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Indian Government uses special powers to slash cancer drug price by 97% (indiatimes.com)
241 points by Garbage on Mar 13, 2012 | hide | past | web | favorite | 218 comments

I worked in the drug R&D business for over 8 years. I still follow the industry closely. Some things always get lost in these discussions. First, manufacturing an existing drug is absurdly cheap. Modern industrial chemistry ensures this for all small molecule drugs (note that this is not the same case for the "biologics" which are often fiendishly difficult to make). Almost all the cost in a drug is the manufacturer recouping R&D costs. These costs have been spiraling out of control for 10 years. They are astronomical. A recent Forbes analysis pegs the cost of a new drug with failures of drugs in development folded in anywhere from $3 billion to $12 billion depending on the manufacturer (excellent context and discussion here: http://pipeline.corante.com/archives/2012/02/10/the_terrifyi...).

You don't need to be an industry expert to grok that those numbers are wildly unsustainable. It is not possible to keep spending the amount companies spend to make new drugs. In the past, companies would inflate the price in the USA to make up for reduced prices elsewhere. But with all the recent healthcare reform in the USA, that strategy is ending.

To add insult to injury, the vast majority of the most commonly used drugs will lose patent protection in the next couple of years. In the industry they call this the patent cliff. There will not be enough new drugs to offset all the ones that go generic.

This move by India is a symptom of the wider drug industry problems. There will be more of these kinds of moves in the future. The industry has been searching for ways to more effectively make drugs and have it not be so expensive. But so far they have been striking out for 10 years running. The current strategy is to lay off most of their r&d workforce and offshore and outsource this part of the business.

Somewhere out there, a business model is waiting to be found. Whoever cracks that nut and becomes the Southwest of the drug industry is going to make a fortune.

>Almost all the cost in a drug is the manufacturer recouping R&D costs.

Actually that's not true. Big pharma spends twice as much on advertising as they do on R&D:


They also spend a significant amount of money on government fines due to corrupt practices (i.e. killing people). They are now the single most corrupt industry, paying significantly more fines per year than the entire military industrial complex:


If you took the time to look at the link I posted that talks about the Forbes piece, you'd see that they specifically excluded the cost of marketing from the analysis of how much it costs to put out a new drug. When companies do marketing, they expect it to more than pay for itself, clearly it is, or they wouldn't be spending so much on it. I know people don't like to hear it, but marketing products does lead to more sales.

Trust me, having worked in an R&D organization, there was no want for more funding. There was an incredible level of funding. If the problem in the drug industry is simply that not enough is being spent on R&D, that is easily correctable. Unfortunately for all of us, that's not the problem.

Of course one expects marketing mental diseases to be effective! 'Its not your fault, take a pill and it will all go away' certainly has mass emotional appeal. However, the article is not too convincing about the methodology of excluding marketing expenses.

    First - and I know that I'm going to hear about this from some people - you might assume that different companies are putting different things under the banner of R&D for accounting purposes. But there's a limit to how much of that you can do. Remember, there's a separate sales and marketing budget, too, of course, and people never get tired of pointing out that it's even larger than the R&D one. So how inflated can these figures be?
Not particularly powerful evidence here: a vague notion of a limit, and a rhetorical question. Corporate accounting statements are generally only accountable to the board of directors, who might be perfectly happy with pushing the limit on creative accounting while the stock goes up. When aimed at investors other than the board, and especially when used by citizens attempting to assess the social value of institutions, accounting statements are better treated as marketing materials themselves.

We can discuss evidence when the CFOs of these corporations open their daily work to a public VNC session.

Mental disease drugs are only a part of industry. The drugs for physical problems are still marketed heavily too.

"If the problem in the drug industry is simply that not enough is being spent on R&D, that is easily correctable. Unfortunately for all of us, that's not the problem."

The problem with the drug industry is basically that many of their most important epistemological assumptions are largely incorrect. The reason the entire industry is about to go under isn't because all the easy cures have been taken, it's because they started to buy into their own bullshit. Their astronomical R&D costs and terrible success rates are largely their own fault, so I don't really buy this high cost of R&D argument as a reason for not making the drugs more widely available. I won't bother rehashing all of the epistemological problems with allopathic medicine here, but I was link to this video which talks about why the ubiquitous mouse model is so problematic:


Plus, many of the new drugs are just evergreens, so much of that 'R&D' is really just a clever way to screw the patients.

Keep in mind that the majority of the cost that gets put under the "advertising" label is actually free samples. Those effectively lower the cost of care for patients, it's not just money spent on madison avenue.

There's no need for free samples in the UK[1], there's no direct marketing to patients, and yet we had to pass laws to stop marketing aimed at doctors.

Pharmaceutical companies were spending around £10,000 per GP per year. (About 40,000 GPs in UK * £10,000 == £400,000,000) Because of our PPRS that figure is probably one of the lowest in Europe.

The UK spends about £11billion per year on medication. Of that about £8billion is spent on branded medication. We have regulation schemes aimed at driving costs down.

The market and regulation of medication is baffling with many hidden effects. Here's some ridiculously in-depth information about the UK Pharmaceutical Price Regulation Scheme, and about regulation of meds in Europe.



[1] - because any medication is only £7.40 per item (per month) and only about 15% of people need to pay because of all the exemptions. Also, because of the pay structure of prescriptions there's a split between doctors (who write prescriptions) and pharmacists (who earn money for dispensing).

Is paying fines corrupt? I would say that dodging fines would be considerably more corrupt.

They pay fines for their corrupt behavior. You understood it wrong

Simply because you are forced to pay fines doesn't mean you are "corrupt".

The abstract indicates most of the fines come from "illegal off-label drug promotion" and "overcharging state governments". It could be argued that the first shouldn't even be an issue, and the second, depending on how "overcharging" is defined could be outright fraud on the part of big pharma, fraud on the part of state governments, or something in between.

I'll play devil's advocate: Marijuana users pay fines too, are they also corrupt and immoral? How about drivers who drive at 80km/h on a highway that is 95% 80km/h and 5% 50km/h which was obviously set up to trap people into paying fees? How do you know the fees that big pharma pays are not because of similar over-oppressive laws designed to make the government money?

Edit: Well, I'm a moron for talking before reading. Scratch that.

"How do you know the fees that big pharma pays are not because of similar over-oppressive laws designed to make the government money?"

Because I read the study.

But most of those R&D costs are for getting "FDA" approval. I don't see why India (or anyone, really) should pay for lining the pockets of the USA's inefficient and corrupt bureaucratic machinery.

Or I could be wrong and those $12B really goes into equipment and lab workers wages, but you won't blame me for finding it real hard to believe until I see at least a rough breakdown of how those costs are summed up.

From the article: "Bayer tried to justify its high price by making claims of high R&D costs, but refused to provide any details".

That either means they don't know themselves, or it means that the larger part of the budget got "lost" in requesting approval forms paper pushing greasing cogs and lobbying politicians.

The majority of the money goes into Phase III clinical trials. Don't bash the FDA - they're the most evidence based, scientifically minded regulatory body in our government.

Preclinical and Phase I - II trials aren't too expensive, in the order of millions of dollars.

But also remember, for every ~10,000 candidates that enter preclinical trials, about 1-2 will actually pass FDA approval.

The billion number isn't just for one drug, it's also for the 10,000 failures that you had to weed through to find that one drug.

Phase I is safety trials in healthy humans (young males generally). Phase II starts using it in the target population (the sick) and begins looking at dosing requirements and preliminary efficacy data.

But the big one, Phase III, that's the big group, expensive, efficacy trial. This is the trial that has to prove, beyond a shadow of a doubt scientifically, that the drug does what they say it does. A good Phase III trial can cost in the hundreds of millions of dollars easy. I've heard of $250,000,000 Phase III trials before.

If "the most rigorous evidence requirement in the world" is your example of "inefficient and corrupt", than I guess we'll just disagree.

But the FDA is the most strict drug regulatory body in the world, and the amount of evidence for efficacy that they require from the industry is truly impressive and truly does warrant the billions price tag.

>But the FDA is the most strict drug regulatory body in the world, and the amount of evidence for efficacy that they require from the industry is truly impressive and truly does warrant the billions price tag.

Funny how there are so many SSRI's on the market. Funny how this model results in the conclusion that it's a good idea to give kids amphetamines when they are known neurotoxins. Funny how medical marijuana is taking such a long time to break through into the mainstream. Politics play a huge role in business and tend to turn it into a theater of the absurd.

The FDA is not an ethics organization that evaluates drugs based on the total effect of public health. That simply isn't contained in the bevy of Bills that together form the Code that FDA mandate is derived from. I understand how frustrating watching these public health issues is, but the FDA isn't tasked with that, and only Congress can change that.

The FDA does something else: Drug company says they have a drug that does X. Does the drug do X?

That's it (okay, the FDA regulates a lot, but in the context of pharmaceuticals, this is their mandate -- "efficacy"). They require inordinate amounts of proof of efficacy.

Not the morality or ethics behind the application of the drug, but rather: does this molecule, in this concentration, in this delivery route, in this population, have the exact pharmacological effect that they claim it does.

From there, it is up to each person and their doctor to decide what treatments are needed!

Blame the doctors, then, or blame Congress, but the FDA follows it's mandate quite wonderfully.

> Funny how there are so many SSRI's on the market.

Why? What's wrong with SSRIs?

> Funny how this model results in the conclusion that it's a good idea to give kids amphetamines when they are known neurotoxins.

Giving amphetamines to children is certainly debatable but amphetamines are not neurotoxic. Methamphetamines are neurotoxic, especially in recreational doses, but non-methylated amphetamines are not.

> Funny how medical marijuana is taking such a long time to break through into the mainstream.

Entirely different issue.

Funny thing about meth is that it's not that dangerous -- it's almost identical to adderral. The methyl group (meth-amphetamine vs amphetamine) really only improves the ability of the drug to cross the blood-brain barrier. It's basically a form of adderal with a slightly stronger bioavailability curve.

