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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: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

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August 15, 2014

Incomprehensible Drug Prices? Think Again.

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Posted by Derek

There's a post by Peter Bach, of the Center for Health Policy and Outcomes, that's been getting a lot of attention the last few days. It's called "Unpronounceable Drugs, Incomprehensible Prices", and you know what it says.

No, really, you do, even if you haven't seen it. Too high, unconscionable, market can't support, what they can get away with, every year, too high. Before I get to the uncomfortable parts of my own take on this, let me stipulate a couple of things up front: (1) I do think that the industry is inviting trouble for itself by the way it it raising prices. It is in drug companies' short term interest to do so, but long term I worry that it's going to bring on some sort of price-control regimen. (2) Some drug prices probably are too high (but see below for what that means). Big breakthroughs can, at least in theory, command high prices, but not everything deserves to be priced at the level it is.

I was about to say "see below" again, but this paragraph is below, so here goes. Let me quote a bit from Bach's article:

Cancer drug prices keep rising. The industry says this reflects the rising costs of drug development and the business risks they must take when testing new drugs. I think they charge what they think they can get away with, which goes up every year. . .Regardless of the estimate, the pricing of new drugs for cancer and now other common diseases has come unglued from the rationale the industry has long espoused. Instead, pricing is explained by a phenomenon of increasing boldness by the industry against a backdrop of regulators and insurers who have no legal authority to dictate or even propose alternative pricing models.

Bach's first assertion is correct: drug companies are charging what they think they can get away with. In that, they are joined by pretty much every other business in the entire country. I did a post once where I imagined car sales transplanted into the world of drug sales- you couldn't just walk in and buy a car, for example. No, you had to go to a car consultant first, licensed by the state, who would examine your situation and determine the sort of car you needed. Once they'd given you a car prescription, you could then go to a dealer.

Well, we don't have that, but what car companies do charge is, well, what they can get away with. The same as steel companies, soft drink companies, cardboard box companies, grocery stores, and people who are selling their houses. You charge what you think the market will bear. Even people selling basic necessities of life like food and shelter charge what they think the market will bear. It's true that health care does feel different from any of those (a point that I went into in that post linked in the last paragraph), and there's the root of many a problem.

And, some will say, a big difference is that none of these other sellers have patents on their side, the legal right to put the screws on. But remember the flip side of the patent system: the legal certainty that you will lose that pricing power on a set date. The pricing of new drugs is completely driven by their expected patent lifetimes, because almost all the money that the developing company is ever going to make off the drug is going to have to be made during that period.

And sometimes that period isn't very long. The patent clock starts ticking a long time before a drug ever gets on the market; there are often only five to ten years left when it's finally approved for sale. There are other factors, too. Everyone is talking about the price of Sovaldi for hepatitis C, but no as many people have thought about the fact that the drug is, in fact, so effective that it has blown two other recently approved Hep C treatments right out of the market, well before their patent lifetimes had even expired. There really is competition in the drug business, and that sector shows it in action.

Now, what there isn't so much of is competition on price, true. And that's what you do see in the other businesses I named above. There are grocery stores that occupy the "Wonderful Prestigious High Quality" part of the market, and others that occupy the "Low Low Prices Every Day" part. (And interestingly, if you Venn-diagram out what's on the shelves of those two, there's still some overlap, allowing you to watch people paying wildly different prices for blueberries that came off the same truck, not to mention even less perishable stuff like aluminum foil). You don't see this in the drug industry, partly because for patented drugs we're never selling the same blueberries. the same gasoline, or the same khaki trousers. Even the biggest "me-too" drugs still differ from each other to some degree.

And that brings up another point. Bach uses (as his example of pricing in the cancer field) two Alk compounds, Xalkori (crizotinib) from Pfizer and Zykadia (ceritinib) from Novartis. Xalkori was first, and Bach makes a lot of the fact that Zykadia is priced higher, even though he says that Pfizer ran bigger clinical trials, had to work out the associated diagnostic test with the FDA, and launch the new mechanism into the oncology market. Novartis, he says, got to piggy-back on all that, and yet their drug is priced higher. There can be no other reason for that pricing decision, Bach says, other than that they can.

