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Tilting at Windmills

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November 16, 2006
By: Kevin Drum

PRESCRIPTION DRUGS....With the battle for majority leader out of the way, Nancy Pelosi can now begin to concentrate on her legislative agenda. One of the top items on that agenda is allowing the federal government to negotiate prescription drug prices with pharmaceutical companies, a common-sense proposal that would result in lower costs for both the government and for senior citizens on Medicare.

But wait. If the feds negotiate prices, then prices will go down. And if prices go down, pharmaceutical companies might make less money. And if pharmaceutical companies make less money, they'll do less basic research and churn out fewer lifesaving drugs. As Jonathan Cohn says in The New Republic, this is "a potent argument." It's also probably wrong:

The most important basic medical and scientific research that leads to major medical breakthroughs usually takes place under government auspices typically, through grants from the National Institutes of Health. In other words, taxpayers not drug companies are the ones financing the most important drug research today. So, even if the pharmaceutical industry did reduce its research and development investment because of declining revenues, what we'd lose probably wouldn't be the next cure for cancer it would be the next treatment for seasonal allergies, and likely no better than the ones we have already.

Cohn also addresses some of the other arguments for insisting that the government should pay above-market prices for prescription drugs, and finds them all wanting. Read the whole thing.

Kevin Drum 5:38 PM Permalink | Trackbacks | Comments (154)

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Comments

so, the fear is that, if we try negotiating, then the pharma companies are going to negotiate themselves out of business ? if they're that stupid, they don't deserve to be in business.

Posted by: cleek on November 16, 2006 at 5:43 PM | PERMALINK

Can Pelosi add to her legislative agenda some sort of law that bars TNR from commenting on anything that happens outside of the US border?

Posted by: keptsimple on November 16, 2006 at 5:44 PM | PERMALINK

Kevin,

Nothing is more important than Iraq! I've tried to forgive the misguided HAWKS (spit) who wanted this war of choice, but every time I read articles like this my anger at you and your ilk flares anew. You were dead wrong, Kevin.

You ruined a country; youve set generations of people against each other because you wanted vengeance. I know you've apologized and you've got your excuses (misled, bad execution, etc.) but that and a shovel have helped you bury a generation.

I can never forgive you HAWKS (spit) who wanted this war.

Posted by: F on November 16, 2006 at 5:46 PM | PERMALINK

So you mean the Democrats really are FOR big government spending programs??

actually, nitwit, they're trying to reduce the cost of the plan the Republicans created.

Posted by: cleek on November 16, 2006 at 5:52 PM | PERMALINK

Or, bringing up Articles of Impeachment when they said that was off the table ; )

Posted by: Jeffery on November 16, 2006 at 5:52 PM | PERMALINK

cleek nailed in on the first post.

Besides, these guys spend more on advertising than they do on R&D, so what exactly is their beef?

Posted by: craigie on November 16, 2006 at 5:54 PM | PERMALINK

and Reid's got some good ideas, too... like, criminalizing deceptive robocalls and misleading campaign literature.

goodbye GOP.

Posted by: cleek on November 16, 2006 at 5:54 PM | PERMALINK

No, no, Kevin! Just as a rise in the minimum wage will increase unemployment, a loss of profits will prevent big pharma from finding a cure for dandruff. This is so because conservatives say it's so.

As for Down goes Frazier:

Disgruntled, are we? Well, maybe you should try winning some elections.

Posted by: Alek Hidell on November 16, 2006 at 5:55 PM | PERMALINK

I must admit that I find the argument, that pharmaceutical companies really don't do the important research, hard to reconcile with the notion that government must buy pharma's products for people. In other words, if what pharma R&D does is really so unimportant, then why all the fuss over the prices they charge? Just don't buy the products.

Posted by: Yancey Ward on November 16, 2006 at 5:57 PM | PERMALINK

Haven't read the linked article yet, but I went through this in exhausting detail with Sebastian at Obsidian Wings about 6 months ago, and it's just another zombie argument.

It's true that a lot of the high-risk work is done with taxpayer dollars -- that was, after all, the idea when Vannevar Bush proposed, and the government adopted, the whole government-academia partnership thing way back in 1947 -- but a lot of the EXPENSIVE work is done by the pharmacos. That basically includes all the late-phase clinical testing, which is (or should be) much lower-risk from the point of view of the potential drug, but is very expensive because it's being done on large numbers of human beings, so that sufficient data can be collected to be reasonably sure that the drug should be licensed for sale. For a typical drug, that process costs on the order of, say, one to three hundred million dollars, oh yes, and that's serious money.

But of course, a successful drug makes that money and much more back again, so it's a good business risk.

And importantly -- and here's the kicker -- the pharmacos spend that much or more MARKETING the drug once it's licensed. That is, a big part of the money that the pharmacos claim they need for "basic research" they actually spend on TV and magazine ads that show people running through fields of flowers, or flying kites, or flying kites in fields of flowers. That type of spending has ballooned extravagantly in recent years, and it's part of the reason pharmacos are in financial trouble.

So ... no terrible tears for cutting the poor dears' profit margins. They'll just have to cut back on the TV ads (and the doctors' "conferences" in places like Maui and Aruba). But they won't go out of business. There's still too much money to be made.

Posted by: bleh on November 16, 2006 at 5:58 PM | PERMALINK

Just don't buy the products

the research we pay for often leads to medicines they patent, thus bottling-up that research. if a good drug comes out of research we paid for, but we don't buy it from the only company legally allowed to make it... nobody benefits.

Posted by: cleek on November 16, 2006 at 5:59 PM | PERMALINK

bleh,

Why, do you suppose, any company spends on marketing? Why not just book the entire costs to profits and be done with it?

Posted by: Yancey Ward on November 16, 2006 at 6:02 PM | PERMALINK

cleek,

Then you would agree that the R&D the pharmas do really is important, just as important as the government supported research.

However, even with this position, it is still possible not to buy the products until they come off patent. Almost every drug under patent today will be generic within ten years. Another option is to simply buy out the rights to drugs under patent, if it is deemed important enough. Believe me, pharmas are perfectly willing to sell the rights-all it takes is negotiation.

Posted by: Yancey Ward on November 16, 2006 at 6:08 PM | PERMALINK

Kevin's trying to play "Bad Cop, Good Cop" with The New Republic all by himself today.

Posted by: David in NY on November 16, 2006 at 6:08 PM | PERMALINK

"The most important basic medical and scientific research that leads to major medical breakthroughs usually takes place under government auspices typically, through grants from the National Institutes of Health."

This pretty much shows zero understanding about the path from 'discovery' to 'treatment'. The most important basic medical and scientific research that leads to major medical breakthroughs tends to get you sort of close to a first step toward getting a remedy. For instance when an NIH doctor discovers a "chemical pathway" of the sort that gets hyped in Newsweek, we aren't anywhere near a therapy. The ratio of promising pathways or targets at the NIH level that get absolutely nowhere at the clinical level is (and I'm not exaggerating at all) 1:1000. The path from the kind of discovery that Cohn writes about to actual therapy involves quite probably dozens of failed start up pharma companies, and hundreds of failed trials. All paid for by the drugs that do make it through the pipeline.

I know I say this every time the issue comes up, but please read Derek Lowe on the subject. I specifically reccomend going to his right-hand sidebar and clicking on:

Me Too Drugs
Academia vs. Industry
Drug Prices
Who Discovers and Why
and if you have lots of time:

Drug Development
Patents and IP

You will find that he is not a reflexive defender of the pharma industry (he sees its warts and identifies them--see especially the Claritin/Clarinex issue) and that he is respectful of government research, but you won't find him agreeing with the silly NIH primacy stuff that Cohen and Angell are spreading around.

Posted by: Sebastian Holsclaw on November 16, 2006 at 6:09 PM | PERMALINK

From a "Church of the Invisible Hand" standpoint, it's a totally bogus argument that "removing drug company's ability to profit will destroy drug R&D".

This is because the Government already meddles in the Free Market by providing a monopoly in the form of a drug patent. In fact - large pharmaceutical companies have been major players in the extensions of copyright from the original Constitutional definition of "a limited time" (7 years) to all the ridiculous extensions and special stipulations copyright and patent law has today.

There's also the argument to be made, that if a company is sucking off the government teat (ie. a government-sanctioned Monopoly), they have no incentive to compete with other companies (in terms of R&D for new products, or expanding capacity). And in the long run, this makes these companies LESS healthy, less competitive, and ripe for takeover by foreign interests.

In any case - you can't make a "Free Market" argument because there is no such thing anymore. The government has already intervened.

Posted by: Impeach.Remove.Convict.Punish.Justice on November 16, 2006 at 6:15 PM | PERMALINK

If you want a cure for cancer, fund the NIH. If you want a 6 hour boner, fund Big Pharma. Hmmm, maybe that's not going to help the argument...

Posted by: ecoboz on November 16, 2006 at 6:16 PM | PERMALINK

Believe me, pharmas are perfectly willing to sell the rights-all it takes is negotiation.
Posted by: Yancey Ward on November 16, 2006 at 6:08 PM | PERMALINK

The government can take away my driver's license if I abuse my driving privileges by driving recklessly.

Why doesn't the government ever revoke a patent?

Posted by: Impeach.Remove.Convict.Punish.Justice on November 16, 2006 at 6:18 PM | PERMALINK

And here's a little secret for y'all.

Rummy's "resignation" didn't have a damn thing at all to do with the election.

It had to do with the FACT that he was supposed to go to Germany this week - and Germany has recorded a suit filed against Rummy for war crimes.

Would it not have been pretty embarrassing if our SecDef had to cancel a meeting because we were afraid he'd be jailed?

That's why Bush fired Rummy. Had nothing to do with the election. Or even the job he's been doing.

Posted by: Extradite Rumsfeld on November 16, 2006 at 6:24 PM | PERMALINK

I must admit that I find the argument, that pharmaceutical companies really don't do the important research, hard to reconcile with the notion that government must buy pharma's products for people. In other words, if what pharma R&D does is really so unimportant, then why all the fuss over the prices they charge? Just don't buy the products.

