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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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August 19, 2009

The PhRMA Deal

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Posted by Derek

I'm not always a fan of John Boehner, but I think he's on the right track with his letter to Billy Tauzin (PDF here from NPR's health care site). I understand that line about how in Washington, if you're not at the table you're on the menu. And I understand how the industry wants to get into the middle of the whole process to try to protect its interests. I just don't think that cutting this kind of deal is, in the end, doing that. And apparently Boehner agrees:

The Obama Administration tacitly acknowledged last week that the President will not be bound by the $80 billion limit PhRMA and its board of directors were led to believe had been secured in exchange for your organization's support of the Administration's health care takeover, and key Democrats in Congress, including Speaker Nancy Pelosi (D-CA) and Energy & Commerce Committee Chairman Henry Waxman (D-CA) have said explicitly they will not honor the agreement. In other words, now that the deal is publicly known and would be messy for your to reverse, Big Government is now changing the terms. . .because it can.

Boehner goes on to say that Tauzin will surely "object to this letter and quarrel with its premise", which I think is a pretty sure bet. But stripped of the boilerplate that's found in the rest of it, I find that I agree with its key point very much, as stated above. I don't think that it's possible to do a PhRMA-style deal with an entity like the federal government. Because, you know, they can always change their minds, and what possible recourse do you have then?

Update: Yes, of course Boehner is a political opponent of President Obama, and has interests beyond purely philosophical ones in scuppering some of his grander plans. Both Boehner and Obama make me grit my teeth when I hear them talk about this issue, to tell you the truth, and boy howdy, there are plenty of other people in that category with them. And I realize that when I start talking politics, that many readers start to grit their own teeth in response.

Fear not, this is not going to turn into a political blog. But it's always been concerned with the drug industry, how it does what it does, and what its future might be. The current efforts at health care reform could well have an impact on these things, to put it delicately, so the topic has to come up. My free-market biases are pretty well known, though, so some readers may be able to save time by just skipping over what I write about it on the grounds that they probably have a good idea of what I'll have to say. I wouldn't blame anyone for doing that; vita brevis est. And I promise to not have the issue take over the site - I don't want to be a political blogger, either, really. . .

Comments (17) + TrackBacks (0) | Category: Current Events | Drug Prices | Regulatory Affairs


1. SP on August 19, 2009 7:42 AM writes...

Right, because Boehner obviously has no other agenda of his own in defeating health care reform. Jeez, Derek, stay away from politics, it ruins the blog.

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2. darwin on August 19, 2009 7:51 AM writes...

I am quite certain I am oversimplifying this, but help me understand why anyone hasn't proposed an obvious truce to this tired discussion. Gov't wants lower prices. Pharma complains about long development periods for drug approval and low success rates. Isn't there some way we could come to the table to negotiate a longer patent period with some sort of price control? Profit surges would seemingly be subdued; as theoretically would be the ebb and flow of company revenues.

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3. Anonymous on August 19, 2009 8:38 AM writes...

Wow, Darwin, that's actually a good idea. Why hasn't somebody brought this up?

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4. Vader on August 19, 2009 9:47 AM writes...

"I am altering the deal. Pray I don't alter it any further."

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5. Hap on August 19, 2009 9:48 AM writes...

What's the point of making a deal with someone(thing) who has all the leverage and no compulsion to obey the agreement? Oh, and when making the agreement makes you (and them, some) look bad, and when the subsequent behavior of the other party underlines exactly why you shouldn't have made the agreement in the first place? It's like two stones for no bird, but you did manage to throw one at your foot and successfully hit it.

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6. WhatsYourPoint on August 19, 2009 11:02 AM writes...

A deal that raises $34 billion of its "value" by raising Medicaid Rebates from 15.1% to 23.5%, when rebates in 2005 [the last reports posted] were 29% [CMS64] saves $34 billion? How?

Increasing the Donut hole that affects 4 million Medicare recipients by paying 50% of that amount [$750] saves $25 billion? What amount of those hitting the "hole" are Medicaid Medicare "dual eligibles", who are one third of the Part D participants, are the most seriously ill and whose drug costs are completely subsidized; including the "hole" by state Medicaid funds.

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7. Dave L on August 19, 2009 11:11 AM writes...

Darwin....great idea! Unfortunately Obama has stated recently that another way to shave costs is to REDUCE patent life! Disney gets a monopoly on Cinderella and Mickey Mouse for 95 year. But hey...that's entertainment. Nobody crys about the cost of entertainment. Folks will line up for blocks and pay any amount for entertainment. But healthcare? That should be FREE!!!!!

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8. DSKS on August 19, 2009 12:58 PM writes...

I come from a country with national health care, and so I have a natural bias towards single payer.

That said, I've been intrigued by free market arguments suggesting that the current health care debacle in the US is not due to a failure of free markets, but an absence of them. That the state of play in the US is a bizarre hotch-potch of heavily regulated state monopolies in which conventional market forces simply aren't allowed to operate (not dissimilar to the situation with the airline industry prior to deregulation).

Perhaps we need to make use of all these samples-ahem-states the US has and test some of these extreme ideas. Get some LD50 data to work with... MO should be a placebo, though, I insist on that.

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9. CMCguy on August 19, 2009 2:44 PM writes...

