It's worth noting that the U.S. market does pay for the lion's share of patented drugs, effectively funding a significant portion of R&D that benefits the whole world years later when generics come into market (at least for those drugs which are not costly to manufacture, which happen to be the majority).
I'm not saying this model is right. I'm just saying that doing away with it will have fundamental consequences to healthcare R&D
EDIT: To be clear, a minority of drugs are either very hard to manufacture (It's been a while for me so I don't recall their exact name, but I think they may be called "biosynthetics" – please correct me if I'm wrong) or researched for a very small number of patients (so-called "orphan drugs"), which confers them additional protection from generics and competitors. These generally have much higher prices than the "standard" drug.
Meh -- If this is the case, it would be far better to explicitly fund research and development in a separate appropriation rather than just mindlessly subsidizing all prescription meds. Calamities like the Valeant fraud would be much less common without the US dramatically overpaying for drugs.
Without the accounting fraud, they're not far off the US pharma market as a whole...
Teva is doing the same nonsense with generics, Turing did with their toxoplasmosis drug, Mallinckrodt bought Ofirmev then jacked up the price by several hundred percent, Allergan & Pfizer were trying to merge solely to tax advantage of Ireland's (and the US's) dumb IP/tax laws, GSK, Abbott, and J&J have all paid billion dollar settlements for their fraudulent marketing practices. Look at the PBMs that are suddenly worth billions of dollars purely by being middlemen between Pharma and Insurance companies.
There is so much obnoxious 'financialization' and tax optimization to justify share prices.
It does appear to be the case that the US funds most pharma R&D due to Americans overpaying relative to the rest of the word. In some cases (China, India) this is due to weak IP protection, but in other cases (Canada, UK, Europe) it's more to do with our governments having a stronger negotiating position and setting hard limits on what they'll spend for a given benefit to patients.
Some characterise this as freeloading, but looking at the NHS for example, they set relatively clear limits for how much they will pay per quality-adjusted life year that a drug provides. If a drug costs more than this limit, financially more people will lose out if our healthcare system purchases this drug over something else (more doctors, hospital beds, etc.).
Does this make us immoral for "freeloading", because we prefer putting our limited money into cost effective treatments?
Also, is it not worth looking at why pharma R&D costs so much? The pharma industry seems to run at a very healthy profit margin compared to most other industries. Maybe the lack of market pressure is allowing the pharma industry to remain fatty? Obviously there's a fear that cutting US pharma revenue would hurt global medical R&D, but I don't see this as being a foregone conclusion. It could just as possibly be market failure and regulatory capture keeping pharma R&D expensive.
> Does this make us immoral for "freeloading", because we prefer putting our limited money into cost effective treatments?
It doesn't make you immoral, but it is important in understanding the tradeoffs of suggesting that the US switch to an NHS-style system.
> Also, is it not worth looking at why pharma R&D costs so much? The pharma industry seems to run at a very healthy profit margin compared to most other industries. Maybe the lack of market pressure is allowing the pharma industry to remain fatty? Obviously there's a fear that cutting US pharma revenue would hurt global medical R&D, but I don't see this as being a foregone conclusion. It could just as possibly be market failure and regulatory capture keeping pharma R&D expensive.
They may be doing well, but you may not be seeing all the little pharma companies that die trying. At the end of the day, investors are allocating capital where they think they can get returns. If you reduce the returns of pharma, you reduce the attractiveness of investing there.
I try investing a lot in smaller pharma companies... and they are hammered by the big ones. Not on innovation, but on marketing.
I disagree about NHS type system, that reduces access. A healthy mix is required, though.
A lot of upfront costs are also footed by users and government/non-government funds. And a lot more of those costs are due to government regulation and essential insurance at development.
Pharmaceutics researchers aren't exactly rich, btw. Your dentist probably makes more than many researchers of life saving drugs.
The "freeloading" meme is the creation of public relations groups employed by the pharma industry.
Drugs in the US are priced at the profit-maximizing price. That profit-maximizing price has nothing to do with how much pharma earns in other countries.
And it has absolutely nothing to do with the cost of R&D. R&D is a sunk cost, has no effect on drug pricing.
As someone who works in the industry, you are somewhat correct. Once a drug is approved, it is priced independently of the R&D cost.
However, the decision to bring a drug through clinical trials (the "D" in "R&D") is gated. The potential price of the drug is estimated and the financial costs and potential return are calculated. If the return isn't that great because you can't get the volume or price, the R&D investment isn't made and the drug "dies".
So in other words, price controls on drugs would lower the prices of drugs already approved, but it would likely also kill a number of drugs currently in development.
There's sticker price and there's what buyers with the ability to negotiate pays. I hear the government healthcare suppliers (Medicare, Medicaid and VA) aren't allowed to ask for lower prices for bulk despite being some of the world's largest customers, each.