Apparently Yancy believes that R&D is synonymous with production. It's this kind of muddled thinking that we voted out of power on Nov 7th.

Posted by: Disputo on November 16, 2006 at 6:25 PM | PERMALINK

The federal government spends $27 billion a year buying research services from major medical drug and device vendors.

How do these contracts work? Are they open bidding? Do the taxpayers keep a portion of the royalties?

Posted by: Matt on November 16, 2006 at 6:32 PM | PERMALINK

And if we let oil companies form cartels then their profits will go up which would allow for us to pretend there was more oil in the ground. Gotta give those dinosaurs better incentives!

Posted by: pgl on November 16, 2006 at 6:36 PM | PERMALINK

Disputo,

Are you saying that the production can proceed without the R&D? Or are you one of the idiots that believes most drugs are discovered in university laboratories?

If you answer yes to either question, then it is unfortunate that you weren't up for election last week.

Impeach...etal,

Sure, government can revoke patents if it wishes-no more problem in prices for drugs. Unfortunately, if you want new drugs, the government will then have to foot the entire research bill. I am sure many here think government could do it better anyway, so that should be no obstacle.

Posted by: Yancey Ward on November 16, 2006 at 6:36 PM | PERMALINK

LMAO @ Yancy trying to walk back from his/her ridiculous comment equating R&D and Production by setting up ridiculous strawmen.

You're funny.

Posted by: Disputo on November 16, 2006 at 6:56 PM | PERMALINK

I am not asking these questions for snark. If someone has a way that these can be answered please respond.

What about the costs involved in testing? University research may lead to some promising new cures, but who is going to pay for the double blind studies needed. Will this also be taken out of the federal budget.

Who will the people sue when the next Universtiy derived VIOXX causes a heart attack?

If everyone starts negotiating prices, someone is going to have to pick up the slack somewhere.

Posted by: John Hansen on November 16, 2006 at 6:58 PM | PERMALINK

Our policy should be to buy the drugs at the same price that other industrialized countries pay for the same drugs. That way, drug prices in Canada/Europe/Japan/Australia will rise, and ours will be lower. We'll still be paying monopoly prices for patented drugs (so the drug companies will still be making a good profit), but we won't be providing a subsidy for the rest of th world's American drug habit. And we'll get to listen to Europeans whine about how we're screwing them over. It'll be awesome.

Posted by: mjk on November 16, 2006 at 7:16 PM | PERMALINK
Sure, government can revoke patents if it wishes-no more problem in prices for drugs. Unfortunately, if you want new drugs, the government will then have to foot the entire research bill.

This overstates the case; patents, of course, increase the barriers to entry and reduce competition, and therefore increase the potential payoff for research, OTOH, because someone who beats you may seal off whole broad areas of application, it also increases the risk of investments in basic research, which is why big companies generally don't do much basic research, they work very hard to comb through the basic research done publicly and find something that shows some promise of being quickly converted into some proprietary commercializable technology. Or, often, keep an eye out for small firms that do a good job of doing that, and buy them up when they seem about to strike gold.

Posted by: cmdicely on November 16, 2006 at 7:22 PM | PERMALINK

Let's just remember that drug companies are looking out for us. God bless these saints who work so hard to sure our diseases out of the goodness of their hearts. I dare anyone to look into the eyes of Pfizer and not see a kind, caring sould staring back at you.

Give them all the money they need, their hearts are pure!

Posted by: The Tim on November 16, 2006 at 7:42 PM | PERMALINK

If the democrats use their majority to bully through a prescription drug bill, then within 10 years our country's standard of living will be reduced to Canada's.

Posted by: Al on November 16, 2006 at 7:46 PM | PERMALINK

The most important basic medical and scientific research that leads to major medical breakthroughs usually takes place under government auspices typically, through grants from the National Institutes of Health. In other words, taxpayers not drug companies are the ones financing the most important drug research today.

This indicates a fundemental misunderstanding of how new drugs are developed. While it's true that much of the biological research that uncovers the causes of disease is done under government auspices, virtually no development of new chemicals (some tiny fraction of which become drugs) is done in the academia.

Just because we've discovered the gene which causes breast cancer doesn't mean that we have a molecule which can, without horribly adverse side-effects, cure the disease. Going from a known and validated target gene (or more typically pathway, but people seem to understand "gene" better), to a safe, effective molecule is a very big step, and one which is several orders of magnitude more expensive than identifying the gene in the first place. This is what pharmaceutical companies do, and academia doesn't--in any capacity. You can see here, here , or particularly here for more details on this.

The fact is that if drug companies do indeed start making less money, they will devote less money to developing and testing new molecules, and development of new drugs will be slowed.

However, the drugs which have already been developed will be more readily available. This may very well be a good trade off (I think it is), but we should be clear that it is indeed a trade off.

Posted by: TW Andrews on November 16, 2006 at 7:52 PM | PERMALINK

The fact is that if drug companies do indeed start making less money, they will devote less money to developing and testing new molecules, and development of new drugs will be slowed.

Hard to say what each company will do. With less capital to work with they may decide to scale back R&D, but they may try to implement other cost-savings. For instance, are their supply chains fully optimized? Can their production sites be moved to cheaper labor markets? Would they cut back on advertising? Finally, they might be able to gain efficiencies in their R&D programs by being more careful about what they fund, while still bringing as many products to market as they did before.

In business, it's often beneficial to put a little pressure on the system to see what creative ways the organization can find to compensate with. No business I have ever worked in made the hard choices without a little external pressure.

Posted by: cyntax on November 16, 2006 at 8:18 PM | PERMALINK

Okay, this is how new drugs get on the market. The basic work is done in laboratories under NIH auspices. It is big stars who get the money, but the work is very, very labor intensive and mostly done by graduate students and post docs (who often times can't get jobs anywhere else). As soon as the University makes a discovery, the University patents it, because liscensing agreements is the big money maker in universities today. The University then takes the patent and markets it to drug companies, who buy the rights to it and become co-owners with the principal investigators and universities (if it is a money maker they will buy them out in a very corrupt way). The drug is refined in other university laboratories, but this time funded by the drug companies, not NIH. But the drug companies pay relatively little because the infrastructure is already there and the graduate students and post docs make slave wages. Really the drug companies are paying little for what they get.

Once the drug is ready for clinical trials the drug companies approach university hospitals to run the trials. The doctors they approach here are not researchers but clinicians. There is big money in clinical trials. The major reason for this is the drug companies want the university hospitals to get addicted to the money, so that they get the results they want for approval and advertisements, but still not that big because again - infrastructure is already there.

Cutting prescription drug prices wouldn't cut down on research one iota. But if you are really worried then a much more economically intelligent thing to do is invest money directly in university laboratories and hospitals (and it will also get us better, more reliable drugs with fewer side effects).

Posted by: Wilbur on November 16, 2006 at 8:19 PM | PERMALINK

Will our health care ba as good as Canada's? That would be awesome.

FYI, My company, a fortune 500 whose name is commonly used as a verb is in the process of moving thousands of jobs to Canada because... while the wages are the same, the cost of employing a Canadian is 1/3 less than an American employee because... the employer doesn't pay for health care.

Can we get some of that so my co-workers can keep their jobs? And pay taxes? And put food on their families?

Posted by: CK Dexter Haven on November 16, 2006 at 8:25 PM | PERMALINK

If the democrats use their majority to bully through a prescription drug bill, then within 10 years our country's standard of living will be reduced to Canada's.
Posted by: Al on November 16, 2006 at 7:46 PM | PERMALINK

If the cheap-labor conservatives keep shipping our jobs to other countries, then within 10 years, our country's standard of living will be reduced to Mexico's.

Posted by: Extradite Rumsfeld on November 16, 2006 at 8:25 PM | PERMALINK

Gosh, Kevin, if you folks think that private capital is so unimportant to drug technology innovation, why waste time with the whole process of negotiating lower prices with companies which hold patents? Why not just do away with the patents completely, or shorten them to just a very few years?

Somehow, I don't think you really believe what you profess to believe.

Posted by: Will Allen on November 16, 2006 at 8:43 PM | PERMALINK

Okay, this is how new drugs get on the market. The basic work is done in laboratories under NIH auspices. It is big stars who get the money, but the work is very, very labor intensive and mostly done by graduate students and post docs (who often times can't get jobs anywhere else). As soon as the University makes a discovery, the University patents it, because liscensing agreements is the big money maker in universities today. The University then takes the patent and markets it to drug companies, who buy the rights to it and become co-owners with the principal investigators and universities (if it is a money maker they will buy them out in a very corrupt way). The drug is refined in other university laboratories, but this time funded by the drug companies, not NIH. But the drug companies pay relatively little because the infrastructure is already there and the graduate students and post docs make slave wages. Really the drug companies are paying little for what they get.

Uh, no this is not how a new drug gets on the market. Very little (I would go so far as to say effectively no) pre-clical development of chemical entities is done in university labratories. University labs do research which helps untangle the biology of a disease. Pharma/biotech, which also do a significant amount of their own biological research, takes some of this understanding to develop models of the disease which can then be used to test chemicals.

They then test literally millions of different compounds to find some which are active in the models. After a lengthly testing, winnowing and optimization process which can last years, you might have a candidate for clinical trials. But in most cases, you don't, and you try again.

Cutting drug prices absolutely will reduce the amount which is spent on drug development (at least across the industry--as cyntax mentioned, it's hard to know what any given company will do). However, the drugs we have will be cheaper. That might be a good trade off, but no one should pretend that it's not one that we'd be making should we either cap drug prices or otherwise significantly reduce the revenue of pharmaceutical companies without otherwise subsidizing research.

Posted by: TW Andrews on November 16, 2006 at 8:48 PM | PERMALINK

Is everyone starts negotiating prices, someone is going to have to pick up the slack somewhere.

in other words: free markets can never work.

right?

