Do not make the mistake of thinking that because my conclusion is the same as another person's that my reasoning is the same
The problem with drug manufacturing is that you have a hyper-regulated oligopoly. There are too few manufacturers for the free market to function even absent any form of price controls, which exist in every country to some extent if only indirectly.
FDA testing protocols are an insupperable barrier to market entry for due to the high cost - any inventive scientist either has to sell their patent or give it away, forming a new company is not a realistic option unless they have $ 250,000,000 or so on hand. Do something to reduce these testing costs and you will eventually get more competition and lower prices as substitute drugs are patented and marketed.
The problem with your analysis is that you consider trade with Canada on this issue to be an extension of the free market.
Lets put it in another context. If Chinese slave labor was what made the prices of the drugs so low, you wouldn't be lauding the effect of the 'free market' in its interaction with the US, would you?
Canadian prices are artifically low, because Canada threatens to break the pharmaceutical patents if they sell at significantly more than unit price. Canadian pricing is based on the fiction that drugs can be made with zero research costs.
"To my knowledge there has never been a market that was totally unaffected by non-market forces. This makes me question whether or not a thing such as The Free Market actually exists." This kind of thinking is odd. To my knowledge there has never been a perfect relationship between two people. But that fact doesn't cause me to question the existence of inter-personal relationships.
> The true free market way to address this would be to openly allow the Canadian imports
A true free market would only have trade secrets, not patents. It probably would mean that more than 50% of the drugs on the market wouldn't exist.
The problem with drug manufacturing is that you have a hyper-regulated oligopoly. There are too few manufacturers for the free market to function even absent any form of price controls, which exist in every country to some extent if only indirectly.
And why is it a hyper-regulated oligarchy?
One of the non-market forces that impacts all of this is the demonstrated fact that innumerable people would be killed or defrauded by the drug industry absent those regulations. Another is there's absolutely no substitute for human testing.
Point being, those regulations and expenses are a requirement for the type of drug industry we want…a safe one. That gaming the system via price gouging is possible is a side effect that has reached the point that it must be dealt with. Your choice is to let economics determine the nature of the industry or to let the nature of the industry guide your economic decisions.
Do something to reduce these testing costs and you will eventually get more competition and lower prices as substitute drugs are patented and marketed.
Expensive testing vs. more death and fraud? Guess which side I come down on?
But if we want to look at purely financial methods of cutting costs, do you know that drug manufacturers spend as much on marketing as research?
If Chinese slave labor was what made the prices of the drugs so low, you wouldn't be lauding the effect of the 'free market' in its interaction with the US, would you?
Of course not. But that's not the case, so I'm free to laud away. Besides, Free Marketeers have no problem with Chinese, or Haitian or Guatemalan or whatever slave labor. Cheap labor is what globalization is all about. Hell, cheap labor is what WalMart is all about.
To my knowledge there has never been a perfect relationship between two people. But that fact doesn't cause me to question the existence of inter-personal relationships.
It should, however, make you question your understanding of perfection.
A true free market would only have trade secrets, not patents.
True. Anyone want to give up patents to get a true free market?
> But if we want to look at purely financial methods of cutting costs, do you know that drug manufacturers spend as much on marketing as research?
In itself, this need not be a bad thing. First of all, the time needed for FDA approval shaves a lot out of the patent window, wherein most of the research cost has to be recouped. Also, the cost of production will be higher at the start. So it makes sense to promote your patented drugs as agressive as possible, so both you and the consumer can start benefiting of economy-of-scale from the word go.
Secondly, you should not see all advertising expenses as "frivolous". Advertising does send a powerful signal about your confidence in your product. "I have made a lot of upfront costs to promote my product. That is only rational if I expect my consumers to be repeat customers, i.e. I expect them to be satisfied."
As a minor nitpick, you should also not forget adding compound intrest to the research costs. The revenue expected from research is a lot farther into the future than that expected from marketing.
> Anyone want to give up patents to get a true free market?
Huh? Price controls ARE a means of patent dilution. The value of your patent diminishes if you can't set price.
So it seems you already have approved of giving up patents for a semi-planned economy, where after the private firms invested in new drugs, you would renege on the patent contract and not allow them to set price.