>I hear the government healthcare suppliers (Medicare, Medicaid and VA) aren't allowed to ask for lower prices for bulk despite being some of the world's largest customers, each.
Yep, that's part of Medicare Part D, in turn part of the "Medicare Prescription Drug, Improvement, and Modernization Act", and went into effect in 2003 under Bush 43.
> And it has absolutely nothing to do with the cost of R&D. R&D is a sunk cost, has no effect on drug pricing.
That's not how this works. Volume is fixed because you effectively already know how many patients there are and COGS is minimal because drugs are generally very cheap to produce, so price and SG&A are the key drivers to determine returns
To save others the Googling: SG&A = Selling, General and Administrative Expenses.
I'm not sure that you disagree with me. The higher the price the higher the returns, but price too high and you earn less money, because volume is not fixed. (I'd bet a lot less Viagra would be sold if it cost $500 per pill.)
That was the genius of Martin S. He felt, correctly, that Daraprim was mispriced. That's why the price per pill was raised to $750 from $13.50.
Volume is pretty much fixed for all health related drugs, particularly since your health insurance will foot the bill most of the time. As a patient, you don't care if the drug costs $100 or $1,000 to the insurance company – you want the best treatment available.
Viagra is a different ball of wax since you not taking it will never reduce how many years you'll live.
I wrote on this above. As an investor in Gilead and a Truvada user, I really hate the fact that Gilead isn't making Truvada an effective vitamin for most of EU. It's an HIV infection prevention drug. It's priced for margin maximization at ~$1600 for 30 pills. I bet most EU countries could get on board with €20-€30 per month and have 10% of the population be on it. And EU has very low administrative costs, as many countries buy centrally.
I consider Martin to be a scumbag, but not much more than your average human being. He's a scapegoat, to the industry that would prefer a flashy Martin to scrutiny of their own actions. He should be free, as his conviction was a witch-hunt.
> Does this make us immoral for "freeloading", because we prefer putting our limited money into cost effective treatments?
It depends on whether some drugs that your system considers affordable today as generics, would have not existed without being funded by US taxpayers, I suppose.
It's not US taxpayers that are footing the R&D bill, but United States based customers of non-generic prescription drugs. These are technically two different sets of people.
How does research funded by charity or governments figure in this? How do we know if research funded by these sources leads to profit making drug research?
US GDP is ~19 Trillion. If US Health care spending is 18% of GDP, that's about 3.5 Trillion annually. Pfizer's (largest drug co) net income in 2017 was ~21 Billion [0], less than one percent of health care spending. I didn't tally the rest of the industry up, but I'd be surprised if it hit 10% of total costs.
Actually, both revenue and income are proxies for the relevant number, given that I had in mind to address the GP's point of 'effectively funding a significant portion of R&D.' If the article [0] is to be believed, that's about 8-9 Billion for Pfizer, and about 70 Billion for the top 15 pharma companies, about 2% of US health care spending. Even if we cut US health care spending in half (to, say, the UK's level), funding pharma research at current levels would be a fraction of total costs.
R&D includes a lot of (most?) but not all advertising. It probably doesn't include things like running DTC ads on TV. But it does include things like:
- Paying doctors to prescribe the drug to patients for "research purposes."
- Paying doctors for their "valuable opinions" about the drug.
- Paying for advertising to recruit patients into clinical trials.
And so on.
I don't think there are any industry-wide statistics, so you'd have to look at the break down for each individual drug (where available). If you read pretty much any book on the pharma industry it will go into this, there are no shortage that you can find on Amazon.
For the first point you mean clinical trials? I wouldn’t call that advertising.
The 2nd point sounds like consulting fees, not advertising.
And the 3rd point is required to recruit for clinical trials. And the drug doesn’t even have a brand name at the point. Doesn’t seem like what the general public would call advertising.
Usually post approval clinical trials. Since pharma companies wouldn't be allowed to pay doctors to prescribe their drugs for no reason, they just spin up new trials after the drug is already approved and pay doctors in exchange for getting the patients to do something nominal like filling out a survey.
> The 2nd point sounds like consulting fees, not advertising.
Consulting is a form of advertising, at least in the way it's actually done in the pharma industry.
I think the argument is that these activities are done in a specifically disingenuous way that achieves primarily marketing and sales goals rather than R&D goals.
New drugs and their acceptance by insurance companies is much more important to me, than price gauging. I invest in pharma companies.
The ability to raise the price for a single drug is really the last thing I want in a company I invest. I want long lasting customer base or high impact justifiable expenses, that US HMOs and EU governments will gladly pay(reason why I bought Gilead when I heard about their HepC cure).
And Gilead's Truvada strategy, why I divested as a result.
I don't understand your point. Obviously it's going toward R&D of new drugs unrelated to the EpiPen. What does the price of an EpiPen have to do with how the money is spent?
That's not how it works. You invest if it's worth investing, not if you just have the money laying around.