The reason why meth is a public health issue while addy arguably is not is mainly because requiring a Doctor rx, using an exact dosage with no refills, combined with the purity and safety of GMP-produced drugs, eliminates most of the issues behind meth.

I was shocked when I found how just how similar meth and adderall truly are.

As an Adderall user, I can back this up. The symptoms of use are very similar to meth. Ever seen that "meth jingle" ad? The whole "pulling hairs out of your face, cleaning everything, etc" pitch is spot on to Adderall side effects. The difference is that Adderall side effects are dramatically more mild due to (as betterth said) a properly calibrated and reliable dose.

Also, with Adderall, you can't afford to just take more to offset withdrawal symptoms, because you only have so much. The temptation to take another as it wears off is pretty substantial, especially for long-time users.

Uh, having taken adderall nearly every day for 20 years, I can say that I have absolutely no temptation to take another when the first wears off. In fact, I tend to forget without an alarm and then wonder why I can't focus.

Nor have I ever had any compulsion to clean everything in sight or pluck every hair from my face. It certainly makes cleaning easier, but I certainly don't feel the need to do it anymore on or off of it.

You appear to have become addicted.

So you forget to take it for a couple of days? The biological half-life of dextroamphetamine is 10 hours and levoamphetamine 13 hours. That's 10 to 13 hours (since Adderall is a mix of both isomers) until just half of the dose you took is eliminated from your bloodstream. If you take something with a long half-life like that every day, it's constantly in your system. It takes roughly three days to completely eliminate a dose.

Yes indeed I often forget to take it during the weekends. I have no compulsion to take it when my prescription runs out (I often delay going to the doctor to get a refill and go a week without, especially if focus is not absolutely necessary).

I didn't realize this was unusual.

Fair enough, that doesn't sound like an addiction at all. If you're just taking it to improve concentration, you might have luck with a combination of a Vitamin B complex, Piracetam and L-Tyrosine. All are cheap and have no side effects.

Adding a methyl group does more than improve bioavailability (and it's much more bioavailable, not "slightly stronger"). While both have nearly the same effects the long term side effects are much more significant for meth. Meth is neurotoxic, even when not abused as a recreational drug.

>Funny thing about meth is that it's not that dangerous

Are you completely fucking stupid? Read these and stop spreading dangerously wrong information - http://www.amphetamines.com/neurotoxicity/index.html - http://www.aapsj.org/view.asp?art=aapsj080248

>Giving amphetamines to children is certainly debatable but amphetamines are not neurotoxic. Methamphetamines are neurotoxic, especially in recreational doses, but non-methylated amphetamines are not.

At least do your research if you're going to act so certain about something. This post has links to a few studies demonstrating said neurotoxicity - http://www.longecity.org/forum/topic/47231-amphetamine-neuro...

>Why? What's wrong with SSRIs?

Gee, I don't know. Maybe the horrible withdrawal (http://en.wikipedia.org/wiki/SSRI_discontinuation_syndrome) combined with the fact that their effectiveness is statistically insignificant (http://www.science20.com/natural_medicine_101_jeffrey_dach_m...).

SSRIs don't help people?

> If "the most rigorous evidence requirement in the world" is your example of "inefficient and corrupt", than I guess we'll just disagree.

That is exactly where so much of the inefficiency comes from! How rigorous does an evidentiary requirement have to be before it costs more than it's worth? If getting FDA approval for a new drug cost, say, $100 billion, would the added safety be worth holding back all the drugs that wouldn't be profitable enough to offset that huge up-front cost? A truly efficient FDA would take into account not just the harm of being too lax, but also the harm of being too strict.

(There's an even starker example of this in the Nuclear Regulatory Commission. Their regulations are so strict and red-tapey that the economics of nuclear energy in the US are inferior to those of coal, which is much more dirty and dangerous. Caution has costs.)

The FDA has a number of ways of getting around this for drugs that have limited effect. This is for drugs to be used in the general population, drugs for major illnesses.

Orphan drugs are treated differently: http://en.wikipedia.org/wiki/Orphan_drug

The FDA also maintains a list of pre-approved substances that can be used without testing. I think this is it: http://www.fda.gov/Drugs/InformationOnDrugs/ucm129662.htm

But they already do this. When they design clinical trials, they take type 1 and type 2 errors into account. Even if you wanted to accept a ton more error, which would mean a lot more bad drugs on the market and a lot more good drugs off the market, it's still not going to be cutting costs by orders of magnitude or something.

Don't you think that the drug companies would have found cheaper ways to develop drugs since they've realized that people will still pay them? That would lead to even higher profits.

It's insanely difficult to bring a new drug to market. Imagine all of the crazy combinations of people that take them and if you miss one small group that has an adverse reaction you could be talking 1000s of people that are lining up to sue you out of existence or if you're in another company the regulatory body doing it for them. People around the world benefit immensely from our "inefficient and corrupt bureaucratic machinery" because they get safe drugs.

Also, from the article, "Bayer tried to justify its high price by making claims of high R&D costs, but refused to provide any details". This is just plain rhetoric plain and simple. You see politicians do this everyday because there is no real way to refute it.

I am not terribly familiar with the process, but I assure you it includes: early computational simulations of the prospective molecules; testing on lab animals; testing on healthy people; testing on small (a few hundred) number of patients; large scale (a few thousand) multi-centre trials across the whole world (if you want to sell it to the whole world, that is). This process takes quite a number of years.

Now imagine how many labs, hospitals, scientists, doctors, statisticians, patients (oh they do get compensation), and auxiliary clerical workers need to be paid for the whole process.

Most private research dollars go into patent work-around drugs--drugs that have the same basic function as another, but successfully work around its patent (and get their own patent in the process). E.g. duplicated effort with occasional serendipity leading to something new.

This is patently false.

Most research dollars go into new therapies with completely new mechanisms of action.

Companies are often working in similar areas, that's true. The best example of this is the statins. Lipitor was the 5th statin to hit the market. Was it a me-too drug? I guess, but it was also superior to the other 4 that came out first (less incidence of muscle damage, more efficacious). Did Pfizer say "Gee, let's copy that other statin?" Obviously not since getting a new drug to market takes 10 years and they came out only a few years later.

>getting a new drug to market takes 10 years

is this intrinsic to drug manufacture? would regulatory/tort reform help?

It's a combination of the scientific challenges in finding a new drug and the safety hurdles that the FDA puts up. Most of that 10 years is taken up by the clinical trials that the FDA requires.

I guess you could say it's the price of having access to thoroughly tested drugs that are both safe and efficacious.

At this point, isn't the pharmaceutical industry playing games with supply by limiting the production of many medicines?

Even a common OTC drug like guaifenesin that has been around since the 50's is difficult to find by itself, except in the newly patented time-release formulation (ie. Mucinex). (Although it is an ingredient in many cold medicines.)

Maybe I'm not talking about guaifenesin by itself, but there seems to always be a drug store generic of Mucinex beside it on the shelves.

The margins on generic drugs are razor thin. Most of the recent drug shortages are due to a lack of starting materials or manufacturing problems. Both of these can be traced back to the fact that there is very little money to be made in generic drugs. They are basically commodities.

Other sources of shortages are due to the fact that the government issues drug companies production quotas for some drugs, which the drug companies aren't allowed to go over even if their competition has problems. My understanding of how this works is that the DEA tells companies A, B, and C that they can each make 20 units of Drug X. Then the FDA tells company C that their Drug X isn't up to snuff and they can't make any more this year. The 40 units that companies A and B make isn't enough to cover demand, but they can't increase their production to 30 units because the DEA has already filed their paperwork.

Somewhere out there, a business model is waiting to be found.

I hope so, because the current one isn't working for consumers. Even with the billions spent on R&D, it turns out that many of the drugs Big Pharma turns out are no better than placebos. It's not hard to see why: a big company spends X amount on each failure and needs a 10X hit to offset the costs. If one doesn't materialize, it's not hard to rig the statistics to show some marginal benefit for a chosen winner, and a big marketing budget and the placebo effect takes care of the rest. Thanks to this model, we've finally conquered the scourges of restless leg syndrome, overactive bladder, and general anxiety disorder.

Actually it's almost impossible to rig the statistics. And every drug on the market has shown efficacy compared to placebo in large tests calle phase 3 clinical trials.

Actually it's almost impossible to rig the statistics.

I would argue that it's actually impossible to economically conduct sufficient studies to reliably predict the efficacy and long term safety of drugs in the general population. And you're right, every drug on the market has passed Phase 3 trials because they're cherrypicked. A big drug company knows how many drugs it needs in production to ensure that some percentage of them are statistically likely to get through Phase 3 trials. To believe otherwise is to believe a drug company would bet a multi-billion-dollar enterprise purely on a research gamble. Is it possible for them to lose? Sure, 'statistically likely' isn't a guarantee. But it's much better odds than depending on stumbling into an actual cure.

Do you have any evidence for that? I don't have any background in pharma, but my background in stats tells me that the odds of passing a controlled study with a placebo would be so low as to be economically infeasible.

If I run a big clinical trial pitting a placebo against a useless drug, the odds of getting the same results from both are low: one is going to appear more effective than another. If I run a hundred of these kinds of trials, I'm virtually guaranteed to see a few cases where one appears much more effective than another. And if I test my worthless drug against an existing treatment that was approved through the same process, I may as well be testing against another placebo.

I'm not suggesting all drugs are worthless; only that drug companies do not need to produce effective drugs to stay in business.

That's not true. Drug companies can't just cherry pick trials to report to the FDA. The FDA is involved from very early on in the process. Furthermore, if the drug company is doing suspicious things like shutting down trials, the FDA will be even more strict in their requirements for approval.

