Asymmetrical Information

Question – what would it take politically to force Canada to drop its price controls on pharmaceuticals? Does anyone know if policies which restrict the price you can charge for an imported good are considered a form of trade barrier under NAFTA, GATT/WTO rules, or any bilateral trade treaty we have signed with Canada? Anyone know if these sorts of policies have been challenged and if so what the result of the legal challenge has been?

Eventually it will result in either the US or Canada banning any secondary sale of pharmaceuticals. The drug companies, like all companies, want secondary sales legally banned in order to implement price discrimination. The governments would love secondary sales banned to implement price controls.

Since banning price arbitrage is seen as good by the industries, governments, and by an alarming number of otherwise respectable economists, it seems likely that that is where we will (eventually, in another decade) end up.
--G

Grant, could you flesh that out a little more? It seems it would be a terribly difficult thing to enforce. I wonder if a faction will spring up in Canada that advocates breaking pharmaceutical patents.

I think when push comes to shove the Canadian government will ban rexport if the pharma's push them on it. They know they're getting a free ride, and they don't want to stop the gravy train. Besides, they don't have to answer to pissed of American seniors...

Why did they not just raise the price to the Canadian pharmacies to the same price we pay here?

It really pisses me off that we have to pay full boat whist everyone else gets a discount price. And yes, I know why they do it, but it is not politically wise. I mean, lets piss off our full price customers so we can make a little more money.

--Stephen

There is a real issue of trade policy here. In a global market, can you have a free market in one economy if the same product is price-controlled in another economy? The inevitable result is that the manufacturers will sell at incremental cost in the controlled economy, while recovering full costs in the free-market economy...resulting in subsidization of the controlled economy by the free-market one. The results will be most striking in an industry with high fixed costs and low variable costs (like pharmaceuticals).

“It really pisses me off that we have to pay full boat whist everyone else gets a discount price. And yes, I know why they do it, but it is not politically wise. I mean, lets piss off our full price customers so we can make a little more money.”

I also have no problem with cutting some slack to poverty stricken Third World nations. But since when has Canada been a destitute country? Let them pay full freight.

The Canadians should not have added insult to injury. As long as the majority of Americans remained ignorant, Canada could get away with intimidating our pharmaceutical companies. The crap has hit the fan---and these same business entities now have the freedom to tell the Canadians to go to hell!

This issue highlights another reason why Democrat ideologues are a danger to our society. Pharmaceutical investors must earn significant profits if new medicines are to be created. Republicans grasp this essential economic reality---and Democrats don’t even have a clue.

As I understand it, Canada does not have "price controls," just a single buyer system with more market power than the individuals do. So Canada can negotiate lower prices than my grandmother can.

Also, I do not think I agree with David that the free economy "subsidizes" the controlled one. That implies that if Pfizer could charge more in Canada, they'd charge less in America. Obviously, the would charge the same higher amount in both countries if they could.

Also, since most drug breakthroughs get their starts in University and government labs, I don't see price controls stemming the tide much. It is only in late stage development that private companies step in.

Canada has a $250,000 limit on pain and suffering awards against drug companies. Because of that limit Canadians pay less for drugs. In the US, drug companies face unlimited liability so we pay higher prices.

The difference in drug prices is the tax we pay to trial lawyers so they can have 14,000 sq ft cabins in Vail. If President Bush’s medical tort reform bill was passed drug prices between the two countries would equalize.

Pathos, clearly they will charge what they think the market will bear, but this is a very hard thing to estimate. Most pricing decisions are heavily influenced by cost factors. If you spend X dollars on the development of the drug, have a Y cost of production, and expect to sell Z units--and your corporate Internal Rate of Return target is A--then you can calculate B, the price per unit you must charge (a distribution of expected sales over time is also required.) If some fraction of the sales are below this price, others must be above.

(Full disclosure: I think I have family members who reimport Lipitor. So this will, theoretically, cut into the Vast Galt Fortune that I expect to one day inherit.)

How.... selfless of you! Does this mean you're really a liberal after all?

Pathos: The "single buyer" gets its clout because it is a sovereign government. The price paid is more a matter of dictation than negotiation. Canada's laws allow it to break the patent and make the drug itself or (more likely) buy it from any willing supplier. They did exactly that in the recent anthrax scare with Cipro. The claim that most drugs come from government labs is false. You have modified the claim to state only that drugs "get their starts" in such labs, which is closer to the truth, but of trivial importance to drug development. The vast majority of the cost is in discovering and developing actual drugs, and almost all of this is borne by the drug companies.
Dave Thompson: Sadly, large numbers of Republcans voted for this bill. It represents bipartisan
senior pandering.
Jane: Pfizer makes its drugs available nearly free to truly destitute seniors, and I expect it will point that out to answer the charge that it want senior citizens with limited income to die.

“As I understand it, Canada does not have "price controls," just a single buyer system with more market power than the individuals do. So Canada can negotiate lower prices than my grandmother can.”

