More people need to be aware of how the drug development costs are distributed. It’s the clinical trials, not R&D, which contributes to astronomical cost, and that price is emphatically NOT set by the pharmaceutical companies that the public loves to point their fingers at.
It’s a simple math of risk vs reward. Let me explain before dismissing my argument.
Do you know why there are so many “Big Pharma”? It has to be big, because most of the smaller ones simply can’t survive for long. Developing drug is a difficult process. Whopping 90% of compounds fail during the three phase clinical trial period, $40k per patient in the trial, hundreds of millions of dollars per trial.
Every failed trial is a signal for career change for people who develops drugs. You think people will invest in such risky business without expecting a big reward? Asking for low drug price without lowering the clinical trial cost is assuming drugmakers can print money. Unfortunately biology doesn’t work like that.
A lot of us who develop drug are doing it because we believe this is a meaningful thing we can do in the world. They are just hidden behind investors like Shkrelli, who isn’t even anywhere near the actual people who make the drug. But we do need the money to develop the drug. A lot of it.
I hope you understand.
The real solution is to lower the cost of the trial. And I maintain that the drug company isn’t in control of this.
the simple math is these companies spend less than 20% of their revenue on drug development and have operating margins over 40% so prices don't need to be as high as they are
You need to take into account of the fact that patent clock starts ticking as soon as you file it, whether the drug gets approved by the FDA or not. The drug development process itself eats away that exclusivity at about 12 years on average, so that 40% needs to account for the time when you don’t get another drug approved (remember the 90% failure rate).
Drug business is EXTREMELY hard, and investors aren’t running a charity. There needs to be high profit margin to motivate people who fund the discovery and development process for new drugs to come out.
As I keep saying, once we bring down the cost of clinical trial (which is totally artificial, and not under the influence of pharma), you will bring down the risk and cost of drug.
Again, you are pointing the finger at the effect of high medical cost rather than the cause. Ask yourself: why are doctors in US paid 3x the amount compared to UK? Do they raise price because of the drugs? No.
What about the Martin Shkreli incident? How does that get explained by your general broad thesis statement - 'maybe we should devote less money to life-saving R&D'?
Economics describes human behavior in the aggregate.
If the expectations for returns on pharma become substantially lower, less money will be invested in pharma and they will have less money to invest in R&D.
I don't think Martin Shkreli is a challenge to that thesis.
The Martin Shkreli challenge is that its actually not R&D that money is being deployed its that many people (MS being one example) have found ways to capture consumer surplus in a quasi monopoly environment and then extract maximum prices to a group that has an inelastic demand.
Nothing to do with deploying more R&D in this case.
In terms of expectations on returns of your statement - I would be curious to see the case that increased expectations on returns correlates with positive outcomes. Sure more money in, but that does not equate to better meaningful and better results out.
The Martin Shkreli example is perfect for you because it shows someone raising drugs but we don't have the timeframe to see someone quickly ramping up cheaper generic production because of how quickly he was jailed. His company went bankrupt due to generic competition.
> Sure more money in, but that does not equate to better meaningful and better results out.
I believe that spending more on R&D will cause more drugs to be developed. If you disagree, we can agree to disagree - I'm not sure it would be a productive conversation.
...partially due to the fact that nobody else can be bothered to fund it. Which is the problem with public capital markets; unless someone forces them to research, say, seatbelts and airbags, those things become an ignored liability.
Public capital markets are also how we avoid improving things to increase margins. Especially in a modern market with shareholders and administration involved, there's little incentive to improve things or even make them human-safe without regulation. It's why stuff like the FDA exists.
Markets have inefficiencies and reflect collective human irrationality (such as underestimating the likelihood you will be in a fatal car crash). But it is trending better - not especially in a modern market. The stuff the FDA prevented when it was first created is much worse than what it has to deal with today because of better information dissemination and a broadly educated population.
I'm not sure who else would be funding pharma research if not people who are giving their money willingly.
I travel abroad frequently and am an EU citizen. Most pharma research is not funded by the government, in Europe or the US. The EU free rides off of American drug R&D, this is well-studied.
No need to be snarky and sarcastic just because you are having trouble explaining your point.