Just like nationalizing foreign investments, this is a trick you can do only once, and it will be payed for by generations to come missing out on drugs that would have existed if not for your reneging.
According to the NIH, taxpayer-funded scientists conducted 55 percent of the research projects that led to the discovery and development of the top five selling drugs in 1995.
Anyone interested in the way the Pharmaceutical companies exaggerate their costs should read Public Citizen research on the topic.
Point being, those regulations and expenses are a requirement for the type of drug industry we want�a safe one. That gaming the system via price gouging is possible is a side effect that has reached the point that it must be dealt with.
Here is the problem with your definition of "gaming". The higher prices are a direct result of the regulation. The regulation is what sets the barrier to entry (about $10MM per drug for dealing with the FDA, last I heard). That money has to be recouped somewhere. The only motivation to even deal with the process is the patent protection. In socialist countries like France and Canada, that protection is too tenuous to rely on. Where do you recoup those costs, then? In the one country where you can rely on that patent -- America.
On the other hand, that patent is the reason that 90% of the worlds drug research happens here. If America wasn't around to subsidize the costs, no one would spend the R&D dollars to create them.
Wow. It just occured to me. The solution to the prescription drug problem is to invade Canada. I bet I could even get elected on that platform.
The drug industry is an oligopoly simply because there are too few manufacturers to allow for supply and demand to set prices. Whether an oligopoly is natural or state sanctioned makes no difference in terms of pricing.
As for regulation you are conflating all sorts of regulations together. Some, that assure purity and effectiveness, are useful. Others that keep drugs that are useful to most but not everyone keep quite a few beneficial drugs off the market. Informed consent for risk might be a better option for drugs that present benefits with the potential for significant side effects ( In other words, the safety aspect is giving a higher priority than effectiveness by the FDA) Herre is an area where AIDS activists have helped public health greatly, getting the FDA to be a little more tolerant of marginal drugs that are in some instances, irreplaceable options for some sick people.
Too much "safety" and risk aversion also kills people - not merely too little. The costs of FDA testing are mostly hidden while failures to test for safety ( Thalidomide) are glaring. Both however, are real costs.
Just recognizing that the conversation that has developed has little to do with what I was talking about in the post.
Fortunately, I have a follow-up in mind.
But if we want to look at purely financial methods of cutting costs, do you know that drug manufacturers spend as much on marketing as research?In itself, this need not be a bad thing. First of all, the time needed for FDA approval shaves a lot out of the patent window, wherein most of the research cost has to be recouped. Also, the cost of production will be higher at the start. So it makes sense to promote your patented drugs as agressive as possible, so both you and the consumer can start benefiting of economy-of-scale from the word go.
I'm not saying marketing is all bad. I'm saying that since the cost of research is said to be behind the high cost of drugs, and the cost of marketing equals the cost of research, then the cost of drugs is affected as much by marketing costs as research costs. Reduction in research costs is hard. Reduction in marketing costs is easy. And Big Pharma would be as little affected by a reduction in advertising as Big Tobacco has, if not less.
I should also say that the industry that has the greatest return on investment ratio in the world has no grounds for conplaint about how long it might take to recoup their investment. None.
Secondly, you should not see all advertising expenses as "frivolous". Advertising does send a powerful signal about your confidence in your product. "I have made a lot of upfront costs to promote my product. That is only rational if I expect my consumers to be repeat customers, i.e. I expect them to be satisfied."
This is one of the things I was bothered by when I complained that the message one's actions send seems more important than what an action does in all this public discussion.
If that's the message being sent, the attempt is a miserable failure. The signal received is, "You might be sick like this, in which case I can make you feel better."
The market for prescription medicine is unlike any other market (which is why its case is so extreme that it triggered that post up there). Since the end-users can't just go buy them and there is no competing source for the life of the patent, there's literally no need to advertise outside the medical community.
Anyone want to give up patents to get a true free market?Huh? Price controls ARE a means of patent dilution. The value of your patent diminishes if you can't set price.
You said patents wouldn't exist in a true free market, so I ask if any free market believers want to give up patents.
Incidentally, patents guarantee you the exclusive right to an invention. It doesn't guarantee a value. The value is determined by the situation (i.e. supply and demand, and extra market forces). Therefore when you write
you would renege on the patent contract and not allow them to set price
the conjunction is appropriate because the two are not the same thing.
