke
> I saw a show earlier this week, an insulin shot costs 2$ in rest of the
> world and 100+$ in the US.

"Insulin" is not a singular thing. For various reasons, lower-cost insulins
are difficult to impossible to find in the US, which is a problem.

Also, _some_ insulins are $2/dose in _some parts of the world_. Most insulins
in the developed world are significantly more expensive than that (to whomever
is paying for it), though still significantly less than what they cost in the
US.

~~~
thewhitetulip
Yes, US users pay a lot for insulin. Price has shot up from single digit
dollar to 3 digit from 70s to today

------
ArtWomb
It's the ultimate prediction problem. And short term, computational bio
methods are driving R&D costs up, not down. But arguably, techniques like
DeepFold constitute current best hope

[https://moalquraishi.wordpress.com/2018/12/09/alphafold-
casp...](https://moalquraishi.wordpress.com/2018/12/09/alphafold-casp13-what-
just-happened/)

~~~
Amygaz
Garbage in / garbage out. You can’t get away from reliable and predictable
data. At that part is shockingly lacking. We have much better, sensitive and
high-though put methods these days, but we are still relying on mice or cell
culture data. We should be using ML to find what’s dissonance and missing
links in the data, not to predict what will work.

------
Causality1
However expensive it is, it should cost the same in all markets globally,
whether it's being purchased by a patient in cash, by an NGO, by a state
Healthcare system, or by an insurance company. I'm tired of paying a five
hundred percent markup to subsidize markets thousands of miles away.

~~~
scarejunba
You're not subsidizing the markets far away. Price discrimination isn't
subsidizing. The supplier is just able to extract the maximum price from each
market.

~~~
nybble41
> The supplier is just able to extract the maximum price from each market.

And they are able to do that because laws have been passed in their favor to
legally bar other people from simply importing the exact same products from
other markets where they are sold at much lower prices.

Price discrimination isn't subsidizing, per se, but the _scope_ for price
discrimination is very limited in the absence of government support due to
arbitrage. Governments interfering in the market to enable price
discrimination is very much a form of subsidy, even if the money isn't passing
through the government on its way to the supplier.

~~~
scarejunba
I think I agree with this entirely.

------
ianai
If the government is willing to dole out research loans at appropriate terms
all medication can be profitable.

------
jorblumesea
Why is it expected that private industry the only funder of research? Isn't
that something that governments should have a stake in and also fund basic
scientific research in?

That's like saying, how expensive does an iphone need to be to fund material
science research?

~~~
barry-cotter
No one expects private industry to fund all research and they don’t.
Governments fund a lot of basic and applied research, in pharmaceuticals and
many other domains. What they don’t really find is drug development, taking a
drug from the “This looks good” stage through animal models, safety testing
and efficacy testing.

------
scotty79
When the question is stated like that it becomes really questionable whether
cost of drugs should have anything to do with drug research cost.

Those two things look like they should be completely separate, done by
separate entities with separate funding.

~~~
Brakenshire
I think the reason you want them connected is the ability to channel private
capital towards achieving medical progress.

If there is a disease which costs the general population tens of billions of
dollars a year, either in providing healthcare or in an inability to carry on
a normal life, work, look after yourself and so on, then there is an inherent
and huge pot of money which can go to solving the problem. If you sever the
connection, you rely solely on funding achieved through political processes.
Which given the level of expensive failure inherent to the process, tabloid
campaigns, lack of public understanding, and short termism from politicians,
does not seem like something we should rely on.

For instance, can you imagine what the reaction would have been if the
hundreds of millions spent on alpha-beta clearance for Alzheimers had been
spent by public bodies? Future funding would depend on a battle waged on
twitter, opinion pages and talk radio.

~~~
PeterisP
Furthermore, you could pretty much forget about funding for
socially/politically unpopular diseases - I can certainly imagine some voters
rabidly requesting their representatives that HIV drugs shouldn't be funded at
all because God's punishment should be allowed to take its course.

------
nradov
This article fails to mention the Quality Adjusted Life Year (QALY) concept.
In theory we ought to set maximum prices that third-party payers (governments
and private insurance) would pay for drugs based on how many years the drug
would add to the patient's life and how much it would improve the patient's
quality of life. Setting that maximum insured price would allow the free
market to work through price signals and encourage drug companies to focus
their research on areas most likely to deliver real benefits to public health.
The US federal government currently values a human life at something in the
range of $100K per year for regulatory purposes so that would give a starting
point.

