Drugmaker to testify on why weight-loss drugs cost 15x more in the US
arstechnica.com
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I think it’s easy to look at places in Europe that get drugs virtually for free, and want to be like that, but the US despite being 1/20 of the world’s population, funds something like 80% of the biomedical industry, due to our lack of price controls.
There’s so many areas of medicine where we don’t see progress because the ROI just isn’t worth it. Do we want to risk making all medicine like that?
Ozempic cost 3B to bring to market. Let’s 4x that to include the cost of drugs that never go to market. Raising costs to 12B. Let’s say a company can recoup their costs over 6 years, meaning they need to make 2B a year in a drug.
In 2023 [1] Novo made 12B on Ozempic. So they’re doing 6X better than the estimate above.
So they could cut the cost of Ozempic by 6, bringing the monthly price to $125 (which would be material for most people). They would still be raking in the cash.
I get the above model is overly simple but with the amount of money Novo is making they cannot justify these high prices.
[1]https://www.axios.com/2024/01/31/novo-profits-jump-wegovy-oz...
> Let’s 4x that to include the cost of drugs that never go to market.
Also, that's a hugely generous multiplier. IANA pharma marketer, but I'm fairly confident that if a drug is ultimately unsuccessful, it's cut off long before the 3b mark. Not saying that the investment isn't substantial, but it's not like they have millions of doses produced/distributed before they discover that it's ineffective.
Another comment nailed it, this is a power law return market, like startup investing. Those very few 100-1000x returns pay for everything else. You can't look at one of the most successful drugs and the costs of making it and decide that they should get a 50% return on top of that, it needs to cover a huge number of failures.
IMO, the multiplier would be at least 10x, though I'd love to hear from an industry expert.
If your assumptions are true, why are investors not jumping up and down to throw money at researching medicine? Is there no risk involved?
Why are governments around the world unable to pay for the development and approval of these medicines?
If the above poster is correct, then one should be able to invest all their money in just pharma stocks, and make a killings.
But you wouldn’t. You can’t pick the winners after the fact and claim the risk wasn’t there.
Pharmaceutical companies acquire the winners when it’s obvious they’re winners and they pay a lot for the privilege. That’s how biotech investing has worked for decades now. The risk of drug development is spread among several layers from publicly funded grants to VCs to public investors and finally pharma pays for the winners.
VCs fund the early stage, once the startup has something promising that can go to clinical trials they IPO (VCs often fund phase I), then when it’s cleared phase III a pharma company acquires it. Sometimes its so obvious that a drug will work and there’s so much competition that they acquire them early like Sofosbuvir for $11 billion, years before its approved.
You can’t make a killing investing in pharma because everyone before them takes all the risk and gets a lot of the profit. Pharma makes a commensurate profit for providing an exit for public investors and the expertise to mass manufacture and distribute the final product, not all the windfall from developing the drugs.
Then why doesn’t someone else pay $12B?
Clearly there is a limit, and it must be related to risk. The risk of the drug failing to sell at the price you hope it will sell in the quantities you need it to sell to earn the desired ROI.
This is all really really basic stuff. Please just google the rest yourself: https://www.baybridgebio.com/drug_valuation.html
The success of Ozempic is exceptional Without a doubt, And I’m arguing that because of this exceptional success, the company can afford to dramatically lower price
I personally don't think this is the only way we could accomplish this, but I think it's a better outcome than it would be if nobody nation "over"-paid for medicine in order to subsidize research.
Americans are just fatter.
Is your theory that demand is higher in the US and that's why the prices are higher?
I don't see any reason to think that would be the case for a product that is very easy to transport globally. That is, absent other effects, like regulation and the differences between how insurance works in different places, I think this would be a global market with prices driven by global demand.
There's no risk they won't recoup the costs even if prices were reduced 10x in the US.
> There’s so many areas of medicine where we don’t see progress because the ROI just isn’t worth it
.. because it's so much more profitable making medicines in demand in rich countries than medicines that benefit the largest number of people.
Sure. But how much of that was invested by the company and how much of it came from public research grants?
Sadly they’ve got a strong claim to being the ones responsible for the basic research here, which is exceedingly rare in pharma. Their latest drugs like Ozempic are the result of decades long research.