Let's go into some details that Bach's article leaves out. Zykadia is indeed second to market. But the time gap between the two drugs means that Novartis was working on it before they knew that Xalkori worked in the clinic. Bach makes an error here made by many others who have not actually done drug discovery work: the time course of these things is longer than it looks. A screen had to be run against Alk, compounds had to be confirmed, a medicinal chemistry team had to optimize them and make lots of new structures, all of which except one fell by the side of the road. The compound had to go through animal tests for efficacy and safety, and it had to be scaled up and formulated. And so on, and so on. Novartis did not sit back, watch Xalkori succeed, and then decide "Hey, we should get us some of that action, too".

Now Zykadia is, as Bach says, a second-line therapy. But it's approved for patients who do not respond to, or have become intolerant to Xalkori. So this "me-too" drug is, in fact, different enough to work on patients for whom Xalkori has failed. In fact, most patients will start to show relapse inside of a year on Xalkori, so it would appear that most non-small-cell lung cancer patients with multiyear survival are probably going to end up taking both compounds. Cancers mutate quickly, and we need all the options we can get - and guess what, some of those options are going to be second to market, because they can't all be first.

Another point to note is that while Zykadia was indeed approved on the basis of a smaller clinical trial set, that's because it received "breakthrough" designation from the FDA for accelerated review and approval. Startlingly, it actually got approved after Phase I trials alone. (Not bad for what Bach characterizes as a simple copycat drug, by the way). Novartis has run the compound in more clinical trials than that, and they continue to do so. It's not like they slipped in with a mere 163 patients and then trotted off to the FDA while brushing the dust off their hands. To find this out, by the way, you'll want to use "LDK378", the internal Novartis designation for the drug, and I'm passing this information on to Bach for free. Clinicaltrials.gov shows 13 trials in the US when you do that, and there are others outside the country as well.

Bach's article, as mentioned, plays down any differences between these two drugs, saying that "they have not been directly compared". But that's not accurate. Let me quote from that link in the paragraph just above:

As described by Shaw and colleagues in the New England Journal of Medicine, ceritinib has striking activity in ALK-rearranged NSCLC, both in treatment-naïve patients and in those who experienced tumor progression on crizotinib. . .The drug has clear pharmacological advantages over crizotinib. Its surprising level of activity in crizotinib-resistant tumors may be explained by its greater potency and its particular ability to inhibit ALK with gatekeeper mutations that confer resistance to crizotinib.

The two drugs have had a very important comparison: people who are going to die on Xalkori are going to survive longer if they switch to Zykadia. "Me-too" drug, my ass.

But rather than end on that note, tempting as that is, let me circle back to pricing once again. The price for these cancer drugs is not borne by individual patients emptying their piggy banks. It is borne by insurance, both private and government. And drug companies do indeed price their drugs at what the think the insurance plans will pay for them. This is not a secret, and should not be a surprise, and I continue to be baffled by people who react to this with horror and disbelief. Prices appear when you find out what the payers will pay. If Pfizer, Novartis, or Gilead priced their drugs at fifty million dollars a dose, no insurance company would reimburse. But the insurance companies are paying the current prices, and if they believe that they will be put out of business by doing so, they need to stop doing that. And they could.

They will, too, if we in the industry keep pushing them towards doing it. That's our big problem in drug development: our productivity has been too low, and we're making up for it by charging more money. But that can't go on forever. There are walls closing in on us from both sides, and we're going to have to scramble out from between them at some point. Pricing power can only take you so far.

Comments (42) + TrackBacks (0) | Category: Cancer | Clinical Trials | Drug Prices | Regulatory Affairs | Why Everyone Loves Us


COMMENTS

1. NMH on August 15, 2014 9:16 AM writes...

"You charge what the market can bear..." Works really well for the drug compaines, especially if the major buyer of them (Medicare)cannot negotiate prices, and must purchase at list price.

"You charge what the market can bear..." is fine when you, as a buyer, can negotiate price.

I will not shed a tear when Big Pharma collapses. They use political power to profit obscenely, at the expense of the taxpayer.

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2. Anonymous on August 15, 2014 9:25 AM writes...