The drug companies don't need to shut down trials, they just need to spread their bets sufficiently to ensure there are some winners. Sort of a VC model, except they have a clearer victory condition in FDA approval. Once a drug is approved, the pharmaceutical equivalent of retail shelf space is assured and the marketing machine can kick in to guarantee profitability. And the FDA has little incentive to prevent marginally effective drugs from reaching the market as long as no better alternative treatment exists. Which it won't, if big drug companies can keep churning out pharmaceutical 'hits' without much regard for efficacy. The system is a self-sustaining money machine for them.

If what you claim is true, and drug companies only get things approved by brute force, then we'd expect just 5% (for p-value of 0.05, as is commonly used) of trials to succeed at every level. But that's not the case.

"Actually it's almost impossible to rig the statistics."

Pretty sure the opposite has been proven, e.g. GSK's shenanigans with paroxetine.

Do you not believe these are actually problems for people?

They're a problem for a lot of people. So many in fact that they fall into the range of normal human physiology and behavior. My point is that for most people, the cures that are being vigorously marketed by drug companies are no better than placebos for many of these 'disorders'. These drugs are an artifact of the pharmaceutical industry business model, which the parent comment acknowledges is broken albeit for a different reason.

There are a finite number of useful small molecules you can use as drugs. If it's costing 3-12 billion to find new ones and even then we are failing we may be at a point where it's time to 'give up' on our existing approach. As an upside we can remove a significant slice of our spiraling healthcare costs. We can also remove a lot of drug related advertizing that has dubious healthcare benefits. Unfortunately, that also means antibiotics are going to become infective in the not to distance future.

On the net I don't think this is a good thing, but it should free up a lot of vary intelligent people to work on other lines of research. Hopefully, we may eventual start to develop the tools to build direct DNA specific medicines on the fly by using the fruits of those other lines of research.

Why the down votes? Diminishing returns is a real issue and randomly testing chemicals until one happens to work for something is hardly the most effective approach possible.

The reason why the cost of R&D is inflating so much is due to relentless addition of new regulations, new requirements, new safety-related trials demanded by the authorities. Add to that that almost every other country has specific requirements that do not fit with what was developed and proven before, and that's just another 2-3 years clinical trial you need to put up with. This is really getting insane and there is science to back all those regulatory differences, some driven by pure ideology.

As you mentioned the patent cliff is looming for a number of big pharma actors, and what this is going to result in is less innovation and more strategic moves to other "easier" markets such as generics or OTC drugs. This is just plain bad for everyone in the end.

Yeah, there are a lot of safety-related things because we keep getting a vioxx every so often that's killing people.

I'm not willing to increase my chance of getting killed by medicine on behalf of someone else's profit margin. They have a big, powerful lobby, they should suggest process improvements. And make some on their end, as well, nobody's charging them billions in fees, they spend that money on the typical big-company waste in the process of complying with those regs.

Note that we still got a Vioxx on the market even though we had those tons of regulations in place. There was a similar scandal in France recently with another drug called Mediator. Truth is, regulations do not replace ethics - Corporations knowlingly allowing patients to be hurt should be punished accordingly - there is no need to inflate regulations further and further, this has never solved the problem, just like regulations in the financial industry will not make crooks disappear.

The analogous argument is that because crime still happens, we should abolish the police force.

I never mentioned about removing all regulations in place. But things can be done to restrict their scope to where they were before, to manage the development of drugs at a more reasonable cost.

Got any examples? The trial process for new medications isn't perfect, but without citing specific failures in the process it becomes to easy to discount the parts of the process that do work.

Weight loss drugs. Three new products were rejected by the FDA last year. Sure these drugs had risks, but what's the cost of obesity in terms of medical costs?

At this point in time the FDA has incredibly high standards of safety for weight loss drugs and not without reason. But what are the costs of the 40% of obese Americans who will get diabetes, cardiovascular disease, etc, etc?

Wait - so you want to take the at risk group and give them a drug that failed human safety tests?

EDIT: I am trying to say that while obesity is 'bad', giving them a drug that adds to their risk levels is not a solution.

If you are still pro your position, bear in mind that you are now throwing dice and hoping that: (people who improve) >= (people who suffer + nothing happens).

Are you qualified to play dice with peoples lives?

One of the reasons why the FDA rejected Qnexa was that one of the components in the drug was thought to cause cleft palates in babies born to mothers who take the drug.

Mind you, this drug is already approved for use in humans. The FDA made the call that preventing cleft palates in babies (mind you the company offered to restrict the label to "non-child bearing women") was more important that reducing levels of obesity.

The FDA "suggested" the company run a 10,000 person clinical trial (estimated at $100M) to prove it didn't.

Did a quick search, 3 drugs were removed and of them 1 had abused rumors in rat trials, the other increased risk for heart attacks and the final was qnexa. Tht was in 2010.

From what it looks like the FDA is going to renew qnexa by April 2012.

He's not advocating giving drugs to anyone, what he advocates is letting the at risk group decide whether or not they want to roll the dice with their own lives. You advocate forbidding this to happen. In other words you're hoping that: (people who suffer + nothing happens) > (people who improve). If you're wrong, then preventing the release of the drug is literally killing people.

Uh. You are taking the opposite position on a random event. It's still a bet.

And we have already gone past "letting the at risk group decide for themselves." it's hard to be succinct and explain the many reasons why we dont use that particular system when it comes to medication.

The discussion should not be about "efficacy and no risks", but the comparison of risks versus the benefits the drug can provide. That should be the only rationale when you go on treatment: understanding the risks on each side. Just like cancer drugs are usually not harmless (side effects can be pretty nasty), they can make you live longer than if you go untreated.

The communication to the patient should be fully transparent, and it should be up to the patient to choose what they want to do, not just regulators.

Public health wise, the US could achieve similar effects by ending corn subsidies and reduce obesity across the country.

@JunkDNA, you seem to know Pharma R&D & patents.

An excellent read on another case coming up before the Indian Supreme Court, regarding Swiss drug co. Novartis's blockbuster anti-cancer drug Gleevec.


I think that judgement might be more important, as the NYT article points out how the US govt is trying to influence the outcome. http://keionline.org/sites/default/files/tpp-10feb2011-us-te...

What are your thoughts on Gleevec ?

May be the real solution is a combination of tiered pricing and cut of all sales revenues by generics. The cost of this decision for Bayer is yet to be seen. Considering the number of users is only a few hundred at the current price point, Bayer should be ok. But, it will be interesting to see a breakdown of r&d costs of bayer in total. Considering India is one of the most popular destinations for clinical trials by drug firms, I cant shrug off a karma play here. http://www.scidev.net/en/health/clinical-ethics/news/fines-e...

Where does all the R&D money go? Somehow I get the impression that developing a new drug involves way too many people and processes and that disintermediation and automation along the R&D chain could greatly simplify and cheapen the process.

First of all, you need the brains to develop the drug. I can't imagine that this involves a team much larger than a pre-series A startup.

Does the development process for creating a new drug promote failing fast?

Does keeping the entire R&D process in house help or hinder?

How far can a team get before it needs to try a drug on humans and how much does it cost to get that far?

Are there any startups that just manage a portfolio of patients with symptoms/diseases/disorders and automatically pair those patients with drugs that might benefit them?

Should the process allow the patient to "price" his or her own life/health, whereby patients can opt in to Phase 1 trials for a lot more money than Phase 2 for example and name their own price in the process?

How much of the money spent is actually (time*wages) for a lot of people for an unnecessarily long process? Is burn rate a consideration when creating a new drug? How long does it take to get a drug to market? Can price be reduced by half by reducing the time it takes by half? Do a lot of people in the process spend their time waiting?

Is drug development in the US far more expensive than elsewhere because the entire healthcare system here is more expensive (vicious cost cycle / positive feedback loop)

Anyways, just tossing some ideas out there because I get the suspicion that pharma R&D is ridiculously archaic.

I don't have exact numbers on this, but it seems like a lot of the early stage research happens in very small teams at universities and biotech companies.

Then large companies like Bayer acquire the research and spend millions on getting it through FDA process.

I know advancements are being made in automation for various research activities and I'm sure there will continue being a lot of advancements there. (The need for automation is fully recognized at the industry level)

Why has the cost gone up so much, and what can be done to reduce it?

It does not go down. The more drugs we know, the harder it is to prove that the new drug you propose is better than current therapy. A proposed molecule that does not have significant advantage compared to the current gold standard will never sell. To put it in another way: all the low-hanging fruits are already taken.

Add to the fact that science progresses; we now know more about the human body and generally everything compared to 20 years ago, so more stringent rules and testing are required.

Classic example: before thalidomide, nobody cares about how drugs work in pregnant women. Now all drugs have pregnancy category (how safe it is to be used by pregnant women) approved by FDA, and figuring out this pregnancy category comes with a cost.

>The more drugs we know, the harder it is to prove that the new drug you propose is better than current therapy.

No it's not. Example:

1980: Drug A is invented to treat illness X, proves to be the most effective

1990: Drug B is invented for illness X, effectiveness is tested against Drug A

2000: Drug C is invented for illness X, effectiveness is tested against Drug B

2010: Drug D is invented for illness X, effectiveness is tested against Drug C

In other words, always compare effectiveness to the current few best treatments. Nothing spirals, nothing becomes harder to prove.

Yes it is. It is not about the cost of comparing 2 products, it is about market saturation. When 2010 came, drug A would be off-patent and evidence for using A would be piling up. As a doctor that cares about his patient, one would very reasonably choose drug A over the still-on-patent drug D which is only slightly more effective but since it's new the evidence is weaker (as in -- will this work for the relevant genetic makeup, disease state profile, microbial resistance pattern for antibiotics, is this better efficacy real and not just some shady number crunching by big pharma etc.), nobody exactly knows the long-term side effects, and it's much more expensive. Do you think that the pharma would spend millions to face this bleak market?