Here is the problem with your definition of "gaming". The higher prices are a direct result of the regulation.
The industry with the highest return on investment around, AFTER taking into account research and marketing, has a lot of non-regulation cushion in its prices.
On the other hand, that patent is the reason that 90% of the worlds drug research happens here.
Nothing at all to do with those patents expropriated from Germany as WW II reparations, added to the fact that only the USofA had the infrastructure to take advantage of those patents.
Repeat after me: Non. Market. Forces.
If America wasn't around to subsidize the costs, no one would spend the R&D dollars to create them.
Imhotep turns over in his sarcophagus.
That's a lot like saying the airplane would never have been invented if the Wright Bros. hadn't been born.
As for regulation you are conflating all sorts of regulations together.
Maybe, but I don't think so.
Some, that assure purity and effectiveness, are useful. Others that keep drugs that are useful to most but not everyone keep quite a few beneficial drugs off the market
The regulations you have a problem with are also intended to insure purity and effectiveness, right?
What are these regulations that are keeping beneficial drugs off the market? I mean the regs themselves, not just cases of specific drugs.
Too much "safety" and risk aversion also kills people - not merely too little. The costs of FDA testing are mostly hidden while failures to test for safety ( Thalidomide) are glaring. Both however, are real costs.
I would think the benefits if FDA testing far outweigh the liabilities.
And let's not conflate social and financial costs. Not unconsciously, anyway.
>Incidentally, patents guarantee you the exclusive right to an invention. It doesn't guarantee a value. The value is determined by the situation (i.e. supply and demand, and extra market forces). Therefore when you write
you would renege on the patent contract and not allow them to set price
the conjunction is appropriate because the two are not the same thing.
---
That's semantics. If you own a house, and rent controls are introduced, you still own your house, but the value can be seriously diluted.
You still have something you call "home ownership", but some people who were planning to build houses might now refrain because they no longer consider it commercially viable.
The single most important practical function of patents is to provide some level of protection to investments in intellectual property, thus improving the chances of economically viable outcomes from expenditures directed towards designing new or improved �things�.
However, patents are only as good as the regulation of your marketplace. They are certainly no guarantee of exclusivity, but rely on good will and/or effective disincentives for violation (punitive enforcement).
For example, patents are generally ignored in the comparatively free (less regulated) market of China for all but the most politically sensitive cases. Here�s how it�s done:
1) Take any given product. 2) Duplicate it en-masse using cheap labour.
Ownership of an abstract �idea� is a strange concept to the average Chinaman. I won�t elaborate on the significant cultural ideological influences, but stick to simple economics. If you are clever, or have a particular skill that gives you an advantage, then best of luck to you. But if I can make the same thing cheaper and as good as or better than you, then my product will win in the market.
When the competition gets tough and profit margins are squeezed western companies typically try to cut costs, or try and improve their product or efficiency, and often take on debt to finance new and improved equipment. Patents may be granted to securitise investments in R&D.
Six-hundred-million Chinese subsistence farmers have nothing to loose, and can work for ten cents a day and still be better off. In practice, many more corners can be cut when you don�t have to worry about pesky health or environmental issues.
Yarn authentique
A rural Chinese town;
Production n�cessiter;
The surface of a paddle;
Spin imparteth requisite;
(A popular Chinese sport);
Extraire ellipse;
Ten million squares;
Discarded.
Prometheus� forbidden art;
Vengence unrestrained;
Lifeblood of the village;
Punishment in kind
"I should also say that the industry that has the greatest return on investment ratio in the world has no grounds for complaint about how long it might take to recoup their investment. None."
You get this factoid only by ignoring the fact that pharameceutical companies have one of the greatest failure ratios of any major company type. The successful ones make a lot of money. The failures lose a lot of money and never make a cent. Your factoid is based soley on the successes and thus paints a completely wrong picture of investment/return ratio.
dof:
If you own a house, and rent controls are introduced, you still own your house, but the value can be seriously diluted.
As I said, ownership doesn't guarantee value. So what's your point?
