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Comment by HarryHirsch | Hacker News Reader

Profits for generics are too low and there are no new market participants because outlays for initial investment and conformance testing is too high. Generics manufacturing is a strange beast, there are surprisingly few players involved, there is very little overcapacity, and that's not a good situation. When Hurricane Maria took out pharmaceutical plants in Puerto Rico there were severe drug shortages that were not easily fixed.

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That's a strange argument. If there are few suppliers in the market, and inelastic demand, they should be able to pretty much set their own price, at least enough to be profitable. The only way that prices trend to zero profit are in commodity markets with a lot of competitors.

In most countries that aren't the US, the government is the biggest purchaser of medicines, and that is what keeps prices down. That's only a theory, though.

But the observable facts are that in the generics market there are only a few players, and profits in the generics market are low. If the economic theory can't explain that, it's the theory that is wrong.

The theory isn't wrong, it's what you'd expect. Outside the U.S., governments exercise monopsony power to keep prices artificially low, which results in a less-than-efficient amount of production of the generic: https://en.wikipedia.org/wiki/Monopsony. When you make prices artificially low you reduce the incentive to invest, and the result you're seeing is Econ 101.

What's happening inside the U.S. is harder to model. The patented versions of insulin are somewhat better than the generic ones. There might be insufficient incentives for people with health insurance to prefer the slightly inferior but much cheaper version. That leaves only those without insurance to pay for the generic, and that's not much of a market. As a biologic, insulin is expensive to make even the generic versions. And people who have no insurance probably have little ability to afford it.

What does "artificially low" even mean in this context? Valeant have demonstrated that you can drop research and raise prices on orphan drugs to stratospheric levels, and Valeant's owners are the only people that benefit. That can't be a desirable outcome for public health. When the government leans on manufacturers at least prices have some relationship with the costs of production.

> When Hurricane Maria took out pharmaceutical plants in Puerto Rico there were severe drug shortages

And this included something as simple as saline.

What prevents hospitals from producing their own saline? Is it really that difficult to produce?

The same reasons why hospitals don't produce their own medical supplies period? A hospital is a hospital and specialized in doing what hospitals do: Treating patients.

Manufacturing IV solutions is something that requires a clean room laboratory, with its own set of stringent requirements and doing it cost-efficient means doing it at scale.

Making saltwater doesn't require a cleanroom.

Go make some, and shoot it into yourself.

Actually, don't, you'll probably injure yourself.

That's happening.[1][2] A group of big hospitals is creating their own generic drug company to supply routine items at better prices.

[1] https://www.npr.org/sections/health-shots/2018/09/06/6449359...

[2] https://civicarx.org

They are only forming a purchasing consortium to get in front of the line of other buyers or force bulk discounts. If they don't want to build production capacity themselves they could purchase an existing facility, but they don't.

There was actually a story arc about this specific concept in the TV series, "The Resident."

This is good fodder for a case that a public utility should produce these drugs. Of course that would freak various interests out so won't happen, at least in the US or EU.

A hybrid approach in the US has been fairly useful for orphan indications and, somewhat differently for vaccines, but of course jerks found ways to exploit that too. Still it points to a possibility.

But I favor a single utility making some small-molecule and biologic underserved drugs because of the economy of scale it could bring. A small NIH facility in some otherwise underserved part of the country could make a big difference at a relatively low cost.

There are some things that should not be subject to capitalism

You can't build better medical helicopters by saying "there are some things that should not be subject to gravity."

You posted this comment using a network whose fundamental tech was developed in a government project. You posted it using a device descended from an original which was built as part of a government project, based on theories developed with no immediate profit motive.

Would you like to re-think whether it's possible to invent and develop important new things without immediate profit motive?

Government funding happens within an economy subject to market forces. DARPA, in particular, had an intimate cooperation with for-profit companies. BBN and RAND were instrumental to creation of the Internet. BBN won the contract to actually build ARPANet. Bob Kahn and Vint Cerf both went through the “revolving doors” between government and industry. Kahn was involved in the implementation of ARPANet at BBN, and then went to work for DARPA in 1973. Cerf was a program manager at DARPA then went to go work for MCI in 1972.

Government funding isn’t an alternative to the market; it’s a different kind of market partipant. Government funding competes with private investment, and government agencies compete with the private sector for talant, etc.

My prediction is that this will happen. Not necessarily in the US, though, more in China, India and Brazil.

It is absolutely mind-boggling that you're being downvoted for saying this.

Why are these drugs underserved though? If, as another commenter suggested, the core reason for the shortages is because the government is such a large purchaser and they're keeping prices too low to encourage investment in new supply, wouldn't it make more sense to just pay a bit more to create some oversupply to cope with shocks to the system and long-term growth?

If this was a viable model, I strongly suspect you would've already seen this happen in one of the many countries with socialized health care. I suspect you're assessment of the approach as "relatively low cost" is faulty. Biologic production is extremely difficult and expensive.

Biologic production is extremely difficult and expensive

It's not that bad. Brewers developed the knowledge how to work with microorganisms centuries ago. Most antibiotics are biologics, and they are dirt-cheap. Insulin isn't monoclonal antibodies, it's grown in bacteria, in the simplest expression system, and how to isolate it from the fermentation batch is well-understood and involves no problematic steps.

It's true that my work experience with manufacturing and approval is with small-molecule pharma, but as insulin was one of the very first biologic drugs and is one of the simpler ones to produce, I suspect this is reasonable.

I agree that France or Brazil are better candidates for this approach.

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