#2 darwin there is merit in your proposal however the reality is difficult to implement. Main problems I see are "one size fits all" approaches that do not take in to account the great amount of delta involved in both development and usage(market) for drugs. Extending Patent life to account for time "delays" from Development and Regulatory would benefit drug companies but what "reasonable" period would be used (as current arguments regarding Biosimilars demonstrate). Dictating prices, especially with chief aim is lower costs, would eliminate incentives, including for development of competitive products, while removing "profit streams" that support R&D through uncertainty (again most costs result in failure). There are also other considerations in costs/ROI and this all gets complex quickly.

I think Pharma has too often abused "pricing to what market will bear" and then turned around to squandered the gained resources by poor decisions/actions. That stated when it comes down to it IMO Politicians/Government are tremendously less capable of accomplishing anything meaningful in drug development. There has to be better fixes that options proposed out there now although I wish I knew them.

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10. Bored on August 19, 2009 2:48 PM writes...

A compromise COULD be reached on this, or any other bill. The problem is, many of Obama's detractors (and NOT just the wacko's) so mistrust him; (he's a socialist, he's a marxist, he hates free markets, he's a Saul Alinsky radical, he hates the United States!... no-one thought that even of Jimmy Carter) that the Dems may very well forge ahead without the republicans.

Don't apologize, Derek. There is little in today's news that is not affected by politics. Although I love your list of "Things I Won't Work With", don't add Politics to the list.

If only Science could exist in a vacuum...

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11. Hap on August 19, 2009 3:22 PM writes...

It's your blog - people don't come here to read our comments, but yours. If we disagree, we can argue, or ignore the posts in favor of other ones. In addition, with health care being in the spotlight (and drug companies being placed there as a consequence), the politics is hard to escape. It's coming to you - ignoring it isn't an option (like lots of other things, politicians don't go away if you ignore them, particularly when you have something they want.)

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12. ChristianK on August 19, 2009 3:40 PM writes...

If government screws lobbyist who try to influence the legislative process what's the problem?

There no reason why a congressman should be obligated to honor any deal that the president makes with a lobbyist.

You can't make deals to buy legislation. At least you shouldn't be able to.

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13. ... on August 19, 2009 5:53 PM writes...

Science blogs that turn into political blogs become unreadable to me. A political comment every now and then isn't bad, but when it becomes regular, the politics tends to overwhelm the science. It's terrible.

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14. Torrilin on August 21, 2009 6:56 AM writes...

I actually appreciate your political posts, because you focus on how the practicalities of doing research affects your political opinion. And like most people, your political opinions aren't simple, or easily caricatured.

It certainly works to get me thinking, which is why I read your work in the first place.

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15. juze on August 23, 2009 6:39 AM writes...

I've long been a fan of this blog, especially the Things I Won't Work With section, but discussions such as this really strike a nerve with me. I think all of this is barking up the wrong tree. From what it seems, yes, the government may be using some slightly underhanded tactics, but surely, Big Pharma is not completely unfamiliar with those?

Allow me to offer my perspective on this as a European who couldn't imagine living without a socialized health care system, with all the drug price rebates this entails.

When I go pick up my drugs, I rarely have to pay anything, and if I do, it's not a very large amount. Even my grandma with her enormous cache of drugs pays very little.

So I went up and looked the cost of my drugs in a few online pharmacies in the US. While my state-run insurance pays EUR 32.33 for my drugs (and they're typical government bureaucrats, meaning they're not the most efficient negotiators and likely somewhat corrupt), the lowest price I could find on US sites was somewhere in the USD 70 region. Note that my drug price includes a 19% value-added tax, and that the patent owner is an American company. Clearly, selling at this price can't be *so* unprofitable for them, or they wouldn't be doing it, considering that the cost of bringing the drugs to market in the EU is not trivial.

Not only that, the European pharma industry, which has to deal with more efficient state-run insurances, such as Germany, is doing reasonably well.

It would seem to me that American pharma industry could survive and thrive even with such price reductions. For instance, in Europe, prescription drugs are, to my knowledge, never marketed to the general public. Stop doing that, fire half the marketing department, and presto!, there's the cost reduction you can pass on to the customer.

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16. That Guy Again? on August 27, 2009 11:28 AM writes...

Question: "I don't think that it's possible to do a PhRMA-style deal with an entity like the federal government. Because, you know, they can always change their minds, and what possible recourse do you have then?"

Answer: about this:

"More than half the amount came from the pharmaceutical, health care provider and insurance industries — and successfully delayed voting on overhaul proposals until the fall.

The amount outstrips contributions to other congressional political action committees during the same period, according to an analysis by the Center for Public Integrity, a nonprofit watchdog organization.

"The business community realizes that (the Blue Dogs) are the linchpin and will become much more so as time goes on," former Mississippi congressman turned lobbyist Mike Parker told the organization's researchers."

It's called lobbying, Derek. It's also called The Chicago Way (obvious play on Obama's adopted hometown intended).

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17. LeeH on September 6, 2009 11:10 AM writes...

Juze: While I generally agree with your comments (I grew up in a country using a single payer system, which I believe is optimal), you should realize that the reason that drug costs are low in most European countries is that they are mandated by the governments. This reflects in higher costs in the US, which effectively subsidizes the rest of the world, and creates the necessity for the drug companies to generate the majority of its profits in that one market. That means that implementing health care reforms in the US, which will try to rein in costs, will require that drug companies be given other means of maintaining profits (in order to support innovation), such as longer patent protections. I do agree with your other suggestions regarding the reduction of marketing, but this would require legislation, since it could not be done on a voluntary basis without disastrous short-term losses for the companies that are the first to try the strategy.

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