(EDIT: this assumes that drug A works "satisfactorily". Drug D still have a chance if it has markedly differentiating features, say if drug A is injected while drug D is taken orally.)

(as a side note, cancer drugs are hot because of precisely opposite of these -- most are fairly new, those that are old are not exactly pleasant to take, there is no "silver bullet" found yet so there are lots of room for improvement.)

Another take on the market saturation is that when the current therapy is simply already good enough, ie. the "silver bullet" has been discovered. That's the reason why there has been no new drugs developed for headache in recent few years (or pain management drugs in general). It's a totally different story when, say, aspirin was first introduced: there is a lot more room to improve on / differentiate from its side effect profile, pharmacological properties, etc.

for some reason the placebo effect is getting stronger and more drugs are failing in stage II and III against sugar:


I'm honestly gobsmacked that our model of health and physiology is so primitive that it doesn't use the most widely available treatment as a first line approach, which, as you point out, is the placebo effect. Why are so many resources being wasted on developing new chemicals when the brain can seemingly perform the same functions with nothing? I get that for a lot of things you need a physical intervention, but should this not be the last resort as it tends to have the most side effects?

Every time I read a post like yours, I think "Do you really want to treat HIV with a placebo?" But I know that's an uncharitable reading of your position. Which diseases do you propose be treated with placebo primarily?

All I said was try a placebo and see if it works as part of the standard routine. Obviously with a potentially fatal illness you want to use everything in your disposal to stop it. Why would you not use your last resort for something that serious? But then that includes using both physical and psychological treatments. If someone has HIV then the boost that positive thinking delivers to the immune system (http://legacy.lclark.edu/dept/chron/positives03.html) combined with anti-virals could save a life. If it's something like, say, depression or migraines or the flu, then a placebo may well cure it and there's no need to prescribe drugs which have nasty side effects or are addictive. If you can get something for free, why would you not do it?

The placebo effect only really changes self-reported symptoms. It makes people feel much better and that shouldn't be discounted, but it doesn't change things you can make objective measurements of - like whether the patient is alive or dead.

That isn't actually true. Ask any doctor about patients who just lost the will to live. Also read about the research about morphine and placebos, how a morphine blocking drug actually blocked the placebo effect - without the person knowing they got the blocker drug!


Because people will find out it's a placebo, and it will stop working.

That's not correct. Placebos work even when the person knows it's a placebo. All that is required is belief that it will work, even if you have knowledge that it doesn't.

i.e. if they see they got better on the placebo they won't care when they find out - they have clear evidence that it does work.

> You don't need to be an industry expert to grok that those numbers are wildly unsustainable.

Tell you what. When these companies stop being the most profitable in America, or even just when their EPS starts declining, I'll believe you.

Take a closer look at the post, and you'll see that what JunkDNA just said is that is going to happen, and hard. Right now they run about a 17% profit margin [1]. If they lose their cash cows en masse, that's going to go negative, fast. That's not that great a profit margin from that point of view.

What are they going to do then? The only thing they really can, slash costs. It seems unlikely the all the slashing is going to come out of everything except R&D.

We're ultimately going to have to deal with the fact that as a society we've chosen to make it extremely expensive to bring new drugs to market. Basically, our extremely high standards are/were sustainable only because we also gave them patent protection. It is going to be economically infeasible to have both extremely high standards for new drugs, then refuse to protect them for long enough to recoup their costs. There is no law of economics that says a thing must be produced; raise the cost above what can be recovered and what happens is that it won't be produced.

[1]: http://biz.yahoo.com/p/sum_qpmd.html

A workable model may be industry/research partnerships with universities, with heavy government subsidies.

That's generally not a model that results in decreased costs, not to mention that we're in a situation now and for the forseeable future where people really need to stop thinking of the government as a free money fountain. We already can't fund our current commitments, adding yet more billions onto the already huge pile is not necessarily a good idea.

(And don't even think of trying to sell me on it being a net money saver. It won't be after the special interest groups are done with it.)

The money needs to come from somewhere. I'd rather not have the costs concentrated on the sick. We do have plenty of money to fund everything we need if we pull our military out of most foreign countries. I believe that Nasa's annual budget, for example, is roughly the same cost as 1 day in Iraq [citation needed].

In 2011, we spent 700 billion on the defense department, and we spent 1,205 billion dollars more than we took in. It's time to stop thinking of the government as a free money fountain.

I'd suggest it's much cheaper to look into how we could reduce the regulations making it so expensive, rather than throw government money at a problem of the government's creation. At the point where we are seriously talking about the entire edifice collapsing one must take seriously the question whether the costs of our regulatory regime have managed to exceed the benefits. Right now we have a terribly irrational balance between those who are hurt taking insufficiently vetted drugs vs. those who are hurt by not having drugs available for years that turn out safe. The former are visible and the latter invisible, but they are still real. A classic recipe for irrationality.

I'd suggest it's much cheaper to look into how we could reduce the regulations making it so expensive

That part's pretty easy. Reduce the guarantees we require demonstrating the safety and effectiveness of new drugs.

> In 2011, we spent 700 billion on the defense department, and we spent 1,205 billion dollars more than we took in.

We also took in hundreds of billions less than we would have if not for the avoidable economic implosion and earlier ill-advised tax cuts.

The reason the EPS hasn't taken a hit is because these companies aren't stupid. If they can't bring in more money by selling new products, they cut costs instead. Pharmas have been laying off huge numbers of research scientists and slashing their sales forces in record numbers. If you follow the industry, it seems like a major Pharma site is closing completely every few months. In the short-term, this props up the numbers, but the day of reckoning is still going to come.

Should doctors really be finding out about drugs from salespeople?

It seems to me that this is a large part of the problem and perverts the incentives in the industry not to produce what people need but what they can sell.

There has got to be a more efficient way for doctors to discover what drugs are useful to the patients they treat.

Heck, look at the tech startup industry. Very few if any of us learn about new startups from traveling salespeople. We learn about them from websites like Hacker News, TechCrunch, TechMeme, etc.

Do we have doctor bloggers that make an effort to learn about new drugs and discover what is and isn't worthwhile?

I would imagine that the very reliance on salespeople actually makes it harder to bring good, useful drugs to market because the industry generates its own noise for doctors that they themselves need to cut through.

Every pharma salesperson I've ever known has been for all intents and purposes indistinguishable from viagra spam emails in my inbox, except for they have a pulse and "pay" for readership through expensive dinners and other niceties.

The entire drug information dissemination machine is broken.

Why was this downvoted?

I didnt't downvote, but you might be drawing a too rosy picture of the software industry. There are a fleet of travelling salesman paying for dinners and giving away luxury goods . You'll see microsoft throwing big monney around to have it's products adopted. You'll see big industry contractors playing all the dirty games to get to sit at the same table as a big potential client.

It's plenty corrupt when you look at the big fishes, just not as much as the pharmatical industry (yet).

Most profitable? Citation needed. Profit margins are higher in the tech industry--companies like Microsoft, Apple, and Google all have higher margins than pharma. In terms of nominal profits, pharma does not come close to the oil and gas industry.

I don't think there's an unbreakable bond between profitability and sustainability. To use a tech industry analogy, despite making insane profits off of Windows as it is (and has been for 20 years), Microsoft has realized that we've entered a post-PC world, and modified Windows to run on new form factors, such as the tablet.

I really don't see your point. Microsoft's basic business model hasn't changed, their products are just evolving. Drug companies make new drugs and refine old ones all the time. Other than whining by obviously-biased spokespeople for the drug industry, I have no reason to believe their business model can't be sustained indefinitely under the current regulatory regimes.

Did you read his post about the patent cliff?

The majority of blockbuster drugs are about to go off of patent protection. This is where the majority (if not all) of the profit in the industry comes from, as well as a huge chunk of the rests of their costs.

It's an interesting time in the industry but the patent cliff is real and the industry is going to change quite a bit more in the next few years.

The model is absolutely unsustainable - there isn't enough blockbusters in the pipeline to replace the current, not by a very long shot. And we know what is in in the pipeline because remember it takes 7-11 years to bring a candidate from preclinical through FDA approval, so we have a very good idea of what's coming out (and what's not).

Why would we want to sustain the current model again? What's to say that whatever new model crops up in its place won't be better?

I can't really think of any industry that had their business model collapse that didn't come out of it better than they had been.

Individual players, technologies and processes may disappear, but it's not like demand will, and so long as there is demand, there is a potential market.

I agree, but the risk is this: the current model produces the majority of the world's NME's (new molecular entities, or truly new drugs that aren't just old drug + ibuprofen and a new name). We can sit here and talk about what's wrong with the system, but it ignores that this is the most successful system in the history of medicine for producing truly effective pharmaceuticals.

But ultimately I agree, we may be in for a rough transitory period as far as drug research goes, but what arises from the ashes will likely be a far leaner and more effective beast. It's not like scientists care who is paying the bills.

Does the current model produce the majority of the world's NMEs or does the current model simply bring them to market. From another comment on this topic, it sounds as though most novel research happens not in the labs of companies like Glaxo-Welcome or Pfizer, but in university research labs for a couple of million dollars.

If this is the case, I imagine that any disruptions will occur at the C-suite level mostly, paving the way for entirely new ways of looking at the problem of bringing a new drug to market.

This is a common misconception. While the basic research that underpins the biological theory might happen in academic labs, turning basic research into an actual medicine that will a) work and b) not blow up your liver in the process is exclusively the province of drug companies currently. In fact, medicinal chemists (the people that actally figure out how to make the compound and scale up the manufacturing) are almost exclusively found in industrial drug development companies. They don't exist in any appreciable numbers In academia. They are analogous to the rocket scientists at NASA who worked on the moon missions that everyone worries can't be replaced because they have such specialized experiential knowledge.