Posted by: cleek on November 16, 2006 at 8:58 PM | PERMALINK

TW, don't even try to reason with what has become a matter of Faith, in this case Faith that central planners can deliver the same amount of innovation for life-saving drugs, without the need for private capital. Like I said above, if people really intellectually believed this, they would be advocating that patents no longer be issued. However, they actually don't intellectually believe this, but instead have Faith that if a government central planner bargains for lower prices with patent holders, the resulting reduced flows in private capital won't affect innovation.

They may as well be advocating that Holy Water be regularly sprayed on research facilities via government helicopters.

Posted by: Will Allen on November 16, 2006 at 8:59 PM | PERMALINK

Please don't curtail pharmaceutical R&D until after the drug companies come up with a third drug for male urinary disorders, and a fourth for erectile disfunction. There clearly aren't enough options on the market yet for either problem, and certainly not enough ads on TV to let men know that these medicines exist.

Posted by: Dwight on November 16, 2006 at 9:04 PM | PERMALINK

It's a shame that Milton Friedman left us last night, but at least he is no longer subjected to this sort of inanity.

Posted by: Will Allen on November 16, 2006 at 9:05 PM | PERMALINK

Cutting drug prices absolutely will reduce the amount which is spent on drug development

or, it will make R&D more efficient. or, it will drive production or into cheaper markets. or it will reduce profitability. or it will do any number of things.

either the market works, in which case negotiating prices is a given -- because that's how markets work -- or the market doesn't work and that's a problem that needs to be fixed, too.

Posted by: cleek on November 16, 2006 at 9:07 PM | PERMALINK

Dwight, what is it about people like you who so resent consumers having a myriad of options to select from? Look, if you think patents are bad for the American consumer of health technology, why not be honest about it and just advocate that they no longer be issued?

Posted by: Will Allen on November 16, 2006 at 9:09 PM | PERMALINK

Cleek, I'll ask you: if you think the market power that patent holders have is damaging, why do you want to fool around with the government negotiating regime? Why not just do away with, or greatly reduce the length of, the patents?

Posted by: Will Allen on November 16, 2006 at 9:13 PM | PERMALINK

"Uh, no this is not how a new drug gets on the market. Very little (I would go so far as to say effectively no) pre-clical development of chemical entities is done in university labratories. University labs do research which helps untangle the biology of a disease. Pharma/biotech, which also do a significant amount of their own biological research, takes some of this understanding to develop models of the disease which can then be used to test chemicals.

They then test literally millions of different compounds to find some which are active in the models. After a lengthly testing, winnowing and optimization process which can last years, you might have a candidate for clinical trials. But in most cases, you don't, and you try again."

Uh, no, you are wrong. The majority of patents come from university laboratories. It is not trial and error. If you have a thousand monkeys typing for a thousand years you still will not find the right drug. Uhm, there's a little thing involved called the scientific method. Have you ever heard of that? Have you ever heard of developing a hypothesis? Have you ever heard of narrowing your range through statistical analysis? I guess not. I have witnessed all three levels of the process I described and know researchers who are involved. By the way, they do this not because they are going to make a fortune from this, but because they have to - that is how productive research occurs - it is in people's souls. The money men do more damage than good. I feel sorry for you and our society if what you describe is what people have come to believe so drug companies can charge exorbitant prices. Meanwhile maybe you need to pick up an intellectual biography of somebody like Pastuer because the way you think is dangerous to science.

Posted by: Wilbur on November 16, 2006 at 9:15 PM | PERMALINK

TW, don't even try to reason with what has become a matter of Faith, in this case Faith that central planners can deliver the same amount of innovation for life-saving drugs, without the need for private capital. Like I said above, if people really intellectually believed this, they would be advocating that patents no longer be issued. However, they actually don't intellectually believe this, but instead have Faith that if a government central planner bargains for lower prices with patent holders, the resulting reduced flows in private capital won't affect innovation.

There are definitely some of those, but I think most of the "The NIH pays for most pharmecutical research" just comes from basic misunderstanding of how drugs are discovered. To be honest, I'm not entirely satisfied with how the drug industry works--there are *lots* of inefficiencies which I witness on a day-to-day basis. And I'm not particularly against letting the government or other big buyers negotiate prices, but given the structure of the industry, a significant cut in revenue will impact the money spent on research, of which the number of new drugs and how quickly they get to market is a function will be impacted.

That's probably not the only effect it will have. But it is one of them.

Posted by: TW Andrews on November 16, 2006 at 9:25 PM | PERMALINK

Will,

Where did I say anything about patents? If you stopped building strawmen for a moment, it may actually occur to you that I was referring to the fact that the drug industry spends more on marketing than it does on R&D. I don't think developing new options for consumers is a priority for them.

Look, I realize it's been a rough time for you, what with your hero passing away last night and the Flomax failing to help, but the stress is starting to affect your cognitive skills.

Posted by: Dwight on November 16, 2006 at 9:32 PM | PERMALINK

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Posted by: gahwutxsuz on November 16, 2006 at 9:39 PM | PERMALINK

What evidence is there that the drug companies are even making new and better drugs with their huge profits? Are they even using those profits to reduce production and unit costs?

Don't real innovations come from the smaller companies or public financed research or non-profit labs? Do all of the 'new' advertised drugs really improve the quality of popular healthcare or is Restless Leg Syndrome (RLS) so serious a risk to society's health that tax credits and guaranteed profits are necessary to find habitual treatments for RLS and ED?

Posted by: Hostile on November 16, 2006 at 9:42 PM | PERMALINK

As for the argument that if drug prices fall R&D will necessarily suffer--

It would appear that R&D is the # 3 expense of drug companies, after Advertising and Lobbying. And this in an industry in which the average annual return on investment exceeds 20%. If there were a linear relationship between gross income and R&D, it would mean that the companies would never, ever spend any less than they currently do on advertising and lobbying, nor would they reduce dividends or stock options even if it meant that they would have no new product when their current patents expire.

While I never took microeconomics, it seems to me that in such an environment a contrarian firm would spend nothing on lobbying and reduce current dividends in order to pursue R&D even more aggressively. It would make for a few uncomfortable board meetings, but in a few years' time, the benefits would be undeniable.

Of course that analysis presumes that pharmaceutical companies are independent, competing enterprises.

Posted by: Michael Barnas on November 16, 2006 at 9:45 PM | PERMALINK

As someone who makes his living doing drug discovery research in the pharmaceutical industry, I have to chime in here. Unless you've been involved in the business, you probably have no idea how ridiculous the "NIH does most of the discovery" idea sounds to us. My fellow researchers stare at me in disbelief when I try that idea out on them.

Academic labs make many fundamental discoveries. They do not, though, except in very rare cases, discover drugs. And the fact that most people don't realize the size of the gap that needs to be crossed there is tremendously frustrating to me.

Some of the details are explained in this post from my own blog. (There's a lot more where that came from, if anyone's interested).

I agree completely with TW Andrews in his comments above - he sounds like a colleague of mine, and someone who's been through preclinical and clinical research. I've been doing it for seventeen years now, and I *still* haven't made anything that's ever gone into a sick patient's mouth. Maybe I should hang around more universities, eh?

Posted by: Derek Lowe on November 16, 2006 at 9:45 PM | PERMALINK

Uh, no, you are wrong. The majority of patents come from university laboratories. It is not trial and error. If you have a thousand monkeys typing for a thousand years you still will not find the right drug. Uhm, there's a little thing involved called the scientific method. Have you ever heard of that? Have you ever heard of developing a hypothesis? Have you ever heard of narrowing your range through statistical analysis? I guess not. I have witnessed all three levels of the process I described and know researchers who are involved. By the way, they do this not because they are going to make a fortune from this, but because they have to - that is how productive research occurs - it is in people's souls. The money men do more damage than good. I feel sorry for you and our society if what you describe is what people have come to believe so drug companies can charge exorbitant prices. Meanwhile maybe you need to pick up an intellectual biography of somebody like Pastuer because the way you think is dangerous to science.

The million monkeys approach is, in fact, precisely how pharmaceutical companies discover new drugs in this day and age (I guess Pasteur didn't have the necessary robotics to set up an automated lab). The process is called High-Throughput Screening, and if you'd like me to explain it to you in exhausting detail, I'd be happy to given that it's how I am gainfully employed, along with so many others that we even have our own scientific society, a number of journals and half a dozen major conferences every year. It is in use in every pharmaceutical company small and large as well as any biotech which is trying to develop therapeutics, rather than focusing on developing biological knowledge (which is almost all of them, these days).

The process of finding a treatment is remarkably hypothesis free. The hypothesis is that the model well represents the disease you'd like to treat, and that your method of detecting activity works. But beyond that, finding initially active compounds is more an engineering task than real science (optimizing them is another story--that's almost an art).

In any case, the research which is done in universities is mostly not running assays. They do some, but it's simply nothing like the scale or scope of what's done in the pharmaceutical industry, and I'd check your numbers on the patents, since practically all the patents for the new molecular entites submitted to the FDA are held by industry.

Posted by: TW Andrews on November 16, 2006 at 9:46 PM | PERMALINK

Uh, no, Dwight you objected to the fact that drug companies offer different patented options to consumers for the same conditon. If you find this objectionable, advocate that patents be no longer issued, and if you prevail, then the total atrocity of consumers having multiple treatment options for conditions that you deem too unimportant (really, we are SO lucky to have you around as the arbiter of these things!)to have multiple treatment options for, will be greatly reduced, and the world will be so,so,so,so,so much better, especially for dime-store Mussolinis like yourself!

Posted by: Will Allen on November 16, 2006 at 9:48 PM | PERMALINK

Cleek, I'll ask you: if you think the market power that patent holders have is damaging...

WTF are you talking about?

i never said anything like that.

Posted by: cleek on November 16, 2006 at 9:52 PM | PERMALINK

This is one of the problems of the left. They would do well to listen to Milton Friedman on this issue.

The government has no business negotiating prices for drugs from pharma companies.