It matters not a whit which euphemism one employs. The bottom line is that the Canadians intimidated the American pharmaceutical companies. However, this sort of shenanigans could only continue if the hoi polloi of the victimized country remained ignorant. The crap has hit the fan, and Pfizer is now free to tell the Canadians to shove it where the sun doesn’t shine.

“Also, I do not think I agree with David that the free economy "subsidizes" the controlled one. That implies that if Pfizer could charge more in Canada, they'd charge less in America. Obviously, the would charge the same higher amount in both countries if they could.”

Somebody has got to pay the big bucks to create the new medical advancements. The Canadians essentially coerced our drug companies while we paid full tilt. It’s really that simple. Once again, I am compelled to reiterate that secrecy is mandatory if you wish to continue taking advantage of the suckers.

“Also, since most drug breakthroughs get their starts in University and government labs, I don't see price controls stemming the tide much. It is only in late stage development that private companies step in.”

You grossly underestimate the importance of “late stage development.” The government labs and universities rarely take it to the next level that is so necessary to create these new medicines. Only the private sector risking tons of money can usually be successful. The latter entities you cited are merely the minor leaguers who sometimes get lucky. Overall, though, the pharmaceutical companies will be the real but kickers.

"Dave Thompson: Sadly, large numbers of Republcans voted for this bill. It represents bipartisan senior pandering."

You are only half right. The Republicans are the lesser of evils. One would still be far better off putting pressure on the GOP. The Democrats are beyond saving when it comes to issues requiring some sort of economic literacy. Sadly, the Republicans are essentially the only game in town. It’s sharply downhill after that.

BEST WAY FOR IT NOT TO WORK:

Pharmacies deliver to local Mail Boxes, Etc., for the trans-shipping.

You laugh? Way off topic, there's a food made in Cajun Louisiana, called a Tur-Duck-Ken.

That's where three birds are stuck into the larger one's cavity. And, our FDA says it's illegal to sell beyond walking distance of the butcher shops that carry this.

Solution? The butcher is legal. He delivers locally. To ... ta da ... read above.

You get your delivery, at home, in time for the Thanksgiving meal. Prep time is in your home ovens.

Anyway, after this fails, and Americans get used to this, I expect Columbia will ship pharmaceuticals of your choice, too. And, garden companies will sell you weeds and seeds. Feels good? Huh?

The large American health insurance companies cover around the same amount of people as the Canadian government. It's not bulk purchasing that gives Canadians lower prices.

No, it's price controls. Generics are often more expensive in Canada. They have a pharmaceutical control board that sets the price drug companies are allowed to charge.

Without the price controls, and with a free border, the price would probably equalize lower than ours, but higher than Canada's, as the companies sought to expand the size of the market. Because Canada and other countries are so close to marginal cost pricing, the drug companies have to price so that their highly inelastic users cover their fixed cost. Also, as long as it's kept small, Canada functions, for the American market, as a sort of newspaper coupon that allows them to price discriminate. As that gets bigger, it starts hurting profits too much to continue. Also, Canada is poorer than we are; one price for the market will probably be lower.

By what definition does America provide a "free market" alternative to Canada?

Multi-year patents are no less a creature of government than single-payer price controls. You can argue that our government policies are more amenable to research and production, but they are by no stretch of the imagination "free market" policies. We've decided that the public interest is best served with restrictive patents.

I am not arguing for a free market in prescription drugs, but just to be clear, neither is anyone else on this thread.

You = David Foster

Brittain33..."Multi-year patents are no less a creature of government than single-payer price controls." This is true, but the fact that something is a creature of governmenet doesn't mean it is incompatible with a free market. Police protection against theft is a creature of government, as is judicial enforcement of contracts.

All property rights are secured by the fiat of the state, Brittain33; is the market for real estate less free because the government clears the title?

Pathos states: "Also, since most drug breakthroughs get their starts in University and government labs, I don't see price controls stemming the tide much. It is only in late stage development that private companies step in."

This is a myth that drives every researcher in the drug industry insane. It's been kicking around for years, and was given force by an article in the New Republic last December. And it's a load of the steaming stuff.

For one thing, there are breakthroughs inside the drug industry, although it's true that we don't do as much basic research as academia. And for another, and it's a big one that I see has been pointed out above, the difference between that "start" and a finished drug is monstrously huge. You really have to see dozens, hundreds, thousands of neat ideas fail over a period of years to understand just how huge it is.

I'll be writing (again) on this issue on my "In the Pipeline" site, but I'm having trouble getting to my publishing application the last few days. . .

I think many would argue that our real estate market is not "free" when the government decides to move beyond clearing land sales to aggressive enforcement of zoning laws, environmental restrictions, or eminent domain.

A free market is not a binary state. At least there is a strong consensus for the government to enforce contract rights when clearing titles. There is a weaker consensus in favor of the government defining property rights around zoning, and much less of one--perhaps none at all, rightly or wrongly--in favor of the current American standard of IP for pharmaceuticals in which the government grants a multi-year monopoly.