Well, we don't have that, but what car companies do charge is, well, what they can get away with. The same as steel companies, soft drink companies, cardboard box companies, grocery stores, and people who are selling their houses. You charge what you think the market will bear....And, some will say, a big difference is that none of these other sellers have patents on their side, the legal right to put the screws on.

But that's not really true. Car companies, steel companies, and box companies, for example, all patent aspects of what they do, so that no one can make what they make; it doesn't prevent others from selling cars or boxes or steel, but it does prevent them (temporarily) from using the same methods or making the same products. Foods particularly use trade secrets (such as Coke) to protect their products; while their business depends on taste and not necessarily anything predictable or rational, they can keep anyone from making their product forever. People can make and buy analogs, but small differences in preparation and ingredients and other perceptions have big effects on sales and taste.

People object to the concept that stuff they depend on to live is subject to the vagaries of the market. It is, however, how we got what we do have, which is a lot. People aren't going to make something useful for nothing. Health care doesn't seem like it is ever going to be handled well by a market (even with open pricing, we still don't have much time to comparison shop for acute care; goods aren't strictly comparable; etc.), but I don't have the imagination to know what else to do.

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3. Chris on August 15, 2014 9:29 AM writes...

I'm glad someone has a sensible response to Matt Herper and Peter Bach's terrible article. We all agree that pricing issues are unsustainable, but using crizotinib vs LDK378 to stand out from those crying foul over the HCV market was not particularly well thought out. I typically expect more from Matt Herper...

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4. anonymous on August 15, 2014 9:33 AM writes...

Thank you for the excellent response to this article Dr. Lowe. Unfortunately the sad part is no one but the ones who already know about the holes in Mr. Bach's arguments will be the ones to read this blog post...

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5. Neo on August 15, 2014 9:55 AM writes...

The immorally high price of some drugs means that some countries will not include them in their health systems. Some US insurance plans may not pay for them either. It is worth to keep in mind that consequently people will die because of Big Pharma's greed.

Let's not forget also that pharmaceutical "borrow" heavily from public research, but behaves as if 100% of their research was originated within the company.

It is hard to understand how any person with a good heart can defend that these companies require these prices to ensure survival. Even once discounted the too high expenses on marketing or internal salaries, not only these companies do not struggle but the profits are mindblowing: http://healthcareforamericanow.org/2013/04/08/pharma-711-billion-profits-price-gouging-seniors/

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6. cf on August 15, 2014 9:57 AM writes...

The price per unit of delayed progression debate is unlikely to inform the rapidly approaching price per possible cure debate.

Immuno-oncology therapies and combinations therein raise the real possibility of highly durable responses (cures) in most or an unpredictable subset of patients. Cures changes everything.

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7. CMCguy on August 15, 2014 10:10 AM writes...

I also thank you Derek as I was flabbergasted by some of Bach's naive thinking in his assessment and comparison of the two drugs, particularly as you point out his emphasis as "me too" which as you point out was based on time factors mostly developed in parallel which does not mitigate the risks associated with being first in class (which may help clear the approval path to a degree for next one but does establish a defacto standard to compare, whether is done directly in side by side study). Unfortunately there are likely many who already think as Bach does or will quickly adopt this as the correct view for a complex situation.

That said I do struggle with how drugs are priced since indeed do more reflect Marketing rules and not really directly connected COGs or the expense of drug development/failures even though that seems to be only what PhRMA exposes (what is so wrong with admitting to adherence to Capitalistic behavior as primary rationale?). The disparity with other global markets is particularly frustrating as not all playing by the same rules therefore it is predominately the US that sustains the profits/reward systems that support potential new drugs and when price controls come to the US I wonder what the result will be.

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8. Bob Warfield on August 15, 2014 10:17 AM writes...

It's been shown time and again that our healthcare system is more expensive for less positive result than most of the systems in the Western World. It's also been shown that this is because the other systems control prices.

Sorry, but I don't find your post to be compelling in any way. Here's an industry crying about how much it costs to develop drugs and shuttering R&D as fast as it can by your own post's admission.

Do we really trust that these same outfits have our best interests in mind and would never charge more than what's fair and reasonable. And if you believe that, there are many other fair tales that suddenly seem a lot more plausible.

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9. Anonymous on August 15, 2014 10:23 AM writes...

