Asymmetrical Information

If the right people were in charge, people won't get sick.

Besides, there are too many people anyway.

It serves you right for not supporting Kerry.

Won't the debt being run up by Bush's fiscal policies outlast his administration and can't it therefore be considered a long term problem?

"As someone who is hoping to extend her lifespan, and quality of life, through the miracle of modern pharmaceuticals, this is frankly terrifying. "

of course, you fully expect to be someone who can AFFORD to extend her lifespan and quality of life through the miracle of modern pharmaceuticals"...

I wrote in a candidate for president in 2000, and considered doing so again. After all, I am in a solidly red state, so I always thought my vote didn't matter.

I've reconsidered, however. This election is really important, and the winner should have a mandate, or at least the plurality of the popular vote. I can't affect my state's electoral outcome, but I can make a tiny difference in the country's popular vote outcome.

Yes, Herman, but as I say, there's no daylight between Bush and Kerry on this issue -- Kerry's actually promising to spend slightly more, certainly not to reduce the deficit.

Cas, from my standpoint, there's no difference between not being able to afford a new asthma treatment, and the asthma treatment not existing, except that when the treatment doesn't exist, it doesn't exist for everyone, permanently.

just a thought... we could reallocate some of a previously given tax cut to subsidizing pharma coys to do more research--especially if that is a good with a positive externality; is that a possible way out...?

Does it matter what drug advancements are made if the pharmaceutical companies price gouge so much that you can't afford to buy them? Of course, the wealthy will always have first rate health care while the rest of us bleed to death waiting to be seen in an overcrowded emergency room. Also, voting for Bush isn't really voting for scientific advancement, is it? Unless you count spending billions building a missile shield which doesn't work. Money that could be used for securing our ports and maybe building schools in the middle east so all the kids aren't taught by mullahs to hate us. Just a thought.

"just a thought... we could reallocate some of a previously given tax cut to subsidizing pharma coys to do more research--especially if that is a good with a positive externality; is that a possible way out...?"

I thought that the previously given tax cut was going to fund Kerry's health plan already. Or was it going to buy an inspector for every cargo cannister in every port? Or was it for increased military pay? Two extra divisions of soldiers, maybe?

New stuff starting off expensive and getting cheaper as time passes vs. no new stuff is not a choice worth pondering.

As an IP wonk, I really do understand this from the side of the drug companies. As an avowed liberal, I also see Kerry's point of view.

So I am going to make one giant blanket statement and everyone can disagree with me as is their want. The real problem with healthcare is the consistant abuse of the system from every angle.

Drug companies abuse the system by re-patenting drugs that have minor changes/improvements to them and therefore getting another 20 year patent out of them. They also abuse the system by taking their hugh profits and not at least reinvesting a sizable portion back into the company (note the ratio of profit percentage vs. R&D reinvestment and you'll see what I mean).

Patients abuse the system too. They go to ERs when they don't have to because the insurance covers it. They go to their physician when they have the sniffles because it's "only" a $5 co-pay. Why have an x-ray for a broken arm when you can get an MRI? Why take chicken soup and bedrest for your cold when you can get an antibiotic (which is useless when you have a cold, but they don't care).

Health Insurance companies also abuse the system. They take huge percentages in profits, pay doctors barely enough to reimburse their costs.

Lawyers especially abuse this system. Kid has a congenital heart defect? Sue the doctor! Person continued to drink after diagnosis with poor liver function? Sue the doctor!

And Doctors abuse the system. That kid with a broken arm, better get him the MRI, and a battery of tests besides, just in case they have Cancer. We have to check everything because if something goes wrong we might get sued...

Which goes back to abuseive lawyers and leads us to the Malpractice insurance companies that also abuse the system...Meritless claim from some idiot lawyer? Throw money at them to go away. It's cheeper to settle them to prove things right.

So what are we going to do about it? Well, Kerry's health plan won't get passed, not without some major tinkering, if at all (see Jane, some beneifts to devided government). And I agree something has to be done about it. It's all well and good to say that it scares you, but it scares me more that millions of people will be completely unable to get health insurance and we will go back to where we were 90 years ago. You know, when surprise flu epidemics killed 250,000 to 500,00 people in one year.

As far as I know, the only epidemic that killed that many was the pandemic of 1918, and as far as I know, medical science would be able to do little more for patients of such a flu virus than the doctors of that era did: keep the patients warm and hydrated. The people most at risk of dying from the flu are beneficiaries of medical treatment: immunosupressed cancer/transplant patients and the elderly. Moreover, probably the biggest contributing factor to flu deaths in that part of the century was not poor medical care, but malnutrition, which is simply not a problem anymore.

Cas:

The wealthy are currently subsidizing R&D, by paying very high prices, in say, large flat panel TV's which will someday be things that most poor people own and enjoy. They have previously done this for many products, like TV itself, both color, black & white, cable and satellite, radio, the automobile, the telephone, the PC, electricity, well I hope you get the picture.

I suppose you wish to subsidize drug R&D by taxing those nasty top 1%'ers, but what do you think a patent system where the patents expire actually does ? When a pharmaceutical company sells shares or borrows for R&D, they are borrowing against the revenue they're going to get from selling the drug, the rich finance drug R&D right now, and that is also not an accident, like noone actually knew that was going to occur when they stuck the right to issue patents in the US constitution.

When the patent on any drug expires, the price 'automatically' drops to the cost of making the pill plus a small markup, i.e. it is very cheap for everyone. If you want to get rid of 'price gouging' in the pharma biz, all you have to do is get rid of patents, or shorten thee life of a patent, this would have the exact same effect as price controls, and the exact same 'unintended consequences' too. I'll leave you to guess what the 'unintended consequences' might be.

"just a thought... we could reallocate some of a previously given tax cut to subsidizing pharma coys to do more research--especially if that is a good with a positive externality; is that a possible way out...?"

Or, we can just let people keep their tax cut and then use that money to reward pharma coys when they come up with something good, thus enticing them to come up with good things and giving them the resources to do it.

"Does it matter what drug advancements are made if the pharmaceutical companies price gouge so much that you can't afford to buy them?"

Better that than the drugs don't exist at all. At least the pharmaceutical companies can only price gouge until the patent runs out, and they use the money to come up with new drugs to price gouge with.

"Of course, the wealthy will always have first rate health care while the rest of us bleed to death waiting to be seen in an overcrowded emergency room. "

In a free market system, I freely admit that the wealthy will always have first rate health care and average people will always have average health care. Of course the definition of "first rate" and "average" will improve over time. I'd much rather see the rich get anti-aging treatments 10 years before I do than have no one ever get them.

"Drug companies abuse the system by re-patenting drugs that have minor changes/improvements to them and therefore getting another 20 year patent out of them."

No they don't. They patent minor changes and get 20 years out of a different drug. The original drug is still available generically. It's just that the new drug is better in some way, and people are willing to pay for it rather than the older generic variant.

"Patients abuse the system too. They go to ERs when they don't have to because the insurance covers it."

Well, that and they don't always know in the middle of the night whether they can let it go until the doctor's office opens or whether something more dangerous is afoot that needs to be addressed immediately.

"Health Insurance companies also abuse the system. They take huge percentages in profits, pay doctors barely enough to reimburse their costs."

Health insurance companies serve their customers quite well. Unfortunately, their customers tend to be employers rather than policyholders, so their treatment of policyholders is nothing to write home about. A few tax changes ought to fix that. That, and stop telling everyone what coverage they must have in order to be allowed to buy a policy in the first place.

"And Doctors abuse the system. That kid with a broken arm, better get him the MRI, and a battery of tests besides, just in case they have Cancer."

Sometimes a "just in case" checkup is well worth doing. If the patient were paying for it, either directly or through variable risk-based policy pricing, it wouldn't be an issue. But group health plans are supposed to charge everyone the same rate regardless of risk, and these sorts of problems are inevitable in that scenario.

US Patents are issued (or not issued) by the US Patent and Trademark Office. There lies the responsibility regarding unreasonably extended exclusivity. If a new patent is not justified, don't issue it!

Health insurance means nothing to those requiring prescription drugs if the drugs are not available because they have not been developed and FDA certified. Health insurance which covers flu shots means little in the US this Fall, for example. It is fine now to complain about the high cost of HIV / AIDS drugs, because they are available. However, without the potential for return on investment plus profit, the drugs would arguably not exist.