If Americans want to be gouged by pharmaceutical companies, so be it. We aren't. They get enough in grants and tax breaks, cheaper drugs are the by-product. There are alot of factors regarding drug prices here. patents are the same here as the usa. generics can't be made until a certain time period passes. American companies operating in Canada, taking advantage of cheaper labor, government grants etc. have to play by our rules, not yours. What about Mexico? they make cheap drugs too, as well as other countries.

If you want to pay more, I could care less. You pay more for health care too, and 40 million Americans don't even have that.
After all, the share holder in the insurance companies has to get his dividend while people die on the streets in the USA.
But hell, if you want to loose the penis and become a girl, you have top notch facilities

"If you spend X dollars on the development of the drug, have a Y cost of production, and expect to sell Z units--and your corporate Internal Rate of Return target is A--then you can calculate B, the price per unit you must charge (a distribution of expected sales over time is also required.) If some fraction of the sales are below this price, others must be above."

Nonsense. This suggests that the corporation can charge whatever it wants with no consequences for sales volume. Just raise the return target, and your formula spits out a higher price - no problem at all.

Development costs (your X) are sunk - irrelevant to price. Production costs are variable - they are relevant, but not in the way you describe.

I'll clarify things a little more. There are few american drug company drugs that get resold back to American shoppers.
Those companies drop the price in order to sell on the canadian market to compete with canadian drug companies, who make a simular drug.
Alot of the equivelent drugs aren't even allowed to be marketed in the usa.this is called PROTECTIONIZM
Try to get perocet in the usa for example.

So, this is just whining by drug companies who can't compete, and it's only a small sample of drugs.

60% of pharma research is done in the United States, and more is done with the US as it's primary target market. What will the Canadians do when the low prices you've exported make it unprofitable to research new drugs?

We can fix this problem the American way, we'll just slap a border duty on American drugs comming here, simular to what the US does on lumber.
That will do two things, increase sales for canadian drug companies within canada, drugs they can't market in the USA anyways because of PROTECTIONIZM, and stop the poor fixed income retired or sick people from the USA from trying to save a few bucks by bying resellers in canada.

problem solved, but it's not fair to the poor American, is it?

Jane is correct, it turns into the big bad American drug company who values profit over life.

Alternative? fix your sue crazy system so these companies don't have such high liability

I'm sorry, how is a border control going to fix the problem of drugs that don't exist because they haven't been invented?

janet-
The structure is different here. We actually do MORE research here, and Australia as well. Research grants ultimately come from the tax payer, as well as private investment. There are more drug companies here than you think, it's simply cheaper to do business here. The payoff is a cap on drug prices, which keeps health costs down.
American companies are saddled with different problems, one of them being billion dollar lawsuits. It's your system that needs to change, not ours.
Cheaper is always better.

Janet-
That doesn't happen, the "no money for research" scenario.

obviously, it's cheaper to do research here.

same as our health care, it's not expensive as you might think. the cost per person is about 2300 per year per person, everyone is covered, working or not.
in the usa, the average cost for good coverage is 5000$, and 35-40 million have no coverage at all.

Estimates say that within the next 10 years, american health care coverage will shoot up to about 10,000$ in the usa. Thats steep, and even MORE will not be able to afford it.

Janet- I'd like to come back to this issue when I have more time, get some facts together as well.

The border thing tax affects the drugs trading, not un-invented ones, LOL

That would make American companies not so happy, but thats that game that gets played. As I mentioned, simular to what American lumber companies lobbied for and got in respect to softwood.

I export to the usa, so I know the trade game real well.

health care- drugs, it's a different issue, it plays on the social-democracy side of things.

Most Americans know something has to give in regards to American health care costs, otherwize only the rich will have the right to live.

it's fairly simple, I know that medicade in the usa costs more than canada's entire health budget, simply because the USA government is paying insurance companies, who make money, rather than having their own umbrella.

The US government could actually SAVE money if they adopted a simular system for the working poor at the very least, while maintaining a 2 tier system.

Anyways, I have to get back to work

Yankee, two questions.

Who is this 'Janet' character you are talking to?

Second, if 60% of research is done in the US, how can more be done in Canada and Australia? Is this some metric conversion that I don't understand?

As usual, Bernard, your comments make you sound as if you come from a different planet. Does "expect to sell Z units" sound like there are no "consequences for sales volume?" It's part of the formula! And every company I know of has to make money in order to pay for the development costs, and those companies that can identify development costs add those to the product cost when trying to determine a break-even price. Why on earth do you say that development costs are irrelevant to the price?

For everyone who thinks that pharmas are overcharging or overexaggerating the problem, let me pose a simple question: why, during the Internet/dot.com bubble, did almost every company's stock prices go up EXCEPT FOR big pharmas?

I dunno, Chris, Yankee makes Bernard sound pretty reasonable.

Try to get perocet [sic] in the usa for example.

Yes, it's a real challenge. Your doctor prescribes it and you pick it up at the pharmacy.

