Big Pharma spends billions more on executives and stockholders than on R&D
arstechnica.com
arstechnica.com
https://www.ineteconomics.org/perspectives/blog/us-tax-dolla...
Big Pharma has a very powerful lobbying arm that is against Medicare negotiating down prices.
I particularly liked how all the Congresspeople involved in writing that the government couldn't negotiate drug prices into Medicare Part D immediately retired and went to work for the drug industry.
https://www.cms.gov/inflation-reduction-act-and-medicare/med...
With Part B, Medicare pays average selling price, which is the average price private insurers pays. Then add on top 340B discounts which many hospitals get, which knocks another 23.1% off plus penalties for price increases above inflation (Google "340B penny pricing", many hospitals only pay $0.01 per unit of drug).
With Part D, the government doesn't pay for drug anyways. Private insurers do the negotiating on behalf of he government.
Then look can look up VA pricing (24% off at a minimum). Medicaid gets "best price" which is the lowest price the drug sells for anywhere.
So the government has "negotiated" (by fiat) plenty of discounts. But saying "Medicare doesn't negotiate drug prices" makes plenty of political hay, and while technically true, doesn't really explain the prices the government gets.
I'm guessing you mean anywhere in the US. Apparently Florida is currently pushing to import drugs from Canada.
https://www.reuters.com/business/healthcare-pharmaceuticals/...
And sure Florida can try to import Canadian drugs. They tried that 20 years ago.
The companies capped sales to Canada at no more than 10% of last years sales. Canada then put export restrictions in place to put prevent shortages.
The US government has talked about price referencing Europe. Which would actually be great. Companies would be forced to increase European prices and lower US prices.
Denmark, not Norway.
Novo Nordisk's market capitalization exceeded the GDP of
Denmark's domestic economy in 2023, and it is the highest
valued pharmaceutical company in Europe.
They do raise prices in Europe. And what happens? The government says “no” so patients don’t get access.
Or the companies just don’t launch the drug at all.
https://www.pmlive.com/pharma_news/bms_will_not_launch_cance...
Bristol Myers Squibb (BMS) has decided against launching its cancer drug Opdualag (nivolumab and relatlimab) in Germany due to pricing pressures.
I wonder, how much does this Opdualag cost and how much benefit does it provide? My naive reading of your article seems that it adds an average of 3 months to the average patient's life? Here the math is quite simple but grim - how much would you pay for 3 more months of life?
Wow that is wild. Could you share a source for this? I would love to look further into this.
The vast majority of this effort remains unpublished, so I am not sure that the article you cite supports your argument. Most of the research mentioned in that article talks about possible associations between target and disease, which is just the earliest step of drug development.
(Obviously theoretically ideal economically would be if the government could just have a socialised department discovering and developing all new drugs needed with no profit margins, but then you lose out on benefits of competition, profit motives etc. so a split model makes sense, where they're still private companies but the gov invests hugely in them - but in return for the fair share of profits, rather than so many current grants where the gov pays funding and it doesn't even get them a good discount on buying the overpriced final drug.
"The thing is, the S&P 500 is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire S&P 500 and in return take half (or more) of the profits to either keep as revenue or reinvest in the S&P 500 or in other stock indexes?"
Gov't investment in any industry just because it's profitable is a bad idea for obvious reasons.
People who defend the huge profit amounts of pharma companies (which ultimately come from consumers needing healthcare, paying either directly or through insurance) say it's fair because of the huge amount they invest to create the drugs, if the government does most of the investing then they can take most of the profits to subsidise free pills for their population. Seems to me like a more direct benefit (in addition to potential economic benefits of boosting investment levels in a high-exporting industry too) than just the government buying S&P500 index funds.
Why don't we go after the actual 'hugely profitable' companies if that is the goal.
To bring it back to the specifics of the original argument, and refine it a bit, the relevant point is, "If these are such easy profits from doing nothing, why doesn't the government get in on it?" Alternatively, why don't the universities themselves develop drugs to the point of FDA approval and mass marketing?
The unfortunate answer is: it's not actually easy profits. It's highly speculative and difficult work to turn a drug from "supported by university research" to "ready to market to the public". Sometimes universities do try to cover some of that ground though.
Could either give a body like the NIH a huge new budget to use for investing in pharma companies, or could pass a law that says any company that successfully raises X money with Y criteria (either in VC, or by IPO, or however) must automatically allow the government to buy x% at the same price (or a slight discount) as other buyers?
And sure, lobbyists, money in politics and quality of current US politicians are a problem to face with pretty much any aspect of improving the country, but I don't think that's a reason to never discuss ideas about how to do so. (Then again I'm not American so I don't have horse in this race, but I feel similarly about my UK.)
It isn't that it is impossible, but it would take a slow start, and sustained experimentation and organizational learning over many years, before the amount of money that could make a dent in the problem could reliably perform well.