A new study found that Ozempic costs between $0.95 and $5.50 to produce per unit, or no more than $22 per month at the highest dose. [1]
Another study estimated that Ozempic could be sold for as little as $5 per pen and still be profitable for the manufacturer, Novo Nordisk. [2]
Senator Bernie Sanders stated that a Yale study found Ozempic costs less than $5 per month to manufacture, yet Novo Nordisk charges Americans nearly $1,000 per month for the drug. [3]
The available evidence indicates that the research and production costs for Ozempic are a small fraction of the final retail price charged to patients. The significant markup between manufacturing costs and consumer prices has led to calls for the drug manufacturer to lower prices.[4]
[1]: https://eu.usatoday.com/story/news/health/2024/03/29/ozempic... [2]: https://www.fastcompany.com/91071415/your-1000-per-month-oze... [3]: https://www.sanders.senate.gov/press-releases/news-sanders-s... [4]: https://www.beckershospitalreview.com/glp-1s/5-ozempic-new-s...
I'm not saying that Ozempic specifically isn't overpriced, I don't know that. But production cost isn't the only factor for new drugs (it's somewhat different if we talk about older drugs/generics).
The $3 billion comes from researching and demonstrating the role of GLP antagonists, determining how to use them as a medication, developing manufacturing and distribution processes, and dosing mechanisms, testing, documenting, and getting the appropriate certifications and approvals to ensure that the risks of using the medication are reasonably well understood and communicated. Then there is the cost of marketing and educating the medical services providers in various fragmented markets about the effects and efficacy of the drugs and presenting them as alternatives to existing medications.
$3B sounds like a lot of money, but when you consider that the efforts above take hundreds to thousands of people over 30[1] years to achieve, it's not alot.
As for the idea that people should or could manufacture or self-administer these drugs safely at home, yeah, that might be the case for a very limited number of people, but I am going to lean on the ghost of George Carlin for that “Think about how stupid the average person is, then realize that half of em’ are stupider than that”.
Assuming only 10% get the treatment that's $300 per person to recoup the costs.
There's really no reason why a drug for something affecting tens of millions of people should cost so much.
The reason is becoming very rich is the carrot for taking the big risks to develop the medicine, because you will likely fail for years and years, and maybe never succeed.
If the discussion is changing to limit how rich someone should be able to get, that is a different topic about tax policy and wealth redistribution, not medicine prices.
The other is about societal harmony.
For example, price controls on medicine results in society incentivizing more efforts to be put forth toward slinging advertisements, which is obviously not a good thing.
Then you say, well put price controls on advertisements, in which case..why chase the tail when it would be far less corruptive and complex to subject everyone to the same rules via tax and welfare policy.
Not how it works. It's rare for a drug to reach the most expensive phase of clinical trials without demonstrating efficacy.
Surely the equity is not left up for grabs for cheap by the time it is a guaranteed to earn the owner lots of money.
The pharma industry has over a century of experience in managing risks of this sort, which is why it's so profitable.
If there was no risk, then there would be no failed pharmaceutical businesses. If it was so easy to take medicines from idea to market and make a ton of money, people wouldn’t be wasting their time on buying stocks for other businesses.
It is also simultaneously possible that US patent law, as implemented with medicines, is too rewarding to pharma companies.
3b/36m = 83.34.
So they could have recouped their development cost in a single year, just from USA sales, charging only $84 over the cost price.
https://www.cnbc.com/2023/09/27/ozempic-wegovy-drug-prescrip...
I already see posts of people trying to explain how they could charge less money. Nonsense, this is a drug that cost a lot of money to bring to market, along side countless other failed drugs. Unless we have a unified world effort to research and produce drugs, I don't see any valid arguments against the current pricing regime.
You can have a market for R&D and see progress. You cannot have a market for lemons and expect the same. For every Ozempic, you can expect one or more Nexium, where the company (AstraZeneca in the case of Prilosec/Nexium) uses the first research win to pretend to have a second win (or third, or fourth, or even first because acquisitions) using marketing and distribution channels to bury the cheaper med.
Advanced market commitments, i.e. governments signing contracts that guarantee they'll pay $X hundred million for a solution BEFORE the research has been done, is the way to incentivize this while avoiding the disincentive of governments becoming extremely tough monopsonic price negotiators once the drug has been developed.
The development of more drugs could be funded this way, through global health organizations like GAVI, such that medicine wouldn't need to be developed by gouging some for the benefit of others.
Did you say "hundred million" intentionally? Because the average cost of a drug has been estimated in the billions for over a decade now. [1] I'll take a listen to the podcast, I'm generally skeptical of the government deciding funding levels since they're likely to be worse at assessing demand than consumers.
[1] https://www.appliedclinicaltrialsonline.com/view/tufts-cente...
re: hundred million: I was trying to imply that AMCs can be large but not necessarily always in the billions - it depends on the market size and estimated economic damage of the thing we're trying to incentivize R&D for - though yes, both medical AMCs to date (pneumococcal and covax) were in the billions.