Cost of development should be a factor in pricing, but not the main factor. If you base prices only on cost of development and production it becomes a race to the bottom and removes distinction of value. Pricing what the market will bear is what virtually every single industry does. In that scenario, you can raise or lower pricing based on your products relation to what's on the market. In other words the extra value that your drug brings to the table. A truly identical or inferior drug cannot and will not command a higher price.

There is a squeeze play being put on drug developers in this scenario also. For the case of Sovaldi, the value being brought to the table in he form of a true cure is obvious over the current therapies and in fact will save the entire health care system significant amount of money over the long run. If there ever was a drug that had a justified price, this is it. But the insurance companies are putting on a PR offensive and manipulating public opinion so their own profits aren't harmed in the short term.


And finally, pharmaceutical company profits are indeed high, but they are increasingly being squeezed. The actual cost of prescription drugs represents only 10% of all health care spending in the US. There are ways to reduce health care costs in the US but drug prices are a very small portion of that cost.

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10. rtw on August 15, 2014 10:35 AM writes...

@6 - Yes that is true I think. Look at what's happening with Hep C! Former drug treatment sales are dropping rapidly - insurance and formularies are debating the price of the cure.

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11. MedChem PostDoc on August 15, 2014 10:39 AM writes...

Thank you, Dr. Lowe, for your fight in educating people about medicine.

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12. anon on August 15, 2014 10:42 AM writes...

Pricing pressures are working in the drug industry. For the most part Big Biotech and Big Pharmas have moved away from real me-too products (not this example) and towards very difficult diseases like cancer. The new treatments / Ph3 programs in the last five years in cancer have been outstanding advances leading to increases in survival.


The fact that other countries get to free ride of the the US healthcare system does not mean that regulating pricing will lead to more advances. It just means that fewer programs will be funded.


Also, for the most part, these advances will continue to have significant benefits to global human health well after the pharma companies stop making profit. How do you account for that?

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13. PharmaHeretic on August 15, 2014 10:52 AM writes...

To all scientists who defend pharma,

The people you are defending so vigorously will eliminate your job and throw you under the bus before they ever approach anything close to unprofitability. You are just their useful idiots and willing slaves. You are never going to receive anything even remotely proportional to your contribution to the profitability of those you are so eager to defend.

Even worse, your work is enriching the very people who will sacrifice your jobs to satiate the market "god"- an entity as fictitious as any traditional god. But keep defending those who see you as useful idiots and disposable widgets. Perhaps kissing enough behinds might get you an extra 2-3 years.

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14. Brandon Berg on August 15, 2014 10:54 AM writes...

generally I'm agreement with you on this issue, but I'm not sure I buy that prices are driven by expected patent life. A profit-maximizing form should charge what the market will bear. If the patent life is short enough and the price the market will bear low enough that you can't make a profit, them's the breaks. Insurers aren't going to cut you some slack because your trials ran long.

And if the patent is long and the markup high, maybe you make a big pile of money. Your marketing department doesn't say, "Hey, we've got ten years on this patent and we can make our money back in three, so let's cut the price," do they?

I don't know. Maybe the drug industry is really weird and it actually does work that way. But I don't see any obvious reason why it should.

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15. MedChem PostDoc on August 15, 2014 11:07 AM writes...

PharmaHeretic,

I am certainly not defending pharma. But, I do want the truth of drug development, both time and cost, to come out so that our society return to valuing science and scientists. The only way we are going to keep on making treatments and cures is to have as many people as possible working in a long-term environment with the best knowledge base available. Dr. Lowe's response is part of that fight.

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16. John Thacker on August 15, 2014 11:20 AM writes...

Brandon Berg:

You always charge what the market will bear. What happens when useful lives decline is that you lose money, management and investors say "Well, we're never doing that again," and shift investment to something that can get approval quicker, to non R&D, or simply to entirely different industries. OTOH, if things are really profitable, that draws in competitors to create other drugs, which sometimes can mean cheaper drugs from competition, and sometimes means better or second line drugs that help people who don't respond to the first.

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17. PharmaHeretic on August 15, 2014 11:21 AM writes...