All while VCs would be lobbying to end the incursion, and the easier money - therefore lower returns, it would inflict on their territory.
> Pharmaceutical companies had significantly higher annual profit margins than S&P 500 companies for the 3 primary outcome measures of gross profit, EBITDA, and net income (P < .001) (Table 1).
> For pharmaceutical companies, the median gross profit margin was 76.5% (95% CI, 70.3%-82.7%), the median EBITDA margin was 29.4% (95% CI, 26.3%-32.5%), and the median net income margin was 13.8% (95% CI, 10.2%-17.4%). For S&P 500 companies, the median gross profit margin was 37.4% (95% CI, 35.2%-39.6%), the median EBITDA margin was 19% (95% CI, 17.8%-20.3%), and the median net income margin was 7.7% (95% CI, 7.2%-8.2%) (Table 2).
It is worth noting that a significant portion of the D in R&D is money spent on direct to consumer advertising. This only happens in the USA, as I believe that it is not legal elsewhere.
edit: I am now not 100% sure about this, please see comments down-thread.
> The pharmaceutical industry devoted $83 billion to R&D expenditures in 2019. Those expenditures covered a variety of activities, including discovering and testing new drugs, developing incremental innovations such as product extensions, and clinical testing for safety-monitoring or marketing purposes [0]
> $6.56 billion spent on direct to consumer pharma advertising in 2019 [1], with nearly $8.1 billion spent in 2022. [2]
[0] https://www.cbo.gov/publication/57126#_idTextAnchor003
[1] https://www.statista.com/statistics/686906/pharma-ad-spend-u...
[2] https://www.fiercepharma.com/special-reports/top-10-pharma-d...
Results of clinical trials (if successful) can then be used in ads, but that would not be R&D expenditure.
However, could we agree that DTC pharma advertising has very controversial benefits for patient outcomes, at best?
It’s a ludicrously complex business process.
Big Pharma (and Big Everything, really) consistently spends more on executive compensation and shareholders than R&D. And to the commenters' point, maybe if they put more of that in R&D, we'd have more promising and successful targets
Shareholders do not own companies in any, way, shape or fashion, let alone owning the profits of a company. Shareholders own a right to vote on company matters and have certain privileges based around such, but increasingly often they don't even really own that in any meaningful way. Google, Facebook, and many other companies use tiered shares, where the executive owners of the company grant themselves shares with orders of magnitude greater voting power, generally enough for majority control. So the shares everybody else owns serve little purpose other than speculation.
In any case this is a [somewhat interesting] red herring. The issue is that big pharma profits are already very large (and in fact COVID sent a number of big pharma execs into the billionaires club) and so public funding serves little purpose other than to further increase their profit margins, which should not be the purpose of public funding - even though in practice it often is.
[1] - https://moneyweek.com/merryns-blog/shareholders-and-the-myth...
https://media.nature.com/lw1024/magazine-assets/d41573-020-0...
“In many cases, the estimated cost of capital can be substantial, representing almost half of total development costs in some recent estimates.” https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8855407/
Cost of capital makes sense in terms of ROI calculations, but it’s not going to show up as a line item on annual budgets. Similarly R&D at drug companies isn’t all drug development R&D.
Current examples I have found:
[1] Eli Lilly, 2022 Annual Report: https://investor.lilly.com/static-files/2f9b7bb1-f955-448d-b...
Significant mentions of "compliance" (most are legal issues). However, a decent number of warning statements about how government compliance will require significant effort. No actual numbers I could find. Main Finanacial is pg 57.
[2] Merck, 2022 Annual Report: https://www.emdgroup.com/en/annualreport/2022/_assets/downlo...
200+ mentions of "compliance" (most are legal issues, it's a lot to check) Pg 148 has "number of self reported compliance violations. Most are fraud or "against company values". 79 reported with 28 confirmed. Main financials start pg 230. There was some about "compliance with audits", yet nothing I could find that was a line item for "government process compliance" or something similar.
[3] Johnson & Johnson, 2022 Annual Report: https://www.investor.jnj.com/files/doc_financials/2022/ar/20...
Significant mentions of "compliance" (most are legal issues, J&J has a "bunch" of lawsuits in Canada vs generics). Could not find a direct reference to cost of government compliance, although I did read a part that implied it seemed to be rolled into R&D somewhere. Financial Statement is at pg 54, although the $ numbers start quite a bit earlier.
[4] Bristol Myers Squibb, 2022 Annual Report: https://annual-report.bms.com/assets/bms-ar/documents/2022-b...
Notably, has a neat list of the main compounds currently under investigation with various groups, and "products in pipeline developments" (basically drug status updates). Only 2 mentions of compliance, both are officers. Financials are pg 40 in the pdf. Also, there is something wrong with their PDF format, because search is very obviously broken (at least on Firefox). So there might be something hiding in there that's just not being searched correctly.