"If"

The truth is, 60% of drug or any other research is not conducted in the USA. perhaps what "jane" meant was 60% of research by American companies is done in the USA. Canada, and Australia have the best research labs in the world. They are government funded and owned. What happens in these facilities is discoveries are made, patented, and they do get sold, the profit is put back into research and development, and other health costs. Since it is non- profit in the sense of the word, it helps keep our social health care system affordable, unlike the American system. Canada, Australia, the UK, all function in a similar way. The system is built on a commonwealth ideology in the above mentioned countries.

Hey, as long as we're using rude handles to drive home a point, I may as well take my turn.

Percocet is an opium based acetaminophen pain killer, it's banned from sale in the USA. The name brand costs $160 for 30 pills. oxycocet, a generic, costs $20 for 120 pills.

Perhaps the fellow used "yankee go home" to tell explain if you don't understand another countries politics, you shouldn't be bashing, as all the posts above as well as on the cow thread were.

Americans aren't by any means the smartest people, or the best country in the world.

The person was making a reasoned point.

I know I wouldn't like to have the American system in this country either.

Bernard, the development costs (most of them, anyway) aren't yet sunk when the decision is made to proceed with the drug. In order to do a pro-forma analysis of the project, it's necessary to assume a selling price. This all leads to an estimated year-by-year profit projection for the drug..and such estimates have a way of turning into hard budgetary numbers with somebody's name on them.

Pricing may change down the road, of course, and in theory the final price should be determined by the price elasticity and the variable production costs...but elasticity ain't all that easy to determine in the real world.

Australian, I'm not saying you're wrong, because I haven't researched it...but could you please mention some major drugs or biomedical technologies that have been developed in Canada or Australia?

Where the research takes place is less important than where the ultimate market for the drug is. A company may do research in Canada or Australia but still intend to make its costs back through sales to the US. If it can't, then it won't do the research, in any country.

No, were not the smartest people on the planet. It's just that the majority of the smartest people on the planet end up here. Funny that.

We are well aware the gene pool doesn't com from within in the USA.

I thought this was a more conservative site. seems it's more 'left'.

In defence of my Canadian commonwealth friends, I'm a little dismayed that the biggest trading partner of the usa, and that means a country who, more than any other country, imports American goods, as well as exports huge amounts of energy and raw materials to the USA, is treated so badly by the average not too bright American.

maybe they should switch back to an east west trade system.

"What about Mexico? they make cheap drugs too, as well as other countries."

David Foster is right on target. Do they create new drugs? That is the real question. Making inexpensive copies is relatively easy. When is the last time that either a Mexican or an Australian phrmaceutical company developed a brand new drug? Can anyone provide us with any examples?

Where are you folks getting your information on Percocet? It's widely available in the US, both brand name and generic. I've taken it myself. Here's a link to the US package inserts for six different dosages, for crying out loud. What a bizarre thing to be debating. If I were a troll, I'd pick something less verifiable to argue about.

“In defense of my Canadian commonwealth friends, I'm a little dismayed that the biggest trading partner of the usa, and that means a country who, more than any other country, imports American goods, as well as exports huge amounts of energy and raw materials to the USA, is treated so badly by the average not too bright American.”

The Canadians have long parasited off the United States. We pay for most of their military defense needs. Many of them do not hesitate to stab us in the back. This particular issue is simply another reminder why Americans cannot trust Canadians. These people are not our allies, but luke warm enemies who will likely not take up arms against us. Their envy and bitterness make them untrustworthy.

davey boy,

the only parasite on the continent is the usa.
you do NOT pay fuck all for canadian military.

you suck 800,000 barrels of oil per day out of canada, plus all their minerals, and uranium, natual gas, etc.

the only parasite on the planet is the usa.

try supply yourself with your own shit. Close the border you arrogant fuck tard.
keep your faggots and sluts south, with the mexicans which is the new language of america.

dumbass.

Wow, it really is hard to argue with such eloquence. Unless of course you have a single clue what the word parasite means, or understand what a free-rider is. Other than that, I think we may all be stumped by SoP.

Australian wrote:

Perhaps the fellow used "yankee go home" to tell explain if you don't understand another countries politics, you shouldn't be bashing, as all the posts above as well as on the cow thread were.

Actually the bulk of the posts above seem to have a pretty fair understanding of Canada’s price controls and how they impact American consumers. I have no idea which posts on the “cow thread” would constitute Canadian bashing though.

Americans aren't by any means the smartest people, or the best country in the world.

Which country deserves that designation then?

The person was making a reasoned point.

Judging by how s/he got the Percocet issue so wrong and his/her refusal to provide any numbers to back up his/her claim that Canada and Australia do more pharmaceutical R&D than the United States, this seems doubtful.

I know I wouldn't like to have the American system in this country either.

It’s no wonder since it seems far easier to have American companies perform the R&D to develop new pharmaceuticals while Canadian price-controls cause American consumers to subsidize Canadian consumers.

“the only parasite on the continent is the usa.
you do NOT pay fuck all for canadian military.”

The Canadian military has about one sling shot and a toy gun. This country takes it for granted that America will defend its shores. Does anybody believe that the Soviets did not invade Canada due to the latter’s own military strength? We indirectly fund much of Canada's socialist welfare programs.