Health insurance means less if there are long waiting times for doctor visits or surgery, as is the case in many countries with socalized medicine systems (and was the case in the VA system). At one point the waiting time for cancer surgery in the British system was ~ 1 year. That approach reduces the number of cancer surgeries dramatically, since the patients have passed or their tumors are inoperable by the time they are scheduled for surgery. In the fall of 2001, the average waiting time for elective surgery in the Irish system was 120 weeks.

The approaches suggested by both sides regarding the future of US health care violate the dictum: "Don't begin vast programs with half-vast ideas".

I guess (pace the "Is Bush bad for Business" post) your argument that Kerry is worse than Bush, in fact, makes this your endorsement of Bush. I think you're wrong (particularly about the S. Ct. - that's actually a fairly surprising claim from you), but time will tell. I think, in the end, people will be more likely to lie about not supporting Bush than about not supporting Nixon. I suspect a lot of people worry about the same end, which is why you see a lot of squidging around the centrist Pub position on whom they support. So good for you for being open (if a bit a bit obscure - it took to posts to piece it together; I feel like a novitiate) in your endorsement.

As for the drug thing. Maybe the paper MR references addresses this, but couldn't the 1%:4% ratio also be explained as new work-around drugs (drugs that work around an existing patent) trying to capture market share in said population? A lot of MD's complain from time to time about Drug Co. shills that sell the same pill they've always used under a different name and in a new color, so it's not exactly an unknown phenomenon. (And something about the size of the ratio makes me suspicious). In any case, I think you need to do more than this to show that market forces (I assume that the concern is that Kerry might let the gov't behave like a normal consumer in the drug market) will have that drastic an effect on drug innovation, b/c number of new pills is not a good proxy for number of new innovations. Unless your health is particularly dependent on getting your pill in Trademarked Blue.

Oh jeez...I knew you guys would come out in force against me. Let's start...

Jane...Obviously that was a reference to the previous dialog string about the Flu. I understand it is unusual, but there are all sorts of things that comes to mind (Meningitis for example) that are curable but extremely dangerous if people don't have access to adequate health care.

Ed Reid...Yes, Patents are issued by the USPTO, but the USPTO has been given significant political pressure to be less restrictive. Prior art patents use to be almost impossible to get (business method patents didn't even exist) and the term of a patent was less than it is now. And I happily agree that current patent law is partially culpable for the situation we are in. Just because the government does it, does not mean it is right.

Finally Ken...

"Well, that and they don't always know in the middle of the night whether they can let it go until the doctor's office opens or whether something more dangerous is afoot that needs to be addressed immediately."

Right, but that's not an abuse of the system, that's what it's there for. An abuse of the system would be, "gee, I think I'm pregnant, I could go out and buy a $15 over the counter pregnancy test, or I could go to a hospital, where they are legally required to give me a full workup and then give me the same test for free. Even though all I really need is the pregnancy test."

And:

"Better that than the drugs don't exist at all. At least the pharmaceutical companies can only price gouge until the patent runs out, and they use the money to come up with new drugs to price gouge with."

Oh Please! Yeah, and if Bush doesn't get re-elected then the terrorists have won. I call foul. I'm not saying that drug companies shouldn't make profits. Big big profits, I am saying in the past decade those big big profits have been a larger portion of every dollar. i.e. of every $1 in profit, 50% would go back to R&D. I believe the number is now like 33% goes back to R&D (I really should look this up, I know I've seen these numbers places). Do you really think the drug companies are going to pack up and go home if told, "hey, for every $1 in profit you make, you must re-invest 50% back into R&D" I don't think anyone is going to quit because the profit is only $40 million dollars instead of 55 million dollars and if they do, fine, someone will be happy to take their place.

Jane, I seriously considered a career in pharmaceutical research. I even spent time at Caltech in a research fellowship that was subsidized by Merck. In spite of the opportunity, I chose another career path. Part of the reason for my choice was my perception that the whole of pharmaceutical research was unstable because of poltical attacks. I am certain that I am not the only person scared away from health research by political demagogues. Shrinking the pool of potential pharmaceutical scientists ultimately means fewer pharmaceutical advances.

Jane:

If your disagreements with Bush are short term and those with Kerry are structural, that alone should be sufficient basis for deciding your vote.

Short term problems are nearly always manageable. Bad structural changes are really worrisome - if not for the present generation, for their progeny.

Kate wrote:

Drug companies abuse the system by re-patenting drugs that have minor changes/improvements to them and therefore getting another 20 year patent out of them.

Three points.

First pharmaceutical companies spend only about 20 percent of their R&D expenditures on changes and improvements to existing drugs. Which means that this is the exception rather than the rule for pharmaceutical R&D expenditures.

Source:
http://www.fda.gov/oc/speeches/2003/genericdrug0925.html

Second, as another poster pointed out, making a change/improvement to an already existing drug does not extend the patent life of the original drug but only the new drug. In which case it has no real effect on when the original drugs becomes available in a generic form.

Third, the reason that pharmaceutical companies have invested in improving already existing drugs is because technology and our understanding of the way that people react to different drugs has improved to the extent that we are now able to design drugs for more specific groups (e.g. women, people with heart problems, etc.) that have fewer side effects. The FDA for example in 1993 began encouraging pharmaceutical companies to include more women and to place more attention on changes in women’s bodies (e.g. different stages of the menstrual cycle, menopause, hormones, etc.) and the ways that men and women’s bodies differ in how a drug might be absorbed, metabolized or excreted. The result has been that we are now seeing more drugs being developed that are accounting for some of these differences (including changes and improvements made to already existing drugs such as birth control pills and antidepressants) which means that more people are able to have access to pharmaceuticals that require lower dosages and/or have fewer side effects than before. Which if you tend to believe that pharmaceuticals are generally a good thing in that they can improve people’s health and lower health care costs overall, it makes as much sense to (if not more depending on the bang for the R&D buck) improve already existing drugs to extend these benefits to more patients as it does to create an entirely new drug from scratch.

Source
http://www.fda.gov/fdac/special/newdrug/testing.html
http://www.drdonnica.com/news/00005065.htm

They also abuse the system by taking their hugh profits and not at least reinvesting a sizable portion back into the company (note the ratio of profit percentage vs. R&D reinvestment and you'll see what I mean).

I don’t know what is meant by a “sizeable portion” but the most current numbers I’ve seen shows that the Medical Substances and Devices (Pharma’s sector spends a higher percentage of their sales on R&D than any other industrial sector of the economy. While the numbers are from 1997 (I’ll gladly revise them if anyone has anything more current) they do show that the MSD sector is not only the leader in R&D investment, it spends more than twice as much as a percentage of sales than the average of all major sectors.

Source:
http://www.nsf.gov/sbe/srs/nsf00301/expendit.htm#fig4

It doesn't seem like a surprising claim that Kerry's supreme court nominees will outlast Bush's foriegn policy; Supreme Court nominees go on for decades, while Nixon's China policy hasn't.

Or perhaps you're surprised that I would prefer Scalia to Ginsburg, but you shouldn't be; while I'm generally socially liberal, it's not an agenda I want to see pushed through the courts, but through social and legislative change.

This isn't an endorsement of Bush. The fact is that Kerry is promising to spend slightly more than Bush; whether or not you think this is a good thing depends on whether or not you think that the benefits of insuring the currently uninsured outweigh the considerable risks of choking off medical innovation, or believe that the other things he's promising to spend money on are worthwhile. I am extremely worried about Kerry's health care plans and supreme court nominees; I'm also extremely worried about the administration's conduct of the war in Iraq. I'm thoroughly appalled by their bipartisan agreement on things like hog-wild entitlement spending. That's why right now I'm not planning to vote for either one of them. No need to dig up hidden messages. The reason that my criticisms may seem to constitute an endorsement of Kerry is that Kerry is bad on things that I have a lot of knowelege about, while Bush is bad on things I don't understand as well, meaning that I have little cogent criticism to make.

A couple of points. First, you appear to take it as a given that Kerry will be able to get his health care program passed into law, which, if the Republicans retain control of Congress (as they probably will), isn't all that likely.

