How expensive do prescription drugs need to be to fund research?
theatlantic.com
theatlantic.com
https://www.forbes.com/sites/matthewherper/2015/10/13/four-r...
Also Derek Lowe is invariably awesome in this space, one highlight:
https://blogs.sciencemag.org/pipeline/archives/2019/02/05/ta...
Drugs occasionally need to be expensive, particularly on-patent drugs, to make the endeavor worthwhile. That said, it's a two-way street. Making drugs insanely expensive (as has been happening more recently) is breaking the implicit trust that those in the medical field must work hard to maintain. Traditionally pharma was careful not to abuse the inherent "your money or your life" dynamic, it seems these days that is breaking down. It's sad because for very powerful drugs (i.e. gene therapy treatments) the cost is actually quite high to even make the drug (I've heard quotes in the 100's of K even in the 1-2 M), which means the treatment has to be expensive. That said we need to work hard to bring that down, and there's absolutely no place for the kinds of shenanigans going on with insulin among others:
https://www.nytimes.com/2019/01/18/opinion/cost-insurance-di...
With abusive practices like this, how can you ask patients to trust you when you say, "yes but this time I actually need it to be this high"?
I think part of the problem is that it's not the same people. Some companies are pursuing aggressive price gouging tactics, and others are legitimately charging a lot of money for something that either costs a lot to make or that they invested a lot of research dollars in.
I think there are quite a few drugs which work exactly as intended, except for the small detail that they turn out to be toxic to humans. One of the big outcomes I’m hoping for from stem cells is to be able to test heart or liver toxicity before human trials, weed out a whole subset of failures before substantial money is spent, and make the whole process of drug discovery inherently more efficient.
Alternatively, you could say that the requirement to do that much clinical testing is an arbitrary bureaucratic decision and could be lowered - but there are political reasons (e.g. thalidomide) to err on the side of caution even if extra testing saves less lives than it costs lives because of the delays.
If that is true, then how can BigPharma patent the drugs?
> (I've heard quotes in the 100's of K even in the 1-2 M)
The thing is that no one+ has that kind of money. So it ends being your money or his life, over and over again. This has long since moved from the space of individual decision making to public policy. But we in the United States refuse to face up to that. We like to pretend that the doctor and patient should be the only ones that have any say in deciding what to do and if anyone outside that room balks at the price tag, no matter how high, they are an evil insurance company or government bureaucrat that doesn't care about human life or something. That's naive and silly. Spending $1 million of public or collective funds on a single individual isn't something that should be done automatically or that we should do out of a sense of guilt.
+Okay a few, but not enough to make a market.
Insurance is paying small sums, at EV negative cost, to mitigate the risk from a rare but very expensive cost.
Health insurance isn’t underwritten and pays out for routine expenses. It isn’t insurance.
(And while I don't think you meant the comparison this literally, I'll point out that health insurance companies do cover their costs. In fact, they're generally quite profitable.)
The research had to be done, and JNJ bought the company that did it. The price they had to pay was impacted by the cost of the research.
The problem is that without competition drug companies can keep raising the price as long as enough people will buy it at the new price so that they make more money than all of the people buying it at the old price. That is why really old drugs that have been around for a long time have their prices increase. Not because there was some new research but because the lack of alternatives means they can just do it.
As to government funding, mentioned below, the 90/10 rule applies in pharma as much as anything. The last 10% is 90% of the work.
...that said, it makes a good point about how the incentives work. If the govt did Xprize-like rewards for medical goals, it would work similarly: you stop paying for failed research and only pay for success, just like the examples you cite.
All told, I think too many electrons are spilled arguing over the need to pay for R&D (direct or indirect) and not enough answering the title here: "how much?" I would not be surprised to discover a dramatic reduction in prices could occur with minimal impact on results - which doesnt deny the need to pay for R&D. I'd rather people with expertise focus on how much,as well as figuring out how to shift incentives towards completeness over the current incentive for lockdown.
The poster I was replying to points out that this concept isn't actually what is happening (at least, anymore, for some areas) - instead, smaller companies do R&D - some fail, and the investment is lost; some succeed, and the profit from being BOUGHT rewards the investment. The reward for success is great enough that some investors will gamble on these small companies (while the big companies investors are investing with lower risk, lower rewards).