Paying a few billion dollars to a big pharma company is not going to make them invest more in research. They will instead pay the money out as dividends.
The goal of patents is to create incentives for future research, but if you change the rules by increasing the extent of EpiPen patents after the drug was created, where is the incentive?
> Paying a few billion dollars to a big pharma company is not going to make them invest more in research. They will instead pay the money out as dividends.
This is a misconception. No investor wants their money back. Investors want a promise of MORE money back in the future. If investors wanted their money back immediately, they wouldn't have bought stock in the first place!
The vast majority of investors prefer (ex: Tesla) a company to spend all their money asap on infrastructure, research, development, etc. etc.
Dividends are a last resort, only to be used if a company doesn't know what to do with its cash. Once a company starts paying dividends, it means that it has run out of ideas for how to invest into the future.
Besides: its more tax efficient to grow the stock price rather than to pay the profits back in cash.
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Even a big company will want to at least appear that it is growing even bigger, through R&D funds and what-not. If you start to give out a lot of dividends, investors will probably take it as a bad sign and flee.
You don't have to pay dividends, you can just do a stock repurchase.
Regarding investor preferences, they only want the money spent if it gives them a positive NPV. Pharma companies are already paying dividends, which means they have funds in excess of their NPV>0 projects, which is why they return them to shareholders.
Hell, half of the shareholder activism literature and the policy payout literature is about CEOs overinvesting and doing empire-building instead of returning the money to shareholders..
> Regarding investor preferences, they only want the money spent if it gives them a positive NPV.
Precisely. And cash rarely gives the best NPV. You put money into companies with the expectation that they make MORE money in the future.
> Pharma companies are already paying dividends, which means they have funds in excess of their NPV>0 projects, which is why they return them to shareholders.
And there you have it. It means that Pharma Companies are making more profits than they know how to reasonably invest into themselves. Which is PRECISELY why people get annoyed at them, especially when they have huge marketing budgets and $800 Epipens.
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There is a Christian Parable about the man with 1 Talent (where Talents were a unit of Gold in the time of Jesus). The man buried his gold, because he was too worried that he'd lose the gold.
The man's peers however invested the money and grew their Talents. The man with 10 Talents had 20 Talents at the end. The Man who started with 5 grew to 10.
The man who buried the gold ended with just 1 Talent (the only one he started with), and was therefore punished. The religious message here is not to hoard your Talents (ie: Gold), but to invest them and grow yourself, and your masters.
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I guess not everyone is a Christian. But if Pharma companies can't figure out where to invest the money, then perhaps they could at least return the money to their customers by lowering the price of their drugs.
Returning the money that they started with is... not growth. Companies are supposed to grow (through new R&D, improvements, etc. etc.).
To be fair, the master in that story was a bit of a jerk.
> You knew that I reap where I have not sown and gather where I scattered no seed?
He took what belonged to others. And, had the servant with 2 talents lost money instead of making it, I doubt the master would have responded to him with "Well, you tried. Good on you."
Paying dividends is not giving investor's their money back. It is paying a return on the investment. Some companies like Amazon espouse the idea of perpetually trying to grow stock price, but that is not what every investor is looking for. Some investors are looking for an investment that will pay dividends every year going on forever.
This depends on the investor.
Stock market investor, the one who's purchase of stock doesn't provide the company with any funds, cares not how income is delivered.
But you're right on one thing - investors want better future prospects, however those are achieved.
Except the company that made EpiPen doesn't even make EpiPen anymore. Mylan bought the rights to make the drug in 2007, and then other companies bought it from Mylan. I forget who owns EpiPen now, but the current owner is very far removed from the original researchers who made that drug.
The EpiPen is one of the "hard to manufacture" drugs I mentioned. Although it is top of mind to many, it is not representative of the market.
EDIT: "hard to manufacture" is in quotes because it's what I said in my parent comment (though to be fair I said "costly to manufacture"), but I meant it as an umbrella term for everything that can't be substituted by generics
EpiPen is just an epinephrine autoinjector which date back to the 1970’s. The medicine is much older and very cheap ~50 cents.
In term of cost syringe‘s cost ~15 cents and work fine in experienced hands, but auto-injection makes them slightly less error prone. It’s litterally over a 300x markup for a rare problem.
EpiPens used to cost under $100 for a 2-pack, but now they cost over $600 for a 2-pack. Epinephrine costs like $0.17 per ml, and an EpiPen dose is 0.3 ml.
I feel like it's probably worth, to combat the false exoticism, pointing out that "epinephrine" is just a medical industry name for what is generally known as adrenaline.
There are no "real" implications to calling it one or the other, but people think differently about "a substance I've never heard of" and a common household name.
There are cheap generics all over. The only patent EpiPen has is the applicator. Generics require you to take a syringe and inject it by hand because the patent prevents competitors from using a similar style spring loaded applicator.