Second, and I realize this is a bit of a tangent, why do potential Kerry Supreme Court appointments concern you? Any appointments he makes, given that he'll almost certainly have to get them through a Senate controlled by Republicans, will have to be pretty moderate--Breyers, not Brennans. What's the long-term danger in that, as opposed to having Bush potentially get some new Scalia-type conservative activists on the bench.

Bush's long-term effects:

In the last 20 years, one of Big Pharma's greatest innovations has been in marketing, another place where they spend 20% of their revenues. Why does the US consume 85% of the world's Ritalin? http://www.worldandi.com/public/2000/november/sax.html

"Price gouging" occurs in the US for one reason: the US is the only place where pharma can recoup R&D costs. Period.

Europe, Canada, and Japan constitute monopsonies because they buy drugs through the national health services, and essentially dictate the price they will pay, take it or leave it. They essentially do this on a cost-plus basis that ignores sunk R&D costs.

That means that pharma has to amortize 10+ years of R&D costs over the short patent life (usually around five years) remaining between regulatory approval and patent expiry, and all of that in one country: the US.

So recover ca. $800 MM of sunk costs for a given drug, along with recouping lost investments in other drugs (e.g., notably as of this week, Vioxx), do all of that in five years in one country, and voila! "Price gouging."

The problem is that Canada, Europe, and Japan are getting a free ride on the backs of sick Americans. They base their payments on the marginal cost to produce one more unit of a drug, all of the years of R&D having already been done, rather than on the costs incurred to bring the drug into existence in the first place.

It is immoral for wealthy countries to gouge sick Americans in this fashion. They can perfectly well afford to pay a real price, not the one subsidized by Americans.

Yet virtually no one in either public life or private discussions takes cognizance of this fundamental driver of pharmaceutical costs. Why?

Jane-
The 1918 flu epidemic killed 20 to 40 million worldwide. The regular annual flu season kills 250,000 to 500,000

Occam's Beard-
You are right on the money. What will happen when we have a single nationalized healtcare in the US? Spend more on the NIH to do the research the pharmas can't afford anymore?

People do recognize it. It was a reason that some Congress members supported drug reimportation. It would force the drug companies to consider the pricing of their drugs in other countries, but particularly in Canada.

Thanks, lev. I appreciate it.

Perhaps (a modest proposal), whenever one of the G7 countries proposes to buy a drug at an artificially low price, the US government could offer to slightly beat that price (in parallel with the market functioning as usual in the US), buy up the entire supply of the drug in that G7 country, and sell it at the market price in the US (pay down the deficit!). Arbitrage writ large!

While I'm not entirely serious, the idea is to use one government intervention (which I don't like) to offset another (which I like even less) to try to make the market function properly again. So if the G7 countries don't pay a competitive price, they don't get the drug. They must, in effect, bid against Americans for access to the drug.

Economists? Is this risible, or could it possibly work? More to the point, is there a better way to let true prices equilibrate across various polities?

It is an awful stretch to take a 1% increase in market and equate it to a forced 1% reduction in price.

Occam, you are exactly right on. All one has to do is look at the numbers to see that the ROI of major pharmas does not reflect true "price gouging." And remember when all the stocks, especially the tech stocks, went up in the late '90's? Guess what--pharmas stock prices stayed the same or dropped a little. My brother, a moderately liberal Democrat, works for a big pharma, and he and I together can't persuade my father, a very liberal Democrat and retired physician, that big pharmas aren't making obscene profits. (And as I recall, Jane had an article to that point last year, pointing out that if there were huge profits to be made in the industry, there would be new players entering the field.)

Kate, you said, "the USPTO has been given significant political pressure to be less restrictive. Prior art patents use to be almost impossible to get (business method patents didn't even exist) and the term of a patent was less than it is now."

This is erroneous on several fronts. First, the "political pressure" has been for the PTO to do what it is required by law to do, that is, issue patents unless there is a legal reason not to. The PTO had been doing the reverse, in essence placing the burden of proof on the applicant to show why a patent should be granted instead of keeping the burden of proof to show why a patent should not be granted.

Second, business method patents have existed since 1952, and many of us obtained what are now known as "business method" patents. We were just smart enough not to phrase them as business method patents. The State Street Bank case can be read as Judge Rich saying, "Gol darn it, I authorized business method patents when I wrote the patent law revisions in 1952, and I am taking the opportunity of this case to reiterate my position."

Third, patent terms can't really be described as "longer" now, because it depends on the patent prosecution time. The current patent term is 20 years from date of filing, whereas the earlier term was 17 years from date of issue. So, if the patent prosecution takes more than 3 years (barring government delays), the patent term is actually shorter. The PTO will tell you that the average patent term is longer, which means ON AVERAGE, patents are issuing in less than 3 years, but I have seen a lot of patent applications that have gone 3 years before even receiving a first office action!

Kate, you really should (begin grin) stick to your trademarks (end grin) !!

ATM,

I took the drug reimportation argument to be more simplistic than that, but perhaps I didn't give the protagonists sufficient credit.

I thought the point was simply "the drugs are expensive here, cheap there, so buy them there and bring them in" as a simple cost-saving program.

My point is not a long-term program, but rather a short-term (Volcker-esque) shock to G7 drug purchasing practices to jolt them into a fairer way of doing business. Once their national health services have to deal with a real market environment, rather than one distorted by political clout within their own countries, we will have a stable and equitable true market.

The normal consequence of underbidding for a resource would be failure to obtain the resource. That doesn't happen now because the governments are the only purchasers, and they have customs agents, police, etc. to ensure that they remain a monopsony.

I don't blame pharma for accepting lower prices - effectively, they have no choice. There is no way they can stand up to a sovereign government, no one to offer a better price. If they want to sell at all in that country, they have to accept that price. Take it over leave it.

They (reasonably) decide that it's better to make a little money in those countries than none at all. BTW, this is why drug licensing deals always involve wrangling over who gets the US market; it's the sine qua non of any such deal.

yes iraq shouldn't be occupied...

we should just nuke the entire area and thus solve islamic terrorism...

hmm.. ok thats no good.. um we'll just let them kill us at will

hmm no good.. ok we'll do what we can with french help...

hmm the french view us as their major enemy and are actively allied with islamist terrorists, china, and russia to destroy/diminish the US

hmm......

but bushitler is evil...

right... love your friends and options tim.. but you go play at the commune and let free markets and the world's best armed forces keep you alive to bitch and whine for decades to come

Perhaps Kerry realizes this but has a hidden agenda (think "secret plan"). He intends reducing future health care effectiveness in order to save social security.

You have absolutely *got* to be putting me on.

Listen: you can "extend [your] lifespan, and quality of life" by making the rest of us pay for *your* concept of a decent place to live with "a stiff gasoline tax".

You bloody fraud. I could just about be tempted to go vote for that rotten Massachusetts commie simply in order to turn the other ethical edge against *your* throat, and I have never voted in my life, because I *don't* believe in disposing of others' rights in a poll.

But you would deserve it.

Just get off it. There are people who believe in *freedom*, who also see what you are.

Occam -

Nice in theory, but it would just encourage the other countries to steal our intellectuual property (ignore patents entirely) and hire generic producers to supply them (see: India

http://www.pbs.org/newshour/bb/health/jan-june01/india_03-15.html ).

At least now the make a meager contribution to the amortization of the R&D.

Nothing quite like getting hits from being a troll, is there, Beck?

Speaking as a graduate student in organic chemistry (synthetic, even), I have to say that I agree with Average Joe. I am firmly thinking about some other form of employment after I graduate, seeing as how pharmaceutical companies (where I would likely end up) seem to be going the way of the tobacco companies.

It's like watching people throw spears at elephants; at some point, they're going to start hitting something big and the big, lumbering giants will fall over dead. And then, we'll all buy our drugs from China, too! Yay!

DH,

True enough. It was a "modest proposal." I just wondered if it had any further utility beyond Gedanken experiment.

But, to press the point a bit, suppose we bid for their output too? Generic producers, if they could produce drug product in the relevant timeframe (see below), would be leery of ramping up too much capacity because their market could collapse at any second, and they'd be stuck with fixed investments that they couldn't then use.