Posted by: PoliticalCritic on November 16, 2006 at 9:52 PM | PERMALINK

Cohn is largely mistaken about the importance of government subsidies for drug research. Government does fund basic biosciences, often finding target genes or cellular interactions, but the task of actually finding drug molecules that work on these sites (and are safe in humans) is left to the pharma companies. This work is huge compared to the basic research that found the original target or mechanism.

PS - How about that nut in the third comment? Obviously whatever you say about anything is utterly unimportant compared to what you said about Iraq several years ago!

Posted by: Zak on November 16, 2006 at 9:53 PM | PERMALINK

if people could negotiate car prices, auto manufacturers would stop designing new cars! if people could negotiate house prices, homebuilders would stop building and designing new houses! if WalMart could negotiate prices with its suppliers, nobody would invent new toasters or new ways to package air fresheners and aspirin! if hospitals (besides VA hospitals) could negotiate prices, drug companies wouldn't make new drugs!

OMG!

it's fucking amazing watching pseudo-libertarians defend the idea that the government should be forbidden to act as an agent in the free market. instead they demand that the government must pay whatever drug companies ask -- for a $400,000,000,000 program. and the litany of bullshit excuses! my god, are you all drug company employees defending your jobs? i hope so, otherwise, you're fucking crazy. talk about "a matter of Faith".

Posted by: cleek on November 16, 2006 at 10:00 PM | PERMALINK

The pharmaceutical companies that are members of the PhRMA spent $39.4 billion on R&D in 2005. If you include contributions made by companies associated with the PhRMA companies but not members, that number goes up to $51.3 billion. This includes pure research, and the research required to approve the drugs. The companies pick all of this cost up, whether a drug is approved or not.

The 2005 total budget for the NIH was about $29 billion.

In 2004, DTC (Direct to Consumer) pharmaceutical advertising was about $4 billion.

Posted by: ein on November 16, 2006 at 10:02 PM | PERMALINK

TW, there are no doubt inefficiencies in the industry, and it is theoretically possible that the profit potential in drug technology innovation is so much greater, relative to other opportunities for capital, that reducing revenues will not affect rates of innovation, due to reduced private capital flows, but it is a damned tricky thing to pin down.

At it's core, this is about how well intellectual property rights should be protected in order to strike the right balance between innovation and lower prices via competition. It is an exraordinarily hard question, and there likely is a Nobel Prize in Economics to be awarded to somebody who provides a breakthorugh in determining a good answer. There is certainly nothing sacred about the current state of patent law, and it well could be that reducing the protection now granted to intllectual property would provide better results. The search for the right answer, however, is not aided by the sort of nonsense as has been displayed in kevin's post, or in this thread.

Posted by: Will Allen on November 16, 2006 at 10:04 PM | PERMALINK

In 2004, DTC (Direct to Consumer) pharmaceutical advertising was about $4 billion.

cite please

Posted by: cleek on November 16, 2006 at 10:05 PM | PERMALINK

cleek, when a customer the size of the Federal Government "negotiates" prices, we aren't talking "negotiation" any more. We're talking price controls. Let's at least be honest about it.

Posted by: veritas on November 16, 2006 at 10:09 PM | PERMALINK

Cleek, does EVERYTHING need to be explained in the most basic fashion? The reason you want the government to negotiate a lower price is because you think the patent holder has too much market power, and can thus charge excessively high prices, compared to what would be charged if the government negotiated a lower price. Instead of fooling around with negotiations, why not just stop the patent protection, especially since, as the author argues, private capital is uneeded to maintain rates of innovation?

Posted by: Will Allen on November 16, 2006 at 10:10 PM | PERMALINK

if people could negotiate car prices, auto manufacturers would stop designing new cars! if people could negotiate house prices, homebuilders would stop building and designing new houses! if WalMart could negotiate prices with its suppliers, nobody would invent new toasters or new ways to package air fresheners and aspirin! if hospitals (besides VA hospitals) could negotiate prices, drug companies wouldn't make new drugs!

The point isn't that drug research is going to stop if pharmaceutical revenues drop, only that there will be some impact from policies like reimporting drugs, capping prices or having the government negotiate prices.

As I've already said, I'm for letting buyers (including the government) negotiate. And that I think the global effect of having the drugs which we've already got be cheaper at the expense of getting new ones faster is probably worth it (in spite of the adverse impact that reduced R&D budgets would have on me and my coworkers).

But let's not pretend that we're going to get new drugs fast if we want to have them cheap.

Posted by: TW Andrews on November 16, 2006 at 10:12 PM | PERMALINK

Really, Will? My post was about whether patents should be issued? Your stress is worse than I thought.

Read it again, Sherlock. R&D (not just for new drugs, but on improving existing ones as well) is not a priority for these companies. Flooding the market with direct-to-patient advertising is, and the very thing that you claim to covet, i.e. more and better choices for the consumer in the future, suffers.

Oh wait, I forgot, doctors don't have time to keep up with all the new prescription options that are available. They need patients to come in and tell them what drugs are out there for the problem they have.

Go ahead, Will, ask your doctor if he/she has anything for the bullshit you're dropping.

Posted by: Dwight on November 16, 2006 at 10:28 PM | PERMALINK

Cleek, does EVERYTHING need to be explained in the most basic fashion? The reason you want the government to negotiate a lower price is because you think the patent holder has too much market power, and can thus charge excessively high prices, compared to what would be charged if the government negotiated a lower price. Instead of fooling around with negotiations, why not just stop the patent protection, especially since, as the author argues, private capital is uneeded to maintain rates of innovation?
Posted by: Will Allen on November 16, 2006 at 10:10 PM | PERMALINK

That *is* essentially my point, Will.

But contrary to what most people might believe about me - I do not hate corporations. I work for a corporation. I likely owe my livelihood to a corporation. And Intellectual Property Law.

However, I think that the fundamental question here is: How much should Government meddle in the market? The bottom line is - it's already meddling. And a zero-meddling would be disastrous.

Should a government use it's Bullying Power against Big Pharma X?

It should not have to - because the drug patent already amounts to Government Bullying Power against Big Pharma Y, Z, W, U, V, and everyone else.

I may *say* that patents should be abolished, but don't take that at face value. It's a silly absolutist way of saying; patents can, and SHOULD be modulated, and when a company uses them like a club against consumers (or competitors), the consumers should be able to fight back by taking that club away, or at least put some safety foam-padding around it.

Posted by: Impeach.Remove.Convict.Punish.Justice on November 16, 2006 at 10:29 PM | PERMALINK

cleek, when a customer the size of the Federal Government "negotiates" prices, we aren't talking "negotiation" any more. We're talking price controls. Let's at least be honest about it.
Posted by: veritas on November 16, 2006 at 10:09 PM | PERMALINK

When there's a patent, you've already GOT price-controls. Let's at least be honest about that.

Posted by: Impeach.Remove.Convict.Punish.Justice on November 16, 2006 at 10:34 PM | PERMALINK

Big Pharma spends more on marketing than on research.

Posted by: bakho on November 16, 2006 at 10:35 PM | PERMALINK

It's not that I don't understand the fact that the government heavily subsidizes the most fundamental aspect of the prescription drug process; its that I am a garden-variety corporate socialist socialize the risk, privatize the profits. Sure, the government subsidies are a distortion of the free market, sure intellectual property rights are too, but that doesnt matter. What matters is that the government not be able to act as the informed consumer assumed by my Econ 101 class (C+, the second time I took it choke on that you commies).

Posted by: Will Allen on November 16, 2006 at 10:39 PM | PERMALINK

If the gov't was not purchasing the drugs as a benefit to the citizens, encouraging their welfare, they would not bother about negotiating prices. The branch of the gov't doing the negotiating would be Medicare, not the FTC or some other regulating agency.

Perhaps instead of paying for older and less well off citizens, pharma would prefer all aid for pharmeceuticals be ended and the market stop receiving this revenue input from the public. I am pretty certain pharma would prefer to keep that segment of revenue, but they cry like Rand Capitalists that they are for less regulation and more public spending, but without negotiated prices from their subsidized clients.

Posted by: Hostile on November 16, 2006 at 10:45 PM | PERMALINK

Wait a minute, Kev. You forgot a few elements in the Republican Chain of Free Market Causation. Here's how it works:

If government negotiates for lower drug prices and succeeds then pharmaceutical companies will have less money to spend on lobbyists and Republican Congressional campaigns, which will lead to more Democrats in Congress and ultimately mean recissions of corporate tax breaks.

This, in turn, will lower pharmaceutical company profits and increase claims they can't afford to invest in new life saving drugs. Many learned medical studies will emerge signed by learned doctors and medical professionals across the country attesting to the fact that thousands of babies and old people are dying AS YOU READ THIS because DEMOCRATS don't really want you to have these life-saving drugs that can only be developed if the tax breaks are reinstated. Understated yet alarming ad copy will appear in full page ads in the Wall Street Journal under pitiful pictures of dying grandparents and their crying grandchildren.

Around this time US pharmaceutical companies will begin to get serious competition from British and Canadian companies who CAN bring new drugs to market more cheaply. Then Dems will be accused of lax oversight & corruption for allowing cheap & dangerous drugs to flood the US market where pharmaceutical companies support true free market practices and have higher quality standards that PROTECT AMERICANS.

I predict that John McCain will use this as one of the themes of his 2008 campaign.

Posted by: pj in jesusland on November 16, 2006 at 10:48 PM | PERMALINK

How can TNR be so wrong on Iraq, yet on the ball when it comes to Big Pharma?

Posted by: Ghost of Tom Joad on November 16, 2006 at 10:49 PM | PERMALINK

What life saving drugs has pharma made recently? What percentage of their R & D is spent on life saving drugs? What percentage of their R & D is spent on developing habitual treatments for advertised ailments that are of little consequence to improving overall health?

What is the percentage of revenues pharma obtains from publicly subsidized purchases?