The epinephrine used in epipens is extremely cheap to produce.
We overpay for prescription drugs, but they're not even close to the biggest contributor to healthcare overspending. We could make all prescription drugs free and only reduce our costs by ~9%.
Especially when you consider most pharma companies seem to make around 15-30% profit after all costs/R&D... not many industries manage those kind of numbers.
You are looking at a biased data set is why. You are looking at the biggest drug manufacturers in the world which most likely own the most lucrative drugs. If you want a more unbiased sample then you need to look at the entire industry. For small drug companies most of the time their drugs do not get FDA approval or doesn't pass some regulatory approval and the whole company folds. For the bigger drug companies, the trend isn't to increase R&D spending but rather to simply buy up smaller companies that have patented drugs. This makes sense though because of eroom's law which states that even with advanced technology...creating new drugs or discovering new treatments is getting harder (more expensive) which means that the rate of return for drug R&D is declining.
There's plenty of industries that do. Tech makes much more. In fact, pharma on average spends a greater proportion of revenue on R&D than just about any other industry.
It's true. But the US drug marketers also move lots of money to television companies (watch any non-sports show and look at the ads). They finance lots of perks for prescribers.
Their clinical trials for new compounds are extremely expensive, freeway-tunnel-under-harbor expensive, Carl Sagan expensive (billions and billions).
They pay generic-drug manufacturers to refrain from making competitors to their compounds for which patents have recently expired.
They pull the enantiomer hack. Many organic compounds have a right-handed and a left-handed version of their structures, only one of which is active as a drug. Chemists call these two versions "enantiomers." The first patent on a compound covers the basic chemistry. Then, when the first one expires they patent the same compound, but only the purified active enantiomer. They then send their sales reps out to convince docs the newly patented drug is way better than the old one.
They lobby the US federal legislature to enact health care insurance laws (Medicare Part D) prohibiting the negotiation of prices.
They claim drugs bought in Canada aren't safe, even if they come from the same factory.
Can confirm. And it affects medicine outside the US as well.
A bit over a decade ago, one very popular modern antidepressant drug used to be citalopram (cipramil). This is the racemic mixture (meaning it contains both the left and right-handed versions). The new one, escitalopram (lexapro) only contains the active stereoisomer. Its dosage is exactly half of the previous version because racemic mixture always (?) occurs in an exact 50/50 proportion.
Both drugs work perfectly well. No statistically significant difference in effect or side-effect. You just don't get the inactive half of the molecules.
Escitalopram wouldn't exist if it weren't for citalopram's patent expiring. Or maybe they were just sitting on the purified version, biding their time.
This is a straight counterexample of the argument that the insane costs of the healthcare system in the US somehow pays for new drug research all over the world.
This industry called "drug research" simply isn't motivated to improve health (not just "find better drugs"), they are just researching whatever is driven by profit.
They will just as happily waste billions of research on a drug that is almost literally identical to one that already exists and is known to work, a copy that nobody needed, only so they can patent it again.
At least they replaced it with something equivalent, instead of something worse. Because they would if they could (and given the state of reproducibility of medical research, probably did at some point or another).
That is not research, that is throwing money into a bottomless pit. Which is what the featured article is about.
Drug research in the US is no exception. You could do so much better research if it was done efficiently (and as a bonus take some pride in your work).
The fact that US drug research dominates the world market is not something that the rest of the world should be thankful for. You waste billions upon billions on such an industry, of course it's gonna dominate. Doesn't mean it's good. Other countries could do efficient drug research but if they don't get billions budgets (because you don't need it), they can't waste it on marketing and push their version of a drug no matter what.
Just because something is expensive, doesn't mean it's good.
Exactly. Somebody I know with scientific training and depression was offered Lexapro (escitalopram) to replace a citalopram script: "It works better for some people." She wasn't so depressed that she didn't explain the scam to her doc, who accepted the explanation and stopped prescribing the new version with a reduced concentration of the ineffective stereoisomer.
But this doc wasn't getting visits and kickbacks from Allergan.
Except that every company involved in the healthcare industry in America (drug companies, insurance companies, hospitals, etc.) make hundreds of billions (or trillions) in profit each and every year.
The reason for the high prices is because healthcare in the US is an extremely, extremely lucrative for-profit industry.
That doesn't mean anything at all. The problem is dissipation of rents -- when an industry gets an economic rent, expenses will tend to increase to the maximum allowed by market discipline. This is true for all bureaucracies -- e.g. Universities are always out of money but keep charging more. Hospitals are always out of money but still charge too much. That a firm finds a way to spend the money does not mean that the amount charged is the minimum that is possible in a long term stable solution. Prices are clearly out of line in these fields with OECD averages, yet each specific firm finds that its expenses are great enough that they only earn the market required return.