Anyway, best effort for a half hour of avoiding working on anything, and did not find a number source.
It does solve a few key problems though. If universities and other research institutions were encouraged to bring products to market, they'd change what they work on and how. Basic curiosity driven research would give way to commercially oriented research. Moon-shots that might take multiple decades to develop would be replaced with things that can be brought to trials in just a few years. Brilliant researchers that might have made multiple earth-shaking discoveries over the course of their careers might get bogged down bringing one product to market. There's a lot to be said for insulating academia from quarterly reports.
However, things go awry when corporations that turn government funded research into private profits start lobbying too much and regulatory capture occurs. Even if it takes a decade to turn novel research into something you can buy at a pharmacy, the debt pharma companies owe to taxpayers should not be lost sight of. There should be stringent regulations on how drugs based on public research are priced. Yes, pharma company investments, market size, projected sales, and all that should be factored in, but drugs based on public research should be made available to the public at reasonable prices. That's not happening in the U.S..
Bottom line, public money must come with strings attached that serve the public interest. Pharmaceutical companies should be under heightened scrutiny and regulation because of where they get their IP.
Here is a wild idea: Perhaps the core of the problem just simply IS for-profit health care itself. Perhaps if someone has cancer, nobody should profit?
Where do you draw the line?
Does that mean the doctors and nurses and others should all work for free to? If individual people can 'profit' by providing care, i.e. a doctor, why can't a collection of people providing the same service, but as a company be allowed to profit as well?
The healthcare system in Europe doesn't gauge its sick citizens the way the U.S. healthcare system does, and yet, last I checked, doctors in Europe, while certainly earning less than in the U.S., do not "work for free" or are unable to provide for themselves and their families.
But what I really meant "inordinately profit from" so I should have specified that
So your idea is, rather than address known issues in the system, replace the system with one that is known not to work?
This seems to be a common paradoxical argument made whenever drug prices get brought up, particularly insulin. I’ve seen people make the argument numerous times about how outrageous it was that Eli Lilly, which was sold the patent for insulin in the early 20th century for a dollar, is charging hundreds of dollars for insulin today. And yet when it is pointed out that they sell insulin for $20 at Walmart, and the insulin that costs hundreds are newer synthetic versions, the response is that people can’t be expected to use the old stuff because the new stuff is much safer, effective, and easy to use.
Which is it? If the new medicine is ineffective, then why do you need to buy it over the older, cheap options? If it is truly an improvement, then why is it wrong for the producers to charge more to account for the R&D costs required to create the new medicine?
Drugs go off patent, and generics don’t have to undergo clinical trials. Sounds like the public benefits quite a bit. After a relatively short period of time (usually 10 years post FDA approval) a generic comes in the market for a fraction of the price.
The problem is, once a drug gets approved everyone thinks they are entitled to it. It is fundamentally a selfish problem; “I deserve XYZ” as opposed to “everyone will benefit after it’s paid for”.
2. Drug prices in Canada or other nations versus the U.S. should be paid attention to. I'm Canadian, and there's absolutely no way I'd go to a pharmacy when cross border shopping. Americans are being gouged to a massive degree, in large part because of the idiotic American medical insurance system. Drug prices in the U.S. are a complex issue and it's not solely the fault of drug companies, but they are taking every advantage of the situation.
2. You have no idea how drug prices work. You don't have health insurance so you should be using prices from goodrx, not the list prices at the pharmacy. Americans either have health insurance or use the cash discount. Simplifying this would be great, but drug companies are not making the massive profits that breathless journalists claim
2. Perhaps you should look into how other countries regulate drug prices[1]. This is related to why residents of Florida recently pushed the FDA to allow them to buy drugs from Canada. There is a massive price difference, yet pharmaceutical companies somehow manage to make money off the Canadian market.
I'd like to think the U.S. is subsidizing development costs for the rest of the world, as some big pharma executives have claimed in the past, but it's now evident that research would be easy to sustain at a lower price point.
[1]https://www.canada.ca/en/patented-medicine-prices-review/ser...
2 That's about new drugs, not generics. Generics are dirt cheap in America. Again, look at goodrx prices not the fake retail prices
The same can be said about any BigTech company, actually.
Calling stockholders an expense misrepresents how businesses operate. "Spending" implies expense. Stock buybacks are a way of returning value to shareholders.
> Stock buybacks are a way of returning value to shareholders.
This is also a problematic framing that ignores the broader situation. And that’s the tricky thing about framing things. It’s easy to manipulate the narrative and obscure the unreasonableness of the underlying reality if you sufficiently narrow the frame.
The typical alternative to receive what was state of the art care 10 years prior and off patent, and now 5% the price. The unfortunate part is the desire for such products is so low, that most of the time they are discontinued.
