In the November 13, 2006 edition of TheDeal.com Alex Lash reports on a study released the previous Thursday by the Tufts Center for the Study of Drug Development in Boston. Lash reports that the study finds that it takes more than $1 billion to develop a successful biotech drug; $1.2 billion to be exact. This includes the cost of drugs that ultimately fail. But ultimately, $1.2 billion is the number to reach the plateau of success. Even when stripped of all capital costs the figure is still in excess of $550 million.
Whew! I don’t know about the rest of you, but that’s more than I make in a year!.............. (The statement is true – very true).
When the price of success is this large a true barrier to entry has been established. Only the mega drug firms can afford the R&D necessary to invent the cures for our many ailments. This begs the question, “What happens to R&D and our modern cures when and if Medicare adopts a policy of competitively bidding or otherwise fixing the price of drugs?”
In the season just past there was a great deal of political posturing concerning Medicare’s current prohibition from engaging in activities to reduce the price of drugs to consumers. “We should be like Canada” the critics cry. “The Feds were wrong. We need to fix Medicare.” But, if we do behave like Canada will consumers really be served? Lower retail prices are one possible way to serve consumers, but is it the only need that should be addressed?
It is in recent memory that many drug classes, like HMG-CoA reductase inhibitors (statins) for example, appeared that have the promise of extending the lives of an entire generation. Are consumers better served by having low prices for that which has already been invented, or by benefiting from never-ending waves of new technology, each better than the previous, that change and extend our lives? America’s drug industry is second to none in the development of products that truly benefit mankind. It is not by accident that drug firms do not call Canada home, nor do they heavily promote their latest and greatest in that bastion of social engineering. It is also not by accident that these firms do call the US home.
Before we tamper with Medicare and the retail price structure of drugs we need to ask ourselves, “Are we willing to grant our current seniors lower prices at the expense of a brighter future for our grandchildren?” Because that is ultimately the likely result of any action that makes the US like Canada. It must be pointed out that countries like Canada – those that do not pay their fair share of R&D - are technology parasites living off those that do: the US and other free market nations.
I am not a fan of the entitlement program referred to as the Medicare Prescription Drug Benefit. In 2000, when I heard both Al Gore and George Bush trying to out promise each other relative to a new senior drug benefit program, I knew that they had both been bought by the pharmaceutical PACS and that they were both selling a bill of goods to the American public (who usually self centered seniors bought it hook, line and sinker). However, despite my personal distain for this transfer of wealth from the public coffers to the drug companies I do not believe we should further compound the disaster by structuring it in such a manner as to destroy the world’s largest source of funding for technology development.
If we don’t like the Medicare structure, repeal it. But don’t, I repeat, don’t throw out the baby with the bathwater by reducing the margin on all drugs to the point where R&D is no longer possible. I like my statins; I like my anti-allergy drugs; and I even like my now over-the-counter Rogaine. The illnesses that plagued my father to death, literally, are still bothersome, but less so. I hope to live longer than my father. My hope is that my children and grandchildren benefit even more. I’m willing to pay the right price to see that this continues to happen. While I would like a bargain, I don’t want one at the expense of my children’s bright future. $1.2 Billion is a lot of money in any industry. Particularly when that is your investment before you make the first sale.
7 comments:
Steve Tambolas is one of my dearest friends . . . this is one time when we simply have a difference of opinion. In all sectors of the academic medical community, private contributions and the National Institutes of Health are responsible for the advancement of the body of knowledge and science in medicine and surgery.
We look like the rest of the world when it comes to the research and development of new pharmaceuticals. The so-called "Pharma" industry is worldwide and highly competitive. In truth, the United States lags behind all other industrialized nations with respect to the development of new medicines and most of the pharmaceutical industry is internationalized. It is not the U.S. against the rest of the world.
The only financial beneficiary of the Bush Medicare Drug Program was the Pharma Industry. We are the only industrialized country in the world that does not use its purchasing clout to competitively bid the purchase of medications. The same medications sold in Mexico and Canado that are sold in the United States are a fraction of the retail cost of those countries as a consequence of Pharma industrial meddling in the political arena and buying influence. It is a disgrace.
Steve should have his statins and his health insurance company should benefit from competitive forces.
The Bush Administration is all for NAFTA and other free trade legislation, but the Pharma industry has invested in the U.S. Congress and it is clearly a bipartisan problem. You could not drive a piece of paper between the democrats and the republicans on this issue.
The "scare tactic" that we will not have new medications if the Pharma industry is not protected is utter nonsense. They will continue to invest in those enterprising ideas that have merit just as other industrialized Pharma corporations do.
This is one time when I love Steve Tambolas and hate one of his ideas.