So where does the money physically go? If I’m a rent-seeker, I still have an incentive to be stingy with my expenses. The only reason I wouldn’t would be if someone else had a monopoly and was rent-seeking on me, but who’s doing that?
I wouldn’t rule out the possibility that it’s rent-seeking all the way down, but you’d have to make that case. Suppose you say, doctors and pharma companies are rent-seeking, and I say doctors don’t really bring home the bacon and pharma has a 5% profit margin. Then you say, well, it’s the bureaucrats, and then I say, why doesn’t some pharma company just fire the bureaucrats and keep the profit margin to themselves? They can’t because of regulations? That’s not even rent-seeking anymore, it’s just over-regulation and you can fix it with deregulation.
OK, well, the doctors have their student loans and the pharma companies have some other requirements that they need universities for, so universities are the real rent-seekers. Except it’s not the universities, who are broke, it’s—well, who seeks rent from universities? I’m not ruling it out, but this is also starting to sound like it leads back to the Rothschilds somehow.
You can’t just say “Americans pay more for X therefore rent-seeking”. There are lots of things that can cause inefficiencies.
Yes, you, personally have an incentive to be stingy.
But when you are talking about a big organization, they find ways of spending money because the managers of the organization are not aligned with the shareholders. Every organization has pressure to keep expanding because there is always more stuff that could be done, and you can hire people to do that stuff up until the total earnings are in line with the market return irrespective of the above average earnings that could be had without all the extra activity. They will keep spending on marginal expenses to "defend" their rents up until no rents are to be had. This is called rent dissipation.
A good example would be education, and count the number of educational administrators, gold plated dorm rooms, activity centers, weird classes, etc. Then go look at hospital spending. Instead of the nurse giving you a tylenol, they invest in a prescription dispensing vending machine that costs $$$, and they hire more administrators. Then take a look at your standard corporation and look at all the odd positions they have that a "lean" smaller company or a start up would never have. Compliance officers, marketing staff, assistant to the marketing staff, support services, travel support, real estate management services, etc.
So you can think of this as a law of bureaucracy, unless there is someone imposing discipline on the cost side, the managers of a bureaucracy are going to grow that bureaucracy until they run out of money. This is how ATT ends up funding basic research and discovering the cosmic microwave background radiation. Because they have all this money to spend. And I guarantee you that at its halcyon days when it was obviously a monopoly and thus earning monopoly rents, ATT was not earning more than the average market return on their investment because they kept "investing" in hiring more staff and more resources up until the total return fell to the market required return.
You know, the more I think about it, the more I like this idea. It's not so much that capitalists are rapacious and sociopathic, it's that most administrators and bureaucrats are prone to mediocrity and only exercise cost discipline when they are under a constraint forcing them to do so.
The robber baron would actually be preferable, in a certain sense, because at least then, someone would benefit from the rent-seeking. The problem being that if you were a robber baron, there are much better ways to get rich. Also, many of these rent-seekers are not even for-profit enterprises.
And as a completely different example, what this principle suggests is that nations with a low interest rate environment will generally see a decline in profits corresponding to the lower rate. So for example Japan, a nation where corporate profits became notoriously low after the period of zero interest rates. Or, for example, China, where various subsidies to the cost of capital result in very low and sometimes negative cost of capital to state owned enterprises (SOE). It's these SOEs that end up doing weird things like a metal mining SOE building a replica of an Austrian village for a tourist attraction (https://www.youtube.com/watch?v=hP-7f1XW7jE). How on earth would a mining company do that except for the fact that they have a lot of money lying around due to earning economic rents? They find ways of spending money up until their return is the market return.
This is completely independent of their pricing power or monopolistic status.
How so? The products they make are different, but at the end of the day they are both industries living in the capitalist society we've created, driven by the same incentives, and largely operating by similar principles. How is it morally acceptable for a tech company to make huge margins and yet morally reprehensible for a pharma company to make margins that are smaller?
The answer to this is so obvious that I almost have to assume that you're not asking in good faith, unless your purpose is to point out the flaws in our society's views on economics. Tech companies like the ones mentioned are known for primarily producing non-essential luxury goods like smartphones or B2B services. The pharma companies under discussion are in many cases producing drugs that people must take in order to live.
Good to know, but my question really has to do with if the extra cost for doctors, hospitals, drugs, etc. is used to offset R&D costs.
What I am getting at is that in theory, it should still be possible to do a lot of great R&D work while still providing affordable health care to citizens. I don’t think they are necessarily tied together.
Also more patents is not necessarily a good thing since they can create more legal hurdles and red tape for other pharmaceutical companies who may want to build on top of the ideas and inventions.
Could be but the fact is that still the country with the highest cost of health care is the one that producing more drugs than the rest of the world combined.
The US is also 40% or so of the global pharmaceutical market given its population it literarily funds the profits of the global pharmaceutical industry doesn’t matter if it’s American Swiss or Indian company they all make their buck on the back of Uncle Sam. It’s not clear what the impact would be if the US would say start paying 50% less for health care on the world.