It is essentially a tragedy of the commons in the US. Because all the costs are shared, every individual is happy to pay 20X for a product that is 10% better.
What is a "reasonable" profit in an industry where it costs hundreds of millions to develop a product and 95% of the products fail?
So, margins in the hundreds of percents is definitely predatory. I'd personally argue anything higher than 10-20% is morally bankrupt and I wouldn't be able to sleep at night if I were in the shoes of those responsible. If there is a hell, there's certainly a circle dedicated to people praying on the sick.
And of course there are alternatives. A brand new drug is replacing something older (even if just supportive care).
Plenty of universal healthcare systems choose not to pay for new drugs because “they aren’t worth it”.
10-20% all included, of course, including R&D costs on failure.
> Plenty of universal healthcare systems choose not to pay for new drugs because “they aren’t worth it”.
Source?
https://www.reuters.com/article/idUSKCN1SK2QM/
Many such cases!
So again, sources for medical devices or medicine not available in single payer healthcare systems because they're too expensive, but available in the US via an insurance?
To expand on this, the FAA also showed itself to be criminally incompetent to the point of sacrificing human lives in service of Boeing. European (and other countries if they wish to, but as a European they're the only ones I can directly advocate for) regulators should stop trusting American regulators, and only pay attention to them to get inspiration and see what to do/what not to do. European regulators are far from perfect, but they're doing a better job and more trustworthy than their underfunded, hated by 1/3 of the country, revolving door corrupt American counterparts.
Look, if you don’t want to engage with this specific example, there are many more. Cerdelga to treat Gaucher’s disease was approved by the EU in 2015, but the English NHS didn’t agree to pay for it for another two years:
https://pharmatimes.com/news/nice_u-turn_backs_sanofis_gauch...
Canada as well, not approved for coverage until 2017:
https://hpr-rps.hres.ca/reg-content/summary-basis-decision-d...
Prices aren’t static. Competitors enter the market. Governments are willing to offer more or less. Eventually, generics or biosimilars become available.
It’s 100% accurate that English and Canadian citizens were denied access to these new drugs until they ceased being “too expensive” (at which point they were no longer “new”).
Available shortly after launch in the US in 2012. Even Medicaid patients (insurance for poor Americans) had access.
The UK didn’t pay for it until 2020. Eight years later.
And in Canada only 6 of 12 provinces/territories pay for it and only for children. If you’re an adult, well, you’re out of luck.
Look at the profit margins of the successful companies. It’s in the 30-40% range.
That doesn’t include all the money put into startups that fail.
All in, that’s probably the overall return for the average dollar.
My take on that problem. There are others. https://pietersz.co.uk/2007/02/patents-inefficient
I made the same point nearly 10 years before that with regard to R & D vs marketing expenditure. Its not a new problem.
People aren't upset by for-profit grocery stores taking tax dollars in the form of food stamps. They aren't upset by taxpayers giving money to for-profit hospitals to treat poor patients.
The government is paying a For profit company to do something that the government wants.
If the company would do it anyways, then of course I agree that the government shouldn't pay for it.
Not what I would call ‘incredibly profitable’. And they are one of the biggest.
If the goal is to go after 'extremely profitable' companies, maybe we should be looking at tech companies, that are in fact, 'extremely profitable', unlike most pharma companies.
and for the record, I have zero love for pharma companies, or how they operate - but they are not - in general - 'extremely profitable' companies. Far from it.
I thought HN was better, focus on the actual problems and not let every discussion turn into a profit/capitalism = bad debate.
If that sounds too much like socialism for your taste, give rich people the option to buy additional services or restrict the public system to basic medical services and drugs and require private insurance on top for cutting-edge stuff.
Profit is a great thing, but it is not an end to itself. The point of liberal democratic societies is to guarantee basic rights for everyone, while constantly improving the welfare (which is not the same as wealth) of as many people as possible. Capitalism has made great contributions towards that goal, but it also contradicts it in several critical places and thus needs to be regulated where necessary.
One think I think worth mentioning is that there is a significant difference between price controls and purchasing controls. purchasing controls is simply refusing to buy if the price is too high, while price controls is mandating a miniumum or maximum price for X. nearly every successful medical system uses purchasing controls, not price controls.
IMO, one of the main reasons costs are out of control is a lack of purchasing controls.
Pfizer's annual net income has been around $10 Billion continually since 2009: https://www.macrotrends.net/stocks/charts/PFE/pfizer/gross-p...
Annual revenues for that period were mostly between $45 and $60 Billion.
Not sure about you, but that is what I'd call "incredible profitable" on any day of the week.
So what exactly makes it so perniciously awful for pharmaceutical companies to do so?
Apart from that I personally think that excessive profit is reprehensible for any type of business, as someone, somewhere is the sucker on the other end of that equation. Tremendous profits usually come with someone being exploited somewhere along the value chain. For many of the businesses that you have listed this is painfully obvious for anyone who is willing to think about this for even a minute.