“you suck 800,000 barrels of oil per day out of canada, plus all their minerals, and uranium, natual gas, etc.”

On the contrary, we pay good money for these energy sources. Nobody is giving us anything.

“the only parasite on the planet is the usa.”

“the only parasite on the planet is the usa.”

“the only parasite on the planet is the usa.”

“the only parasite on the planet is the usa.”

“the only parasite on the planet is the usa.”

Your true feelings are finally blurted out. The prosecution rests its case.

As usual, Bernard, your comments make you sound as if you come from a different planet.

I think highly of you too, Chris.

"Does "expect to sell Z units" sound like there are no "consequences for sales volume?"

It sounds like sales volume is thought to be independent of price, i.e., there is no demand curve.

It's part of the formula! And every company I know of has to make money in order to pay for the development costs, and those companies that can identify development costs add those to the product cost when trying to determine a break-even price.

You're mixing up the projections used to make development decisions with actual pricing once the development is done. The actual final pricing is set to try to maximize gross profit - total revenue minus total variable costs.

Why on earth do you say that development costs are irrelevant to the price?

Because they are not part of the variable costs. Once development is finished and the product goes on sale the development costs are what they are, whether you sell a million units or 100 million.

At least that's true on earth. Maybe on your planet you have time machines.

Speaking of...

Parasites don't pay for their oil and uranium and natural gas. Parasites take them. Which the US could, I suppose, from Canada, but pointedly does not.

Last I checked the US pays the same price for oil from Canada it does for oil from Texas or Saudi (minus transport costs from Saudi and possibly plus any import tariffs, though I doubt there are any on petroleum, but none of that's relevant).

"Because they are not part of the variable costs. Once development is finished and the product goes on sale the development costs are what they are, whether you sell a million units or 100 million."

What is your point? The bottom line is this: the pharmaceutical companies had better be earning a profit---or there will far less new medical developments in the future. Is that so difficult to comprehend? Does somebody have to be great genius to grasp this cold reality?

My point is that pharmaceutical company executives are rational, a point that seems to have escaped some others.

"My point is that pharmaceutical company executives are rational, a point that seems to have escaped some others."

Agreed. And that's why some of them are now willing to tell Canada to go to hell! The agreement was premised upon the Canadians being discrete. It was indeed rational for the pharmaceutical companies to previously give in to the coercive tactics of the Canadian government. The Canucks will now have to pay the price for pushing the envelope to the point of absurdity.

[opening theme music]

Welcome to another exciting mini-episode of...Dumb and Dumber, the Gameshow! The exciting game where we parse thorugh messageboard threads to find out which post is dumb...and which one is dumber. I'm your host, the LRF, on behalf of the Institute for Logical Reasoning. Audience, you have your voting buttons before you, today you are being assigned the following thread from Assymetrical Information:

http://www.janegalt.net/MT/mt-comments.cgi?entry_id=4325

Now, we only have about ten minutes for tonight's slot, so let's get right to business. Audience, you should have the thread now available on your screens. Please browse through the posts during the upcoming commercial break, and then nominate the two worst offenders. Our judges will then decide which one is dumb...and which one is dumber. See you shortly, folks!
.
.
.
.
.
...welcome back, once again, I'm the LRF, and this is Dumb and Dumber, the Gameshow! The audience has now selected their two choices for the thread mentioned earlier, let's see what they are. First choice on the screen, please?

Ah yes, this would be David Thomson #47, for the following DUMB STATEMENTS!

Quoting: "The Canadians have long parasited off the United States. We pay for most of their military defense needs. Many of them do not hesitate to stab us in the back. This particular issue is simply another reminder why Americans cannot trust Canadians. These people are not our allies, but luke warm enemies who will likely not take up arms against us. Their envy and bitterness make them untrustworthy."

Let's review what is DUMB about this post, according to our judges:

1. Inflammatory language - "parasite" has negative connotations, "lukewarm allies" is just mean.
2. Misleading statements - "Canadians" are not generally untrusted by Americans; only the ones who persist on acting like idiots, which may or may not be "many," but certainly not all. And they are not all marked by "envy" and "bitterness," again only some are.
3. Twisting of correct statements - Canadians are certainly safer because the US military would raise all-out bedlam if someone ever attacked Canada, but the context suggests the US actually directly covers Canada's butt, which is literally true if you accept that South is down, but Canada in fact has a full assortment of trained soldiers and military hardware.

What do you think, judges, how DUMB is it?

[anticipatory theme music]

And they vote it to be...a seven-point-three! Not the worst we've seen, but certainly not good! Contesting #47's lead comes speaking of parasites #48, who said the following DUMB STATEMENTS!

Quoting, "the only parasite on the continent is the usa.
you do NOT pay BEEEEP all for canadian military.
you suck 800,000 barrels of oil per day out of canada, plus all their minerals, and uranium, natual gas, etc.
the only parasite on the planet is the usa.
try supply yourself with your own BEEEEP. Close the border you arrogant BEEEEP tard.
keep your BEEEEP and BEEEEP south, with the mexicans which is the new language of america.
dumbBEEEEP."