I pointed out that this is very similar to the XPrize - private investment was done in many companies, but only one (ish) would win. (This is actually a bad analogy, since the XPrize was much more about status - the prize wasn't large enough to truly be significant to a company that could claim it). My (unspoken) point was that the govt could stipulate controls on the resulting product - companies could research with greater confidence of what payout they'd get (on success, of course), but the incentive for price gouging is removed.
The difference between today's IP-monopoly and the XPrize is that the prize was a known amount, and in the part I didn't state, minimal profit would be had past that, compared to today's "you get as much as you can gouge, for as long as you can abuse rent-seeking".
Really I just did a terrible job of explaining my point.
The simple explanation for excessive drug prices is monopoly pricing. Through patent protection and FDA marketing exclusivity, the U.S. government grants pharmaceutical companies a monopoly on brand-name drugs. But monopolies are a recipe for excessive prices. A company will raise prices until its profits start to drop.
That monopoly is very fleeting.
By the time a drug makes it to market, it's typically been about ten years since the patent was issued. That gives a drug company about 8 or so years of exclusivity before any other drug maker can produce the drug without infringement.
It went from $13.50 to $750 overnight because it only has one producer that decided to raise the price 5500%.
https://www.vox.com/2015/9/22/9373557/daraprim-competitor-tu...
And there's no generic insulin sold in the US, even though it was discovered 90+ years ago.
https://www.npr.org/2015/03/22/394634923/90-years-after-its-...
For the vast,vast majority of drugs they are dirt cheap once the patent runs out.
We live with a system that allows exceptions that manifest as the Pharmabro.
My power bill doesn't randomly jump 5000% from last month.
Probably because Enron is no longer in business.
https://en.wikipedia.org/wiki/California_electricity_crisis?...
A good example is Lipitor. For Pfizer it brought in over $11B per year in revenue. Cost was around $150 per month. You can now get a month’s supply for $5.94 according to GoodRx. That’s a 96% reduction in the cost.
So, this doesn't mean we shouldn't spend some money, or even a lot. But, it will never be enough, so at some point we will have to say, "we could spend more, and it might give us a little more life, but let's not."
I don't think we're remotely ready for that conversation.
We're not even ready to talk about how:
- drug companies spend more money on marketing drugs than researching them
- drug companies waste much of their research on copycat drugs rather than new treatments
- IP law needlessly denies millions access to existing treatments by artificially inflating prices.
Free samples to doctors are counted as a marketing expense at retail prices, not at marginal prices
> drug companies waste much of their research on copycat drugs rather than new treatments
Marginal improvements are actually a huge deal and make for a lot of improvement. Because of our astonishing ignorance doctors will often go through multiple drugs looking for one with good efficacy and side effects profile with different patients.
> IP law needlessly denies millions access to existing treatments by artificially inflating prices.
It’s not needless. Someone needs to pay for pharmaceutical R&D for the global market. Right now that someone is US consumers (mostly in the form of high insurance premia). If they don’t pay then either the pace of drug R&D will fall or some other mechanism will need to be found to pay for it.
As to pharmaceutical company profits, their return on capital is nothing special, not like academic publishing rent seekers like Elsevier.
That doesn't sound like GAAP - is this proper accounting?
Any sufficiently large corporation is more likely than not to be an amalgamation of interconnected subsidiaries, for a wide variety of purposes. Once you're at that stage, there's a lot of room to get creative with how you structure intra-company charges to form whatever optics you want. It's entirely plausible that one internal entity may charge the marketing entity full retail price for samples, if they feel it's beneficial and have enough justification to satisfy accounting and auditors that it's a fair market value for the product (which list price would generally satisfy that requirement).
> Between 1996 and 2000, they accounted for slightly more than half of the total promotional dollars spent by industry [22]. Although there is controversy about how best to tally the amount of money the pharmaceutical industry spends on free samples, a recent analysis of 2004 figures sets the retail value of samples at approximately 16 billion US dollars [23]. The retail value of free samples has risen steadily, doubling between 1999 and 2003 [24] (Figure 1).
Chimonas S, Kassirer JP (2009) No More Free Drug Samples? PLoS Med 6(5): e1000074. doi:10.1371/journal.pmed.1000074
https://journals.plos.org/plosmedicine/article?id=10.1371/jo...