Of course the notion of setting limits on drug prices is politically fraught
due to misguided concerns over "socialism", "big government", "death panels",
etc.

[https://en.wikipedia.org/wiki/Quality-
adjusted_life_year](https://en.wikipedia.org/wiki/Quality-adjusted_life_year)

------
pessimizer
They can be free (edit: or rather the patent burden can be eliminated), and we
can fund research in different ways.

Dean Baker has been banging on about this for years.

------
freen
How expensive do tolls have to be to fund roads?

------
darpa_escapee
How marketable do prescription drugs need to be to have their R&D funded?

~~~
berbec
I never understood the change in US law allowing direct-to-consumer
advertising of prescription-only medication. Doctors are told not to write
scripts to family, friends and themselves, so how the hell can I make an
informed decision about my cancer treatment using a 30 second infomercial?

~~~
stevenwoo
Doesn't this boil down to Citizens United - if corporations are allowed to use
money as they see fit because money is roughly equivalent to free speech then
all three branches of government are responding to the entities with the most
of it - in this case big pharma.

~~~
berbec
I am not making any reference to Citizens United. This started in the US in
1981 and there was FDA guidance issued in '85\. "The FDA said in 1985 that
drug makers could air ads, but they also had to follow rigid rules for
disclosing side effects and other information." [1]

1: [https://www.statnews.com/2015/12/11/untold-story-tvs-
first-p...](https://www.statnews.com/2015/12/11/untold-story-tvs-first-
prescription-drug-ad/)

------
freen
How much do governments care about health outcomes?

~~~
barry-cotter
Not that much. we could cut healthcare spending in half with very few
noticeable effects on outcomes.

[https://en.wikipedia.org/wiki/RAND_Health_Insurance_Experime...](https://en.wikipedia.org/wiki/RAND_Health_Insurance_Experime..).
An early paper with interim results from the RAND HIE concluded that health
insurance without coinsurance "leads to more people using services and to more
services per user," referring to both outpatient and inpatient services.[5]
Subsequent RAND HIE publications "rule[d] out all but a minimal influence,
favorable or adverse, of free care for the average participant"[6] but
determined that a "low income initially sick group assigned to the HMO... [had
a] greater risk of dying" than those assigned to fee-for-service (FFS)
care.[7] The experiment also demonstrated that cost sharing reduced
"appropriate or needed" medical care as well as "inappropriate or unnecessary"
medical care.
[https://en.wikipedia.org/wiki/Oregon_Medicaid_health_experim...](https://en.wikipedia.org/wiki/Oregon_Medicaid_health_experim..).
Approximately two years after the lottery, researchers found that Medicaid had
no statistically significant impact on physical health measures, but "it did
increase use of health care services, raise rates of diabetes detection and
management, lower rates of depression, and reduce financial strain."[4][5]

~~~
Amygaz
That Oregon study was too limited in scope, variables, population, and time.
It just wasn’t well done. Now if your goal is to decrease state spending
shorterm, then this is definitely a dumb move, and we didn’t even need that
“experiment”.

It’s about how you value your population and the type of society you are
trying to develop.

------
aaavl2821
This article raises important issues but it also cherry picks some findings
and makes some unsupported claims. I am not able to link / dig up sources for
all of the below, but I should probably do so at some point bc there is a lot
of incomplete and biased info out there (on all sides)

\- article claims that spending on meds is biggest source of overspending
compared to other developed countries. The article they link to only evaluates
a few specific cost areas and does not present sufficient evidence to support
the claim in the article. Under 10% of US healthcare spend is on rx drugs,
that's middle-of-the-pack compared to OECD. Biggest driver of us HC spend is
hospital and physician care (50% of spend). Also hospital spend has grown
faster than drug spend last few years.
[https://www.cdc.gov/nchs/fastats/health-
expenditures.htm](https://www.cdc.gov/nchs/fastats/health-expenditures.htm)

\- the study that analyzes cost of developing cancer drugs ignores cost of
failure. The article i think mentions that one study includes cost of failure
for cancer drugs but puts failure rate at 25%; I don't know what sample they
are looking at or how they define failure, but historically cancer drugs have
a less than 10% chance of getting approved from phase 1

\- the article says that most cost is "early" and cheap i.e. in phase 2
failure. It is true that 60%+ of phase 2 fail, but phase 2 failure is not
early or cheap. The article mentions the cost of running a phase 2 study but
ignores all the costs required to get to phase 2. It can cost $100-200M+ Just
to get to phase 2 and only 35-40% of drugs make it past that. Only mentioning
the cost of a phase 2, and not all the stuff that is before phase 2, is
misleading and makes me wonder whether the authors are biased. Phase 2 failure
is the biggest driver of cost of drug development. Paul et al 2010 nature rev
drug discovery

\- it criticizes the tufts studies bc the numbers are proprietary. That's fair
but just bc the dataset isn't public doesn't mean the results are wrong. The
studies the article mentions to "refute" the tufts data are even more flawed
than the tufts one (see above point about the cancer drug cost study that
ignores cost of failure).

\- mentions the tufts study includes "capitalized" costs. Even excluding those
costs, the cost of developing a drug is over $1B

\- mentions that companies only develop cancer drugs because they are most
profitable. But doesn't mention that developing drugs for almost any other
indication is not profitable. If developing drugs was really so cheap and
profitable, pharma would be developing a lot more drugs than it is

\- does not discuss the declining returns to pharma r&d, erooms law, and
pharmas use of the balance sheet to fund r&d in recent years because pharma
r&d is failing and they have to buy drugs from startups

\- ignores all r&d spend by non big pharma. Most drugs are developed by small
companies not pharma, but pharma buys the small companies before the drugs are
commercialized. So all the industry's profits accrue to big pharma but r&d
costs are spread out

To me, the fact that this article makes claims that either neglect nuance or
are unsupported by the articles they link to, that they criticize certain
articles that support high cost of r&d but do not criticize articles that show
low cost of r&d, and the use of either misleading, wrong or unexplained data
points makes me strongly think this is a biased article

------
kingkawn
Not at all if research is publicly funded for the public good