They might feel different if foodstamp-bought food was 10x as expensive as regular food, and those with foodstamps were forbidden from buying food for non-foodstamp prices.
Say the development of a drug costs $1 Billion on average and that only every tenth drug gets approval. So you are looking at a $10 Billion cost for every successful drug development. But you can then sell this drug exclusively under current patent laws for about 20 years, worldwide. By that calculation, you'd need to sell 1.000.000 doses of the drug for a price of $500 each every year to break even.
That sounds trivial to achieve given that there are 7 billion people alive and innovative drugs will go for vastly more than that even in strictly regulated markets like many European countries (my son gets a pretty advanced drug that costs about $12.000 (EDIT: yearly) to procure but which is covered by our (national) insurance scheme).
Additionally, a lot of the cost of basic drug research is actually covered by government-financed research, not private investment.
If you are still worried, you could use a prize model, similar to what was done during covid: Identify certain qualities that a new drug should have (i.e. be an effective vaccine against malaria) and guarantee a big enough market (i.e. promise to buy at least 1 Billion doses at $10 each) and you can bet that there'll be plenty of companies trying to get at that money.
It's just funding. Not like non-profits are magically unable to have talent, or to achieve results.
No one's giving away billions on a pharma non-profit when they could invest. Even though the result is sometimes similar for the investor.
There has to be some middle ground between the 2 branches of insanity?
And to have funding, you have to attract investors. How to attract investors? By making it quite profitable to invest in the company, i.e. making it profitable for the shareholders.
With enough money, you can do anything big pharma is doing. But how to get that money consistently is another question that have an uncomfortable answer. Plenty of startup and small biotech companies go bankrupt every year. This isn't something you can do in a garage and turn it into a multibillion dollar business like software. Biopharma has too many regulations and rules to follow and it makes the entire field incredibly risky and less likely for a small and unattractive player to succeed, even if they are driven by passion.
If that is what non-profits in Pharma are supposed to be, what is the difference with for profits?
However, it is hard to find real examples that bear this out. I think that this View overestimates the capability of institutions and underestimates the utility of price signals and an open market with competition.
Pharma companies receive very little (relatively) in terms of grants or research funding.
R&D spending can be amortized as a business expense when calculating a tax bill, so I suppose that could be repealed, raising the effective tax rate.
The price signals are already broken. The people doing the research that is fundamental to pharmaceuticals are paid by grants which aren't connected to the price signals. There is a market failure here.
So for the market it looks like 99% of the cost comes after academic research but in reality that's only 40-60% of it.
At the end of the day the price signal doesn't even reach most of the ressources and it is itself a poor proxy for the metric we actually want to optimize, which would be something like QALY.
You dont have to imagine a top down economy and fail to find examples, when simply regulation would do the trick and keep some enterprise freedom.
> The beer must be brewed within the walls of a Trappist monastery, either by the monks themselves or under their supervision.
> The brewery must be of secondary importance within the monastery and it should witness to the business practices proper to a monastic way of life.
> The brewery is not intended to be a profit-making venture. The income covers the living expenses of the monks and the maintenance of the buildings and grounds. Whatever remains is donated to charity for social work and to help persons in need.
It's funny to see above the suits and ties a layer of habits and scapulars[1]
https://www.koningshoeven.nl/media/127/compilatie-inkleding....
I.e. in my native Germany, health expenditure per capita is 2/3 of what it is in the U.S. if faced with a life-threatening illness, I would vastly prefer to be in Germany than in the U.S. (with the possible exception of being super-rich and being able to buy top-of-the-line health care).
It is not really an open market with competition: the government creates incentives, and only a faction of the increased cost to buyers goes into what the incentives are supposed to support.
Any useful information from price signals is lost too amid bad incentives: https://pietersz.co.uk/2007/01/pharmaceutical-incentives-dev...
that really depends on your economic system doesn't it? In the more capitalist systems you pay what the market will bear and there is no consideration as to what the incentives are or aren't.
Those that I do know who have had cancer were absolutely thankful that someone developed their treatments.
Patients and doctors want better treatments. There are government all around the world that want to save money? I know big pharma has a bad reputation, but they dont send out hit-men after competitors.
The only argument against publicly funded drug production is that profit seeking is more efficient and the societal outcome is improved by not funding a public body to do this.
As other comments highlight, not only do societies publicly fund research (eg C19), they provide a legal system that protects monopoly profits, and won’t use single-payer bargaining on price…
So when pharmaceuticals then drop more cash on executives and shareholders it’s natural to question turning Covid19, cancer, or obesity etc into a profit centre for the wealthiest in society
They're parasites and freeloaders, contributing absolutely nothing, and consistently siphoning off value. Americans love to harp on socialism / communism and look down on "useless eaters", but there is no class more useless, more entitled, and more toxic than The Shareholder.