Posted by: Hostile on November 16, 2006 at 10:59 PM | PERMALINK

Big Pharma spends more on marketing than on research.
Posted by: bakho on November 16, 2006 at 10:35 PM | PERMALINK

Not true, when you count "Marketing Research"!

Posted by: Impeach.Remove.Convict.Punish.Justice on November 16, 2006 at 11:00 PM | PERMALINK

It's simple - if other large orginizations, such as HMO's, can negotiate for lower prices, then why can't the government? We're not asking to subsidize anything, or interfere with the free market - if the companies don't like the price pojnt, they can refuse to sell, and the government will have to look for an alternative that may be less desireable. If the elderly want brand x, but the government doesn't offer it, then some ambitious public official can run on a platform in an attempt to get the government to pay the drug company's requested price. Our Democratic process is part of the free market - a balance will be struck. By refusing to allow the government to negotiate prices, you are creating artificial price floors, in effect undermining the free market that Republican claim to hold so dear.

Posted by: An Anonymous Patriot on November 16, 2006 at 11:01 PM | PERMALINK

Campus storm troopers torture UCLA student:

http://www.youtube.com/watch?v=AyvrqcxNIFs&eurl=

Posted by: vincent on November 16, 2006 at 11:03 PM | PERMALINK

I am so freaking tired of the Big Pharma apologists. These same SOBs cry "free market" on every union job they send to China, but bitch like banshees if we allow Canadian drugs to be purchased. STFU. The fact is, no industry has more protection and does more harm than drug companies today. Some very cheap and basic medicines are unaffordable to a great number of the dying poor worldwide. I am willing to let Darwin prevent Jeffrey's erections if Flemming can save lives.

"Give us all your money or we won't do basic research!"
To Hell with extortion. Most drug companies are looking at smiling bob, hair restorers, and acne cream. I would nationalize medicine and let altruism steer our best and brightest back to the lab rather than the golf course.


Posted by: Sparko on November 16, 2006 at 11:08 PM | PERMALINK

I see the coward is back, and illiterate as ever, cannot grasp that I clearly wrote that reducing intellectual property protection may provide more optimum results.

Cleek, why do you want to fool around with foam padding? Why not just take away the club, especially if you agree with the author when he says private capital is not needed to maintain current rates of innovation? If the author is correct when he says...

"So, even if the pharmaceutical industry did reduce its research and development investment because of declining revenues, what we'd lose probably wouldn't be the next cure for cancer it would be the next treatment for seasonal allergies, and likely no better than the ones we have already."

...then it is logically inescapable that patents are no longer needed, or at least patents anywhere near as strong as those that exist now are no longer needed, to innovate in the area of cancer drugs. Do you agree with this or not?

Dwight, you wrote, sarcastically....

"Please don't curtail pharmaceutical R&D until after the drug companies come up with a third drug for male urinary disorders, and a fourth for erectile disfunction. There clearly aren't enough options on the market yet for either problem...."

...thus objecting to the system which produces a third drug for make urinary disorders and a fourth for erectile disfunction. The system which produces that, Einstein, is patent law, which makes it profitable for drug companies to do so. Must I now explain to you the meaning of a post that you wrote yourself, you ol' dime store
Mussolini?

Posted by: Will Allen on November 16, 2006 at 11:11 PM | PERMALINK

What is the percentage of revenues pharma obtains from hillbilly heroin? How much revenue does the black market provide to pharma? Valium, oxycontin, etc. are all in 'high' demand.

Does pharma still make qualudes? Mmmmmm, methaqualone ruined many peoples lives, yet it also enriched a few pharma executives lives.

Posted by: Hostile on November 16, 2006 at 11:11 PM | PERMALINK

Vincent: the UCLA Taser incident is the Milgram electrocution experiment writ large on America. It is already known that most people will torture and harm others who have no recourse at progressively higher levels if they think they are acting for some authority figure who they come to represent. Scary we would allow Tasers anywhere at all knowing this propensity. They are killing more and more people with them, just as Milgram would have predicted. Fascism? It is here.

Posted by: Sparko on November 16, 2006 at 11:13 PM | PERMALINK

I am so freaking tired of the Big Pharma apologists. These same SOBs cry "free market" on every union job they send to China, but bitch like banshees if we allow Canadian drugs to be purchased.

I'm sorry, but the idea of reimporting drugs from Canada is just idiocy. It's not as if the drugs are cheaper to make there. In fact, they're not made in Canada at all. They're made here and sold cut-rate in Canada because the marginal cost of making a pill is very small, and companies may as well try to get all the value out of a given compound they can.

All drug reimportation does is outsource our law making, using the Canadan government to set price controls for the US. If we want price controls, that's fine, but we can damn well enact them ourselves.

Posted by: TW Andrews on November 16, 2006 at 11:21 PM | PERMALINK

TW ANdrews: Bullshit. the vast majority were made in Ireland or other outsourced production centers.
The fact that we can import them cheaper is correlative with our protectionist and stupid policies. Period.

Posted by: Sparko on November 16, 2006 at 11:25 PM | PERMALINK

who cares about US pharmaceuticals?

pharmaceuticals in europe and asia are working on many of the same medicines that we are and are selling them at a fraction of the cost of our medicine.

Let's buy the medicine from a plethora of companies around the world

european pharmaceuticals don't donate to the rethuglicans

Posted by: maccabee on November 16, 2006 at 11:25 PM | PERMALINK

Maccabee: Indeed! Let's get market forces to work. Somehow, market forces only work when Saudi Arabia turns on and off the tap, or when we move factory jobs to Asia.

Posted by: Sparko on November 16, 2006 at 11:32 PM | PERMALINK

We have a situation in america where a substantial percentage of the aging populace cannot afford or otherwise has access to exisiting, proven treatments for releatively common conditions.

Major morbidity and mortality still comes from cardiovascular disease and the associated complications (diabetes) which we already have treatment for, but which, for whatever reason, people aren't getting and therefore aren't taking.

I'd be willing to accept decreased pace of R+D of new drugs until we better ensure delivery of existing, proven life-saving meds.

Posted by: Nads on November 16, 2006 at 11:57 PM | PERMALINK

I will go real slow for you this time Will, because I know that between your meds and your mourning for uncle Milty, you're having a tough time.

The TNR article that Kevin linked to included the reference about drug companies claiming that decreased revenues fom negotiated prices will mean less money for R&D on life-saving drugs. OK. The drug companies appear to be really, really concerned about anything that may reduce what they can spend on getting these lifesavers to the public.

Well, you know what else means less money for life-saving R&D? The extra billions being spent on direct-to-patient advertising, much of it for stuff like Flomax and Cialis: useful drugs, yes, but not life-savers. Instead of hearing "I had a going problem" or "Anytime is the right time" once every five minutes on TV, maybe once an hour would still be good, and the money saved could be transferred to R&D on the life-saving drugs.

I wouldn't expect you to understand Will. You're still hung up on patent law.

And Mussolini? What are you, like seventy years old?

Posted by: Dwight on November 16, 2006 at 11:58 PM | PERMALINK

TW ANdrews: Bullshit. the vast majority were made in Ireland or other outsourced production centers.
The fact that we can import them cheaper is correlative with our protectionist and stupid policies. Period.

Where do you think the "re" in reimportation comes from? The point is that sending drugs to Canada, so we can take advantage of their laws on drug price controls is a total cop out. If we want to set price caps on drug prices and accept the concequences of that, I'm ok with that. I think it's bad policy, but that's why we have elections.

But I'm absolutely not ok with our drug prices being determined by the Canadian government. The reason drugs are cheap up there is that the Canadian government sets the prices which are to be paid for them. There's no "letting the market work" at all.

Posted by: TW Andrews on November 17, 2006 at 12:00 AM | PERMALINK

Actually, the economist Dean Baker has indeed proposed eliminating drug patents and letting the government finance all drug research, from basic research through clinical trials. Even if that meant doubling or tripling what Uncle Sam pays in R&D costs, taxpayers would still come out way ahead.
http://www.cepr.net/publications/intellectual_property_2004_09.htm

If we then negotiated with other industrialized nations to also chip in for R&D costs (in exchange for getting new drugs at generic drug prices), the whole world would benefit at the expense of Big Pharma profits.

They've gotten a free ride long enough. No industry can make 20% plus profit margins year after year unless they have their thumb on the scale of the market. An actual free market is far more cyclical than that.

If Baker's reform is too radical, why not limit Big Pharma marketing expenses to no more than what they spend on R&D? Or, to use a carrot, give them a tax credit for their R&D costs. There are a lot of ways to deal with the issue that could let Uncle Sam negotiate a reasonable price AND mantain adequate drug research.

Posted by: beowulf on November 17, 2006 at 12:36 AM | PERMALINK
... I am a garden-variety corporate socialist socialize the risk, privatize the profits....Will Allen at 10:39 PM
Socialism is government controlling corporations for the public good; corporatism (see corporatocracy) is the government subsidizing corporations for private gain. Socialism would be government ownership of something like the DWP in Los Angeles to keep electric and water rates low; what you advocate is government supporting corporations to the benefit of corporate managers and shareholders at the expenses of taxpayers. Of course this is a distortion of the free marker to which so-called Libertarians are always singing paeans. This is typical of the silly Friedman economics: distort the market for special interests which only add to the cost to consumers and taxpayers. The poor pay; the rich prosper. By refusing to allow consumers of prescription drugs to negotiate the price of drugs is typical of the corruption that occurs when corporations can purchase government favors for campaign and lobbying cash. Any free market would accommodate groups making bulk purchases at a lower cost. Posted by: Mike on November 17, 2006 at 12:44 AM | PERMALINK

Dwight, I'm sorry if you don't like the meanings of the words you write. The solution would be to not write them. Sheesh.

Beowulf's reference to Baker's proposal at least has some intellectual rigor to it, instead of the nonsense involved in calling price controls "negotiating lower prices", or having Canada set the prices. If lowering the protection given to intellectual property provides better results, then by all means do it, but develop some metrics to make sure benefits are being gained.