Just to clarify, AMCs aren't the same thing as governments "fixing" the price of R&D with wishful thinking. It's when a government/funder uses epidemiology and economics to calculate the cost of leaving a disease untreated, and agreeing in advance to pay that much for it. That way, if set correctly, companies will invest to develop a solution without fear of being punished by the moral/political forces that make them suppress their prices once the solution is developed.
It's a way to fix the incentives that have left us with a whole class of neglected tropical diseases (firms needing to recoup investments, governments needing to negotiate cheapest possible prices)
Economists view this as a good and obvious way to get medication to more people.
I'm glad that we're able to subsidize drug prices to make it so Africans can get cheaper healthcare, and I am fine with charging the insurance companies lots of money and taking money from richer people in the process (since the high costs have to be rolled into the premium rates), but it's a little frustrating that it has to come at the direct expense of poorer Americans in the process.
Looking in from the outside this whole reasoning seems to me like some kind of propaganda thats meant to me easily swallowed by americans.
It seems like a deflection that sells the disparity by leveraging american exceptionalism (US medicine is the best) to be swallowed resulting in variying thoughts depending on the disposition of the recipient ranging between "i am glad we are helping those poor people" to "WAAAA why should I pay for them".
But neither of it is really true. The truth as it looks from the outside is that the american people are simply taken for a ride by pretty much all the parts of the healthcare sector.
The military industrial complex of course has its own share of many problems, but clearly having the price be reasonable for the average Americans is not one of them.
Many countries that are comparitively rich should see similar high prices. This is not the case. Also when looking at the develpment costs of some of the most expensive drugs the high prices are simply not justified.
Especially in cases where the main costs for a manufacturer is marketing because development was fully or partially financed from public money.
I mean aside from insulin the epipen price hikes are also well known about. As manufacturing technics improve and whatever cost overheads are payed off the prices should go down for all drugs. This is not the case at all somehow.
But it wouldn't be necessary to leave all else equal, if we introduced the same kind of price controls. The idea I think seems interesting is to do more research funding via large public prizes, rather than primarily grants and profits. Unfortunately it sounds pretty untenable, politically, to me, to set these prizes high enough to encourage a similar amount of research as the profit motive does. It's hard for me to envision a like $3B prize for "create a really good weight loss drug" having been politically feasible, for instance.
Lets just think about your 3B weighloss thing leaving out complications like its a spherical cow in a vaccum - there are enough overweight people in the world that if you can sell enough of it to each of them at a 10USD profit in total you easily make that back. Imagine what a 20usd per cured overweight person profit would do. isn't doubling your money enough? And considering that new potentially overweight people are born every day it would be a perpetual (spherical) cash cow.
The tech industry does it all the time too, pricing games and SaaS subscriptions based on the currency, so that i.e. people in Russia or India pay a cheaper rate. Not because their consumers are being subsidized but because they would get zero profit from them otherwise.
It was written before those drugs actually were made available to poorer countries for low cost for humanitarian reasons.
IIUC, the dynamics are the same as with most other businesses:
- Seller sets prices to maximize profits. If possible, on a per-market-segment / per-customer basis.
- There are no laws (AFAIK) enforcing price caps, aside from what Medicare will pay.
- Seller has a temporary monopoly on some drugs via the government -controlled patent system.
- Seller is a for-profit corporation.
So what do lawmakers expect???
They made the rules, and are uniquely empowered to change them if they don't like the resulting market dynamics.
Obviously they can pass laws to do things but it’s more politically expedient to just talk about how they want to do things.
That's the problem, it gives them a government enforced monopoly with no responsibility or obligation.
Patents should expire after a certain amount of profit is made from them, or come with some level of responsibility to use them for the public good.
Not only patents, that should also apply to copyright and the like. If the goal is really to push insensitive for innovation, creating uncapped profit will mechanically lead to undesirable situation (as per the stated goal) where an oligarchy will relentlessly take the lion’s share and let next to nothing for the rest of their late competitors.
Developing new drugs is a multi-billion dollar gamble. Between FDA approvals and research that doesn't go anywhere, drug making is a really losing game unless you make a metric ton of money.
It is also controlled by a charity that does global research.
If most drug research happens in the US (and, really, I don’t know if that’s true), then it suggests that the US model does a good job of incentivizing research. If another approach could get the same results, it would refute the drug companies’ argument.
This is just public relations, because “we want to make as much money as possible” is not good PR. However, everyone wants to make as much money as possible, so faulting pharmaceutical companies for that is stupid. It’s just business.