And according to our judges! -

1. Inflammatory language - Well, we needn't repeat all the offal THIS poster came up with, it spoke too loud the first time. Thank goodness for that loud ringing sound!
2. Misleading statements - Wow, do they stack up quick, but the worst offender is the "suck up" assertion, since those are transferred here through normal free-market economic activity that benefits Canada enormously! How could #48 not know that? It must have been deliberate, folks.
3. Twisting of correct statements - duplicate of number 2, unfortunately, "number 2" being nearly all that this poster was capable of dispensing! What a shame!
4. Xenophobia - This poster not only insulted Americans, he managed to insult Mexicans to boot!

Well judges, HOW DUMB IS THAT POST?

[anticipatory theme music]

And its...A NINE POINT FOUR?! Wow, that's even DUMBER! And there you have it, folks! Thanks for playing along tonight on another exciting episode of...Dumb and Dumber, the Gameshow! This is the LRF, bidding you all a goodnight.

[closing theme music]

Back to our regularly scheduled programming.

Development costs might not be variable (after a product is produced), but they still need to be paid for. The R&D costs are a big chunk of change for the pharmas, and the costs involved have to be factored into the pricing of the drugs when they are sold. Due to the extreme nature of testing required by the FDA, for both efficacy and potential harm, the effective time for a company to recoup its costs under a granted patent is less than 10 years (when the patent itself provides protection for about 16-18 years depending on how long the patenting process takes), and frequently less than that.

Don't forget that R&D costs for all the potential drugs that never make it have to be paid for too. The point of all the **Canada** bashing is that the price that Canadians pay for the US developed drugs does not provide enough profit to fund the R&D for the next generation of drugs. In that sense, we are subsidizing the development of new drugs for the rest of the world. As David Thompson said above, we don't have a conceptual problem with doing so for poor people or for poor countries, but the last time I looked, Canada was neither.

Sometimes it makes us rather weary when we know that we are directly responsible for an awful lot of improvements that benefit a lot of people in the world, yet we constantly get bashed for it by people who don't understand what good we do for the world. Quick Examples: private charitable contributions to developing nations and NGO's, development of pesticides and herbicides that keep many countries from being in starvation, development and refinement of the Internet which is bringing new ideas and thoughts to much of the world, thus leading many people into demanding freedom from their leaders, maintenance of a large military which is fighting the main battle against terrorism (and by the way keeping little pissant countries from getting too big for their britches, although the State Department tries to screw that up), providing the funding (through sales) for the entertainment industry, i.e., movies, songs, etc., providing an example of democracy mixed with capitalism that works to give freedom and a decent standard of living to hundreds of millions of people (which any country could do if the people and the leaders wanted to; after all, if we stupid Americans can do it, anyone can, right?), providing a majority of the world's best universities, providing one of the more stable world currencies, etc., etc., etc. I'm sure others can think of many additional examples.

Okay, LRF, make up your own mind. Our Reserves total more than the Canadians combined Regulars and Reserves. I don't know of anyone who pretends that the Canadians could provide for sevurity of Canada all alone, but we don't expect them too--they are our partners in the defense of North America. But they aren't what I would call a large force.

From the FAQ's on the DND/CF website:

Goals of the Department of National Defence (DND) and the Canadian Forces (CF)
What is the goal of DND and the CF?
The fundamental goal of DND and the CF is to protect Canada, and Canadian interests and values, while contributing to international peace and security.

What does the CF do to achieve this goal?
The CF defends Canada by:

protecting Canadian territory, airspace and maritime areas of jurisdiction;
helping civil authorities protect and sustain national interests;
helping civil authorities in national emergencies; and
helping civil authorities maintain an adequate, reasonably uniform level of emergency preparedness across the country.

The CF contributes to the defence of North America by:
protecting the Canadian approaches to the continent in partnership with the armed forces of the United States;
promoting Arctic security; and
pursuing opportunities for Canada–U.S. defence co-operation in other areas.

The CF contributes to international security by:
participating in multilateral operations through international organizations such as the United Nations (UN) and the North Atlantic Treaty Organization (NATO), and through coalitions of like-minded countries;
supporting humanitarian-relief efforts and helping to restore conflict-devastated areas; and
participating in confidence-building measures such as arms-control programs.

How many CF members and DND employees are there?
The CF has about 60,000 members in the Regular Force and about 20,000 in the Primary Reserve Force. DND employs about 20,000 Public Servants.

>Canada, and Australia have the best research labs in the world. They are government funded and owned. What happens in these facilities is discoveries are made, patented, and they do get sold, the profit is put back into research and development, and other health costs.

Twenty of the twenty-five best-selling drugs are American. IIRC, the other five are European. What is it that these world class Canadian and Austrialian labs produce?

Development costs might not be variable (after a product is produced), but they still need to be paid for. The R&D costs are a big chunk of change for the pharmas, and the costs involved have to be factored into the pricing of the drugs when they are sold.