I envisage perhaps a six month period when the pharmaceutical market would be in utter turmoil, with consumers in Europe and Japan screaming for unavailable drugs, and pressuring their governments accordingly. In this scenario, the issue would be joined and resolved probably within the timescale on which a generic manufacturer could tool up and be certified to produce drug product.

What do people think? Crazy? Fun to think about, surely.

Regarding price controls and "sanity" in the G7...

"Sanity" is only as strong as the patent in question, and any country can just decide to invalidate patents for "humanitarian" reasons. I've heard it's already being threatened with AIDS drugs in some countries. And those same governments can ban US agents as buyers, thus preventing us from forcing a market correction.

What happens then? Certainly, the pharmas won't just stop the money machine. Instead, they'll attack the source of the problem: the patent system, and its disclosure requirement.

Thus, I wouldn't be surprised if pharmas started using trade secrets instead of patents to protect their R&D investments from price controls. After all, if you're the only company who knows how to make a drug, you have perfect control of supply and demand.

And who does this help? No one. Instead of a 20-year price gouging, think a permanent one. Instead of AIDS drugs being too expensive for Africans, they simply won't be available in Africa for any price, as the pharmas refuse to sell medicine stocks to governments with price controls. No more generics. No more publicly available research.

At that point, I see only one way out: socializing the whole thing, and killing the pharmas. Which leads to rationing, stagnation of research, and all the rest of the horrors of Canada and Britain.

I'm not sure if there's a better solution now, but enacting price controls or legitimizing the ones already in place via importation definitely isn't that better solution.

Putting price controls on health care is like inflating food prices with agricultural subsidies, and then subsidizing poor people who can't afford groceries. The best way to cut drug costs would be to gut the FDA and let people make their own decisions about what to do with their bodies.

TU-C: I wouldn't know. I have never in almost two years of blogging taken one look at my hit rates. I don't care. And *you* don't have to pay attention to the hypocrisy I'm pointing out. You're perfectly free to turn your pretty head and walk away.

I'm just dissapointed that as advanced a country as we are that we basically are cowtowing to the pharmco's. Or should I say the gentlemen in D.C.? We should learn a thing or two from Canada and the U.k.

Jeff,

Trade secrets won't help them because so much information is publicly available through FDA filings, everything right down to the structure of the compound.

Also, as indicated above, the gouging isn't for 20 years, but for about five. Patent life is now 20 years from date of filing, but most of that 20 years is taken up in first getting the patent to issue (ca. three years) and then in gaining regulatory approval (no sales until then) for the drug. So figure five to maybeeight years of sales on patent, tops.

But to come to your original point - G7 countries could just break the patents. Sure, but many big pharma companies originate in G7 countries (AstraZeneca, Bayer, GSK, Daiichi, Novartis, to name a few), so many countries that invalidated patents would be clobbering their own industries.

Second, the buying-up plan could potentially still work. So the G7 country breaks the patent and manufactures the drug. We have a standing offer to buy the drug for MORE than the G7 country will pay, up to the US price. We would have created a huge incentive to circumvent the G7 country's purchases and sell the drug instead to the US. The G7 country would have to go to extraordinary lengths to prevent that from happening. The point would still be made.

As indicated above, I'm not entirely serious, just considering this scenario as an exercise to find its flaws. Any comments most welcome.

I'm just dissapointed that as advanced a country as we are that we basically are cowtowing to the pharmco's. Or should I say the gentlemen in D.C.? We should learn a thing or two from Canada and the U.k.

Free,

As indicated above, I don't think we ARE kowtowing to them. It's the people in Canada and UK and elsewhere we're kowtowing to.

Pharma R&D is like wildcatting for oil. Risky, expensive, but lucrative if you hit. Knocking out the last leaves a risky and expensive business that no rational person would go into. Worldwide price controls would kill the industry.

Canada, the UK, Japan, etc. can all get away with their drug purchasing policies for the same reason they can get away with spending so little on defense - namely, they look to us to pick up the slack. If we adopted their policies there would be NO ONE to pick up the slack on defense or drug R&D. We carry the ball for the rest of the world in a lot of respects (these being but two), which leaves them more time and energy left over to disparage us.

free prescriptions,

Are you related to "free lunch"?

I am a pharmaceutical researcher. I really enjoy what I do. I'm pretty good at it, too, but there are a lot of things I enjoy doing, and I am getting tired of constantly having to defend my livelihood against ad hominem attacks (even among family and friends). It really wears one down. The constant drumbeat in the media (anybody see Law & Order this week?) and from politicians just piles it on. I sometimes wonder why I spent the better part of my 20s and early 30s forgoing income, wrestling biochemistry and biophysics in grad school/postdoc studies, in the hopes that I could help make the world a better place while doing something I enjoyed. Now in industry, I played a role in discovering a very promising and innovative cancer therapy (now in late clinical trials). I am very proud and grateful for that, but I suspect that life would have been much easier if I had been a history major (got straight A's in those classes!), gone to law school, and become a class action lawyer to milk the pharma business. When I was a kid, I used to think that the premise of Atlas Shrugged was totally preposterous. Now I'm not so sure. I know several physicians who warn their children against following their footsteps into medical careers...I have to believe that pharma researchers will soon be following suit...

biff,

Welcome, brother.

I'm having the same conversation with my son, who is fascinated by science and gifted at it. I'm very lukewarm on this idea, and while it's certainly his decision, I think he needs to know the reality.

Derek Scruggs:

OK, let's look at your definition of "Bush's long term effects" with a critical eye:

Committing the US to occupation of a country full of people who hate us for at least several years to come. The death of a loved one is long-term, as in permanent.

Two comments. First, please argue coherently. The second sentence here is a truism and is logically unconnected to the first, except perhaps very tenuously by a second truism: people die. This second truism is regrettable, but is irrelevant to your argument.

Second, the US did precisely what you are seemingly condemning - occupy a formerly hostile nation - after World War II in both Germany and Japan. It worked out rather well in both of those cases.

In the process, solidifying rage against the US in the Islamic world for generations to come. He did the despot's dirty work for them. Citizens of, say, Egypt and Saudi Arabia now will continue to direct their anger against the US instead of speaking out against their own governments' repressive policies.

You need to do some more homework here. Hostility on the part of radical Islam towards the US has existed for at least two decades. There were numerous terrorist attacks against US targets by Islamic radicals before 2001 (the 1993 World Trade Center bombing, the 1995 bombing of US military compound in Riyadh, the 1996 bombing at Khobar Towers, and the African embassy and Cole bombings in 1998 and 2000, respectively, are examples). By 1996, the distain on the part of leading Islamic radical leaders was such that they espoused the destruction of the US. I seriously doubt that Bush(43) has done anything to strengthen further their feelings against the US.

The present targeting of US interests by radical Islam traces its origins directly to the US acquiescence to the fall of the Shah of Iran, the coming to power of Khomeini and his cronies in Iran and resulting establishment of a radical Islamic state there, and the failure of that “Great Defender of Democracy” Jimmy Carter to do a damn thing about the seizure of the US Embassy in Tehran. All of these events occurred in the late 1970s.

The long-term hostility of Islam towards the west goes back literally centuries, and may well portend future violence between Islam and the West (and/or other non-Western civilizations). You may find some of Samuel Huntington’s work from the early and mid 1990s to be enlightening on this subject.

Eviscerating scientific and rational discourse around policy. At least one guy on his environmental policy board won't even agree that lead is bad for you because he doesn't believe in such commonly accepted methods as regression analysis.

Please provide a credible citation in support of your position here. Otherwise, you are merely making an unsupported – let alone unproven - assertion.

Anyone can make an unsupported assertion on any subject. Supporting your position with pertinent facts and making a logical argument is generally considered more persuasive.

Helping demagogues like Tom Delay make partisan rage the norm in political discourse. How convenient that the independent prosecutor law expired after Delay abused it to comical proportions with Clinton. (I don't support bringing it back, but imagine a Ken Starr investigation of the misuse of intelligence on Iraq. If you can impeach someone for lying about a BJ...)

Invalid argument - two different ways. First, you've used the proverbial "red herring" in your argument. The independent counsel law expired during Clinton’s term. Ergo, Bush could have had nothing to do with any use of the independent counsel law, or with its repeal - as you intended to subtly imply by bringing up this absolutely unrelated point.