Sebastian:
You get this factoid only by ignoring the fact that pharameceutical companies have one of the greatest failure ratios of any major company type. The successful ones make a lot of money. The failures lose a lot of money and never make a cent. Your factoid is based soley on the successes and thus paints a completely wrong picture of investment/return ratio.
Ah. Context.
Isn't my factoid true? You say it's based only on successes, but the failures are in the mix too. ROI exclusively on the successes is astounding.
Now since the ROI figures in my factoid are drawn from:
I'd like to know, since there are so few drug companies (you know, what with the barriers to entry created by the FDA being so high and all) who was missed that would make the ROI figures more accurate.
Any answer you give will be a set-up for me returning to the central point of the post, i.e. that The Economy and The Free Market are both constructs that have little or no substantial reality.
"I would think the benefits if FDA testing far outweigh the liabilities"
Exactly my point - you would think so because the former is self-evident to any casual observer while the second requires much digging by economists.
That something is counterintuitive does not make it incorrect.
> ownership doesn't guarantee value. So what's your point?
The point is that price control policy comes with repercussions, in this case less investment and fewer new drugs.
Mark:
"I would think the benefits if FDA testing far outweigh the liabilities"Exactly my point - you would think so because the former is self-evident to any casual observer while the second requires much digging by economists.
That something is counterintuitive does not make it incorrect.
Understood.
So. Who's done this digging? You don't seriously expect me to accept this talking point with no support when I provide support for anything not explicitly set forth as an opinion, do you?
Details, man! Details!
dof:
The point is that price control policy comes with repercussions, in this case less investment and fewer new drugs.
But, but…you didn't say ANYthing to support that point.
Sure, price controls have repercussion. EVERYTHING has repercussions. But why should I believe they are what you claim?
Why should I believe investors have walked away from Big Pharma when it is the most profitable industry in existance?
Why should I believe they will do less research when their massive profitability DEPENDS on the research…and when they could more easily cut their costs by cutting back on marketing (which expenditure, I have discovered during my forced layoff, is TWICE the size of the research budget?
In fact, when you defend marketing (as you have) and claim that price controls can ONLY affect the R&D budget, aren't you saying marketing budget will be deemed more important than R&D? (According to the National Institute for Health Care Management, you may be right because it says that much of the profits from prescription sales are not derived from breakthrough drugs, but rather from drugs that are similar to already popular medications.
Since 80% of the "new" drugs approved in the last six years have been for problems with existing effective drugs, maybe less investment and new drugs would improve national health.)
> TWICE the size of the research budget
The document you quote (a partisan at that) does not allow for the fact that a lot of drug research goes on in small companies. Most of those fail, and those that succeed are usually bought up by a big one.
The same goes on in the Software Industry: most innovation coming from Microsoft is bought elsewhere. Nobody would take Microsoft figures and claim them representative of the whole industry.
>> The point is that price control policy comes with repercussions, in this case less investment and fewer new drugs.
> But, but�you didn't say ANYthing to support that point.
The idea of price control is to transfer wealth from the pharmapeople to the public. Unexpected wealth transfers are bad for the investment climate.
The idea of price control is to transfer wealth from the pharmapeople to the public
I love these bald assertions.
Especially when they assert the diametric opposite of what is actually going on. The "pharmapeople" have to GET MY WEALTH in the first place. Price controls on drugs limits the transfers of wealth you so abhor.
The document you quote (a partisan at that)
There are no non-partisan documents.
Stop the bald assertions. Document something. Even a partisan document would be welcome at this point.
Give me a short list - say, five - of small companies that tried to create a new drug (from pure research, not research funded by the government), failed and went under because of the failure.
I honestly don't know if you can do it. But this is your shot at actually proving something.
> Price controls on drugs limits the transfers of wealth you so abhor.
That is my point, in the absence of price controls the pharmapeople would make more money.
from
http://www.bizjournals.com/triangle/stories/2003/04/14/story8.html
DNA Sciences, founded in May 1998, purchased PPGx for about $47 million in preferred stock in 2000. Now bankrupt, DNA Sciences is being sold to Genaissance for $1.3 million in cash and common stock.
During its brief life, DNA Sciences raised about $110 million in venture capital and planned to file for a $125 million initial public offering in 2001 before the equities markets imploded.
That is my point, in the absence of price controls the pharmapeople would make more money.