Every once in a while an academic research lab will spin off a biotech to develop a new compound, but in general this is not how things have been done in the past. There is a current trend to in-license things from academia to lower the companies' exposure to early R&D risk. This ignores the fact that early research costs pale in comparison to the later clinical trials where most potential drugs go to die. Cancer is particularly bad with something like a 98% failure rate. In-licensing from academia isn't going to buy you much comfort when the thing doesn't work in a phase III clinical trial.

Like the GP post says, things are changing for big pharma, just as they are for MS. There's no way to keep up these prices, and the corresponding R&D costs, when (and not if, because it will happen) healthcare gets nationalized and you have one government representative with the monopsonistic power to really drive prices down.

Does anyone else find it appalling that the American government and American companies have the gall to complain about intellectual property violations in developing countries like China and India? Until the late 1800s, American IP law explicitly excluded foreigners from IP rights. That's right, forget about lax enforcement (like you often see in developing nations nowadays) - you could violate foreign IP rights in public view and not a thing would be done about it.

And that's exactly what Americans and American companies did - they went to Europe, took the latest IP, brought it back to America, and copied it. Charles Dickens went on a tour of America to try to get people to buy legitimate copies of his books, which no Americans were doing at that point. By the end of his tour, he realized this was a pointless venture, referring to America as a "nation of pirates". Doesn't sound that different from what contemporary American industry trade groups call China and India, does it?

And it wasn't just international - domestic IP rights violations were endemic as well. The reason the movie industry developed in California was because the movie studios (the same people that are now crying foul about copyright violations) were trying to escape Thomas Edison and his patents on moving picture technology. Not only was Edison's lab in New Jersey, distancing them geographically, but the Ninth Circuit Court of Appeals (which covers California) took a more "relaxed" view of IP rights.

No one else finds it appalling that things in the 1800s are not the same as in the 2000s.

It is a bit appalling that you expect nothing to change in 200 years though.

Read my comment here: http://hackerne.ws/item?id=3699868

It has nothing to do with the year, it has to do with the position of the US (as developing or developed) changing its viewpoint vis-à-vis IP rights.

In the 1800's the US was considered developed in comparison to other countries. (For example the Cotton gin was invented in the US.)

You can't compare developed vs developing using 2000s definitions and at the same time using 1800s definitions for IP laws.

You have to be consistent, pick one era and compare everything using the same definitions.

> In the 1800's the US was considered developed in comparison to other countries.

Not compared to Europe. There might have been some American inventions, but those paled in comparison to inventions from Europe. It wasn't until the late 1800s that things started to change.

> You can't compare developed vs developing using 2000s definitions and at the same time using 1800s definitions for IP laws.

> You have to be consistent, pick one era and compare everything using the same definitions.

For any sort of historical analysis, scientific levels of rigidity are impractical, because there isn't a large enough data set, so your point is moot.

It isn't just with IP protection, but also CO2 emissions, restricting nuclear technology, military powers.

A big case of 'do as I say not as I do' designed to retain the status quo in the order of the world.

All of what you described falls under the "history is written by the victors" sentiment.


You completely missed my point. The reason the US approved the abolition of slavery and women's suffrage has nothing to do with the reason it approved IP protection for foreigners.

The US approved IP protection for foreigners when Americans wanted to start having their copyrights protected in other countries - something that happened when it reached developed nation status. Now, the US is criticizing developing nations for taking the same approach for their own devlopment, and not respecting IP rights until they can afford to.

Not to mention that equating IP rights violations with acts such as enslaving people or not allowing them to vote is the epitome of absurdity.

> something that happened when it reached developed nation status

Nonsense. The US was born as a developed nation, it never had a period of time when it wasn't.

> Nonsense. The US was born as a developed nation, it never had a period of time when it wasn't.

You really need to study history again. There was a big gap between Europe and the US that wasn't closed until the late 1800s. In terms of scientific discoveries (which are often closely tied to patentable discoveries), Europe (Germany, more specifically) continued to lead until WW2, when we broke their PhD lineage with Operation Paperclip.

I think few people would argue that drug companies' prices are reasonable, and when it comes to life vs. death I no longer care much about the "they're a business, they're allowed to make a profit" line - of course it's still true, and of course they are, but there's a (subjective) line between "making a good profit" and killing people through greed.

That said, what pricing would be fair? When people claim that these pills cost bugger all to make, the answer is (perfectly validly) that the second pill costs bugger all, the first one costs $$$$ in R&D. So I don't know how cheap they would have to be to be considered a fairer price, and I've no idea if it's possible for anyone outside the companies to work out - even if you ignore the fact that what's fair is so subjective.

This is a difficult decision to rule on, without resorting to petty emotions, without access to the underlying data. One must balance the incentive for drug companies to develop drugs (and get that development financed) with the price inelasticity of the healthcare market.

There is marginal cost, the cost to produce one more product independent of development cost, and fully amortised cost, which amortises the development (and, holistically, finances future development). Saying we should abolish innovator drug patents ignores the latter.

If we take the assumption that a life tomorrow is worth about a life today cutting pharma's revenues 97% means the development model is unsustainable. The government would have to develop drugs (or promise to refund all or most of the cost of developing a drug that gets FDA approved).

On the other hand we know that, since most people will pay whatever they able to for healthcare, drug companies have too much leverage. The market doesn't function well un-aided.

The problem here is the way this decision has been implemented throws up a lot of regulatory uncertainty. Having an objective framework for how innovator drug companies can be subject to need-based forced licencing (and under what boilerplate terms) would allow pharma companies to plan how to allocate development dollars.

> On the other hand we know that, since most people will pay whatever they able to for healthcare

"we" don't know that. In fact, we know that it's wrong.

When people are spending their own resources, they plan their non-emergency spending.

For example, I'll bet that you don't take the vitamins that you should. You probably also don't exercise as you should. It's money and time that you could easily afford, yet ....

An even better example is that many (most?) folks don't choose the most expensive health-plan at work when they have to pay the difference between it and a less expensive plan.

And then there are Flex spending plans. Folks put money into those plans so they can pay for health care with pre-tax money, giving them lower out of pocket costs for healthcare.

Look at how people handle their deductibles and co-pays - again, they try to minimize their costs.

While assuming that a life tomorrow is worth about a life today might be reasonable, we're talking about research costs for drugs, and the comparison does not hold to assume that a new drug tomorrow is worth about an already existing drug today.

New drugs are often about squeezing out those last few years of life-expectancy, and even if they're not, they're a marginal increase over today's drugs. Meanwhile today's drugs fail to save many many lives because they are unaffordable in order to pay for R&D on new drugs (which will also be unaffordable).

See, the system is very broken on both sides.

But the choice to me seems very clear:

- on the one hand you have +developing new future drugs. except those drugs will only be affordable to a tiny fraction of the world population. additionally this lines the pockets of big pharma and the bureaucracy that keeps the system broken as it currently is ("Bayer was disappointed")

- on the other hand developing new drugs will be slowed down for some time, but all people will be able to afford the many current ones that could be saving lives today, big pharma + your FDA bureaucracy will fail and maybe that opens room for a new and better system to emerge so that R&D on drugs may start once more but in a more efficient manner. All the while lives are being saved and quality of live is being improved because today's drugs are affordable to everyone.

Every drug we enjoy today was once a future drug. Your reasoning promotes the equivalent of seizing all investment dollars from VC and IPO investors and using it to spread existing inventions and innovations to a broader base.

Lives are being saved and quality of life improving...for everyone who doesn't have a disease we haven't yet cured or which hasn't become treatment resistant (biology is adamantly lassez-faire).

The industry needs regulatory upheaval and new ways of financing itself. But if the response is to throw away the ability to recoup the initial investment profitably, medical research will just start devoting funds to making treatments exclusive, e.g. only invest in custom/on-site medicine.

Truth is, clinical trials are mind-bogglingly expensive and takes years for turnover. Also some newer drugs (I'm not sure about Nexavar) are rightfully expensive to manufacture due to requirements in equipment, sterile conditions, etc.

If I were to say anything negative about this it would be that this sets a bad precedent for any new drugs coming to India -- knowing that the government can effectively void out drug patents after certain number of years, the big pharmas probably would not want to set up shop in the country altogether. Does that sound familiar?

This town is no longer friendly for business.

On principle, you are right. However, Rs 2.8 lakh for 1 month of pills is inordinately expensive. It's something that no one but aristocrats will be able to afford. By the standards of the Indian society, I fall in the upper middle class category, and that amount is almost half of my annual salary (more than half after tax deductions). To get an idea about how expensive it is, just think whether you could afford to buy a new car (even a cheap one) every month. Another point worth noting is that most Indians don't have medical insurance, since typical healthcare is quite cheap in India.

Under the new forced licensing terms, Bayer will still be making money. In fact, it might end up making pretty much the same as before, since volume will increase dramatically thanks to the 97% price cut.

Bayer doesn't have a problem with selling cheaper drugs to poor people, they do have a problem when those drugs go onto the grey market and get purchased by those who could afford Bayer's regular price.

That's why drug companies don't do differential pricing, because they can't stop the cannibalization of their wealthier markets.

Exactly. It's very similar to how content companies try to control the release of content and pricing around the world (region codes ugh). If any pharm company sells drug A in the US for $100 and sells the same drug in Africa for $1 then it's an obvious arbitration opportunity. They are trying to prevent the 'flat world' from eating sales by simply pricing it the same everywhere.

That's alright, as an Indian I support this action, and am ready to face the consequences. After all, we have 'socialist' in the constitutional definition of the republic. It's about time we invoked it for a good cause once in a while.

In case of Nexavar, another company is able to manufacture far more cheaply and that says something about Bayer. Either they are unable to manufacture cheaply or they are unwilling to price it cheaper.

Suppose that big pharma stops selling drugs in India. That wouldn't make much difference because the generic drug manufacturers would still make cheap copies of the drugs. The only downside would be that new drugs will take time to be introduced because of the time needed to reverse engineer the formulae and set up manufacturing capabilities.