Second, the political climate in the US had become highly partisan, with many operating in full partisan "attack mode" well before 2000. As evidence, see the Bork and Thomas Senate confirmation hearings in 1987 and 1991, respectively. Blaming Bush(43) for the current highly partisan atmosphere in Congress (or in general) is asinine, since said highly partisan atmosphere very clearly began more than a decade prior to his election.

By the way: I don’t recall any "sex exemption" in any legal opinion or analysis I’ve ever seen regarding perjury or obstruction of justice. Further, as I recall "Monicagate" was only one of a number of legal questions that led to Clinton being investigated by a special counsel.

Kate: "I don't think anyone is going to quit because the profit is only $40 million dollars instead of 55 million dollars and if they do, fine, someone will be happy to take their place."

They will quit. They're called shareholders. If a business sector is making less of a return than the market as a whole it will be defunded until the surviving businesses are earning the market return.

Even were that not the case: it's not your money, or Bush's money, or Kerry's money to dispose of.

Biff, when I first started reading your comment about being tired of "having to defend my livelihood against ad hominem attacks (even among family and friends)," all I could think was, "Try being a lawyer for the last 10 years."

So the end of your post was pretty funny to me.

If you want challenging work, good (but usually not fabulous) pay, and the chance to do work that is generally helpful to the people you work for, yeah, try law school.

If you want kudos for "making the world a better place," and a very good living by the way, I suggest veterinary school. Nobody's found a way to scapegoat the vets . . . yet.

Jane,

Your posts inspire the most fascinating discussion threads. I've got a question for you, and this is asked seriously, not rhetorically.

If you are not voting for one of the major party candidates for president, why vote at all? I've asked several like-minded people this question and I'd love to hear your response.

Thanks

I would think that anyone convinced that the difference in price levels in the US and other countries is pure profit should sell everything they own and invest 100% in pharmaceutical companies. How could you ever lose?

Come on guys, AT LEAST dump your whole retirement in there. If their profits are obscene, yours could be too!

Denise,

I admit that I had a wry smile on my face as I wrote those words, as I realize that the many lawyers who do so much good for us are also routinely attacked. It is so hard to practice any craft which relies on the challenging application of reason while simultaneously fending off emotional attacks. Emotions are facile and instantaneous, while reason requires effort. We just don't do a good enough job of teaching children (much less some of our teachers ;-) the art of critical thinking.

biff

PS. Great point about veterinary school...

Lets go back and see how this decision would have affected us if it were made 15 years ago. Lets say there are 2 comepeting plans. Plan A is that drug companies get free reign to charge whatever they want for a drug for a certain number of years, but after that generic competors are allowed to come into the market place. Plan B is that strict profit controls are in place immediately. (it doesn't matter whether those are price controls or generic alternatives, the effects are the same). For 20 years, people would be able to afford drugs they otherwise couldn't, but as the years progress these same people would be significantly worse off. Can anyone really say that we would have better medical care today if strict price controls were put into place 50 years ago? Price controls seem like the ultimate in short sighted policy.

Of course this isn't to say that I am against drug reimportation. Open the borders up so Canada can't freeload on our development anymore. If Canada isn't willing to pay market price for the drugs they can do without. But of course this policy probably is tragically flawed because I don't think the US would actually follow through if Canada decided to break the patent on a US drug.

mindpunk:

I was wondering the same thing. Seems to me that supporting the lesser of two "evils" is better than abdicating responsibility.

How about it, Jane?

You are young so drugs as a a major expense are clearly not a problem for you. Yet. And getting them from Canada is not legal. Why? Because they are not safe because made out of the country. And which are our two biggest drugs? Both made in Ireland by American companies. Parallel: text books are considerably less overseas than in America..Same texts! Are they too unsafe?

Not voint? Good. Then folkls like me who do vote can impose our candidate upon you, who are aboive it all. Thanks for the non-vote!

Tabarrok's extrapolation looks like a major stretch, at best, to me.

The original paper, as I understand it, talked about a change in market size with, presumably, price unchanged. To claim that a 1% change in price is the same you would have to argue that the price reduction has absolutely no effect on quantity sold. Somebody told me once that's not a good assumption, and I believe them.

Now you may want to claim that the demand is inelastic at current price levels, so quantity sold won't change 1%, but if the drug maker is a profit-maximizing monopolist that is wrong. In Tabarrok's equation, where marginal costs are zero, elasticity would be 1, so a small price reduction would be matched by an offsetting increase in sales.

Knock prices down 10% and you will get a reduction in revenue, but likely not nearly enough to justify the 40% figure, or anything close.

biff...

great post. i am also a research scientist/engineer in an analogous business to the pharmaceutical industry, and often experience the same frustration that scientists have the lowest pay/skill ratio of any job i can think of (yeah totally unsubstatiated by data - but it's my personal experience/impression)

but I like to reassure myself that the pay surrendered relative to the alternative (consulting job in my case) is the market accounting of the value of the joy i can get from seeing my innovations improve society.

biff - can you really account for the potential value of seeing some kid beat cancer thanks to your decision to follow your passion vs. your wallet?

and yeah, since writing those last two paragraphs, i can think of lower pay/skill jobs... artists, vets... probably a lot more, and the invisible hand probably makes fair accounting of the joy they get from their jobs as well.

I read that drug companies spend 25% on their money on development, and 30% on advertising. I think that something is rotten in the state of Denmark.

"I'm also extremely worried about the administration's conduct of the war in Iraq."

You have a better idea about how to conduct the war? I hope you don't think Kerry does.

The last time we listened to him and his buddies (like Teddy), we surrendered victory by refusing to support our South Vietnamese allies as we had in 1972 (when they repelled a 220,000 man invasion by the communists). That's how we "lost" in Vietnam. By folding with the winning hand in our possession.

Millions of people died as a result. It could be worse this time. Look at the Duelfer Report; Saddam would have eventually gotten a nuke if we hadn't invaded. Hell, Edwards didn't even know that soldiers in Iraq are exempt from income taxes. The Age of a Kerryous will be a disaster, if it eventuates.

Okay Hondo, you're on.

First, please argue coherently. The second sentence here is a truism and is logically unconnected to the first.

The connection is simple. Bush has made decisions that have resulted in people dying prematurely. This has a long-term effect on the population that still lives. To wit, "working families," which Bush and every other candidate under the sun likes to claim he's on the side of, suffer financially and emotionally.

Yes, occupation of Germany & Japan worked. It does not ipso facto mean Iraq will. How may folks were being killed in roadside bombs in Dusseldorf 18 months after D-Day?

Further, Bush continues to try to justify Iraq as a response to 9/11. After Pearl Harbor, we didn't go after Borneo. After the Lusitania, we focused on Germany, not the Ottoman Empire.

You need to do some more homework here

I read Huntingdon’s Clash of Civilizations stuff when it was first published, and more recently "A Peace to End All Peace." I’ve done my homework. And you know what? The Clash of Civilizations theory is wrong. I’ll address that below. But let’s recap your view first:

Make up your mind. Iran is Islamic, but not Arabic. So is Bosnia. Arabs, Persians, and Eastern Europeans (ethnic Albanians) are very different cultures. We get along with Indonesia just fine. "Islam" is not a single civilization. Even within the Arab world, there is a palpable difference between street life in, say, Egypt vs. Saudi Arabia.

Except for the part about hating America.

Remember the good old days of 1991 when Arab countries actually committed troops to battle in Kuwait?

I have no illusions about radical Islam ever being our compadres. But apparently Wolfowitz, Rumsfeld et al did. "Of course," they said, "Iraquis will think of us as liberators." They didn’t, and now we’re hosed. And we managed to piss off the rest of the Arab world in the process.

Sadaam is evil and deserves everything coming to him. But that is not the question that was asked. The question is, are we getting what we paid for in 1000+ soldiers’ lives plus $200 billion? No. Specifically, are we safer from Islamic terrorism? No. Even more specifically, are there more terrorists alive today with the motivation and the means than there were 18 months ago? Given that "Osama" recently became the most popular name for children in the Arab world, I'd say the answer is yes.