The problem is that these decisions are made on a marketability basis (hence, a plethora of impotence treatments for rich old men) rather than a public health basis.
> If they don’t pay then either the pace of drug R&D will fall or some other mechanism will need to be found to pay for it.
When you hear about it, the concept of public funding is gonna blow your mind.
My preferred system of public funding would be one where the government buys out a patent and places it in the public domain or a prize system. The government would estimate the value to it (or to its citizens) of curing or alleviating some disease, with some objectively verifiable success criteria and then offer a prize of, say 0.7 that amount.
You get the good parts of private enterprise, like experimentation, knowledge elicitation and market coordination. You also avoid the bad parts of government provision, like endless bureaucracy, form filling and the legendary efficiency of Lockheed Martin. If government pharmaceutical research worked well we'd know. The Soviets developed a different psychiatric pharmacopeia and phages and the Chinese found artemisin but it’s not a great record compared to the West.
Fundamentally someone has to pay for this. Right now its the US consumer. If you want to put that cost onto the budget good luck in politics, whether you’re talking about the US budget, the German one or the Chinese.
?????
> bad parts of government... Lockheed Martin
????
What you say is absolute FUD. The US already has publicly funded biomedical research, which works fine (the NIH). Just needs to do it all that way and put all the research into the public domain.
> If you want to put that cost onto the budget good luck in politics, whether you’re talking about the US budget, the German one or the Chinese.
Weak argument. The US consumer is already being ripped off by drug and insurance companies, and would save money from a public system.
Innovations in pharmaceuticals is often incremental, not huge leaps forward. You have 4 different cancer drugs, each one adds 6 months of life for each launch and you end up with 2 extra years of life.
As well, copycats are needed, because not every drug reacts the same in everyone. If you need to lower your cholesterol, you have dozens of different statins to choose from. Some you won't be able to tolerate, others you can. Options are good, not bad.
"Why We Must Ration Health Care" by Peter Singer. New York Times Opinion Section.
Unfortunately this is a very difficult conversation to have between people and their physicians, between family members, and with ourselves. It ties into another very difficult discussion of facing death. In a democracy the lowest common denominator argument wins out with catchy slogans, in-group signaling, burying uncomfortable facts, avoiding short term sacrifice, and/or wielding anecdotes instead of rational analysis. Thus the rationing happens when it is least effective - during a crisis when significant human, monetary, and time resources are drained. And not much earlier when some planning and hard work could greatly ease the burden.
If you need joint replacement surgery in Canada, you can expect a wait of many months to years. Canada has made the call that they will put a certain dollar amount into joint replacement and if the demand is higher, then people will just have to wait.
Same thing with the latest and greatest drugs. Some countries just say "no".
If you want an affordable healthcare system in the US, then rationing has to be a part of the equation. As others have pointed out, we already ration in the US, but trustfully, if you have good insurance, you'll get very good care in the US. The question is whether all that extra care is actually producing better outcomes.
Yes, things cost more in the US, but the volume is also quite a lot higher.
The opposite is often said for the NHS in the UK - certainly a smaller buyer than the US aggregate, but maybe a larger player than any one of them?
If a scan is more likely to cause harm than to treat illness is it really being rationed, or do single payer systems have an easier time not providing harmful over-testing and over-treatment options?
If you have a relatively minor problem, you're put in a line. For months (or years) of waiting, your problem becomes worse, and when you finally get to be treated, the treatment is much costlier and less effective.
This is to say nothing about your actual suffering from the problem, and from knowing that it's deliberately not being treated.
Spending enormous sums on vague, incremental improvements is likely not an important use of funds.
> after accounting for the costs of all research—about $80 billion a year—drug companies had $40 billion more from the top 20 drugs alone, all of which went straight to profits, not research. More excess profit comes from the next 100 or 200 brand-name drugs.
It’s weird to say this, but maybe the world needs more Martin Shkreli’s. That way there’s no room to doubt the motivations of virtually all large drug companies (at least in the US).
Isn't this loot?
Thanks to the advances in medical research in US, and the approach they take (i.e. divide divide and divide and dig to the nanoscopic level of human body to give a disease it's own name. ) There are more bespoke diseases in US than anywhere in the world. Drug industry has to keep itself busy to invent drugs just to affect that single bespoke disease.