> I no longer care much about the "they're a business, they're allowed to make a profit" line - of course it's still true, and of course they are,

I disagree here. Pure laissez faire capitalism works no better than pure communism or socialism. You need a mix of both to have a functioning economy and IMO it should be pretty clear at this point that health care works best (cheapest and most effective) on the socialism side. American has the most expensive health care in the world, but not the best service.

So if the businesses make no more money how will the invest in R&D for new medication? Im not advocating pure capitalism but businesses have to make some profit.

I agree that the more socialsist systems work better atm but this does not include development of new medication and equipment. Would you want that in gov hands too?

>Im not advocating pure capitalism but businesses have to make some profit.

Agreed. Which is why health care shouldn't be a business. It leads to perverse profit incentives and it's an inelastic market in any case (you can't "opt out" of care for a heart attack).

>Would you want that in gov hands too?

Not in US government hands, no. But more competent governments could certainly handle this via grants (in fact, I think even the US does this to some degree), etc.

See also the unethical marketing of anti-cancer medication to cancer patients; skirting strict laws in the UK by funding "patient groups" who campaign to have those meds made available on the National Health Service when the meds have been shown to be ineffective.

>I disagree here. Pure laissez faire capitalism works no better than pure communism or socialism.

Relevant citation please.

You're not going to like this [1] source, but it's very well cited. To my knowledge, Chile is the only time true free market capitalism was ever tried anywhere in the world.

[1] http://www.spunk.org/texts/intro/faq/sp001547/secC11.html

> I no longer care much about the "they're a business, they're allowed to make a profit" line

You have to consider both the seen and the unseen: consider the case where a drug is not developed in the first place because the return on investment is (expected to be) forcefully lowered below where it is profitable. Or even more abstract: research is slowed down due to more risk adverse behaviour, delaying a major breakthrough.

Investing in drug development is very expensive and very risky. Very risky investments command a large return on their success.

It's easy to focus on the large sums of money being made on specific drugs, but pharma as an industry isn't inherently more profitable that other industries as a result. The cost of lower prices on successful drugs is going to come from somewhere.

Perhaps the FDA should bankroll clinical trials, subject to a pre-agreed price and a reasonable case that the trial will work out. Monopoly sellers and monopoly buyers is fairer than a monopoly seller.

This would result in:

(1) the FDA regulating access, pricing, and financing to the pharmaceutical industry, effectively nationalizing it, and,

(2) the US effectively bankrolling pharma for the rest of the world (it does this to a large extent already, but this would throw the scales all the way).

It would also have little effect on what innovator (or generic, for that matter) drug companies could charge outside the US.

So instead of private companies employing the top researchers who are jockeying for success in an open market that decides the winners and losers through doctors' and consumers' choices, you end up with winners and losers being picked by politicians, bureaucrats, and lobbyists.

Then when the whole system is ineffective, corrupt, counter-productive, and an enormous wastes our tax dollars (see the current FDA, PTO, DOE, etc.), what will happen? Well, at best, nothing. At worst, the Statists will use the lack of success as an excuse to take over even more of the system. Maybe the FDA would then want to hire the researchers to design and test the drugs in the first place. They would need a bigger budget for that.

In this situation who decides what drugs go into clinical trials? The drug companies are in a much better position to know which drugs are worthwhile, but if they don't pay the price they have to reason not to throw everything at the wall to see what sticks.

"The Bayer price of Rs 34,11,898 per year ($69,000) is more than 41 times the projected average per capita income for India in 2012, shattering any measure of affordability." This is good enough for any govt to act so and rightly done as well!

Also "6% royalty on net sales every quarter to Bayer" that isnt all unfair

Bayer is in it to make money, so presumably the reason the Indian government forced this deal is that Bayer would lose money under it.

So no, it isn't fair.

Keep in mind that the government did NOT force Bayer to manufacture the drug, only to license it. I don't believe Bayer had any interest in pursuing the Indian market whatsoever since it was priced well beyond what the average person could afford.

On the question of fairness: Is it fair for people to die because they can't afford a life-saving drug? I'm sure that's what it boiled down to for the Indian government.

According to my math if Bayer priced the drug over here the same way they did in India relative to average per-capita income the drug would cost around $1.5 million per year. Would that change your perspective?

Maybe, who knows. Bayer reported the price as part of Research Costs etc, maybe true! But at the end Question stands - "Was the price fair?" I dont think so!

So wait- am I reading this right? Essentially Bayer didn't sell the drug cheap enough, so the Indian Gov't gives an Indian company the 'right' to copy the drug and send Bayer checks for 6% of the proceeds?

And on the flip side of intellectual property, the US is able to extradite a kid over piracy of TV shows? (http://news.ycombinator.com/item?id=3699325)

Neither seems right to me. Maybe they aren't the same thing, but if ThePirateBay was sending the MPAA checks for 6% of what they made on the site, and saying "This should make it right, you weren't cheap enough so we distributed it ourselves" then the US would be trying to seize and detain people involved.

Hasn't India signed some intellectual property treaty with... well pretty much the rest of the world? How in the world can they do this?

And totally on the flip side- props to India for sticking it to the man. Kinda...

This may end up hurting India not helping.

In order to get a drug approved in India, you need to run clinical trial on Indians. You also need to go to through the regulatory process, which isn't cheap.

If drug companies fear that the millions they spend on getting a drug approved in India won't be recouped because the gov't issues a compulsory license, then they simply won't do it.

I mean think about it... if introducing your product to a new market resulted in a net loss, would you do it?

The really simple argument is that at the previous price very, very few people in India could afford it. So in the end it is more than likely that the revenue that is gained is higher than it would have been at the very high price.

No, I can't argue that's not true. We don't really know what Bayer's strategy was here. For all we know they could have told the Indian gov't to shove it. In that case, they gambled and lost.

Or, they could have offered the drug at 25% of the original cost and the gov't could have told them to shove it.

It would be interesting to see how much money was lost or gained by Bayer based on this. I assume that usage might go up by at least a factor 20 in India (and their production costs go down) so those 6% might actually be a fair deal in the long run.

Fewer than 200 Indians used the drug in 2011; impact on sales should be minimal [1]. Bayer's concern is probably the export of these generics (illegally) to other places where it sources more sales from.

[1] http://www.nytimes.com/2012/03/13/business/global/india-over...

Only 200 people bought it because the price of the drugs is ridiculously high. Even people who are dying would not have been able to afford it.

remember that Bayer won't have to manufactor it, someone else does. They get a cut (6%) without having to do any work

They already did the overwhelming majority of the work. Developing that kind of stuff is expensive. I've seen estimates of ~100MM USD quoted for the discovery of a new drug.

As others put it, the manufacture of simple chemicals in the quantities involved in pharmaceuticals is effectively free. As in, give me 100k and I'll be able to make enough of the drug for the whole world for the next hundred years. The packaging of most pharmaceuticals is more expensive than the manufacture of their contents.

The cost is overwhelmingly in R&D -- finding the chemicals, proving it doesn't kill people, and proving it actually does something useful.

Don't forget a huge expense: Battling lawsuits (mostly frivolous) from users of the drug and potentially paying out huge settlements.

I propose the following solution.

R&D stays in private sector. All successful drugs are bought by the government at the cost of R&D and a sizable profit. The government, then, distributes it. Government can control the distribution and Pvt. markets can control the invention.

Government can then tie up with other govts. and allow sales of the said medicine in those countries.

It's not an ideal solution, but it has best of both capitalist and socialist ideologies.

So the government then picks "successful drugs" and hands out massive amounts of money to those companies based on the definition of success as determined by politicians, bureaucrats, and lobbyists.

Sounds like a nonstarter to me.

I'm not advocating for the proposal necessarily, but it's worth pointing out that a solution could be all kinds of bad yet still better than the mess we have today.

I don't agree with that.

We could really screw up an industry that has been phenomenally successful at producing drugs that everyone agrees have provided incomparable and vital life-saving solutions.

We should be extremely sober and careful about messing with it and mindful of our ability to destroy the benefits that we already get today. I've seen too many comments in this thread along the lines of "They make too much money" or "The Government should take over the industry" or "Something radical needs to be done right away because 'lives are at stake'".

Statements and positions like those set off my warning alarms.

How about, "they spend more money on ads and sending hot 23-yos to doctors' offices with free schwag than they'll ever spend on R&D".

Again, I'm inclined to agree with your criticism of that particular proposal. And I'll agree that there are things that are worse than the current state. But the current state is pretty bad, and imperfection is not a disqualifier for "better".

That's funny, because I was thinking it should be the opposite: R&D by government scientists so that discoveries can be made available to the public as cheaply as possible.

Excuse me for not being cut up about how the BigPharma companies will be pulling in a few less dollars. Thinking about some of the corrupt and downright unethical practices employed by these companies - this would almost seem like just payback.

- They use Drug trials in lightly regulated developing countries to get FDA approvals for medicines. There was a famous case in India last year I think where 10-12 children died due to an experimental vaccine. The company involved was one of the biggest vaccine manufacturers in US. That case got hushed up quick.

- Drugs that get banned in US/Europe get dumped in Developing countries where the science/regulation may not have caught up yet. So even when the deadly consequences are known, these companies push dangerous medicines.

- Medical Reps employed by these companies routinely pressure doctors to over-prescribe expensive medicines. for a uneducated public this ends up costing them more for the same effects.

Against the backdrop of these practices an occasional such judgement is indeed good news against these companies.

Stanford has a set of awesome podcasts called Entrepreneurial thought leaders (http://ecorner.stanford.edu/podcasts.html).

One of the more recent ones was from a serial entrepreneur in the medial space.

He said the reason that drugs take so long to produce is the FDA process. Now the FDA is housed by smart people but you have to look at it from their prespective.

They can accept or reject drugs. If they reject a drug then there is no serious problem that can come back and bite them.