> Since only the drug companies know what didn’t pan out, it’s hard to refute.
Lots of pharmaceutical businesses don’t pan out. For every Novo Nordisk, there are a lot of upstart pharma companies that go nowhere and lots of gambling day traders that lose money on the stock. Otherwise, an index of purely pharma companies would be the best performing asset class.
> If most drug research happens in the US (and, really, I don’t know if that’s true), then it suggests that the US model does a good job of incentivizing research. If another approach could get the same results, it would refute the drug companies’ argument.
Exactly! If it’s so easy to develop medicines, then do it. All these governments around the world are free to invest tens of billions of dollars, and yet none take up the cause.
It is only expensive in USA, why would anyone else pay to make it cheaper in USA? Until USA changes there is no incentive for anyone else to pay for it.
And a very large share of drug research is happening in Europe, its just sold at high prices in USA as well just like American drug companies do. Just because non Americans makes a drug doesn't make it cheap in USA.
The reason this doesn't happen for medications is that if you do this at scale, the FDA will have you arrested. If you remove the FDA's power to do that, the price of medications will fall immediately, and drastically.
I have seen Americans on Tiktok say that they lost about 40 pounds in weight when they stayed in Europe for a while even when they ate the same amount of food?
Shouldn't those concerned about the health of Americans get their priorities right?
Is this "Idiocracy" in the making or what?
But that doesn't tell us anything about the reasons behind the pricing strategy US drug companies are using.
This is the Econ 101 argument. If you think drug prices are "too high" then you need to refute it directly.
I get that we are all dissimilar regarding how much our organism will assimilate and store this or that on the genetics lottery. My supposition here would be that, given the proportion at stake, the bulk of issue is more likely coming from a diet that should be improved.
What would it cost to pay people with public nutritional education and prescribing a catch for a few months, vs these drugs?
Once again, I don’t imply it could be panacea for every single case, and I humbly recognize my ignorance of the topic, so feel very welcome to point me to relevant resources.
It's supply and demand. 75% of Americans can be classified as overweight or obese. For $150, I can get a doctor to write me a prescription. If I have that much money to throw around for "cosmetic" medication, it makes sense that the drug companies are going to increase their prices to take advantage of middle-class/rich Americans with too much disposable income.
This is also a side effect of the USAs lack of government subsidized healthcare. The gatekeeper to any treatment you want in America is $$$. That's fine for some things, but this is another aspect of that paradigm.
Here in the Netherlands, we've having discussions in the government about taxing or limiting certain types of unhealthy foods because it is lowering health outcomes AND it costs the government a lot more if everyone becomes metabolically unhealthy at 45 instead of 75 because their diet is crap. [0]
Until the paradigm changes, drug companies will keep milking Americans for all they're worth.
0: https://nltimes.nl/2024/06/17/health-disaster-making-netherl...
There’s a lot of blubber in them whales!
In the US more people die per year of alcohol related diseases than by guns (1) (2). If we’re going to try to remove people’s rights to self defense, we need to remove people autonomy to purchase alcohol. The government would save billions of dollars a year on treatments if they just prohibit it.
The same goes for cigarettes, highly processed foods, and high fructose corn syrup. All of these should be banned because they lead directly to obesity, which costs trillions of dollars over a 10 year period. As the EU and even the US budget for their universal healthcare, they need to control the children, I mean citizens under their watch. The citizens show themselves unable or unwilling to control their consumption. Therefore such things should be out right banned.
1 - https://www.cdc.gov/alcohol/features/excessive-alcohol-death... 2 - https://usafacts.org/data/topics/security-safety/crime-and-j...
If instead you look at why people drink, why they over consume, you can work levers that way. Are people seeking out escapes? Why? What can we do to make it so they don't feel that need?
The provider of health care can require that individuals stop indulging in certain practices. In the EU they can say you stop drinking or no health care. A person would then be free to find an alternative provider of health insurance. Maybe the EU countries would allow private insurance.
That article is blinding the reader in its selective use of stats, by limiting the assessment to violent crime they ignore the wider social deleterious effect alcohol prohibition had.
The question is not "will this succeed in what it attempts to do", but rather "is it worth all the extra baggage", does it matter if alcohol prohibition works when it's also a weed and cocaine popularity campaign?
Also death by alcohol impacts more than just the dead person. There is massive emotional and economic impacts. There is lost time and productivity by both the dead guy and survivors. For the sake of economic wellbeing we need to out law any and all things that raise the cost of healthcare.
Everyone should be required to join Government or healthcare provided zoom meetings where we are all watched exercising in unison.