Not without justification for why it’s so expensive!!!
Insurance companies have to justify prices via rate filings. Make drug manufacturers do the same thing. 
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Price optimization~
Demand analysis~
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I could meme this thread all day.
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I verified the 8.2b number for JNJ, circa 2013. That number is for R&D across the pharmaceuticals, medical devices, and consumer lines. I couldn’t match the sales and marketing number because it’s probably a subset of SGA. But I wonder what the split for sales and marketing is across those three lines. i.e., do things look better for JNJ if they’re spending billions aggressively marketing their OTC body wash to outcompete in a commodified market?
Yeah, Shkreli was obviously price-gouging because he could. That crap needs to end already.
I do think there are cases where the treatments really and truly are just extremely expensive to make though.
Fair, I’ll admit that was a lazy google. At least for J&J that’s a good question, and maybe Pfizer and GSK and Merck, I think they are companies operating in a sort of similar space. Less sure about Abbvie, and Sanofi, and Novartis, I think they are more narrowly focused on prescription drugs, but I could be wrong.
I think the narrative stands, that they used to rely on R&D costs and risks to justify high drug costs. Now they are basically charging whatever they can get away with, some try to justify it by showing it saves costs elsewhere (which is true for the Hep C drugs at least). When I was involved with managed care in the oncology space, conversations about clinical efficacy were nearly fully divorced from cost. Most physicians have no idea what drugs cost, they want to prescribe the medication that works best. So the manufacturers try to push that narrative to docs, and then they negotiate what they can get on the cost side.
Anecdote time. I was having a really in-depth conversation with a medical oncologist about drug costs. At one point he got a bit flustered looking at all of the numbers and threw his hands up and said ‘Mathman, I went to medical school, not business school!’
Yeah the whole thing is super complicated.
I went down a rabbit hole of trying to figure out why insulin was so expensive once, and I got two different answers.
1.) Big Pharma makes small changes to the formula to renew patents
2.) Manufacturing insulin is very capital intensive and very few companies want to get involved. And the more that get involved, the less “worth it” it is to get involved.
If #1 is actually a significant reason, that’s really really bad. Allowing companies to protect profits for for anti-competitive reasons that don’t benefit the end user is a disaster. But it just doesn’t pass the smell test to me. A fancy new way of injecting insulin or slightly changing one molecule can give you a a new patent, but other forms of insulin are still eligible for generic manufacturing. If the end user could spent 1/10th the cost for a generic product that achieves the same medical result, it seems like they would.
So to my under educated brain, it feels like #2 carries more of the weight here.
If that’s the case; that pharma companies have high gross margins because there is naturally not many people with the capital and human capital to enter the market and compete, my beef really isn’t with big pharma.
Apple also has high gross margins in a capital intensive and talent driven market. No one cares though because you don’t need an iPhone to live. I think it’s bad if the potential to make money in a sector is inversely correlated with how vital that sector is.
tl;dr - drugs should be cheaper. But if they’re expensive for reasons that aren’t anti-competitive, I don’t think it’s necessarily incumbent upon big pharma shareholders to subsidize the cost of the drugs they research and manufacture. The government should do that.
This doesn’t make sense to me.
If they make small changes to renew patents, then the old patent will be retired? Then all other players can just use the old formula and be perfectly fine.
#1 definitely happens, you tweak the drug, or how it’s administered (Neulasta OnPro, I’m looking at you), or you add something that makes it somehow novel. I’m blanking on the drugs, one manufacturer added something like prednisone to a drug and patented it when the molecule went generic.
There is competition but it’s often different than you might expect. When ‘biosimilars’ came out for Neulasta, Amgen (who manufactures Neulasta) went to physician groups and offered them cash to continue using the branded drug. Literally ‘if you can verify that 90% of your market share is branded Neulasta we will pay you $XX million dollars.’ This should be illegal. At any rate, there is competition for expensive drugs.
What you really want is a robust pipeline of cheap generic drugs. But, and this may surprise you, there’s not a lot of appetite to stand up a massively expensive manufacturing plant to churn out $8 drugs. I’d love to see more ‘tiered drug pricing,’ where instead of paying $8, payers would pay $58 for it (or whatever) if the alternative is a $1,000 branded drug. Really turn up the heat for someone to manufacture generics and biosims.
Look up cyclophosphamide. A nitrogen mustard (basically mustard gas) used since the 1940s. Soldiers in WWII were exposed to sulfur mustard gas and it was observed that it wrecked their immune system, and scientists thought a similar drug might be useful to treat lymphoma and leukemia (iirc), and after looking at options, they thought cyclophosphamide was the best candidate. It’s still used widely, and not just for cancer.
It’s been generic since forever. At one point there were three manufacturers, and then I think one of them just shuttered the doors on the plant that made it because the plant was old, and it wasn’t worth building a new one to sell a cheap drug. And then a second manufacturer dropped out, leaving one. That manufacturer, last time I looked, had basically raised the ASP by 15% per quarter for about a decade.
And see my last comment, the folks selling the $$$ drug can just pay docs to prescribe it.
But that’s just for drugs old enough to have patents expiring, loads of new drugs are coming to market and that’s where the bulk of spend is. I don’t have data anymore, when I worked in oncology something like ten drugs made up way over half of spend, all were patented. The only really, really big drug that went off patent was Neulasta, and costs didn’t come down much (see above).
I think one standard smell test is “What they charge in other rich countries.” Did you try that one?
Yes.
Thanks for posting. I didn’t know anybody was trying this.
Of course. Prices should be lower. It’s just a question of how.
There are lots of appealing ways to get this done. Crushing anticompetitive practices. Streamlining approval for generics. Negotiating prices. Government subsidies, etc.
In light of 2020 and 2021 though, I increasingly see big pharma as a pretty powerful institution for good. And so it makes me a little nervous to see arguments that pivot around corporate greed when prices/margins aren’t clearly the result of anti-competitive garbage.
If prices are high because the process isn’t easily commodified, I’m reticent to look at high gross margins and say that because these companies are so profitable, and their product is so vital, that they are responsible for subsidizing therapeutics by charging below market rates. I don’t want to chase investment and talent away from pharmaceuticals and towards something like, increasing online engagement with ads simply because one industry has statutorally limited profits and the other industry does not.
Am I first in with, “Oh, yeah, it’s ‘Fixed’ alright.”