The "Clash of Civilizations" theory does not hold water. Ask any Arab where he’d like to live and where he wants his kids to go to school. He'll say the USA. Go see "The Control Room" for examples. The "clash," so to speak, is about policy. To wit:

The US props up Godawful regimes in the name of oil. Given oil’s strategic importance, a strong case can be made for doing this. But there are consequences to this approach. In no way, shape or form does the invasion of Iraq mitigate those consequences. Trying to explain the conflict between East and West as one of “civilizations” or, even worse, “good vs. evil” only makes for more wrong-headed decisions.

Please provide a credible citation in support of your position here

http://www.commondreams.org/headlines04/0219-02.htm

I don’t recall any "sex exemption" in any legal opinion or analysis

No, but perhaps you’ve heard of the concept of “prosecutorial discretion?” The Republican House, led most emphatically by Tom Delay, impeached Clinton over something that was not a high crime or misdemeanor.

Look, I’m not a bleeding heart liberal or a blame America firster. I’m mostly Libertarian and I even voted for Bush I. But I’m absolutely convinced that the current president poses a long-term threat to our country.

Ditto to the poster who described the frustration of getting a Ph.D. in biochemistry, and then finding that being a lawyer would have been more remunerative and less of a pain in the neck.

I don't regret my decision to do the science Ph.D. thing, but then I have this weird idea that we can't run an entire civilization doing absolutely nothing but sue one another, in an infinite legal loop. (Disclaimer: nor can we have a decent civilization without the rule of law, so I'm not advocating "hang all the lawyers". I am saying, "If you need medical care, and your doctor's been malpractice-sued out of existence, try a lawyer and see how it goes.")

Kerry and Edwards apparently disagree. But, then, at this point, the entire Democratic Party disagrees, doesn't it? We don't need to innovate or produce anything new, and nobody should get rewarded for trying. No, what we need to do is flatten the U.S. pharmaceutical industry down to what Canadian profit levels will support. If nothing else, that will certainly solve our excess medical problems in a nicely Darwinian way...

La, those numbers just don't sound right. Maybe that was 25% of revenues and 30% of profits? (I'm just too tired right now, and relaxed after a bourbon & branch water to do any googling right now.)

Jim: Thanks for the kind words.

To clarify a little bit: a relatively low (numeric pay) / (required skill) ratio might, at first glance, seem a little frustrating, but I've personally never had a problem with that. It's probably most acute for scientists in their 20s/early 30s, who see others prospering while one is struggling through grad school, but by one's late 30s/early 40s, the salaries tend to be fairly comfortable. In any event, I was fully aware of the financial sacrifices I was making at the time, as I was more than compensated by working with incredibly motivated, creative, intelligent people, and with the rush of being the first to discover something new (however small that something may have been). For me, the problem has been the senseless attacks on an industry which does so much good for the world (and through which I have channeled so much of my mental energy). Calumnies from people who have the education to know better have such a corrosive effect. Simply put, I know that the drug upon which I worked has made a real difference in people's lives, and I cannot begin to tell you how wonderful that feels (even though my contribution to the project was pretty miniscule). Unfortunately, I doubt that I have the endurance to devote myself to another decade of work while watching pundits and politicians whittle away my work environment. I am a lab head and a middle manager. Most of my peers assume that the bio/pharma industry will not be able to defend itself against these emotional attacks, and that factors into our decisions: less hiring, less investment, less innovation. Basically, it feels like we are fighting a rear guard action. I firmly believe that a Democratic victory will only accelerate the process.

Re-reading this, I sure sound "burned out". Maybe it is finally time for a career change.

la -

Pharmas, on average, spend ~17-18% of sales on R&D, although some companies (especially some of the biotechs) spend 40% or more on R&D. The figure for marketing is ~10-11% of sales (quick calculation on my part; feel free to correct if needed, but please cite your sources).

For more info, check out http://www.cato.org/pubs/pas/pa-475es.html

Here's an interesting point: the Cato report says that "Pharmaceutical marketing accounted for $13.8 billion in 1999. Yet more than half of that— $7.2 billion in that year—was for free samples of drugs, which serve as a discount when doctors pass them out to patients."

According to the pharma industry trade group, phrma.org, the industry spent about $22 billion on R&D in 1999. The current figure is ~$33 billion.

Derek Scruggs writes (paraphrases of his comments, in no particular order, are in brackets):

[George Bush's decision to go to war got 1000 soldiers killed.]

Yep, that it did. George Bush's decision to go to war also saved innumerable lives. Lives that would have been ended by Saddam's thugs, lives that would have been ended by whatever mischief Saddam got up to once the UN sanctions ended, and lives that would have been ended by the terrorists who instead went to Iraq to fight against democracy, just to name a few, and these too will have lasting effects long beyond the Administration's tenure. We can only guess at how many lives those might be and who they might be, but I see a lot of evidence that acting decisively was by far the cheaper route in terms of both blood and treasure.

[Iraq is the wrong choice to attack; after Pearl Harbor we didn't attack Borneo.]

Nope, after Pearl Harbor we attacked. . . northern Africa. Not to mention a whole bunch of other things that weren't precisely Japan. Sometimes it isn't feasible to attack your enemy directly. In those cases you nibble at the flanks, gaining a foothold where you can. Making democracy work in Iraq would be a tremendous foothold in the Arab and Islamic worlds (which, as Derek observes, are not precisely one and the same). Moreover, Iraq presented a unique opportunity to gain such a foothold because no other nation had so publicly "asked for it", both by disturbing the peace in its region of the world and by abusing its citizens. Bush was wise to sieze the opportunity. Derek rightly observes that it was and is a risky stragegy, and I agree completely, but it is also the only one that appears to have even a chance of long-term success.

[Saddam wasn't directly involved in 9/11.]

Nope, he sure wasn't. So what? He publicly declared himself a friend of terrorist organizations on numerous occasions, and he got up to plenty of mischief on his own in any case. Suppose instead of deposing Saddam we lifted the sanctions, sent the inspectors home. The recently released WMD report says he could have reconstituted his nuclear program in a matter of months. A few years later he would probably would have had nuclear weapons. What might Saddam have done with nukes? I think a replay of the Kuwait invasion would be the best we could hope for. Much better to eliminate him now.

["Islam has hated us for centuries" is bunk]

Well, actually, they have. And some Islamic terrorist leaders are still carrying grudges from back then. That's why Bin Laden's speeches are rife with references to the "tragedy of Andalusia" and the siege of Vienna.

[Osama has recently become the most popular name in the Arab world.]

Indeed? How recently? Since the invasion of Iraq? I doubt it. Bin Laden's 15 minutes of fame were when the towers came down, and I think it likely that that is when all those children were named. And that's the heart of the matter, really. Bush's critics would like to claim that Bush brought all of this ire on us, but all of the administration's policies that they cite came after Islamic terrorists showed us what they really thought of us by perpetrating the worst terrorist act in history on our soil. Whether the causes go back to Jimmy Carter or Jan Sobieski the fact remains, nothing George Bush could have done in the past four years would have convinced the Islamists to lay down their arms peacefully.

[Ask any Arab where he'd like to see his kids go to school, and he'll say the USA.]

Ask any Arab what country he'd like his kids to emulate in their attitudes toward personal liberty, women's rights, and the relationship between church and state, and you will no doubt get a very different answer. The disagreement between the United States and the Islamic world goes much deeper than policy disputes about what regimes we buy oil from. It is the failure to recognize this, more than anything else, that constitutes a "long-term threat" to our country. From where I sit, President Bush is the only leader on the national stage that lacks this particular brand of myopia. Why should I trust their proposed solutions when they can't even correctly identify the problem they purport to be solving?

Regards,
-rpl

Derek:

The connection between occupation of Iraq and unnecessary death depends on the premise that the invasion of Iraq was in fact unnecessary. You did not make that argument in your first post. If one regards the invasion of Iraq as worthwhile, then by definition the costs of occupation are also necessary.

We apparently disagee on that issue. It's my opinion that we would have been at war in Iraq sooner or later. Saddam Hussein was a megalomaniac; had a huge military; had a demonstrated willingness to invade his neighbors; lived in an area of the world having a huge chunk of the world's oil supply and which is of strategic concern to the US ; had been documented to have previously developed and used WMD; and had been thumbing his nose at UN inspections and sanctions for over a dozen years. With Hussein running Iraq, I do not believe it was ever a question of "war or peace"; I believe it was a question of when. The answer turned out to be 2003.