Posted by: Will Allen on November 17, 2006 at 1:52 AM | PERMALINK

Well, I'm not sorry you didn't like what I wrote and I'm certainly not sorry that the meaning went completely over your head. The solution would be to raise your intelligence to a basic, functional level, but I don't deal in miracles.

Typical wingnut, you insist on telling everyone else what they mean and what they said.

Posted by: Dwight on November 17, 2006 at 2:07 AM | PERMALINK

AS someone who literally grew up around this stuff - the only people here who have any idea what they are talking about are TP Andrews and Will Allen. The rest of you don't have a friggin clue. The idea that discovery (what the bitter grad student upthread was talking about) is the same thing as translation of that discovery into something clinically useful, is just stupid.

Now that doesn't mean that the government shouldn't have the ability to negotiate prices. Yes, theoretically that would result in less money for research, but how much less and what an effect that would have can only be determined empirically. If the government starts negotiating prices and suddenly (like over the next 5 years) venture capital for biotechs dries up and the drug development pipeline empties, well maybe we'll have to change course. There is a world of difference between breaking patents and negotiating prices.

Btw: If I could bitch-slap the next person who says in short sucession the following, I would:

1. New drugs are worthless
2. These new drugs are too expensive
3. The government must force new drug prices down
4. Which won't have any negative effects because
5. New drugs are worthless

Posted by: Adam on November 17, 2006 at 2:49 AM | PERMALINK

TW or Derek: Can either of you (if you're still reading this thread) address the issue of how treatments for rare diseases are found by drug companies if there's no profit incentive for them to develop a drug which would only treat, say, 10,000 people in the U.S.?

I'm very interested in this issue, since my family has the misfortune to suffer from a rare hereditary neurological disease.

Posted by: KathyF on November 17, 2006 at 3:31 AM | PERMALINK

"It would appear that R&D is the # 3 expense of drug companies, after Advertising and Lobbying."

Arghh. It is so frustrating to see this bit of propaganda every time the debate comes up. The line item you are referring to is "Advertising, Marketing and Administration". The administration component covers all the things you need to run a business: secretaries, mail room clerks, water, company Christmas parties, printer paper, ink-jet cartridges, etc. It isn't shocking that costs lots of money. That costs lots of money for the thousands of business that do ZERO research each year.

Posted by: Sebastian Holsclaw on November 17, 2006 at 3:47 AM | PERMALINK

Adam:

There is a world of difference between breaking patents and negotiating prices.

I guessing most people here agree with that. I'm not sure W. Allen does.

Hell, merely pointing out that the massive increase in the direct to consumer marketing of prescription drugs is a bad development is the same as calling for an end to patents in his world.

And let me make clear, I'm not condemning marketing to doctors (although there are many MD's who are getting sick of the sales calls.)

Posted by: Dwight on November 17, 2006 at 4:35 AM | PERMALINK

In Finland, which is quite active in drug discovery, most identification of useful molecules is done mainly by research teams of less than ten people. Promising discoveries are sold on to pharmaceutical companies. One benefit of public-private sector cooperation is that you end up with less disease "discovery" by marketing teams seeking to find a lucrative market for a particular medicine.

Posted by: kostya on November 17, 2006 at 4:40 AM | PERMALINK

Regarding "Direct to Consumer" marketing, I must say that I was glad to learn that "restless leg syndrome" is one of the big disease problems of our day and finally has a cure....

Posted by: Disputo on November 17, 2006 at 5:29 AM | PERMALINK

It is unfortunate that your family is so afflicted.

Lack of profit motive also affects antibotic development and development of drugs to treat deseases not prevelant in the first world.

Posted by: Adam on November 17, 2006 at 5:47 AM | PERMALINK

The way that the Government Negociates is,bend over were coming in.With Blow Hard Senate Panels,Congressional Hearings,Liplicking and Sucking sounds made by the Press and of course The Courts,negotiations wont take long.I have some Questions....Who will be the Drug King Pin?Who will say if You are Eligable or not for said Drug at Set price?Will Dosage be Racially based or need based on Race? After a certain age Oh lets say...92 will dosage be reduced based on The Terry Shivo Custom of live or LET DIE?Will the price be based on Income? Will I be paying for some Crackheads asprin?What about the Inside Track in D C and Lobbyists?What if a certain Senator has dis agreement with the C E O of BillyBob Drugs INC,hauls his ass to Court for not Doing what is best for the Sick and Elderly?What will Happen when these Companies pack up and go to OLE Mehico?What of Stock Prices and your Pension Fund that is Heavily Vested in BillyBobs Company?How about Subsidizing based on Campaign Contributions?Will the Drug War shift to The Uncle Sams Army of Lawyers all in Blue Dudly Dick Suits?We must include Lawyers and the ACLU, you can bet they will get a Slice of this Pie(%35?).How about if the A C L U, sues over Government money for Drugs going to Jewish,or even worse Baptist Hospitals?Can Christians get Drug Money or Discounts?So you see Kids their are a Thousand Questions to be answered and a Million yet to be asked.My whole premis is to keep our Little Friends in Washington away from Industry any and all Industries.Or pretty soon WE WONT HAVE ANY.If you are one of the Nuts who think we should use the Government to GET EVEN with Big Evil Corporations,take ALL your Drugs at One Time,call Oprah and slobber to Her about how bad AMERICA SUCKS!!!!!

Posted by: Glyn Lockhart on November 17, 2006 at 5:51 AM | PERMALINK

It's also important though to be careful who you're talking about. A lot of new drugs a developed by smaller biotech companies who then partner with big pharma to handle manufacturing, distrubution, and marketing (see Johnson & Johnson on Hep C). If you only look at big pharma you might think their ratios of marketing/RD are way off. But they aren't the entire industry and RD might not even be their major role.

Posted by: Adam on November 17, 2006 at 5:52 AM | PERMALINK

Wow, who's the crackhead?

Posted by: Adam on November 17, 2006 at 5:53 AM | PERMALINK

Seriously, how old are you Glyn?

Posted by: Adam on November 17, 2006 at 5:54 AM | PERMALINK

Might one way to break this issue down is to return to the Grand Bargain that we once had: No general advertising for Prescription Drugs? Return to the days of the 'new product' being flogged by drug salesman (one of my friend's dad's was a pill salesman and made a decent living...). Ban ads for Claritin and Viagra (this means NASCar sponsorships).
No free market types seem to be ready to examine the implicit anitmarket condition of having a class of drugs available only by prescription from a liscensed class of professionals....
And I can recall my puzzlement at the first ads for Claritin, that didn't say what it was for, just "It's time...for Claritin"....

Posted by: MR. Bill on November 17, 2006 at 6:07 AM | PERMALINK

President Nixon tried governmental price controls. It led to economic disaster. Let's not repeat that failed experiment in the pharmaceutical industry.

Posted by: ex-liberal on November 17, 2006 at 6:13 AM | PERMALINK

Al said: "If the democrats use their majority to bully through a prescription drug bill, then within 10 years our country's standard of living will be reduced to Canada's."

The Jew Bush has already reduced your living standards to much less than Canada's.

You have just been chalking up your current living standard on someone else's tab.

When it comes time to pay the tab, you will see what I mean.

Lets see how Bush may have done this:

Iraq, has total reserves of about 112 billion barrels of OIL.
The Iraq war will cost over $2 trillion.

Consequently, the US will have paid over $(2 trillion)/(112 billion) = $ 17.85 per barrel for each and every barrel of oil that is reported to exist Iraq.

But, the US probably won't get more than the proverbial drop of it.

Thats right, the US is headed toward economic disaster.

Posted by: economic disaster on November 17, 2006 at 7:04 AM | PERMALINK

We're talking price controls.

nope. not at all. the govt will not be the only customer.

Posted by: cleek on November 17, 2006 at 9:16 AM | PERMALINK

The reason you want the government to negotiate a lower price is because you think the patent holder has too much market power,

Will, you tool, i'm not talking about patents here. and i'm not going to defend your strawmen. if you want to argue with someone about patents, find someone else - that ain't me.

Posted by: cleek on November 17, 2006 at 9:19 AM | PERMALINK

Ours is a system of corporate socialism, where companies capitalize their profits and socialize their losses...in effect, they tax you for their accidents, bungling, boondoggles, and mismanagement, just like a government. We should be able to dis-elect them. - Ralph Nader

It's all about the accelerating transmutation of public investment and publicly owned resources into hugely concentrated private wealth, all done under the completely misleading banner of 'free markets' which are nothing of the kind.

Posted by: CFShep on November 17, 2006 at 9:20 AM | PERMALINK

It is amazing how quickly businesses shed the myth of the free market when they come up against a consumer who can operate on an equal footing.

Posted by: Ron Byers on November 17, 2006 at 9:20 AM | PERMALINK

Negotiating prices would cause a drop in R&D spending? God forbid that we pay the top execs a little less in exchange for their wholly mediocre performances.

Big Pharma companies--like most big companies, and I work for one--waste so much money on trivial luxuries for upper level mgmnt (dry cleaning expenses?) that they could easily absorb negotiated prices without cutting into R&D.

Posted by: klaus on November 17, 2006 at 9:20 AM | PERMALINK

Cleek, why do you want to fool around with foam padding?

Will, search the comments here for "foam" - note that none of them belong to me. learn how to read

Posted by: cleek on November 17, 2006 at 9:21 AM | PERMALINK

"Next thing you know, Pelosi/Reid will be raising taxes."

Let's hope so.

Posted by: Ace Franze on November 17, 2006 at 9:29 AM | PERMALINK

John Edwards' staff ran to WalMart to get a Play Station.

Priceless!

Posted by: Frequency Kenneth on November 17, 2006 at 9:45 AM | PERMALINK

If government negotiations for lower drug prices are successful then pharmaceutical companies may actually have to choose between stem cell or Parkinson's research and development of new drugs to treat "Restless Leg Syndrome" and Bob Dole's erectile dysfunction.

What are the chances we'll now see a Democratic spokesperson for Viagra?