From Apple financial statement for 2023 [1]:
- Spent on R&D: $29.9B
- Spent on stockholders (dividends + buybacks): $92.6B
[1] https://www.apple.com/newsroom/pdfs/fy2023-q4/FY23_Q4_Consol...
Those are not the same
We're spending the money less directly perhaps.
Since 2000, the CAGR for (PFI, JNJ, SPY, IWM) was (1.56%, 7.68%, 7.79%, 7.63%) respectively.
(Per portfoliovisualizer.com. 2000 is the earliest date with data for IWM.)
- Apple doesn't make critical products that people must have or they will be sick or die.
- While Apple certainly benefits from some tax-payer funded basic scientific research done at universities (like all tech companies) that pales in comparison with the amount of NIH-funded research that Big Pharma relies on (to be clear, I don't have a problem with taxpayer funded research).
We don't want our medicine makers to have the same attitude.
(not because they cheat, because they are our betters.)
Imagine having returns that dunk on even the best financial minds on Wall Street as an octogenarian congresswoman nailing calls on tech stocks. I guess the rest of us just have a “skill issue” as the kids say.
https://finance.yahoo.com/news/pharmaceutical-groups-lawsuit... ("Pharmaceutical group's lawsuit over Medicare drug price program dismissed")
Jon Stewart says it best (because of course he does): https://youtu.be/NpBPm0b9deQ?t=1153
"The work of making this world resemble one that you would prefer to live in is a lunch pail [bleep] job, day in and day out, where thousands of committed, anonymous, smart, and dedicated people bang on closed doors and pick up those that are fallen and grind away on issues till they get a positive result."
You keep on grinding.
> The Inflation Reduction Act requires the federal government to negotiate the price of certain high-spending drugs covered by Medicare Part D, Medicare’s outpatient prescription drug benefit program, and Medicare Part B, which covers physician and outpatient services, including drugs administered by physicians and other providers. Under the new Medicare Drug Price Negotiation Program, the number of drugs subject to price negotiation will be limited to 10 Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. The number of drugs with negotiated prices available will accumulate over time.
https://www.kff.org/medicare/issue-brief/a-small-number-of-d...
Without a Medicare-for-all system, Congress could still easily stop this by capping pharma company profits but I haven't even seen an attempt to do so.
[1] https://www.kff.org/medicare/issue-brief/how-does-prescripti...
That’s in no sense what we typically think of as a “negotiation”.
Life ain’t fair. Selling to Medicare is a privilege, not a right. You’re free to find other markets more favorable if preferred as a pharma company, that’s a choice. But they won’t, because other markets already turn the screws on them with their health systems (which they should, but that’s a philosophical argument depending on your belief system). Exploiters just mad the game changed.
But it’s a strange kind of “negotiation” where one party gets to take much of what they wanted in the first place when the other party walks away.
When people hear “Medicare negotiating drug prices”, they think, “The feds using their purchasing power to negotiate lower rates.”
But existing Part D purchasers were already giants like Aetna, with tons of leverage of their own. It wasn’t enough, so now we have selective price-fixing, dressed up as a “negotiation”.
Maybe it’s a great policy, but if so, its supporters should stop lying about what it is and defend it on the merits.
Agreed! "The Federal Government is using its authority to dictate reasonable Medicare pricing to pharma companies that have a proven history of gouging the American public for self enrichment of management and shareholders." is a reasonable way to communicate the topic. Be honest, of course, but steamroll bad actors. They'd withhold medical necessities if it earned them a few more cents per share, the evidence on this is clear.
https://features.propublica.org/drug-prices/high-cost-drugs-...
Compare the list of biggest pharma today versus 20 years ago. A bunch were acquired or merged because they couldn’t sustain profitability.
Take a look at the return of the industry as a whole. It’s not that great.
This is such a bizarre criticism. Note they include executive compensation, despite it being $26M out of the $14.6B (0.15%). And "spending" on dividends? You mean "returning money to shareholders".
How do they think businesses work?
And since I have a 401k invested in index funds, I'm a shareholder. So the criticism of "spending on shareholders" they actually mean "vast swaths of Americans whose retirement and pensions are invested in the stock market".
There is nothing to return. Handing out is what it is.
> And since I have a 401k invested in index funds, I'm a shareholder. So the criticism of "spending on shareholders" they actually mean "vast swaths of Americans whose retirement and pensions are invested in the stock market
This is a common repeated fallacy. Nice for you to profit but this is no whole gain for society.
https://www.science.org/content/blog-post/rep-ocasio-cortez-...
His linked article (a better one)
https://www.science.org/content/blog-post/where-drugs-come-n...
is biased, because it only looks at approved drugs. He himself turns slightly to the R&D side and almost gets it.