If you will carefully re-read my post, you will see that I place the blame for the current willingness of radical Islamic factions to attack US interests on Carter's botched presidency. I clearly state that I believe Hunnington's work explains the long term trend - that of opposition of Islam to its neighboring civilizations, which has continued more or less unabated for the past 1300 or so years. The boundaries between the ummah and the rest of the world have, throughout that time, been fairly consistently violent. You choose not to believe Hunnington. Your choice to ignore history if you like.

I must observe that US relations with Indonesia, Malaysia, and other "moderate" Muslim states - with which you say we have had "good relations" -have over the past decade or so actually decidedly dicey. This trend began long before Jan 2001. I also have this question: if (as you say) Islam is united in hating America, why do they want to live here, and for their children to be educated here? These two concepts don't exactly seem consistent.

Regarding perjury and obstruction of justice: I understand well the concept of prosecutorial discretion. I also understand well the concept of holding the chief executive to a higher standard than most - since the chief executive is, by definition, responsible for ensuring enforcment of all federal laws.

I will check the url you posted above, as well as what I can find concerning the organization posting same, and let you know if I find it credible and persuasive.

Hey guys. You're in the wrong room. We're talking about drug prices and R&D and stuff like that.

End Overpopulation

Support Socialized Medicine

Protest warrior

I just have to order that bumpersticker.

"As far as I know, the only epidemic that killed that many was the pandemic of 1918, and as far as I know, medical science would be able to do little more for patients of such a flu virus than the doctors of that era did"

wrong. the containment policy that was used for sars would likely make a big difference

biff,

One further term to include in the PhD calculation of salary/skills, namely, the likelihood of getting the boot.

PhD scientists tend to be the very first out the door when the financial numbers wobble a bit. Business guys figure that it'll be years before analysts, much less anyone else, figures out that they've got nada in the pipeline, and by then the executive wielding the ax will be long gone. Unfortunately, this analysis is absolutely correct.

Chem & Eng. News is replete with stories of companies torching their discovery efforts to save money. (There was just another story last week - I showed it to my wife). It's very simple: fire the sales force, sales go down, revenues go down, earnings go down, stock goes down, executive goes down - for good.

Fire researchers, revenues stay constant, but earnings go up, therefore stock goes up, executive goes on cover of Business Week as business genius. Burn the furniture to keep warm, and let the next executive figure out what to do about the mess. It's why the wisdom is never to follow a successful executive (a wry truth enveloped in a joke).

So when you do the salary calculations, remember to factor in not only the years of subsistence pay in grad school and post-doc, but also the episodic nature of researcher post-graduate employment. I've got too many friends out of work right now (record highs in unemployment of chemists, according to last week's C&EN), and I'm worried about it myself.

Bypass most of the pharmcos and gummint. I do.

See how:

http://www.silvermedicine.org/

The US drug-buyer is subsidizing the national health care programs of Canada and Europe. The US drug-buyer is also subsidizing drug R&D for the entire world.

It is these hidden subsidy costs that are never faced by our "allies and friends" who are so eager to criticize everything american. Not to mention the defense subsidy american taxpayers pay to protect our "allies and friends."

Allowing re-importation of drugs from Canada and Europe will set in motion an unpredictable chain of events, which may result in one of several widely divergent results. It's a toss of the die. Are you game?

Certainly the status quo isn't fair for american drug-buyers and taxpayers.

This is an excellent comment thread, and it'll now be the first I've seen on this subject that features more than one pharma researcher.

I'm a medicinal chemist myself (thus my blog, "In the Pipeline"), and I've worked in "Big Pharma" since 1989. I found the paper that Alex at MR brought up very interesting indeed. It fits with my back-of-the-enveloping from inside the industry.

It might not be obvious to the casual observer, but we're having a hell of a time these days. The research is getting harder to do: the targets we're going after are tougher and the regulatory hurdles are higher. And at the same time, it's absolutely true that the US is the last market where we can be sure of recouping our costs and earning a profit. It's not a good corner that we've painted ourselves into.

The political, scientific, and economic uncertainty of the business has everyone on edge. This is the worst shape I've seen the drug industry in since 1994 (and the effects of the Clinton health-care proposal). Let's put it this way: finding a parking spot at my place of work is, for the first time since I've been employed there, no problem. No problem at all, unfortunately. . .plenty of empty ones to choose from.

"Hey guys. You're in the wrong room. We're talking about drug prices and R&D and stuff like that. "

From our hostess:

"I'm also extremely worried about the administration's conduct of the war in Iraq."

Lack of innovation with price controls is indeed a real issue. The only sensible alternative I can see is to turn the pharmaceutical companies into public utilities, with open accounting, publicly financed research and dividends, and government ownership of the resulting patentable drugs (which could then be licensed to foreign nations to help offset the costs). I know a lot of you are probably gasping in horror at this defilement of your sacred "free market". Get over it. Bell Labs, a public utility, provided a steady stream of innovations because they didn't have to worry about the next quarter's results. The deregulated Baby Bells, hamstrung by spur of the moment thinking and greedy, worthless executives, haven't innovated shit. The free market works for some things, but not for others. It's a useful tool, nothing more.

Bells Labs was essentially a government laboratory that was funded by peoples telephone bills. I have worked at government laboratories that are financed by more conventional means, namely taxes, and can say that government laboratories are in fact quite good at certain kinds of tasks. The question is, would such a laboratory be good at drug development? Having worked at the National Institutes of Health (NIH), in Bethesda, Maryland I can answer that question definitively. The answer is: no.

Drug development involves spending epic amounts of money on highly specific, highly applied projects that are almost certain to fail. In addition, these projects do not offer the kind of intellectual glory that more basic research provides (which is unfair in my opinion). Taxpayers would balk at the risks required and rightly so.

Places like Bell Labs and the NIH excel at work that, though it may lead to patents, is closer to basic research. This work is usually cheaper. Because of the possibility of intellectual glory, the scientists can be paid something like civil service wages. The general goal of expanding human knowledge in some way is much easier and more likely to succeed that the hunt for a new drug. The public is, quite rightly, more willing to spend a small amount of money on a minor advance in knowledge, even if that knowledge is not directly applicable to anything, than it is to spend 10s or 100s of millions of dollars on the developement of a drug that ultimately is unlikely to work.

To summerize, government laboratories, though they are wonderful institutions, are not well suited for drug development. This is my observation from having worked at the NIH. Perhaps biff or Derek Lowe can give some insight from the drug company side.

P.S. If you want an inside, informed look at the pharmaceutical industry and especially at drug development, then I highly recommend Derek Lowe's blog In The Pipeline. Derek writes about many of the issues discussed here and much else as well.

The current problems with the flu vaccine supply is just the tip of the iceberg when thinking about what could happen if some of these restrictions are placed on the pharmaceutical companies

Thanks for the plug, A. Joe! I know some folks who have worked at NCI and NIH, and it's a different world than industry, all right. One of the things that keeps us going is good ol' competition. We're always terrified that someone else is about to scoop us or break our patents, and it keeps everyone hopping.

If we were a public utility, as Firebug suggests above, I think this urgency would dissipate. There's motivation in developing new drugs for their own sake, of course, but at my end of the drug pipeline (that is, where the water springs out of the bare rock), that hope for a livesaving therapy is pretty abstract. Almost nothing ever works that well - I've never worked on anything that's even made it into Phase II, forget the marketplace.

OK Patrick. Yu're right. She did make reference to Iraq.

Just a word of friendly advice, though: you really don't want to start a big discussion of whether Bush has handled Iraq in a competent manner.

I'd say it's pretty well in line with his performance as a businessman.

Please don't worry about Kerry's plans. He will not be effected by the consequences of his decisions and you needn't be effected if you follow his plan. His clever plan is to marry women of great worth to protect himself. You to can protect yourself by marrying wealthy spouses. Taxes are only for those how make more than $200K/yr (real wealth is earned via trusts). Choose carefully who you marry but rest assured if you find a richer spouse you can always divorce and remarry. Just follow the Kerry plan.