"Insulin" is not a singular thing. For various reasons, lower-cost insulins are difficult to impossible to find in the US, which is a problem.
Also, some insulins are $2/dose in some parts of the world. Most insulins in the developed world are significantly more expensive than that (to whomever is paying for it), though still significantly less than what they cost in the US.
https://moalquraishi.wordpress.com/2018/12/09/alphafold-casp...
That would be a terrible outcome.
The op's POV might seem cruel, but only if you're in an ivory tower. There are _plenty_ of people right here in the US who can't afford drugs because we insist that they should be 10x the price in the US than everywhere else.
In fact, I'd say those people comprise a _majority_ of US healthcare consumers, due to just how unequal the incomes are.
There's also another negative side effect: due to what amounts to dumping, other countries essentially don't have any pharma research of their own, likely because it wouldn't be profitable. That includes pretty much all of them other than Switzerland (where both the health insurance and drugs are pretty expensive).
The very article explains this isn't true, as drug price doesn't really correlate with R&D costs.
> There's also another negative side effect: due to what amounts to dumping, other countries essentially don't have any pharma research of their own
That's wrong, too. According to [0], U.S. pharma companies globally spent about 70 billions, of which about 11 billions were spent in Western Europe, so net amount was at most (assuming nothing was spent outside the US and Western Europe) 59 billion dollars.
By comparison, according to [1], R&D spend from national companies from Germany, Switzerland, UK and France were about 20 billion USD.
So the population adjusted R&D spend relation is lower than 1:2 between Western Europe and the US.
[0] = https://www.healthaffairs.org/do/10.1377/hblog20170307.05903...
[1] = https://www.vfa.de/download/the-pharmaceutical-industry-in-g...
And they are able to do that because laws have been passed in their favor to legally bar other people from simply importing the exact same products from other markets where they are sold at much lower prices.
Price discrimination isn't subsidizing, per se, but the scope for price discrimination is very limited in the absence of government support due to arbitrage. Governments interfering in the market to enable price discrimination is very much a form of subsidy, even if the money isn't passing through the government on its way to the supplier.
That's like saying, how expensive does an iphone need to be to fund material science research?
Those two things look like they should be completely separate, done by separate entities with separate funding.
If there is a disease which costs the general population tens of billions of dollars a year, either in providing healthcare or in an inability to carry on a normal life, work, look after yourself and so on, then there is an inherent and huge pot of money which can go to solving the problem. If you sever the connection, you rely solely on funding achieved through political processes. Which given the level of expensive failure inherent to the process, tabloid campaigns, lack of public understanding, and short termism from politicians, does not seem like something we should rely on.
For instance, can you imagine what the reaction would have been if the hundreds of millions spent on alpha-beta clearance for Alzheimers had been spent by public bodies? Future funding would depend on a battle waged on twitter, opinion pages and talk radio.
And yet, despite having that connections, not only in the medicine but in all branches of technology, most impactful discoveries of last century come from tax funded university research not business.
Business is best at researching how to reduce the cost of manufacturing and distribution of a thing. Which is very important by itself. But when it comes to finding new stuff business usually falls short because it's too risky.
> inherent and huge pot of money
Size of this pot of money is direct result of how much the company will be allowed to charge for the drug once it's discovered.
Comapnies are so risk averse that you have to make this pot of gold disproportionately huge by allowing them to charge whatever they will manage to squeeze out of the market.
Maybe not now when researching CPUs is fairly easy. But a century in the future? When faster CPUs will be very hard to invent but essential to human survival? Maybe.
Business is great at researching processes of manufacturing. Not so good when it comes to researching actually new stuff.
> As long as the cost of drugs were reasonable, we wouldn't need to have these conversations.
But they must become unreasonable at some point if they cost as much as the incentive for research for companies. Companies are most risk-averse entities in existence. It's not unexpected that they need unreasonably high incentives to take up the risk of doing research.
I'd say we're already at the point that they are essential to our survival, at least for societies as they currently exist. CPUs are also hard to invent, and hard to progress already, requiring hundreds of millions of dollars for each new iteration.