So you LIKE transfers of wealth, as long as it goes from people who need to people who have.
DNA Sciences fell through because the equities market collapsed, not because their research failed. In fact,
The Morrisville lab provides pharmacogenomic clinical and research services for pharmaceutical and biotechnology companies such as GlaxoSmithKline and Merck KGaA. It is led by Ronald Norton, a North Carolina native who helped integrate the clinical operations of Burroughs Wellcome and Glaxo when those companies merged in 1995.
they didn't even do their own research. They were a lab for hire, and made money on the services they provided.
Got a better example?
> Got a better example?
It's an example of my claim, that most of them fail (that's the point of research, it's very risky because the results are uncertain). Regardless of the reason they went bankrupt, DNA sciences had an average ROI of -20% a year in its brief lifetime, validating my claim that it is too easy to use the market leaders' ROI as representative of the whole sector.
> So you LIKE transfers of wealth, as long as it goes from people who need to people who have.
Paying for medecines is not a transfer of wealth, it's an exchange. A patent would be a transfer of wealth: The patentholder gets to charge a surplus above the (hypothetical) free market price for a specified period of time. The reason we allow this is that we hope to get products available we wouldn't have in the absence of patents. Contrary to what you are saying, I have no moral opinion on the right or wrong of patents. I only have consistently claimed that diluting patents would have a negative effect on future investment in research.
Regardless of the reason they went bankrupt
You raised DNA Sciences in a response about price controls impacting ROI. If a lab for hire has a negative ROI, that's not because of price controls, it's because no one hired them.
They are a diversion here, nothing more.
Contrary to what you are saying, I have no moral opinion on the right or wrong of patents.
You have a moral opinion on transfers of wealth. You say patents are transfers of wealth. Therefore you have a moral opinion on transfers of wealth.
(note to Phelps: as I said logic is fine and useful in its place)
What's going on here is, you see a compensating factor that counters your general negativity toward transfers of wealth. Perhaps it hasn't raised your opinion to the point that you're out leading cheers for it.
In fact, let's put as fine a point on it as possible: would you give up patents in exchange for giving up price controls? (I would)
> You have a moral opinion on transfers of wealth. You say patents are transfers of wealth. Therefore you have a moral opinion on transfers of wealth.
uh. you are saying "from P follows P"
Anyway, I'm not ready to put patents in the same bag as taxation.
> In fact, let's put as fine a point on it as possible: would you give up patents in exchange for giving up price controls?
I'm not following. If you give up patents, why would there be need for price controls?
Without patents, anyone can manufacture drugs at cost+margin, with the predictable result of lower investment in research.
You have a moral opinion on transfers of wealth. You say patents are transfers of wealth. Therefore you have a moral opinion on transfers of wealth.uh. you are saying "from P follows P"
Oops. That's what happens when you're working multiple conversations. You let me slide on that, I let you slide on the redundancy of a "moral opinion on the right or wrong of X."
Let's try that again:
You have a moral opinion on transfers of wealth. You say patents are transfers of wealth. Therefore you have a moral opinion on patents.
Anyway, I'm not ready to put patents in the same bag as taxation.
So some transfers of wealth are okay. Or at least not as bad as others.
In fact, let's put as fine a point on it as possible: would you give up patents in exchange for giving up price controls?I'm not following. If you give up patents, why would there be need for price controls?
Non-answer, dude.
We'll get where I'm going, but knowing where I'm going isn't necessary to answer the question.
> So some transfers of wealth are okay. Or at least not as bad as others.
Two questions that come to mind are: Is opting-out a possibility? and if not: Do I get something in return?
> Non-answer, dude.
As I said, the question doesn't make sense to me.
Try this:
Me: Rent controls dilute the value of my house
You: Are you willing to give up your house in exchange for an end to rent control?
Me: ??? Why would you call that an exchange?
--
disclaimer: I don't own a house
Okay, self interest rears its ugly head.
We may yet get to talk about reality.
Two questions that come to mind are: Is opting-out a possibility? and if not: Do I get something in return?
No and yes, respectively.
As I said, the question doesn't make sense to me.
That's because you accept bald assertions as fact. And because (based on past comments in this thread) you want guaranteed value.