MedChem PostDoc,

It does not matter. You are never going to have a decent long career in pharma- regardless of your professional competence.

The current corporate culture has become too toxic and dysfunctional to fix. Let it choke on its own contradictions and shortsightedness.

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18. John Thacker on August 15, 2014 11:29 AM writes...

Bob Warfield:

Shuttering facilities and reducing R&D spending is hardly consistent with drug development being really profitable. If they could make tons of profit, they would do more of it. The behavior is a lot more consistent with having terrible yield and only be able to make it up with high prices on a few blockbusters. (And having the US pay for the world.)

You seem to be the one believing in fairy tales.

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19. greed on August 15, 2014 11:31 AM writes...

I can't understand how someone can defend the ridiculously increasing prices. There are countries that are paying less for the exact same drugs. Car analogy is completely wrong. Because, YOU DO NOT HAVE TO BUY A CAR. But, you have to get medicine to live.

I am looking forward to the time when the state will put a maximum price on drugs or will own every single company. People have right to live. Such a greed :(

It is funny how scientists at these companies begged for government intervention on the most recent possible Pfizer proposal to buy Astra Zeneca. It is only when your own job is in danger that you understand there is something wrong.

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20. Eric on August 15, 2014 11:33 AM writes...

We fixate on the patients treated with the "next big thing" like Solvadi or Zykadi who pay full freight for the innovation. But ten years later, these drugs go off patent and can be had for a pittance as a generic. The cutting edge of medicine is expensive, especially in the US, but the cutting edge of the last decade is a great bargain. Drug development is too expensive to not charge someone for it, and even if Pharma worked on a non-profit basis, there would still be a complaint about the cost of Solvadi and Zykadi.

And medicine advances.

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21. HT on August 15, 2014 12:05 PM writes...

A number of gd points by Derek and commenters. Truth of the matter: all players (pharma, insurers, patients, hospitals) are just doing their jobs. I would argue that the current situation is sustainable but undesirable.

Firstly, pharma charge so much because they can. Period. Patents, drug development cost, etc. don't matter. They have a duty to their investors/shareholders to maximize returns, and the management have incentive to do so.

Secondly, the risk and cost of drug development is also real. If not, insurers can fund biotech/drug startups themselves, make money and get cheap drugs at the same time. Part of their funds might really be invested there; but seriously, it's probably a better idea to bet on the next Twitter than the next Lipitor.

Thirdly, if drug prices are forced down significantly, say $20k instead of $100k for a course of Sovaldi, the pharmas might just shut down for good. $20k is still mighty expensive, and the uninsured still can't afford it, but drug development at such margins would be financially unsustainable. Same goes for shortening patent duration. That's also true even if drug development is done by a non-profit, unless the gov't is providing subsidies. But how would any gov't fund these huge subsidies??

In the end, drug development is not broken; it has matured into a market-efficient process that fits within certain constraints (drug development risks, patent duration, insurers' affordability ...). Since the system is not broken, it can't be "fixed".

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22. Hap on August 15, 2014 12:06 PM writes...

@19: If stuff that people need can't make money, then no one will make it. Everyone likes to be valued for what they do, and if you aren't valued for doing something, you probably won't be doing it for long. Following your logic, only things that people don't need should be able to make money. It would seem to follow then that people won't make things that other people need, or little enough of them to make sure that their prices are high enough to be worth it to them. (I will assume that people won't make things without hope of profit because people need them; a few will, but probably not enough; for the more likely outcome, see the discussion of InGen's CEO in Jurassic Park.) It also means that people will die because the things that could help them don't exist; unlike with things that cost too much (which may be solvable by society), the absence of something can't be mitigated by society.

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23. milkshake on August 15, 2014 12:13 PM writes...

The only thing crizotininb and ceritinib have in common is that they are massively non-selective kinase inhibitors that also hit Alk. The total promiscuity of 2,6-bis-arylamino-5-halogen-pyrimidines like ceritinib is well known.

The structural motif of crizotinib came from Pharmacia high-throughput screening hit having 3,5-diaryl-2-aminopyridine, of which the X-ray was solved with c-Met kinase. This allowed superimposition with 5-arylsulfone analog of Sutent, which informed the direction of SAR. Please note that Crizotinib SAR was entirely optimized for c-Met kinase - another target - and it was revived only later after a biology group in La Jolla realized c-Met is slightly similar to Alk, and re-screened the old series from Sugen...So it was a good luck the compound was not all that selective.