If they accept a drug, there is no real upside to them.

They get no bonus for accepting the drug, however if the drug turns out to actually harm people then they are squarely in the cross hairs.

This leads to the question of why would the FDA accept any drug without being 100% sure, and with medicine there is no such thing as 100% sure.

My guess is that this is not so much about saving patients from cancer than it is about saving polititians during the next elections.

Government was forced to make such decision because Bayer sold these drugs at a price unaffordable to most Indians. This to me seems like a very stupid decision from Bayer's management. The shareholders must act against the board now.

however because of such decisions companies will find it risky to invest in life saving drug research. I think government should also take some steps to win their confidence.

>> however because of such decisions companies will find it risky to invest in life saving drug research.

I disagree. That mentality is precisely the reason that they are overpricing now (and always have done so) as much as they can. People will always need life saving drugs, and ordinary drugs as well. Terminal and cronical patients will always try both traditional and new drugs (or the state will provide it to them in case there is health care). There is absolutely no need to overprice because any price will eventually give a fair ROI for them.

What they do instead is maximize profit at the cost of human life.

On a different light, a lot of research is funded by government entities worldwide, and even if pharmaceutical companies do their own research, they certainly reference other research that is also publicly funded. Thankfully some states do care a lot about their people and will challenge them. India is doing so now, Brazil has also broken HIV drug patents (they cover the full cost of treatment through Health Care) and I hope to hear more of it from different places.

You're talking about an infinite timeline where they are the sole seller of a drug that is used indefinitely.

This is false.

When patents expire the drug is also made by generic drug making companies for cheap. So upper bound of getting a ROI is the lifetime of a patent (30 years for drugs iirc, 10 years longer because it takes about 10 years to develop, so still effectively 20 years).

For every drug that is successful, they pour tons of money into drugs that are eventually considered useless. So the R&D isn't solely for the one successful drug, but also for the losses.

A competitor might come in 5 years with a drug for the same problem, that works better. Now the timespan for any ROI has been cut short to 5 years.

Looking at the profits of pharmaceutical companies: sure, most medicine is probably overpriced. But saying that they can get a good ROI at any price is false. They will need to recoup the billions spent on R&D.

Well, personally, I think the model is broken. One of the real issues here is that there are effective treatments for many conditions which do not get to market because they are unpatentable. For instance, St John's wort, which is about as effective as SSRI's is rarely used because it hasn't been through enough trials.

Claiming that the cost of clinical trials is the major reason that the drugs need to be priced that high is true, as far as it goes. The issue is that the pharmacuetical companies lobby for more regulation to keep out other treatments not backed by themselves. In addition, they focus on drugs that can cure lifestyle choices (obesity, for example) as rich people can afford them and these will provide a good ROI. Malaria, a disease which is eminently treatable is not focused on as it is a disease which effects poor people.

Another major issue is that the companies suppress negative research and studies which show defects in their products. Its an extremely broken system.

What I would propose is the following:

1) new development of drugs should be carried out by private companies and universities.

2) Patents arising from this research should be under a compulsory licensing scheme, based on the outcome of clinical trials.

3) Clinical trials should be paid for directly by healthcare systems, to avoid duplication of research and to prevent the suppression of negative research.

4) Manufacturing should be completely separate companies who can tool up and down plants. Currently, plants get built in anticipation of approval and then shut down if problems arise, which is extremely wasteful.

This would allow the private sector to retain development and manufacturing (but in different companies) and the governments would have much more incentive to conduct good clinical trials, and the results would be public so others could re-analyse the data and find better links with conditions, drugs and outcomes.

Ok, I might have exagerated.

The thing is, when a company chooses to manufacture pharmaceuticals, it shouldn't just be 'business as usual' for them. They must realize that they have a social responsability to undertake besides making a profit, and that is even without a proper regulamentory agency or something of the sort.

Most countries have some kind of social welfare, so maybe these companies could have differentiated deals with those programs and still price whatever for those can afford it. It would both cover a market they wouldn't otherwise reach and not jeopardize those that imperatively need treatment and can't afford it otherwise.

But surely the social responsibility to help people isn't just limited to pharmaceutical companies? I mean, if you tell rich people that they don't have any responsibility to help sick people in India until they invest in a medicine company, and then suddenly they have to spend huge amounts of their investment helping those people then I think that's a bit unfair, and more importantly saying that will cause a lot of people to avoid investing in medicine.

Ultimately, matters of social responsibility ought to be governed by the government, using taxation to spread the burden equally among everyone who can pay.

The reason why it's expensive to develop drugs is in large parts because of the process involved to get the approval.

Couldn't you turn this on it's head?

What if the companies could expense the cost of getting the approval. I.e. the tax payers pay for drugtesting and approval process.

Wouldn't this make sense? Since it's in the publics interest to get safe medicin, shouldn't they/we pay for that part.

because drugs are a hit based business. a large number don't get through the approval process. your proposal would socialize and subsidize the downsides of an already very profitable drug industry while privatizing the upside

But the downsides are largely due to government demands of safe drugs no?

The prices of the drug includes the cost of development. So if you remove that cost you would decrease the price.

You risk everybody threwing some shit into the pipeline. Now they have to think about if the really want to trie to get it threw.

I am not sure I follow?

It would force the governments to develop better and cheaper systems themselves to make sure that they can test for cheap.

Surely the current scenario isn't working is it?

> Surely the current scenario isn't working is it?

How so?

Are not drug companies finding drugs that people desire a great deal for their life saving and other efficacious properties?

I'm guessing that you don't like that newer drugs are too expensive. What would be your definition of "too expensive" and what would be your proof that such a situation exists?

Wow that was a lot of assumptions :)

The current scenario isn't working IMO if the majority of the cost comes from the approval process.

Drugs for me er fairly cheap as I come from Denmark.

With regards to proof. The article we are debating here is proof that since the production of a drug is extremely cheap the development of it is extremely expensive.

Surely that cost can be cut.

What I was trying to say: When the goverments pays for testing how will you stop brute force testing?

> It would force the governments to develop better and cheaper systems themselves to make sure that they can test for cheap.

I doute they cool do that.

> Surely the current scenario isn't working is it?

Well like most things it kind of works but is not very effective.

I agree its not very good right know but I don't know how to change it.

>> It would force the governments to develop better and cheaper systems themselves to make sure that they can test for cheap.

>I doubt they could do that.

While I disagree with the OP's point in general, this is probably true in a way the OP didn't intend. When testing, each unit of thoroughness you add costs the same amount but catches fewer and fewer mistakes. You generally want to stop adding more tests when the cost of new tests (in drugs that are too expensive to develop) exceeds the cost of letting bad drugs through. The research I've seen shows that not only is the FDA well into the point of diminishing returns, its also probably into the realm of negative net returns on drug testing. Probably because there's a huge public outcry when a drug they approve ends up killing people, but no outcry when I drug that could save lives isn't developed due to too much testing. If anybody has more research on the topic, however, I'd be happy to see it.

I would stop brute force testing simply by putting a limit on it.

As far as I know there are some pretty standard procedures you have to go through. Surely it must be possible to somehow validate and verify whether someone is trying to take advantage.

You can't hinder some taking advantage of it, but you don't have to IMO.

>I doute they cool do that.

Of course they can, just like then can improve many other areas in public service.

>I agree its not very good right know but I don't know how to change it.

Well I for one think its more fair to accept some fraud to make it cheaper for everyone else if possible of course.

Did I say something that was factually wrong?

I have no idea when it was first public knowledge that the Indian Govt were considering this option and when it was finalised. But since Bayer AG's share price in part the markets sentiment of their potential future earnings, and their share price has done reasonable well over recent years, I suspect the market doesn't see this as a major issue.

Bayer's current market cap is a fairly significant EUR45.93bn. So even with the "patent cliff" that JunkDNA discusses, it seems people still expect big pharma to be profitable.

This is a late stage cancer drug, delays death by 6 months to 5 years for liver and kidney cancer patient. Even after 97% reduction most Indian households may not be able to afford it .

Government wants to buy it and distribute through government and aided hospitals, that is the principal reason behind it.

According to statistics there about 200 Indians using it, even if can save a additional thousand lives it is worth passing this compulsory licensing

Bayer shareholders should hold the senior management accountable for not caring enough to bring the drug to more than 2% of the Indian market.

And if they lower the price drastically in India and then are accused of gouging their customers in other countries?

When they lower the price of the drug in India, a gray market arises that resells the drugs to other countries. The presence of the gray market creates yet more opportunities for scam artists to sell fake versions of the drug, creating yet more victims.

My point is that this isn't as cut and dry of an issue as you imply.

Human lives are at stake, there's nothing more cut and dry than that. We need to stop trying to make our reality fit our models and start adapting our models to fit reality. This whole business is backwards.

Human lives are at stake if we screw up the drive to discover new drugs that will save future lives.

Imagine if you had eliminated Bayer's incentive for even creating this cancer-saving drug in the first place. How many lives would you have ended prematurely? Imagine all the new drug research that depends upon Bayer's initial research that will save yet more lives.

Like I said, it's not so cut and dry. The pharmaceutical industry has had quantifiable and demostrable success at a level that is almost unparalleled in history. But your claim is that it's backwards.

I think your statement is inherently backwards. The "reality" is that the pharmaceutical industry produces something that society has found to be extraordinarily valuable. The people I see warping models that don't reflect reality are the ones that disregard the cost of keeping the pharmaceutical rate of discovery going.

I'd love to see improvements to the industry, but "human lives are at stake! It's all backwards!" along with the "senior management should be held accountable" just don't seem to be statements that head is a direction of improvement.

>Imagine if you had eliminated Bayer's incentive for even creating this cancer-saving drug in the first place.

It's distressing that people think that the only possible motivation for inventing life-saving drugs is money.