> Business is great at researching processes of manufacturing. Not so good when it comes to researching actually new stuff.
I don't believe it. Most of the things we currently use were invented by businesses, or by someone who then started a business to sell it.
> But they must become unreasonable at some point if they cost as much as the incentive for research for companies.
Again, you're assuming the conclusion. Maybe this is the case in some circumstances, but it's a assuming a lot to claim this is the case for all companies and all drugs.
And if the cost is really this high, then incentivizing more creative approaches to treatment might just be better anyway. It shows a lack of imagination if we can only use a hammer when faced with a health problem.
Yes. I don't say business is useless when it comes to research. Business is great at researching how to tune the production process so that the thing they went to produce is affordable for as many people as possible.
Every invention goes through business to reach you. But it usually starts at the university on in military research.
> Again, you're assuming the conclusion.
I don't think I do.
1. Companies fund research with selling drugs they invent.
2. Inventing drugs gets more expensive.
1 & 2 => drugs get more expensive.
1. You're assuming drug research gets more expensive, but in some ways it actually becomes easier, ie. with better computers we can ensure some clinical trials have a higher success rate with computer modelling.
2. Your original claim was that they become unreasonably expensive, which is a stronger claim than just expensive. Furthermore, this expense would still be incurred by any other entity that does this research, so you're not saving anything in the end.
2. If something gets constantly more expensive it will eventually become unreasonably expensive for any chosen definition of unreasonable. Unless general wealth of human race grows faster than cost of research which doesn't look plausible.
What I'm saying in the end is that the cost will be higher if the company is involved because companies are so risk averse that they demand insanely high potential rewards to take the risk. The other thing I'm saying is that if you are going to fund reserach with drug sales but in the end will have to subsidize drug buyers from taxes (because they can't afford meds) it may be just better to fund research from taxes directly and charge for drugs only as much as their manufacturing costs as it is now in case of generics.
Of course the notion of setting limits on drug prices is politically fraught due to misguided concerns over "socialism", "big government", "death panels", etc.
Dean Baker has been banging on about this for years.
IIRC, Citizens United was the decision that allowed much more and much more opaque spending on political campaigns by corporations and wealthy individuals—it allowed the creation of SuperPACs, for instance.
1: https://www.statnews.com/2015/12/11/untold-story-tvs-first-p...
https://en.wikipedia.org/wiki/RAND_Health_Insurance_Experime.... An early paper with interim results from the RAND HIE concluded that health insurance without coinsurance "leads to more people using services and to more services per user," referring to both outpatient and inpatient services.[5] Subsequent RAND HIE publications "rule[d] out all but a minimal influence, favorable or adverse, of free care for the average participant"[6] but determined that a "low income initially sick group assigned to the HMO... [had a] greater risk of dying" than those assigned to fee-for-service (FFS) care.[7] The experiment also demonstrated that cost sharing reduced "appropriate or needed" medical care as well as "inappropriate or unnecessary" medical care. https://en.wikipedia.org/wiki/Oregon_Medicaid_health_experim.... Approximately two years after the lottery, researchers found that Medicaid had no statistically significant impact on physical health measures, but "it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain."[4][5]
It’s about how you value your population and the type of society you are trying to develop.
- article claims that spending on meds is biggest source of overspending compared to other developed countries. The article they link to only evaluates a few specific cost areas and does not present sufficient evidence to support the claim in the article. Under 10% of US healthcare spend is on rx drugs, that's middle-of-the-pack compared to OECD. Biggest driver of us HC spend is hospital and physician care (50% of spend). Also hospital spend has grown faster than drug spend last few years. https://www.cdc.gov/nchs/fastats/health-expenditures.htm
- the study that analyzes cost of developing cancer drugs ignores cost of failure. The article i think mentions that one study includes cost of failure for cancer drugs but puts failure rate at 25%; I don't know what sample they are looking at or how they define failure, but historically cancer drugs have a less than 10% chance of getting approved from phase 1
- the article says that most cost is "early" and cheap i.e. in phase 2 failure. It is true that 60%+ of phase 2 fail, but phase 2 failure is not early or cheap. The article mentions the cost of running a phase 2 study but ignores all the costs required to get to phase 2. It can cost $100-200M+ Just to get to phase 2 and only 35-40% of drugs make it past that. Only mentioning the cost of a phase 2, and not all the stuff that is before phase 2, is misleading and makes me wonder whether the authors are biased. Phase 2 failure is the biggest driver of cost of drug development. Paul et al 2010 nature rev drug discovery
- it criticizes the tufts studies bc the numbers are proprietary. That's fair but just bc the dataset isn't public doesn't mean the results are wrong. The studies the article mentions to "refute" the tufts data are even more flawed than the tufts one (see above point about the cancer drug cost study that ignores cost of failure).