The US pharma market is around $300B vs total health spending of $3T. Pharma is a big expense but certainly not amongst the biggest.
Costs for boring health issues like births, broken bones, diabetes and end of life care are what really matter. Oh, and administrative costs are way higher in the US.
A natural group to pay R&D for patent-free drugs is health insurance companies, who would benefit from the lower costs, and perhaps even come out ahead. But its hard for those companies to organize such an effort, because they can get the same benefit even if they don't contribute. It's a classic public goods problem.
Usually we solve public goods problems with taxes, and we could do that here, taxing the insurers and spending the money on R&D for patent-free drugs. Bernie Sanders introduced a bill to this effect several years ago. Iirc it involved "xprizes" for successful treatments, so bureaucrats wouldn't be steering all the research.
The plan simply provides another funding mechanism. There's nothing in the plan to prevent companies from developing patented drugs. So if you're right, it would just mean that birth control drugs would not be free of patents when introduced, just as under the current system.
NIH has also kicked in vast sums of capital to help fund that research, though. And actually considering the scale of healthcare spending (3.5T in 2017), you could probably publicly fund drug development outright within the savings window of something like full public funding of healthcare. Total drug R&D expenditure was like 70B in 2017, it's not some giant gift (though appreciated, temper the enthusiasm, so to speak).
You're probably thinking of biologics [1]. These include immunosuppressant monoclonal antibodies such as adalimumab (Humira) and secukinumab (Cosentyx), used in treating autoimmune diseases such as psoriasis, ankylosing spondylitis, psoriatic arthritis, MS, Crohn's, etc. They are derived from biological sources such as Chinese hamster ovary cells [2]. They are also extremely expensive -- often several thousands of dollars per month [3].
That would explain why we pay more for drugs, but as the article notes higher drug prices is just one thing we pay more for:
> The researchers determined that the higher overall health care spending in the U.S. was due mainly to higher prices—including higher drug prices, higher salaries for doctors and nurses, higher hospital administration costs and higher prices for many medical services.
It's not just about pure R&D, it's about all the financial incentive for all the wheels that will be greased by it all throughout the industry. On the outside we don't like it, but we can't pretend the drive for research isn't also built on the back of the drive for profits outside of research.
while it is probably true that US healthcare is subsidizing drug discovery (perks of being the strongest economy), there still seems to be an asymmetry in the US. E.g You spend 6-8 times more in administrative costs and about 2 times more in drugs:
Administrative costs of care (activities relating to planning, regulating, and managing health systems and services) accounted for 8% in the US vs a range of 1% to 3% in the other countries. For pharmaceutical costs, spending per capita was $1443 in the US vs a range of $466 to $939 in other countries. Salaries of physicians and nurses were higher in the US; for example, generalist physicians salaries were $218 173 in the US compared with a range of $86 607 to $154 126 in the other countries.
Most drug research is paid by the US taxpayer through research grants, not by private companies. Pharma company marketing budgets much exceed their drug research budgets.
Do you have a source for this? From what I can find, e.g., [1], the government only pays for about 1/3 of the costs. And the government funding is usually more for the underlying basic science and preliminary results, compared to the drug companies that develop drugs, test them and bring them to market. These last steps, which are ridiculously expensive, have not been a government area of expertise. (The same pattern holds for most any technology, the government supporting the basic research while more applied research and development is left to private companies.)
This is the common defense, that the US is somehow responsible for an outsized amount of medical progress. Are there studies of such a thing? And do these studies distinguish between healthcare that leans elective vs necessary? Also, the US seems to excel at the very expensive end of life care.
I think it wouldn't be explicitly included, but it goes into the bottom line of big pharma companies. There is a very lengthy process of getting drugs through the FDA which makes investment's return-on-investment difficult to justify without raising already available drug prices.
(edit: Having said that, our healthcare costs are out of control and it's not directly because of the R&D. It has more to do with wild overhead in insurance and HMOs where only a small fraction of what consumers pay goes to healthcare.)
>There is a very lengthy process of getting drugs through the FDA which makes investment's return-on-investment difficult to justify without raising already available drug prices.
The lengthy process is there for a reason, it's not some hamper on profits just to hamper profits. Do we believe that the FDA is full of short sellers? Poor Pfizer, they won't get more money than they've spent! The logic here is sinister. ROI on drugs shouldn't be every dollar spent gets you a dollar ten and a drug, it should be you have a drug. The basic research that informs R&D spending has a ROI of zero by business metrics.
It is sad to think that the trajectory of medical advancement is dictated not by what we can achieve as scientists, but what is profitable for businessmen. When Jonas Salk was asked who owns the patent to the polio vaccine he developed, he replied, "Well, the people, I would say. There is no patent. Could you patent the sun?" In 1988 there were an estimated 350,000 cases of poliomyelitis worldwide, in 2018 there were 29 (1). The global initiative to eradicate the disease would not have been possible had the vaccination been for-profit.