I suppose carpet-bombing one third of the entire kinome is viable approach in cancer. I remember we have had problem with some of the exquisitely target-selective c-Met kinase inhibitors - the tumors escaped through a mutation acquired resistance.

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24. Gerry Attrickseeker on August 15, 2014 12:24 PM writes...

The bottom line really is that drug development is too important to be left solely to an industry that is exclusively driven by greed. We need to start looking at new modes of drug discovery and development that are driven by health needs and not by the need to boost stock prices and CEO bonuses.

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25. anon on August 15, 2014 12:28 PM writes...

@22 So, let's say you have a certain disease and the only drug that will give you a few extra years to live costs $X. You don't have the money or your insurance won't pay for the drug. Do you think this is "fair"?

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26. Hap on August 15, 2014 12:34 PM writes...

@24: Is there any industry (important or not) that has been successful doing that?

When a proposition requires human nature to be something other than what it is, then it probably has a low probability of success - leaps of imagination are not terribly predictable, and if the proposition is not possible and does not just require a method unimagined, then you'll be waiting just a little longer, with people dying the while. The former might be good (depending on how long it takes), while the latter won't be beneficial for anyone.

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27. Hap on August 15, 2014 12:47 PM writes...

Unless society has an unlimited amount of resources, then it's always going to make choices about what it can do and what it can't; in those cases, someone always loses. That isn't to say this is the best way to distribute goods; I don't think anyone knows what the optimal system is. We have lots of things that we did not have, and people are probably better off than they were.

In your case, though, pharma does have ways for people to get drugs who can't afford them; if those way didn't exist, it would be easier for either private charity or government to pay for it. Contrast that with a scenario where the drug doesn't exist. No one can buy it for them, or doing anything to make it exist; they are likely to die, with high certainty.

People are willing to give up benefits for systems they feel are unfair (gift-splitting psychological experiments), and so maybe the system where the drug doesn't exist would be perceived as fairer than one where it exists but is too expensive, and thus people would be happier or better off. I do not think so, but I don't know.

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28. Neo on August 15, 2014 12:51 PM writes...

@22: Your logic is flawed. No one wants to eliminate financial incentives in drug discovery. What some of us are arguing is that these incentives should be much smaller. How much? I would propose that the government dictates how much society will pay for that drug according to its significance. Then let companies to restructure to survive in such environment (e.g. cut ridiculous bonus and insane profits)

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29. bad wolf on August 15, 2014 1:12 PM writes...

@28: Which government is it that you think is so wise and fair?

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30. Hap on August 15, 2014 1:19 PM writes...

@22: No, my logic isn't flawed. Not liking human nature will not make it change. If something's risky and costs a lot to do, people will want a lot for the products in return. If they can't get a lot for what they make, then they will do something else with their time and money.

Considering the mess of the drug industry, it is not comprehensible to me why its management reaps so many profits for its inability to find drugs; however, they have seemed to maintain rather remunerative jobs despite their lack of success, which implies that the people paying them (their shareholders) think what they're doing make sense and cutting other things does not. (It could also mean that companies don't have to care about most of their shareholders, which would seem a problem worthy of solution separately). As things are, though, that implies that if something gets cut from drug company profits, it probably won't be the things that lots of people would cite as wasteful and counterproductive (CEO pay, for example) - roaches and nuclear bombs, and all that. In that case, cutting profits might have a worse effect than you posit.

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31. Anonymous on August 15, 2014 1:25 PM writes...

@28

That's a poorly thought out incentive structure. If price controls were put on by degree of relevance, then nobody would target the diseases that are deemed relevant. Instead companies would chase the diseases without such controls and we'd all wind up with a plethora of lifestyle drugs. See what's happening with antibiotics. Highly relevant and priced low, huge human demand, but no company is developing anything for it.

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32. The Aqueous Layer on August 15, 2014 1:25 PM writes...