Posted by: pj in jesusland on November 17, 2006 at 9:53 AM | PERMALINK

TW or Derek: Can either of you (if you're still reading this thread) address the issue of how treatments for rare diseases are found by drug companies if there's no profit incentive for them to develop a drug which would only treat, say, 10,000 people in the U.S.?

Unfortunately, they mostly aren't, which is one of the major failings of the current blockbuster focused setup.

There are some biotechs which focus specifically on orphan diseases, and the FDA tries to encourage new drugs for such conditions with various inducements, but this tends not to have a huge effect.

In my mind--and I think that I'm not alone in this, even among people who actually work in the industry--the current system of blockbuster hunting is not the best situation for companies or consumers. But it's not clear what a better system would be.

A lot of people seem to think that all it takes to start printing money is a cold treatment and a lot of marketing, but the fact is that across the industry, profitability is not nearly what it is at a few companies each year. Biotechs fail, large pharma merge or cut entire divisions. If a company hits a blockbuster, it gets a few years of absolutely huge profits before the me-toos show up, and then likely some more years of strong sales. But there are major pharmaceutical companies which go decades without a blockbuster.

Drug discovery is a high risk activity (though potentially very high return), perhaps even too high risk for companies to manage effectively, and we shouldn't pretend that changing the incentives for discovering a new effective drug won't have an effect on the pace of innovation.

The industry hasn't helped itself *at all* with shit like the Merck VIOXX trouble or the numerous barbie-doll sales reps (apologies to all you reps who know what you're on about--but I'm sure you're even more acutely aware of the utter cluelessness of many of your colleagues than I am), but the aggregate the industry helps people.

I think much of this comes from the fact that the companies need to squeeze every bit of cash out of an FDA approved molecule that they possibly can, and that's because finding new drugs is expensive and hard. So since as with everything else, there are diminshing returns to R&D dollars, drug companies spend money on marketing the drugs they have.

Anyway, as I've stated repeatedly, I'm not against negotiating prices per se, I'm just against the magical thinking which pretends that changing the incentive structure in the industry won't have any effect on companies' willingness to spend on finding new drugs.

Maybe having better access to the drugs we currently have at the expense of quicker discovery of new drugs is a good trade off. But let's at least realize that's the trade off we're making.

Posted by: TW Andrews on November 17, 2006 at 10:01 AM | PERMALINK

You are right, cleek, the "foam-padding" remark was from somebody else. Of course, the fact that you cannot grasp that the reason you want the government to set prices (Oh, yes, right, they are just "negotiating") for drugs is because the drug companies, as patent holders, are able to charge more than you think that the purchasers of said drugs should pay, thus making the patent itself the reason why the prices are where they are, is indicative of how ignorant you are. All your vapors aside, this issue, at it's core, pertains to how much protection shoud be afforded intellectual property, to find the optimum compromise between rates of innovation and prices paid by consumers. You're just too dense to understand this.

Mr. Bill, many "free market types" think the prescription drug regulatory regime is a really bad idea, except in the cases like antibiotics, where the misuse of a drug by one person can reduce the utility of the drug for others. Drug consumers should be paying doctors and pharmacists for advice pertaining to drugs, not permission to take them.

Posted by: Will Allen on November 17, 2006 at 10:04 AM | PERMALINK

President Nixon tried governmental price controls.

The bill is to allow Medicare to negotiate prices just like private insurance carriers do.
(This is what it means when you see the term "negotiated rate" on your insurance paperwork.)

It's not price controls.

If you believe in free markets, then you can't be selective in who gets to participate in the
markets.

Posted by: Stephen on November 17, 2006 at 10:11 AM | PERMALINK

Of course, the fact that you cannot grasp that the reason you want the government to set prices

Will, unless you can argue with what I say, instead of what you want me to say, I have no interest in continuing this.

Posted by: cleek on November 17, 2006 at 10:15 AM | PERMALINK

Yes, I know cleek. You prefer to lie to yourself. It makes you feel better.

Posted by: Will Allen on November 17, 2006 at 10:26 AM | PERMALINK

Adam: interesting that while we are all consumers, you feel that only corporate insiders are worth listening to. I can't believe the number of Pharma shills who post here anytime this topic is discussed. The strident populists here and elsewhere must be getting uncomfortably close to a fat sacred cow. I think our drug industry is largely in mission failure.

Posted by: Sparko on November 17, 2006 at 10:28 AM | PERMALINK

I'd love to have a go at putting Will on my couch.

Posted by: Carl Jung on November 17, 2006 at 10:28 AM | PERMALINK

Adam, there's also a world of difference between adjusting patent protection, and simply doing away with them. There are all sorts of ways in which intellectual property protection may be reduced, thus lowering drug prices, that fall short of simply ending all patents. The way being proposed here, having the state "negotiate" for lower prices, is simply likely to be the most inefficient way to do so. Also, the way in which some in this thread pretend that we live in a world without trade-offs is not helpful, either.

Posted by: Will Allen on November 17, 2006 at 10:36 AM | PERMALINK

If drug companies need more research and development funds, they could quit carpet bombing us with ads for the newest impotence drug.

Posted by: Jeffrey Davis on November 17, 2006 at 10:43 AM | PERMALINK

(sigh) one last try...jeffrey, they run those ads because they make money on the drug. In other words, the money spent on those ads provides them larger profits, meaning the money spent on those ads does not reduce the funds available for r and d.

Posted by: Will Allen on November 17, 2006 at 10:49 AM | PERMALINK

My issue is Zyprexa which is only FDA approved for schizophrenia (.5-1% of pop) and some bipolar (2% pop) and then an even smaller percentage of theses two groups.
So how does Zyprexa get to be the 7th largest drug sale in the world?

Eli Lilly is in deep trouble for using their drug reps to 'encourage' doctors to write zyprexa for non-FDA approved 'off label' uses.

The drug causes increased diabetes risk,and medicare picks up all the expensive fallout.There are now 7 states (and counting) going after Lilly for fraud and restitution.

--
Daniel Haszard

Posted by: Daniel Haszard on November 17, 2006 at 10:49 AM | PERMALINK

"restless leg syndrome" is one of the big disease problems of our day and finally has a cure

Pharma ensured they did not discover a cure. There is little profit in cures. Pharma developed a habitual treatment, meaning the treatment is never ending. That way the client has to buy the drug daily, weekly or monthly. Pharma is clever that way. I can only assume they learned that from crack culture.

Posted by: Hostile on November 17, 2006 at 10:49 AM | PERMALINK

drug reps to 'encourage' doctors to write zyprexa for non-FDA approved 'off label' uses.

When I receive a prescription for drugs other than antibiotics or pain killers, I usually do not fill them. Too many side effects offset the supposed benefits. Although I was suckered into letting a Dr. inject hyaluronic acid int my knee recently. Then he looked at his vacation expenses and decided he needed to do an exploratory scope on it after telling me the MRI, done in his lab, indicated no surgery was required.

The problem with the medical industry is that the providers are not healers but acquisitive capitalists.

My spouse was diagnosed with osteopeonia and prescribed Fomax, I think. One side effect is chest pain, which she suffered from. When she called the Dr. and told him, his response was go to the emergency room. She no longer takes the drug and now does the only thing proven to increase bone density: fight gravity by exercising.

Posted by: Hostile on November 17, 2006 at 11:01 AM | PERMALINK

Will,
It sounds like you have a brilliant solution to this. Why don't you enlighten us beyond the talking points?

Posted by: skewter on November 17, 2006 at 11:05 AM | PERMALINK

they run those ads because they make money on the drug

Ads give people medical conditions that require prescription drugs ?

the money spent on those ads provides them larger profits, meaning the money spent on those ads does not reduce the funds available for r and d.

Then all they need to do to get more money for R&D is run more ads ?

Posted by: Stephen on November 17, 2006 at 11:06 AM | PERMALINK

Drug companies often change a successful drug only slightly when their patent is ending and sell the new product as better than the old. It takes little or no research and these slight modifications are always approved by the FDA. Don't feel sorry for these companies, they know how to fleece the system so they will continue to reap enormous profits.

Posted by: R.T.Tihista on November 17, 2006 at 11:09 AM | PERMALINK

"The desire to take medicine is perhaps the greatest feature which distinguishes man from other animals." - William Osler

Posted by: CFShep on November 17, 2006 at 11:27 AM | PERMALINK

There;s another reason Big Pharma wouldn't earn less and spend less on R&D: the industry's dirty little secret is that companies often spend much more on marketing than on research and development.

In fact, many drug companies have rather small R&D bugets because they don't develop drugs. They buy lots of drugs from other companies in the last stage trials and then market them.

So Big Pharma is more a marketing industry than a health industry.

Don't buy into Big Pharma's propaganda.

Posted by: Evan on November 17, 2006 at 11:38 AM | PERMALINK

It sounds like you have a brilliant solution to this. Why don't you enlighten us beyond the talking points?

Things are just fine the way they are. Can't you read English?

Posted by: Will Allen on November 17, 2006 at 11:47 AM | PERMALINK

Right now I get the taxpayers to subsidize one of my favorite industries at both ends (research and purchase) and they make massive profits - how could the system be improved?

Posted by: Will Allen on November 17, 2006 at 12:00 PM | PERMALINK

A friend tells me his regime of AIDS medicines costs $200,000 per year. There are 22,000,000 people in the world with AIDS. You can't tell me that drug companies need $4.4 trillion a year to cover their research costs on AIDS medicines . . .

Posted by: rea on November 17, 2006 at 12:03 PM | PERMALINK

Kevin, it may be a good time to start assassinating the trolls.

On the pharma research front, it is not major new drugs that will suffer. Note that the majority of "new" meds on the market are slight variations on exisiting ones (think Nexxium offered just before the other "purple pill" is about to lose the patent exclusivity). It's the pharma equivalent of designer recreational drugs. If you create a new compound that is its effect--insignificantly different from an old one, you can get a new patent and reap the profits for a few more years. It is not clear that patients derive any benefit from these developments.