Lots of people want this and lots of people want to put in the work. Our governments are supposed to be representing us, right? In fact, they are already one of the main contributors to cancer research (http://kcl.academia.edu/RichardSullivan/Papers/263427/Trends...). So why are we leaving it to profit hungry organisations to literally save our lives? If governments do all the research instead then they can all collaborate and share each others' knowledge. That way everyone gets access to everything just by doing their part. It's the open source, creative commons approach to the problem. People can pay a company to do research just so that company can turn around and charge them a fortune or they can pay the equivalent amount in taxes and get cheap product with guaranteed access.

Business is useful for a lot of things but definitely not the basics. They need to be kept simple, cheap and reliable. Only way to achieve that effect is through collaboration, not competition.

>The pharmaceutical industry has had quantifiable and demostrable success

Then I guess our definitions of success differ. To me, success is not in how big their turnover is but what kind of an impact they make on the world and how fairly they treat it. I don't blame anyone for these kinds of actions, their monkey spheres (http://www.cracked.com/article_14990_what-monkeysphere.html) are full and they can't empathise with the people they affect. They're just reacting to the rules of the game. And that's what's backwards - the game, but we can choose to play a different one.

I don't want to make assumptions. What's your argument?

You have made a series of statements, but they don't follow logically at all.

Yes human lives are at stake (but then they always are), yes our models should follow reality as closely as we can if they are to give any useful predictions.

But what do you mean the business is backwards? Surely they are trying to make money.

>Yes human lives are at stake (but then they always are), yes our models should follow reality as closely as we can if they are to give any useful predictions.

I would argue that our models do not follow reality closely enough given that there are people who cannot afford to have their lives saved. If our model yields such results then it ought to be rebuilt or refactored.

>But what do you mean the business is backwards? Surely they are trying to make money.

As in peoples' business, what they do. To rephrase, the business of how we handle healthcare research is backwards. The part of society responsible for that should not be in the mindset of making money but that of saving lives.

Yes human lives are at stake. All the people who invested their stock money in Bayer and plane to retire some day. All the people who depend on the drugs the company makes and so on.

Surely this was market was considered but more likely than not abandoned due to fears of arbitrage?

Why not just do what the Greeks did? Pay for all the drugs with government bonds that are worth nothing. That'll work just as well.

Special powers? They mean by force or arms. There is nothing special about theft except when a government does it they are pretty much immune to counter actions.

This is little different that Greece having passed laws allowing them to retroactively change bond agreements and then implement said changes they claimed were now legal under their laws.

Now if India decided to pay a reasonable fee to Bayer for the ability to have a national drug company manufacture them then I would see little issue here.

Instead they are simply passing the costs to other countries. As in, let those "rich" countries pay for the development of medicines and countries like India will simply steal what they want with impunity. How different is that from what the Chinese do to manufacturers of cars, electronics, and other technology not developed at home.

The cost is simply borne by people they don't have to see or care about. Yes I know the drugs are expensive but development of new medicines is not a cheap endeavor. To have government arbitrarily decide who can charge what and when will simply trade a few lives today for a potentially larger number in the future, that larger number arises because potential treatments may be deemed to risky to research under the threat of confiscation.

Related NYT article with some more facts & insights


Perhaps making drug companies non proffit to ensure all money went back into developing new drugs and perhaps less proffitable drugs (i.e. Drugs targeted at the developing world).

finally atleast 1 government has the common sense i was waiting for!

That "special power" is commonly referred to as theft.

Would love for any down-voters to tell me how I'm wrong...

$5500 a month per person? Bayer are scumbags, serious, serious scumbags.

Do they think cancer is just going to stop happening so their profit will dry up?

Kudos to India for doing the right thing, I think the 6% royalty is a nice offering.

Bayer said it was "disappointed" and would "evaluate options to defend intellectual property rights" in the country.

Down-vote me if you like, but I get sick to my stomach when I read sentences like this. If someone is able to deliver and sell the anti-cancer drug by 97% cheaper than you, then in my eyes you have no right to interfere. I am starting to dislike the whole concept of intellectual property and patents and copyright. These are tools of greedy people and bring nothing to the table for the wider audience. No one creates anything just by himself. You are always building on the work of others and merely deriving, combining, changing and mutating it. Whether you do it consciously or unconsciously. It is the principle of cultural evolution and it is why we are where we are. If intellectual property was always practiced the way it is today, I fear we would still be in the Middle Ages.

You seem very poorly informed about the subject. While I don't agree with the vast amount of lobbying a lot of pharma companies do, which in itself increases costs, the costs of R&D and the process of approval are huge.

Get rid of drug patents, bye bye new drugs without direct g'vmt funding. Drugs are trivial to reverse engineer, incredibly expensive to invent.

There is also a massive amount of drugs that go nowhere, often even failing at major trail stage, so the successes pay for the failures.

The problem is that the govt is providing an artificial barrier to entry by other companies which protects the profits of the big pharma. Because of it the pharma companies have no incentive to reduce prices . They would rather spend the money on lobbying

Very true, so it's ironic that so many posters in this thread are advocating knee-jerk solutions that hand even more of the pharmaceutical industry over to the government.

Our government is fundamentally broken and the source of a good portion of the problems in the health care industry... so let's sprinkle some more government in there!

Seriously, the government has plenty that it can do by providing more transparency in the industry, streamlining and correcting problems in the Patent office and at the FDA, stopping collusion and price fixing, and examining the length of patent-granting-monopolies to ensure that profiteering isn't too far out of whack.

If someone is able to deliver and sell the anti-cancer drug by 97% cheaper than you, then in my eyes you have no right to interfere

... Provided that that "someone" also bears their fair share of the cost of discovery and clinical trials. THAT is the issue here.

also don't forget that for these companies the poor people in India are the subjects of clinial trials.

The mindset of these companies of treating the poor people as Guinea pigs is also disgusting

671 reported deaths http://www.business-standard.com/india/news/human-rights-pan...

There is no count of no of people who get disabilities but don't die due to trials failing. Who will pay for these? These pharma companies are steered by greed

I am referring to FDA trials, in the US, which can take over a decade and cost 8- or 9-figure dollar sums. These are required before the drug even comes to market.

US clinical trials often involve a second, parallel clinical trial in India, because it's easy to find lots of poor patients in desperate need of treatment. I think that, at least in some cases, this probably works out well for everyone except the control group.

But if poor Indian patients are going to test these drugs, the GP can certainly argue that poor Indian patients should be able to afford them.

I think the recruitment rules are just more lax in India, than in the US.

They cannot afford clinical trials in developed countries, so they turn to poorer countries.

India is one of the biggest hub for most of the pharma's clinical trials due to huge poor population. The rules are lax and they take advantage of it. Lot of people die and many turn paralyzed or disabled permanently due to drug's unknown side-effect.

These corrupt pharma companies want to use India as it's test-bed but want to sell the drugs tested here at an abysmal high price such that it is even out of my reach (even though I am well off).

Yes, it would be great if the Indian govt financed research into new medicines. India already makes a lot of the world's generic drugs. They could move up market and actually create new drugs. A win-win for [just about] everyone. Perhaps fund one of the IIT's and have it work with industry.

Those costs could be covered by the government in this case and they should increase the investment to match all money lost on dead end R&D and add standard going rate profits on top - on the grounds that it is a market failure of public good - R&D. Also the costs will be covered in the richer markets. I'm no fan of government interventions but the fact that we are having a debate around intellectual property shows how dire things are.

Covering bad R&D deadens the incentive for firms to do R&D efficiently - it's structurally identical to the implicit guarantees that are proving so problematic in finance.

I'm not saying cover bad R&D - I'm saying cover bad R&D costs for companies that did the good R&D you want to use - because that costs would usually be covered by the profits from good R&D - this is how you structure investing - you make several risky shots so that the one that succeeds pays for the failures - it's a good way to determine "the proper" amount of profit, if you just repay the investment in profitable R&D you will actually lower the investments in the sector.

Anyway the point is moot because R&D costs will probably be paid in the US and other richer markets, India could simply take a free ride. If everyone wanted to do this then you would need to find a way to compensate R&D investments.

Then we get into the case of having to monitor companies to make sure their bad R&D budget isn't being inflated to give them additional profit.

Better to just negotiate cleanly with the company for the drug you want, and sell it all on your own market like the NHS does.

>Better to just negotiate cleanly with the company for the drug you want, and sell it all on your own market like the NHS does.

Well that's what I meant negotiate a "fair" price that would encourage further investment but you don't overpay - the problem is that unless you have competition/substitutes you can't have market pricing so you need to have a good estimate of "fair" price, eg. say a company comes up with 100% effective HIV cure tomorrow - no competition, nothing comes close, a lot of people would pay gold for that but well over investment/production cost and profit is in many multiples of going rate. You would say "fine" obviously there's a high demand - but the reality is that the demand is inelastic and supply is artificially restricted by a government granted monopoly - reverse engineering costs + production cost would allow a lot lower prices, so you aren't benefiting the consumers (the discovery has already been made) or optimally allocating resources (you have recovered investment/production costs, earned standard profit rate and then some) the thing you earn on top of that is deadweight loss from rent seeking so you need to come up with some metrics to avoid that and also set expectations for investors.

If a company takes on debt to finance development, then "the discovery has already been made" isn't the same as "the discovery has already been paid for".

No I'm just saying that you aren't benefiting the consumers after the discovery has been made anymore than a generic copy because copying knowledge is free/it's not a scarce resource once discovered. You might not cover your investments which is why I say you should be compensated for your invention based on the estimated investment cost, plus any other investments made and profit on top of that.

All I'm saying is that if we accept that there is a market failure where you can't recover your investment because you don't have enough advantages on the market (without IP) we should consider compensating the innovator in a way that would stimulate further investment in the area, and when that is the objective you can measure/model what is the minimum profit incentive you need to provide to guarantee acceptable levels of R&D investment.

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