> And now to innovation - 118 of the drugs during this period were considered to have scientific novelty (46%), and of those:
> 44% were from pharmaceutical companies.
> 25% were from biotech companies, and
> 31% were from universities (transferred to either biotech or pharma).
> The university-derived drugs clearly outperform in this category. What this also means is that 65% of the pharma-derived drugs get classed as "not innovative"
To be fair, i dont think you can convince me, that the pharma industry has no incentive to externalize risky or less profitable research and would never do it.
I have one anecdote for you too, hitting that exact spot: anti-biotics research. Because even though it has good prospect for profit, it is too risky research (kind of diminishing returns of R&D in that area).
You’re forgetting that this data is where the drugs come from not who developed them.
100% of approved drugs were developed by pharma.
And that’s the most expensive part. Spend $5M on early research is great, but all the academics out-license because the government isn’t going to bankroll the $100M-$500M cost of actually shepherding it through FDA approval.
Hence most of the financial risk is borne by the pharma companies. And you’re right, this doesn’t include the billions spent by pharma on failed projects.
It’s a great deal for society. Let private money fund development. Let them pay for the 90% failure rate.
And in exchange, they get ~10 year of patent protection, so the winners pay out a 10-100x return (to make it worth while investing at all).
Then after the patent runs out, the price falls 90%+ and society gets to pay pennies on the dollar for innovation.
It dwarfs the R&D spent by the NSF, NIH, etc.
Another point this story glosses over is that the $14.6B spent on R&D, represents nearly 1/3 of the entire National Institutes for Health $47B 2023 budget. And this is by a single company.
unless you're just getting your money back, it's not "returning" money to shareholders; it's "paying out profits to shareholders"
since Pharma has exclusive control over products that citizens must have or they will get sick and/or die, they are not the same as your average company. so the question is -- what's more important, that shareholders get their dividends or that the money is either spent on 1) developing more drugs to combat more diseases (or improve the drugs we have, or 2) lowering the cost of drugs so people who are sick can actually get them without going bust.
remember that unlike almost any other industry, Pharma is allowed a __monopoly__ on drugs for a long time, and because we can't import drugs from outside the US (try buying from Canada), they control prices almost perpetually
People complain about Apple but all least you can get a Google phone if you want one. But if you need a drug that's monopolized by one company, they can set whatever price they want and you have no recourse (unless you do move to Canada).
It's not a monopoly per se. Anyone can import drugs as long as they meet the relevant regulations.
mighty big conditional there. Florida is the first state to get approval to do so and that only happened last month.
It might break but yeah so far it has been a monopoly.
- Big pharma should be praised for making profits. They spend too much R&D to circumvent each other's patents. Zero-sum game for the society as a whole.
- The government should be faulted for not structuring the business-government interaction properly. Mandatory licensing with profit sharing for medical patents, for example.
Ask any healthcare economist, medicine and healthcare has every possible market failure you can think of. You can't arrange it using free markets and marketing. The business must structured better. The US can look to other countries for guidance.
USA: 99$
Next most expensive country on that list: 21$
ETA: This is not intended to start a discussion about the price of insulin. The point is that a life-saving drug costs about 9-10x more in the USA than in countries with similar living standards, eg. countries in Europe.
But over last 15 years I've moved significantly towards free market social welfare state. It's true that central planning doesn't work, and that communism doesn't work. It's painfully obvious to anybody who lived it. But capitalism leads to results just as bad if left unchecked for too long. It's just getting there slower than other systems. Even the rules we add don't stop it, they only slow down the gradual descent into oligarchy. At which point it doesn't matter what the rules are - because the oligarchs are choosing presidents, PMs and judges.
Now I think the perfect economic system would be free market capitalism for 50 years, then a total nationalisation of everything, reshuffle and restart. Rinse and repeat.
Capitalism is like a game of football that lasts forever. No matter what you do, if you're born into Real Madrid you'll win, because the score is already 1000000000-10. There's a reason we restart the scores after every game.
You could argue that's similar to the UK's recent history, if you can be flexible with the 50 year period. Minimal regulation and state ownership pre-war, mass nationalisation post-war, mass privatisation in the 1980s
We should be nationalizing cellular networks, physical internet infrastructure and generic drug manufacturing because they are critical and don't really innovate besides following the slowly evolving, committee-defined standards.
It's also important for tech people to understand how different it looks to start a pharma startup. Funding requirements are orders of magnitude higher which also means the share of the company founders can retain is really tiny compared to tech and so are the gains from an exit that founders get.
Now one could argue that just making pharma a little bit less profitable would be a win, but even here I wonder. If I can get just 1% higher returns on my investment by cutting out pharma from my portfolio I'd do so immediately.
So let's assume we want these companies to reduce their profit margins (and instead lower drug prices or spend more on R&D.) What _are_ the best policy tools to incentivize this while minimizing market distortions, etc?