Steve will get the medications his Father needed and the Pharma industry will do just fine if the government gets out of the way and enables a free market on an international basis.
Respectfully submitted,
Jan Jennings
I have to admit that you put a spin on this that I hadn't considered. But, I still would like to see lower prices.
It wasn't just Gore and Bush that were bought off. How about AARP and the Congress!!
I am commenting as a concerned citizen, but I have seen that the only ways to truly reduce costs is through process improvement, an example being the system wide savings that comes from stenting versus CABG, and the second is the subsequent event of competition as patents mature and pricing stabilizes, which again drives innovation.
I was also the son of a telecom executive when Judge Green ruled against AT&Ts sole monopoly of the telecommunications infrastructure and though it was thought that the original control was needed to ensure quality, when competition was introduced the telecom field exploded, costs in low end items shrunk but the overall cost of communication per individual increased as innovation put a phone with multi-line access on each desk, a pager on the belt, high speed internet on each desk, a blackberry in its holster and a blue tooth capable headset in everyone's ear, bad? I do not believe so.
Adam Smith was right the sooner we all understand the magic of the free market the better we'll all be, government should be involved only as a body of oversight. To those who would comment on the competitive international community driving innovation, I say this, without the US as its primary market for their drugs, there would be no international competition and there should be much more, as they experience far less government scutiny in testing and approval. At the same time, a fair test is their pricing structure when these forward thinking international competitors enter our market space with prices well elevated over those in the individual markets.
Finally, there is more venture capital sitting in wait here and overseas then there has ever been for innovators to succeed and fail in driving cost out of the healthcare system by, for instance, changing the site of care for more procedures. If the nation were to socialize the system they would impede the progress that we see today. As an international marketer, I have been in hospitals and operating rooms the world over and cannot believe the conditions in the rest of the industrialized world with respect to their armamentarium, and for that reason would never choose healthcare outside the United States, like many well to do Canadian and Mexican Nationals.
Hi Steve!
I am reading a book "The Dark Ages America" which describes how the "fewer super corporations" are getting more and more hold of the international markets blessed by the era and later development of the Reaganomics. The author's opinion is that we are spinning towards an economical crash when the products/services will no longer be available to the common citizen who might by then be the poorest of the poor.
I am finding the book inteeresting, I picked it up seeking answers to what the current war situation is doing to our country. It is a deep analysis, grim I might say, but deep. Author: Morris Berman.
Well said!(This is Stacey from the Altoona Hospital) You had a lot of excellent points.. This is definitely a controversial topic, but that's how things get done and brought to attention.
My understanding of U.S. pharma companies offering lower drug prices overseas is that that was a calculated decision at a point in time as a way to help the world and have the U.S. market cover most of the cost of drug R&D. Such a decision, if it is true, would have had a number of effects on the U.S. pharma industry. First, it would have meant higher prices here. Second, it would have provided more good paying jobs here.
But the world has changed and at home the government is faced with the grim prospect of paying for the health care needs of 76 million baby boomers as a shrinking work force imperils the government's ability to pay for today's obligations. And this does not even address the 46 million uninsured in this country. And depending on what happens with the immigration issue we may have more people to pay for health care for in the future. But if they are working here illegally they are not likely to be paying into the Medicare program.
We must be careful to avoid seriously harming the American pharma industry just because politicians cannot say no to an endless stream of entitlements. There is nothing wrong with competitive bidding of pharmaceuticals as long as the public understands that prices pushed too low will lead to further offshoring of pharmaceutical production. Another industry lost. Competitive bidding is not socialized medicine and it should not be allowed to reach that point.
The real issue at stake here is this. Somehow the American people must decide what kind of healthcare system we will have and unlike most referendums we will have to be told the truth about what is happening or our choice will be wrong. That decision will drive everything else. In the meantime we wait as the lower decks fill with rushing water.
Some of what you say is true about the research and development of drugs but there are other facts that need to be considered. Pharmaceutical companies regularly wind up at the top of the heap in international companies. I was the purchasing agent for a large gov't account and what jan jennings said is true. Our prices were significantly higher than mexico and cananda. When I asked company sales reps if we were subsidizing the lower costs of those countries I would get a smirk and a shrug instead of a straight answer Another thing that jan jennings didn't consider is the fact that many companies piggy back on the research of other companies. The development of new Statin drugs is an example. The research costs would be significantly lower. Another example is nexium which is very similar chemically to prilosec. They then convince the consumer that their drug is better and therefore worth the exhorbitant prices they charge. I am all for companies making a profit but if they can afford to give lower prices to other countries they can afford to do it here also. The market might suffer for a short period until the drug companies realize that to make a profit they will still sink money into R & D. We need to stop subsidizing their greed and maybe we will be able to ensure more Americans get adequate health care.
Ed Doogan
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