- mentions the tufts study includes "capitalized" costs. Even excluding those costs, the cost of developing a drug is over $1B
- mentions that companies only develop cancer drugs because they are most profitable. But doesn't mention that developing drugs for almost any other indication is not profitable. If developing drugs was really so cheap and profitable, pharma would be developing a lot more drugs than it is
- does not discuss the declining returns to pharma r&d, erooms law, and pharmas use of the balance sheet to fund r&d in recent years because pharma r&d is failing and they have to buy drugs from startups
- ignores all r&d spend by non big pharma. Most drugs are developed by small companies not pharma, but pharma buys the small companies before the drugs are commercialized. So all the industry's profits accrue to big pharma but r&d costs are spread out
To me, the fact that this article makes claims that either neglect nuance or are unsupported by the articles they link to, that they criticize certain articles that support high cost of r&d but do not criticize articles that show low cost of r&d, and the use of either misleading, wrong or unexplained data points makes me strongly think this is a biased article
https://www.forbes.com/sites/johnlamattina/2018/01/23/about-...
> The average return on equity for key industries from 2014 – 2016 shows that biopharma’s profits stand at 16.2%, significantly lower than Computer Sciences (31.6%), Beverages (27.4%), Aerospace/Defense (23.0%), and Trucking (19.1%) while modestly higher than Software System/Applications (15.2%) and Healthcare Support Services (14.4%).
> Another measure, Internal Rate of Return (IRR) is even more telling. IRR calculates the sales/cash flows resulting from R&D investments, ties R&D and the returns it generates together, and is a more appropriate metric for biopharma productivity. Deloitte reports that the IRR for biopharma R&D has been steadily falling from 10.1% in 2010 to 3.2% in 2017. Even Wall Street hasn’t bought into the “pharma soaring profits” view. Since February 1, 2014, while the Dow has risen 63%, the stock prices of a number of major pharma companies have been muted with Pfizer and Bristol-Myers each growing by about 15%, and Merck and AstraZeneca by roughly 6.5%. Even Lilly’s growth of 43% still lags the Dow.
This is false. Just the other day we had a discussion on another Alzheimer's drug failure [1]. From the linked article, "Biogen and Eisai will discontinue two late-stage trials designed to evaluate the efficacy and safety of the drug, aducanumab, which has cost the partners more than $830 million over the past three years." This comes after Eli Lilly spent $3 billion on another Alzheimer's drug, that failed in 2016, and other failures from Merck and Johnson & Johnson. There's a fortune being spent on the last steps of getting a drug to market, or not.
One might argue that there has been some regulatory capture, that the pharmaceutical giants have happily acquiesced with the FDA in making drug trials more and more expensive. Now only the giants can afford trials, and small companies have to go through them. But the trials are absolutely extremely expensive.
Regulators put no money into it other than what it costs to fund it's own regulatory process. And, under PDUFA, drug manufactures pay >$1M to fund the review of their drug. It's paid for by industry.
Yes, clinical trials are often run by hospitals and universities, but manufacturers pay for everything. Drugs, people, etc.
And you forgot to mention that failures are privatized too. Spend $500M on a trial that fails? That's not the public's money, that's investors money.
Deng Xiaoping
Given how many people go bankrupt for drugs, and how much high drug prices distort the economics of healthcare overall, id argue our current setup is not catching mice.
A good alternative would be Public investment in healthcare to add fluidity to the labor market, and to prevent a single sectors profiteering from dragging down overall economic growth.
Drug spending might be very visible to the public, but it's not a major contributor to healthcare costs.
So then we’re talking about a market that’s just under 2% of the GDP if your 10% number holds.
At these scales nothing is trivial.
How many hypotheses do we want to test? As many as possible.