Gee, just as I started to relax a little after my recent rants, a colleague informs me that Michael Moore's next project will focus on the health care system. Yep, that should help to elevate the debate.
;-|

See http://www.californiahealthline.org/index.cfm?action=dspItem&itemID=106215&changedID=105991 for more info.

I have not read through the comments or the papers, but there are serious errors in comparing the formula from the facile case presented.
"a 1% change in P has exactly the same effects on profits, and thus presumably on R&D, as a 1% change in Q" draws some very unwarranted conclusions about the causes of drug progress. Certainly some of the reason is that the best drug researchers will follow the most money relative to other areas. To simplify, the best of the field would choose to work on A over B in the case where A is being funded $10 and B is being funded $9, as well as in the case where A is being funded $8 and B is being funded $7.
This is normally the kind of thing you pick up on rather quickly, so I am assuming it is just a case of confirmation bias.

The only sensible alternative I can see is to turn the pharmaceutical companies into public utilities, with open accounting, publicly financed research and dividends, and government ownership of the resulting patentable drugs (which could then be licensed to foreign nations to help offset the costs). I know a lot of you are probably gasping in horror at this defilement of your sacred "free market".

Firebug,

Kinda like having the Post Office discover and develop drugs. Sure, that'll work. Government bureaucrats are well-known dynamos of creativity, sound judgment, and risk-taking.

Perhaps you think public ownership hasn't received a fair trial, and that all other nations on earth (including Sweden, the UK, China, and of course the unlamented USSR) have moved away from it prematurely?

Please.

Does anybody else think that getting the government involved in a vast number of $100 million projects, almost all of which are destined to fail for reasons which are difficult to explain to the layman, sounds like the biggest invitation for massive corruption ever?

(Preemptive response to the most likely objection: current science funding does not suffer from this problem because the amounts dispersed are much smaller, the competition for grants is intense, and the corresponding review is pretty rigorous. I have little faith that this culture would survive in any subfield that routinely dispersed $100 million dollar contracts.)

Back to Kate on Oct. 8, observing the abuse of the health-care system from all sides. Her observation is accurate, in my view, and what's worse, the political system is being abused, too, by the players in both major parties -- but especially by the Republicans. Until the ability to compromise in politics is recovered, there will be no progress toward correcting any of the abuses that Kate points out. I trace the all-or-nothing legislative behavior back to Newt Gingrich but it may have started earlier.

I've read in many places now that drug companies recoup their R&D in the US because countries like Canada negotiate lower prices. No one that I have read, however, has explained why the drug companies accept lower prices from Canada, etc.. I don't believe they are required to accept lower prices, so why do they?

To answer David Andersen's question...

Drugs are characterized by having stratospheric fixed costs and trivial marginal costs. In other words, pill #1 of a new drug costs a gazillion dollars, while pill #2 and all pills thereafter cost 1 cent. When it comes to selling drugs, you sell as many drugs as you can at a price that the market will bear, and those sales have to make back your research costs for that drug, and a share of the costs for failed drugs, or you go out of business. But of first-world countries, that means that you only sell to the US, because in the other countries it is illegal to charge that price.

So you are a pharmaceutical company, and you have sold all of the drug that is needed by Americans at the market price, which is say $5/pill. Now you look at, say, Britain, Canada, Sweden, etc., etc., etc. You have two choices: 1) don't sell the drug there at all, or 2) sell the drug there for some amount greater than 1 cent per pill.

Choice #1 means zero sales and zero profits outside the US. Choice #2 means a small non-zero profit. Of course a rational drug company will take what they can get, and choose #2.

Actually that is an over-simplification, and it's much more interesting if you appreciate what really happens. Especially when you are talking about Canada, where some huge fraction of the population lives within driving distance from the US. What really happens is that a drug company makes choices between #1) Not selling the drug in Canada, so that the only Canadians who get the drugs are the ones who drive to the US and buy them at the US price out of their own pockets with no reimbursement from the Canadian health care system, and #2) Accept a lower price and sell the drugs in Canada and thus have more customers so they make it up in volume.

In fact drug makers choose different choices for different drugs, because for some drugs they would "make it up in volume" while for others they wouldn't. There are a significant number of drugs which are unavailable to Canadians in Canada, and they cross the border and buy them in the US. When you factor the cost of travel, of course Canadians in that situation pay significantly higher prices for those drugs than Americans who pick theirs up at the corner pharmacy. And the calculation is different for every country -- many Canadians can cross the border and pay US prices, while it's a lot more expensive to fly over from Europe.

The important thing to understand is that Britain, Canada, Sweden, etc., etc., etc. are not free-riding on the pharmaceutical companies, they are free-riding on American sick people. The pharma companies aren't going to give up profits to protect American sick people from the parasites. If Americans want to be protected from parasites then they will have to protect themselves.

And don't be so sure that other countries will be so quick to break US patents. It's one thing to cheat on the margin, especially if you are selling to people who can't afford a full price. (For example India bootlegging AIDS drugs and selling them to Africa.) But there is a huge amount of cash moving from one country to another -- imagine if an American pharma sued to garnishee the payments going to Indian tech workers who work for American firms? The Indian government would be enforcing those patents so fast it would make your head spin!

cathy :-)

Cathy's analysis is good, but it leaves out one crucial variable: the ever-present threat of "compulsory licensing". Governments, unlike other providers (no matter how large), can invalidate the patent, and authorise local firms to produce generic versions of your drug.

This is why Liechtenstein gets a better deal on drugs than Oxford, even though Oxford will buy many more doses than Liechtenstein.

Cathy thanks for the detailed answer. I have a few follow-up questions and thoughts.

“Drugs are characterized by having stratospheric fixed costs and trivial marginal costs.”

Software works in a similar manner, yet software companies attempt to price on ROI to the customer and thus even though the cost of one more copy of the code is trivial, the value to the customer is just as high. Drugs are the same, I think. The value to marginal customer X is just as high as the prior customer.

“But of first-world countries, that means that you only sell to the US, because in the other countries it is illegal to charge that price.”

So doesn’t this mean that the price is not a completely open negotiation because there is a price ceiling imposed by the non-US government? If so, the price Canada pays for drug X seems to bear more on a coercive legal restriction than their ability to negotiate a low price as a large buyer.

Choice #1 means zero sales and zero profits outside the US. Choice #2 means a small non-zero profit. Of course a rational drug company will take what they can get, and choose #2.

I’m not sure it’s always rational to take what you can get. Sometimes is far better to walk away from a deal for many rational reasons. I think the drug companies mess up on this one. Is this a case of just finding it easier to take the smaller profit than to battle the foreign government?

The important thing to understand is that Britain, Canada, Sweden, etc., etc., etc. are not free riding on the pharmaceutical companies, they are free riding on American sick people. The pharma companies aren't going to give up profits to protect American sick people from the parasites. If Americans want to be protected from parasites then they will have to protect themselves.

I’d say they are free-riding on the pharma companies too, but I agree with the point. I can understand to some extent why the pharmas want to protect their profits, even though they are smaller than they could be in foreign countries (though I suppose if all markets were free of government meddling the profits would roughly remain the same as prices would level across the world).

Okay, so what do we do? Isn’t this similar to when a government subsidizes an industry which in turns makes unsubsidized foreign competitors significantly disadvantaged because their costs are higher? In this case government is using its coercive force to create price ceilings. Because the US government doesn’t do this, we pay more and in turn subsidize Canadians, etc.. If we allow Americans to buy Canadian drugs, it may force the pharmas to stop selling to Canada but it may also cause them to go broke. If we use government to drive the cost of drugs in the US down, it may also cause them to go broke. It seems that we need to be imposing sanctions on these foreign governments so they quit freeloading, or restrict American pharmas from selling outside of the US.

And don't be so sure that other countries will be so quick to break US patents.”

I don’t understand the patent angle on this. Can you elaborate?

I don’t understand the patent angle on this. Can you elaborate?

The chemical composition of these drugs is known. The Canadian government could simply invalidate the patent protection for the U.S. firm and have a Canadian company start cranking out pills.

"The Canadian government could simply invalidate the patent protection for the U.S. firm and have a Canadian company start cranking out pills."

At considerable peril, I presume.

Comments are Closed.