Posted by: buck turgidson on November 17, 2006 at 12:36 PM | PERMALINK

"Might one way to break this issue down is to return to the Grand Bargain that we once had: No general advertising for Prescription Drugs? Return to the days of the 'new product' being flogged by drug salesman (one of my friend's dad's was a pill salesman and made a decent living...). Ban ads for Claritin and Viagra (this means NASCar sponsorships)."

Not likely. In an obsidianwings disussion on the same topic we found (by looking at old 10Ks) that the ratio of the Advertising, Marketing and Administration line-item to the R&D item was essentially the same for years before and the entire time after the ad rule changed.

"There;s another reason Big Pharma wouldn't earn less and spend less on R&D: the industry's dirty little secret is that companies often spend much more on marketing than on research and development.

In fact, many drug companies have rather small R&D bugets because they don't develop drugs. They buy lots of drugs from other companies in the last stage trials and then market them.

So Big Pharma is more a marketing industry than a health industry.

Don't buy into Big Pharma's propaganda."

Argh. Can we use some basic economic sense please? How precisely do you believe "big pharma" gets the money to buy drugs from other companies?

"Drug companies often change a successful drug only slightly when their patent is ending and sell the new product as better than the old. It takes little or no research and these slight modifications are always approved by the FDA. Don't feel sorry for these companies, they know how to fleece the system so they will continue to reap enormous profits."

Double argh. If the new product really isn't better, just buy the old one. And other people can just buy the old one too. If the new one has fewer side effects, that is great too. People who don't experience the side effects on the first iteration can buy the older (cheaper) product. Other people can buy the new product. This is a good thing.

Posted by: Sebastian Holsclaw on November 17, 2006 at 1:08 PM | PERMALINK

Things are just fine the way they are. Can't you read English?

I guess i missed that. So then, are you saying the government should never be able to negotiate prices, or only in this one particular instance?

Posted by: skewter on November 17, 2006 at 1:19 PM | PERMALINK

Sebastian, do you have links or sources for the data behind this:

In an obsidianwings disussion on the same topic we found (by looking at old 10Ks) that the ratio of the Advertising, Marketing and Administration line-item to the R&D item was essentially the same for years before and the entire time after the ad rule changed.

And Skewter, just by asking that question, its obvious that you want to get rid of patent protection for drugs. In fact, just by tying your shoes in the morning, its clear that you want to rid the world of all patents.

Posted by: Dwight on November 17, 2006 at 1:31 PM | PERMALINK

Sebastian,

There are only two problems with your 'just buy the old medicine' idea. First,there is no trustworthy info on just how good/bad either version are. Second, the consumers are not free to buy what they want - they must get vetted through a Doctor.

Case in point - I'm told VIOXX is better and I can't get tylenol number 3 anymore.

Posted by: Tripp on November 17, 2006 at 2:01 PM | PERMALINK

Sure, the discussion on obsidianwings is here.

The comment which starts discussing the 10k issue is March 29, 2006 at 1:45PM (I think this is a permalink to the comment.

The Pfizer 10ks I use are here (pages 59 and 60) and here page 35.

Posted by: Sebastian Holsclaw on November 17, 2006 at 2:07 PM | PERMALINK

Thank you for the links, Sebastian. And my concern about direct to consumer marketing goes beyond the R&D issue.

Posted by: Dwight on November 17, 2006 at 2:33 PM | PERMALINK

I'm all for going back to the old advertising rule, I'm just pointing out that doing so isn't going to cause a huge windfall of R&D money.

Posted by: Sebastian Holsclaw on November 17, 2006 at 2:35 PM | PERMALINK

I see the coward is back, and misrepresenting me once again. I don't have time to spend 20 minutes explaining the myriad of ways intellectual property law might be changed, and thus lower prices. The point is that it would be a more efficient means of of doing so, especially if what the author said is true (of course, it isn't), namely that innovation in life saving drugs is not affected in any manner by the amount of private capital directed to the effort. This really was my major disagreement; the idiotic assertion that private capital did not have any effect on rates of innovation for life-saving drugs.

Posted by: Will Allen on November 17, 2006 at 4:16 PM | PERMALINK

Coward? Who are you refering to? My name was on my responses to both Adam and Sebastian. Or is everyone who doesn't agree with you a coward? I guess those that nod in silent agreement must be your heroes.

If you're so worried about misrepresentations, stop making them. To wit:

Dwight, what is it about people like you who so resent consumers having a myriad of options to select from? Look, if you think patents are bad for the American consumer of health technology, why not be honest about it and just advocate that they no longer be issued?

and

...thus objecting to the system which produces a third drug for make urinary disorders and a fourth for erectile disfunction. The system which produces that, Einstein, is patent law, which makes it profitable for drug companies to do so. Must I now explain to you the meaning of a post that you wrote yourself, you ol' dime store
Mussolini?

as if your characterizations had anything to do with my original post on marketing run-amuck.

As to your obsession with patents, your technique is right out of the John Stossel School of Hackery, i.e. "If lowering the speed limit to 55 saves lives, then why not lower it all the way to zero?"

Look, I understand that the last few week's have been a difficult time for you. . . But if you go, who will think of the poor patents? Who will defend them against the scourge of the Left?

Posted by: Dwight on November 17, 2006 at 5:50 PM | PERMALINK

Will: "Myriad" is an adjective, not a noun.

Posted by: Learn it, live it, love it on November 17, 2006 at 6:43 PM | PERMALINK

If big pharma was really interested in making a profit they would find a cure for hemhorroids.

Posted by: Dilbert on November 17, 2006 at 8:13 PM | PERMALINK

This is an uninformed comment because I don't know much about the pharmaceutical industry and don't have time to read all the comments. Still, I'd be grateful for some enlightenment on the following questions.

How do pharma companies suffer if they're forced to negotiate with Medicare the same way they do with the VA, and, more importantly, the health systems of other countries? It means they'll have to negotiate more aggressively with those other countries, but as things are now, the US consumer is subsidizing lower drug prices for other countries with national systems. Am I missing something here?

Why are pharma companies even *allowed* to advertise prescription drugs to consumers, since one can respond to those ads only through a licensed physician who writes the scrip? Wouldn't it be reasonable to forbid this for all pharma companies, so that no one company is disadvantaged? The fact that the advertising drives up the cost of the drugs makes this even crazier, it seems to me.

And (this is not a question) we need to get the insurance companies out of the pharma business (and out of the medical business altogether, but that's another argument). I'm sure others have had experiences similar to mine, in which a mail-order rep simply flat-out lied to me that my doctor had permitted a generic substitution while, as I talked to him on the phone, I held the original scrip in my hand (the original of what I watched him fax to the mail-order firm) saying DISPENSE AS WRITTEN. There are simply too many opportunities for sharp practice and fraud when there are insurance-company intermediaries between a doctor's prescription and the doctor's patient.

I don't have a problem with patented drugs; I have a bit of a problem with pharma companies using the results of taxpayer-funded research for nothing (is this true?). But surely the price negotiation issue is a no-brainer.

Posted by: BlueStater on November 17, 2006 at 11:21 PM | PERMALINK

I don't have a problem with patented drugs; I have a bit of a problem with pharma companies using the results of taxpayer-funded research for nothing (is this true?).

In any meaningful sense, no.

But surely the price negotiation issue is a no-brainer.

Yes, as long as we don't pretend that removing what is effectively an inefficient subsidy won't have any effect on the industry's willingness to invest in new drugs.

Posted by: TW Andrews on November 18, 2006 at 12:34 AM | PERMALINK

But, TW, this is exactly what I don't understand. If the pharma companies have to negotiate with Medicare, same as with all buyers, then if they are competent businesspeople surely they will adjust their negotiating strategies with other large buyers (other national health systems, e.g.) accordingly. They won't be able to give those other buyers as good a deal as they do now because their margins on their US sales will be lower. Unless they are bad negotiators, their overall margins should be the same on worldwide sales. The companies decide how much they want to put into research and price accordingly, and that decision that is driven by overall revenues, not a US price that is not fully competitive (i. e. does not take volume purchases into account) while overseas prices *are* fully competitive. The existing system seems to freeze into law an automatic disadvantage for US consumers -- or, to put the same thing the opposite way, an advantage for non-US consumers (except for the VA). The core argument made by the pharma companies about reducing their research activities turns, as far as I can see, on what seems to be a subsidy of that research activity by US consumers but not by others -- and so far, at least, it makes no sense. The claim that negotiating with Medicare is really a matter of price controls seems to me to be begging the question -- I see no difference between negotiating with, say, Britain's National Health Service and Medicare. What am I missing here?

Posted by: BlueStater on November 18, 2006 at 1:15 AM | PERMALINK

Bluestater: T.W. Andrews is a shill. A crass concern trollish shill. As others have pointed out, the drug industry is more content with finding ways to amange disease profitably, rather than finding cures. They use this ruse of "new drug" investment as extortion to keep the status quo.

At this point, when cheap and effective drugs are discovered, created and marketed overseas, there is little chance a middle class American would have access to them. This is what happens when you run a for-profit health care industry. They really are not concerned with saving lives any more. Look at the shills on this thread. People you will not see on any other thread, but on the look-out for trouble.
We need affordable health care on every level. We don't need the Pharma lobbyists.


Posted by: Sparko on November 18, 2006 at 10:16 AM | PERMALINK

Sparko - Well, that was what I was beginning to conclude, when TW kept ducking what seems to me to be the main question. That leaves a deeper question, though: why do the pharma companies put themselves in such a vulnerable position, relying on the favor of a profoundly corrupt Republican party? Sooner or later they're going to get found out and lose bigtime. More rational managers, I would have thought, would opt for world-wide uniform pricing, negotiate with everyone fairly, and make just as much money. Maybe the same guys run the pharma business as run the US car business -- stupidly, and into the ground.

Posted by: BlueStater on November 18, 2006 at 11:42 AM | PERMALINK

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