If that's the case, then don't forget that a huge part of US drug market is marketing. Those expensive pharma reps are not a usual thing outside of US, and provide no value when it comes to the healthcare system overall.
When it comes to some really interesting drugs, prices and their accessibility are really strange.
Take HIV infection preventing Truvada. The "market" price of 30 pills is $1600 in US. It's a good drug for continuous mass use for Gilead. Instead of making it pretty much ubiquitous as vitamins, they chose to target only US market for the low volume high margins. So... I'm actually annoyed with Gilead over this. I own stock and getting good deals in Europe could get up to 50mil people on daily dose of it. That would push the stock wildly up! With 0 extra marketing, as it's not high on adverse reactions with massive preventative benefits.
We don’t pay for that drug research via insurance though—even worse it’s our taxes that fund big pharma’s research and we give them tax breaks. So it’s even worse that we subsidize them and then allow them extort the public.
R&D should be publically funded like basic research is. We can say 'these drugs are expensive because they are expensive to research' all we want because it's true, but this statement ignores the problem of it all, and that is every step of the way from a customers insurance payment to research and development, there is skimming.
Private health insurance cannot run at cost, private biotechnology companies cannot run at cost either, and this is because shareholders and executives demand it cannot. Every dollar of ROI in their portfolio is a dollar that could have gone to research and development or lowering drug prices, every yearly bonus could have tipped the scales and let one more person afford to save their life. It is tragically terrible that if you had the right books, you can calculate the exact x% of every dollar people spend towards healthcare that goes toward someone else's luxury rather than healthcare or in support of research. And thats ignoring the other half of the problem with private research, in that projects are decided by white collars and not white coats, so research efforts are focused on what will make a profit or what they can put out quickly before anyone else to dominate market share on a novel treatment, and not treatments for rarer diseases that might be backed with extensive basic research and only need to scale, but is marginally less profitable for the company.
However, if money for healthcare is taken publically, then there is no need to skim dimes on every dollar spent to grant someone a third house and a fifth car. Money can be earmarked directly for research, like basic research is, and what happens to that dollar would be of public record. Capitalism and its sole metric of success of infinite growth is inefficient by design and has no place when it comes to universal needs like healthcare.
I'm a diehard capitalist working in Wall Street and I could not possibly agree more.
Healthcare is not like other goods and services because (a) it's an universal need for which price sensitivity is zero (b) no one should have to pay life-crushing bills because they had no luck in the genetic lottery and (c) even for those health risks that people can control (obesity, cardiovascular problems), we have to admit that educating the population to eat better, sleep more and exercise is a pipe dream, particularly in the U.S. where shitty food is everywhere, the lobby for junk food and sugar is rampant, labeling and advertising for food is downright evil and work is incredibly demanding (unbelievably more demanding than in Latin America or Europe).
Healthcare and Education should be entirely subsidized by the government. Everything else can just be regulated to various degrees, always with the dual goal of minimizing state intervention while ensuring the market remains competitive.
Everyone asking for sources fornthis, just think about it. What if Europe decided that iPhones we're too expensive and implemented Single-Payer Phone Care? They'd dictate a price that the government would pay for iPhones in their countries and Apple would either not sell iPhones in Europe at all, or they would sell for the dictated price. They'd do their market studies and possibly conclude that they can jack up U.S. prices and still stay in business in Europe.
With something like pharmaceuticals, of course the U.S. customers are going to pay the higher price, they need the medicine! That means that European countries are of course squeezing the drug companies (which really means squeezing U.S. citizens) as much as they can get away with. They would be dumb not to.
I've heard this argument a lot, even by diehard conservatives. The amazing thing about it coming from these diehard conservatives (I'm not saying you're one of them, your comment just reminded me of it) is they're basically saying it's OK for the USA to help the rest of the world socialize their drug costs but it's not OK for the USA to help socialize drug costs for their own citizens.
It’s a talking point. Compact. Powerful. No grounding in reality.
My dad is a conservative and his talking point about the house member who called trump a motherfucker shouldn’t have said that because she’s a woman. It’s ok that Trump swears but my dad was literally screaming about this representatives language.
"In Europe, drug prices are set by governments, not by pharmaceutical companies the way they are in the U.S. On average, the difference between the price of one drug in the U.S. and the same drug in France, Germany, Italy, Spain and the U.K. was 50 percent, an analysis by the consulting firm McKinsey has found.
“U.S. consumers are in fact subsidizing other countries’ public health systems, at least with respect to drug pricing,” Jacob Sherkow, an associate professor at New York Law School, said."
Define true, it is true that the US spends more on medical research than the rest of the world combined, and produces more drug patents than the rest of the world combined.