~~~
barry-cotter
The research part of R&D is publicly funded, the development part isn’t, and
it’s very, very expensive. On average about a billion dollars.

~~~
astazangasta
The idea that development is not publicly funded is a myth. Regulators define
every step, put in a good deal of the money, and do a lot of the organizing. A
lot of the rest is done in coordination with researchers at hospitals and
universities that are often publicly funded. As with most large industry
involved research efforts, the government and academia are heavily involved in
the effort. Only the profit is privatized. It has always been thus.

~~~
barry-cotter
If your model of the pharmaceutical industry were true they would have very,
very high profit margins. They don’t. Privatised profit and socialised losses
is a great way of making an individual profit but the pharmaceutical industry
is not politically connected enough to do that.

[https://www.forbes.com/sites/johnlamattina/2018/01/23/about-...](https://www.forbes.com/sites/johnlamattina/2018/01/23/about-
those-soaring-pharma-profits/)

> The average return on equity for key industries from 2014 – 2016 shows that
> biopharma’s profits stand at 16.2%, significantly lower than Computer
> Sciences (31.6%), Beverages (27.4%), Aerospace/Defense (23.0%), and Trucking
> (19.1%) while modestly higher than Software System/Applications (15.2%) and
> Healthcare Support Services (14.4%).

> Another measure, Internal Rate of Return (IRR) is even more telling. IRR
> calculates the sales/cash flows resulting from R&D investments, ties R&D and
> the returns it generates together, and is a more appropriate metric for
> biopharma productivity. Deloitte reports that the IRR for biopharma R&D has
> been steadily falling from 10.1% in 2010 to 3.2% in 2017. Even Wall Street
> hasn’t bought into the “pharma soaring profits” view. Since February 1,
> 2014, while the Dow has risen 63%, the stock prices of a number of major
> pharma companies have been muted with Pfizer and Bristol-Myers each growing
> by about 15%, and Merck and AstraZeneca by roughly 6.5%. Even Lilly’s growth
> of 43% still lags the Dow.

~~~
astazangasta
This is an industry that has had 15-20% returns for decades. I'm not sure what
"computer sciences" is as an industry separate from the rest of software, but
saying there are some sectors more profitable than pharma says not much.
Pharma is huge as a fraction of GDP and consistently profitable because its
profit is based on rents. If it is flagging in recent years it is because
public sector spending on research is flagging and hasn't yielded as many cash
cows as usual.

------
aantix
Infinitely expensive?

How many hypotheses do we want to test? As many as possible.