Again you are confusing projected prices with actual ones. No one denies that development costs need to be paid. So, before starting on a development project, and at decison points along the way, it makes sense to estimate what prices the end-product will command, and either continue or discontinue the project accordingly.

So drugs that are not expected to generate profits, after allowing for development costs, are not developed.

But once they are ready the actual price may well differ from the one estimated many years ago, for many reasons. And this actual price charged is NOT a function of development costs. It is an effort to maximize gross profits, which are unrelated to development costs.

You have the direction of the causation wrong. A high development cost does not produce a high price. A high expected price justifies an expensive development project.

Prices are set to maximize profits, not to recover costs.

This is not just a technical nit-pick.

It implies, first of all, that a higher price in Canada will NOT reduce prices in the US, as long as the two markets can be separated. If profits in the US market are maximized at a price of $1.00/pill, then that will be the price in the US, regardless of the price in Canada or elsewhere.

Second, this should make clear that we are not subsidizing Canada, so stop the bashing.

And by the way, what difference does it make where the drug company is located? It's going to follow this strategy regardless.

The best thing for the American Government to do is nothing. If Canadian laws force the drug companies to make a choice between reimporting and elimination Canadian sales that's the company's decision.

If reimportation is so little of a problem that the Canadian sales still generate a profit with reimportation then I'd say it isn't enough of a concern for us to legislate. If the Canadian sales cease to generate a profit drug companies will stop offering the lower rate to Canada. That's fine too. The Canadian government will have to accept they they effectively ban certain drug treatments for their citizens.

A reimportation bans will do two things:

1) Screw current American consumers even further by increasing the cost variance between countries. American costs will tend to increase since the downward pressure to fight off reimportation competition will disappear.

2) Screw future American consumes by codifying a law that will effectively allow Canadian price controls to continue forever.

We should welcome American drug companies being forced to make this decision. We should root for them to cease offering discounted rates to other nations.

Typical response to this issue is to worry about generic substitutes. But I think this concern is overblown. First, there are medical concerns about generics, particularly on newly developed drugs. But mostly I don't think Canada will allow patents to be broken. This sort of action would hurt their international standing, and their trade partnership with the US. I just don't see them risking such a drastic action.

Yes, I can see why one would want to call the Canadian form of health care great. Wouldn't want to rush into something like orthopedic surgery, or radiation therapy for cancer. Much better to have on average 20 weeks between GP referral and the beginning of treatment. And it only takes over 2 weeks for "urgent" cardiovascular surgery. How it is more humane to combine the worst aspects of the DMV with healthcare is beyond my comprehension.

http://www.fraserinstitute.ca/admin/books/chapterfiles/Selected%20Graphs-wytpart2.pdf#

Found the report via Hit and Run.

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Mr. Chris Pastel
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13 August 2003

Dear Mr. Pastel:

The following is provided in response to your inquiry earlier today.

We here at the Institute for Logical Reasoning admire rational thought and seek to promote logical reasoning.

Summarily, your post is a good example of what last night's Grand Prize Winners in Dumb and Dumber: The Gameshow should have been doing, rather than spouting inflammatory rhetoric. The counter-statements made on last night's show were merely illustrative, since we do not specialize in the exact nature of US-Canadian military relations and only had about ten minutes to wrap up the mini-episode. Hence, we at the Institute have no grievance or dispute with you in the facts of US-Canadian military cooperation, insofar as we are aware.

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The R&D costs are a big chunk of change for the pharmas

Of the top nine pharmaceutical companies in the USA, eight spend almost 2.5 times as much on administration and marketing as they do on research and develpoment. The exception is Eli Lilly, which spends 1.5 times as much on administration and marketing as it spends on research and development. (Source: http://www.namiscc.org/newsletters/July01/DrugPrices.htm)

"60% of pharma research is done in the United States, and more is done with the US as it's primary target market. What will the Canadians do when the low prices you've exported make it unprofitable to research new drugs?"

Isn't the US the "primary target market" for just about anything anymore? The biggest market and high income will tend to do that anyway.

I don't you've demonstreated that the half-regulated US market for prescription drugs is the only thing keeping prescription drug research going. If the US goes single-payer, then for drug research to drop, the following has to happen

1) The US necessarily, as a part of the single-payer shift, drops the amount its willing to pay for drugs.
2) The rest of the world refuses to pay the difference.

The important part:
3) The world then collectively takes no notice as all of the pharm research companies go bankrupt and stop producing anything new.

3) is the hinge of your entire argument.

"The important part:
3) The world then collectively takes no notice as all of the pharm research companies go bankrupt and stop producing anything new.

3) is the hinge of your entire argument."

I don't see that as terribly unlikely. After all, the world seems to collectively take little notice of the continuing lack of passenger spacecraft, personal aircraft, and other technological gizmos that we were supposed to have by now. Stagnation is really easy to miss until a long time has gone by.

Also, for the benefit of anyone who does notice, the stagnation can always be blamed on insufficient funding or on any remnants of private activity that are allowed to continue. Repeat as necessary for a few decades or so.

"Much better to have on average 20 weeks between GP referral and the beginning of treatment."