The US always had the best facilities, biomedical research started in the US the Rockefeller University was the first one in the world iirc.
This doesn’t explain it really what could explain it is that as the cost of developing a drug became higher more and more players dropped out of the game especially as the revenues started shrinking due to Indian generics becoming popular around the world.
> If this is in fact true it means the rest of the world is freeloading off the US system.
It would be if the US system was in fact efficient and good. But it's not. It doesn't work for the people. It's a huge beast that is out of control and costs billions. It will happily "research" identical drugs, worse drugs or unnecessary drugs if it means it can milk patents for a few years longer.
As it currently stands, it's more accurate to say that drug research in the rest of the world is suffering because it's being dominated (because part of the billion dollar budgets go to marketing) by the US pharma industry, including everything that is broken about it.
If we were freeloading, wouldn't we just take the useful results of your research?? But we get the bullshit too, because yes, your pharma marketing budgets are so huge they do in fact reach overseas.
I would say it's more likely that the rest of the world has realized that collective bargaining allows them to set prices far lower than countries like say, America where they're free to gouge the money right out of your wallet.
If you don't play ball with a government, you're denying yourself a lot of potential customers. A single person? A fraction of a fraction of a drop in a bucket.
> If this is in fact true it means the rest of the world is freeloading off the US system.
Sort of. We also export our definitions of diseases, and since the market for new diseases is a lemon market it makes sense that other countries should pay less for the treatments. E.g. if people in other countries can't really be sure whether or not hysteria is really a real disease that affects women, it makes sense that they would be less willing to pay the full price for cure. It's just like how consumers in the U.S. probably wouldn't pay full price for a pill to prevent fan death. Overall though the U.S. probably comes out ahead by exporting its medical model.
I am similarly pointing out something that exists, the falling life expectancy in America. I am also pointing out that patents are not a good metric for healthcare success, whether or not the OP intended that it be used that way.
It is true that the US pays for a significant portion of drug R&D for the world. However the vast majority of that R&D is funded by the NIH which in turn is funded by U.S. taxpayers. It is a myth that it is the pharma companies who fund much of R&D even though they do spend some money on it. They set the prices so high because they can. The patents give them a monopoly, and they do everything in their power to "evergreen", or extend, the patents so they can continue their monopoly. One example is first patenting the left version of a molecule then patenting the right version (mirror image). How do they acquire these patents if they don't do their own R&D? They buy them.
> One example is first patenting the left version of a molecule then patenting the right version (mirror image).
Just a small correction for accuracy; they actually patent the 50/50 mixture of both versions first. And then they patent the purified version that only contains the active enantiomer ("mirror image").
Because of how biology works, turns out that the "wrong" mirror image (that is absent from the new version of the drug) was in fact really inactive, doesn't do anything, and thus offers no advantage over the old version, except being covered by a new patent to milk.
These are the kind of drug research "advances" that the rest of the world is supposedly freeloading off of.
It's not freeloading, it's being dominated by a multi-billion dollar global marketing budget.
"In a Journal of the American Medical Association (JAMA) study published in January 2010, the largest study to date to attempt to quantify U.S. funding of biomedical research by the pharmaceutical industry, government, and private sources, researchers estimate that U.S. biomedical research currently stands at about over $100 billion annually.
The pharmaceutical industry is the largest contributor towards funding research, funding over 60 percent. The government contributes to about a third of the costs, with foundations, advocacy organizations and individual donors responsible for the remaining investments."
This is common PhRMA talking point that needs perspective. Large pharmaceutical companies spend twice the their readers h budget on marketing, a good percentage of now is that is spent on patient oriented marketing. (e.g. “Talk your doctor about Xyzzy!”)
If there would be a loss of revenue, any reduction in R & D costs lies purely with c-suite’s priorities.
They spend on marketing because they are trying to sell as much as possible of the drug during the patented years. If people do not realize there's a superior drug out there, they will never part with the money for the improved treatment
Well.. yes. My point was that a person makes the decision to what to cut. Saying that eeasearch will be cut, is the same as saying marketing über alles. Punting and trying rationalize such a decision as saying “must maximize shareholder profits”, is simply myopic post hoc rationalization.
Why do I get that information from my doctor when I'm outside of US?
Why do American doctors just throw antibiotics at you, as soon as you sneeze in their office?(Getting a test for bacterial infection is cheap and fast. No bacteria - no effect by antibiotics.)
There's a lot of issues with drug awareness and appropriateness in US.
I'm not saying this model is right. I'm just saying that doing away with it will have fundamental consequences to healthcare R&D
EDIT: To be clear, a minority of drugs are either very hard to manufacture (It's been a while for me so I don't recall their exact name, but I think they may be called "biosynthetics" – please correct me if I'm wrong) or researched for a very small number of patients (so-called "orphan drugs"), which confers them additional protection from generics and competitors. These generally have much higher prices than the "standard" drug.