This is obviously not to say that Big Pharma cannot do better and there are no red flags.
The problem is the stock market has become Monopoly money as a result of a decade of ZIRP and the huge amount of excess liquidity in the system. Furthermore, stock buybacks are incredibly efficient from a tax standpoint. And IIRC, there are tax incentives to paying executives in copious sums of shares. We shouldn’t blame companies for doing what’s financially best for them; we should change the rules to align what’s best for them with what’s best for the rest of us.
Why not both? Corporations that size are actively working to change, skirt and fight the rules in their favor. This idea that the elected make the rules in a vacuum and companies are just following them isn’t true in reality.
If we insist on having the market be responsible for drug development, it should work for us. We should be leveraging the benefits of market based capitalism in order to achieve a desirable outcome. Standing on the sidelines and hoping for side effects of profit-seeking to trickle down both dogmatic and defeatist. The best way to do markets is competition. And the best way to have competition is a lot of independent companies. A few mega-corps is more like institutions than markets. And the prices follow.
Would love to see some of the people here crying about obscene profits try their hand at investing in pharma companies. Its an easy way to lose a lot/all of your money.
This podcast provides some interesting color on the industry:
> The patent system is what promotes R&D. Once your patents expire anyone can manufacture your drug without ever having done any of the initial work. Drug companies have a pipeline of new drugs going through the decade of studies and trials it takes to bring them to the market and the ongoing survival of the company depends on some of these being a success.
This is our current system, but I'm not sure it's the only system. There could be a world where medicine moves forward without patents, but that might be a worse outcome for patients -- assuming we wanted to keep profits even across a patent & not patent system, patients or some other revenue stream would have to make up the shortfall.
> Would love to see some of the people here crying about obscene profits try their hand at investing in pharma companies. Its an easy way to lose a lot/all of your money.
Also, I think most reasonable people would not immediately take to investing in random pharma companies -- you'd do quite well to simply invest in the biggest companies, or an index. The charts for the index, novo and lilly are pretty decent.
There are very few pharma projects that aren't outright frauds and that actually have potential and that don't cost way more to get to market than they can ever possibly justify.
Very seldom do those project lack money.
Ethical commitees should decide to what illnesses the money goes.
We can always come for additional sectors in the future, depending on objectives and resourcing.
Cut out the middleman.
"In 2021, Medicare Part D covered more than 3,500 prescription drug products, with total gross spending of $216 billion, not accounting for rebates paid by drug manufacturers to pharmacy benefit managers (PBMs)."
https://www.kff.org/medicare/issue-brief/a-small-number-of-d...
From this post:
> Peter Maybarduk, the director of the Access to Medicines program at Public Citizen, a watchdog organization, who also testified at the hearing, hit back at the main pharmaceutical talking points along with Sanders. That included noting that the makers of the 10 drugs selected for the first round of Medicare price negotiation spent $10 billion more on self-enriching activities than R&D.
($200B/year buys a lot of manufacturing, distribution, admin, and whatever is left over for amortized and ongoing R&D)
The problem is that nobody actually knows or can predict what "meaningful work" is because drug discovery is a graveyard with a >90% death rate.
About 1.8M voters over the age of 55 die every year, we know how they vote. 4M young folks turn 18 every year, and we have a rough idea what their macro concerns are. Through the electorate death rate, progress is inevitable. This is not magic or miracles, simply systems thinking applied to demographics and political sciences.
Pharma is being challenged in this thread, the tax prep industry with the IRS developing their own tax filing system, FedNow challenging $100B credit card rails industry with cheap utility instant payments. Whose next? was my comment thesis. Important to not say things aren’t impossible when they’re being done. We’re just arguing trajectory and time horizon. Lots of paths to success.
This sounds like a terrible business environment. Are you thinking through the long term consequences of this?
Pharma companies charge more in the US because they can - because there are no strong reasons not to, and no mechanisms to prevent them doing so. And it's possible for big pharma to maintain this status quo because the political system in the US, with big money from lots of different companies and sectors funding politicians directly and indirectly, allows it.
Short of a conviction-driven leader (in the vein of Bernie Sanders, [or, surprisingly, Trump! - tough rhetoric on drug pricing was about the only thing I agreed with him on, although little was ultimately delivered]) or major changes to political funding (e.g. tight limits on funding of and spending by politicians, as exists in many other countries) nothing will change.
I my mind the development of new drugs is one of the better uses for a nations capitol.
Martin Shkreli got shredded for this attitude, no? Now it’s generally acceptable? Because capitalism?
That any compromise to raw capitalism is derided as socialism is a problem.
It’s sad that even in the context of healthcare we need regulation to control greed. Alas, here we are.
Never forget the s€£t-show that was the Covid vaccine procurement by the EU.