I would propose that the government dictates how much society will pay for that drug according to its significance. Then let companies to restructure to survive in such environment (e.g. cut ridiculous bonus and insane profits)

With a success rate of somewhere around 10%, exactly how many companies do you think will continue to pursue novel drugs as a core business with such regulations?

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33. Anonymous on August 15, 2014 1:31 PM writes...

@32

Easy. Drug companies would just target the disease areas with lesser price controls.

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34. johnnyboy on August 15, 2014 1:32 PM writes...

@24: Ok Gerry, let's do this ! You start. Let's hear some of your new ideas on how to drive drug development through "health needs".

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35. Eric on August 15, 2014 1:44 PM writes...

@28: Would a 50% cut in drug prices across the board be enough to make you happy? I think many would still be upset with these prices, even though pharmaceutical companies would be losing money. For example, my quick check of PFE would be running several billion dollars in the red every year if you cut their sales in half. I also guarantee you that many good potential medicines would not be developed in this scenario for the simple reason that most drugs fail to recoup or barely recoup their development costs, and a 50% cut of profits would make many good drugs too risky to conduct large clinical studies on. You'd still see most of the same blockbusters but drugs for small indications would dry up.

It's an expensive business to develop drugs.

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36. FredInCA on August 16, 2014 12:03 AM writes...

As a private investor, I was recently approached by a med-device startup looking for seed funding. The founder refused to state a valuation for his company, on the grounds that the product was life-saving and therefore could not be priced. I had to explain to him that he was asking for charity, not an investment, and that I was willing to consider a donation. So far we are at an impasse, though I'm sure reality will strike some day soon - probably about 1 month before he runs out of money, at which point it will be too late (for him, not for his invention, which will get picked up by someone for a song, and properly commercialized, sold, and used to save lives. Sigh.)

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37. chris elliott on August 16, 2014 3:30 AM writes...

This makes for interesting reading, in the light of NICE refusing to fund 2 drugs for the NHS (at least in part) on the basis of cost

http://www.bbc.co.uk/news/health-28785250
http://www.bbc.co.uk/news/health-28688311

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38. newnickname on August 16, 2014 5:56 AM writes...

@HT, "They have a duty to their investors / shareholders to maximize returns": Perhaps an MBA can comment, but they have a fiduciary responsibility to enhance shareholder value, not "to maximize returns". Enhancing the value of the company might mean, for example, spending $25 M per year giving away ivermectin to treat river blindness in poor nations at no cost (and no immediate profit) as public perception and favorable opinions of the company can improve their "strength" in the marketplace.

Some companies feel that spending money on R&D, rather than using that money to inflate that year's returns enhances the value of the company. Some companies choose to hire retired Congressman as lobbyists or divert their income to off shore dummy corporations to benefit from the tax havens, and so on.

Some people feel that lower drug prices enhances shareholder value by delaying price controls or increasing acceptance and use in various pharmacopeias or adding some other benefit to the company.

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39. Anonymous on August 17, 2014 4:02 PM writes...

Hap, nobody is finding enough drugs. Management, CEOs, scientists... No one. The glory days of the 80s and 90s have left a bloated mess which MUST contract to a size relevant to its output. Why this continues to remain a mystery to some people is beyond me.

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40. YelSrini on August 17, 2014 4:37 PM writes...

Dying flash of an industry about to go extinct. Big pharma in their current form is dead. Many small companies that target subsets of people with more reasonable prices, or open and crowd sourced medicine, I don't know what's next. But it sure isn't what is now.

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41. Hap on August 18, 2014 9:23 AM writes...

Problem is, with the current management and short-term incentives, that size will probably be zero. I guess that will cut the fat out of pharma, at least.

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42. David on August 18, 2014 6:02 PM writes...

There is a certain unfairness to these high costs of drugs when it comes to patients who do not have insurance for oral medications. I have wealthy patients, who have little income (they are retired) but have tons of money. They hide their assets and get their 7,000 dollar a month anti-cancer pills for free from the company. I have a large cohort of HMO Medicare patients on fixed incomes who find out that their HMO pays just 80 percent of the cost of the drugs. Having to pay 20 percent of 7,000 dollars a month is way beyond their means and they just don't get treated. These issues may still be issues if the drug costs were half, but they are important issues. At this point, it is not fair.

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