There's no averages anywhere in that PDF; they're medians.

You're being a bit cute with that 20 week number; by "GP referal and beginning of treatment" I assume you're referring to the "GP referral -> appointment with specialist -> treatment chain," where aggregate numbers are useless. Time to treatment by a plastic surgeon is in no way comparable to time to treatment for cardiovascular; you can't weigh them into the same number. I can't even find a "20 weeks" number anywhere in there.

Their study methodology doesn't look particuarly solid, either.

"After all, the world seems to collectively take little notice of the continuing lack of passenger spacecraft, personal aircraft, and other technological gizmos that we were supposed to have by now. "

And how many people would want passenger spacecraft?

The world then collectively takes no notice as all of the pharm research companies go bankrupt and stop producing anything new.

While it doubtless wouldn't be that extreme, that correction curve would be downright nasty in the interim. Suppose, for example, that a near-total collapse of US drug research occurred fifteen years ago. Now estimate how long it would take before the "rest of the world" came online to fill in the demand for new drugs, and whether "they" (many of "them" having, as they do, social-oriented or fully socialized health care systems) would be able to fund new drug research at a comparable rate to what the US has done in the past fifteen years.

Now ask, where would the average HIV/AIDS sufferer be today?

There are always new diseases being researched and addressed, and current ones sometimes mutate; if a giant hiccup were to occur in the state of the pharma industry what would the results be? A new generation of The Plague pops up and we are wholly unable to combat it?

"In a global market, can you have a free market in one economy if the same product is price-controlled in another economy? The inevitable result is that the manufacturers will sell at incremental cost in the controlled economy, while recovering full costs in the free-market economy...resulting in subsidization of the controlled economy by the free-market one."

Yes, but if reimportation (i.e., free trade) is allowed, the free market customers can drive down the price. Then it's possible (maybe even likely) that the companies manufacturing the drugs will refuse to sell to the controlled economies, unless they lift their controls. In other words, free trade can break down price controls.

See paragraph from Pat Toomey's "Dear Colleague" letter, in opinion piece by Ed Crane and Roger Pilon (Cato Institute):

http://www.nationalreview.com/comment/comment-crane-pilon072903.asp

"Suppose, for example, that a near-total collapse of US drug research occurred fifteen years ago. Now estimate how long it would take before the "rest of the world" came online to fill in the demand for new drugs....."

If single-payer underpricing in the US drove down investment, it pretty much has to be visible in the total investment number, and would show up rather quickly. I'm at a loss; why do you think voters are incapable of making the connection between drug prices and investment?

I'm at a loss as to what your question is, actually...?

The development chain in pharma is 5-20 years. It would take a while before the stagnation in research became apparent to consumers, and a lot longer to find any sort of solution. The government just doesn't seem to be very good at fulll drug development, alhtough it does fund a lot of basic research. And any attempt at reform would pit interest groups against each other: people who have diseases for which good treatments exist against those who have diseases for which there aren't good treatments, with taxpayers who don't currently have diseases for which no treatment exists, but probably will someday, leaning towards those with existing diseases because their problems are more visible. I'm afraid that I don't see any mechanism by which price controlling countries will reverse themselves, nor one by which governments will peform better or even remotely comparably to private companies on full drug development. That's not to say that it's impossible. But I'd bet against it.

Um, but in a single-payer system payments to drug companies for pharms aren't determined by consumers; they're determined by bureaucrats. Now I *guess* these health care experts could just pay no attention as investment craters - maybe they'll just studiously ignore that part of the WSJ. It doesn't seem likely.

"Um, but in a single-payer system payments to drug companies for pharms aren't determined by consumers; they're determined by bureaucrats. Now I *guess* these health care experts could just pay no attention as investment craters -maybe they'll just studiously ignore that part of the WSJ. It doesn't seem likely."

First of all, if you're under the impression that these "bureaucrats" who are "health care experts" (surprising combination) are independent of the politicians who The People have elected into leadership, I think you're mistaken. The "bureaucrats" don't make their decisions based on the WSJ. They work for the government, and generally do what their bosses want them to do. (And those bosses do what *their* bosses want them to do, right up to...the President of the United States, generally.)

So my prediction is that investment will crater for drugs that don't cater to politically connected groups, and will continue to do pretty well for drugs that *do* cater to politically connected groups.

At least until a populist/progressive president comes along, who gets elected on the idea that drug companies are making too much money. Then investment will crater for virtually all drugs. But what are the odds that such a president could ever get elected? ;-)

"I'm at a loss; why do you think voters are incapable of making the connection between drug prices and investment?"

Just look at any country where price controls for a product have driven producers of that product out of the country. For example, most economists agree that wage rigidities (i.e., artificially high wages, or limitations on hiring and firing employees) have driven unemployment up in Europe.

But by the way...I thought the "bureaucrats" who are "health care experts" are getting signals on how to set prices that determine investment in drugs from the "WSJ." Is it the "WSJ" or the "voters"? (In reality, based on my experience, it's neither. It's their bosses, who are also bureaucrats, right up to politicians, who are elected.)

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