Ignore US companies completely then -- look at European pharmaceutical companies. They make far more money selling drugs to Americans than Europeans, and they use that money to develop new drugs back in Europe. I'm not sure how you could blame European actions on your US abuse/corruption theory.

Why wouldn’t a European pharma company take advantage of the abuse and corruption in the American system?

It boils down to this: drugs are a pretty anti-competitive market, and the US doesn’t have much in the way of opposing rules that would bring prices down. No surprise that companies make more money compared to European countries.

The real question is: if the US stopped allowing this and brought prices under control, would it wreck pharma R&D? People seem to assume the answer is “yes” when they bring up this disparity but I don’t see it being that obvious.

Yes but is per unit profitability (measured at the pharma co) higher in the US?

That's what you need to be true for your claim to hold water, not that the overall revenue pool is larger.

Yes, US consumers pay more for almost every drug per unit, regardless of the nationality of the drug company:

https://i.imgur.com/6QOta9X.png

Full source:

https://aspe.hhs.gov/system/files/pdf/259996/ComparisonUSInt...

Is that US price with or without any insurance? Most countries negotiate a lower price with the drug companies the same way insurance companies do. I don’t see how Canadians negotiating a lower group price is worse then Americans paying someone to do that.

It's the average sale price of the drug in the US. So, mostly with insurance (~90% of Americans are covered).

(The study was done by HHS and was focused on Medicare, which sets prices based on a weighted average of market sales price, including negotiated discounts by insurers.)

US consumers pay more, but US marketing expenses are much higher too, eating up more revenue than R&D does.

If marketing was not yielding a return why would they do it? Presumably spending $1.00 to market a drug returns at least $1.01 in profits. If that is true then a lower marketing budget would result in a lower R and D budget provided you keep all the percentages the same.

The point being made was that, while US prices are higher, they may not outweigh profits from EU sales.

Selling your product for 50% more in the US may not be more profitable than selling in EU where your marketing costs are a lot lower.

Of course you’d sell in all markets where you can, but the claim was that US profits > EU profits because US prices > EU prices.

Also, there’s R&D/education that’s really marketing. E.g. advisory panels, grants to the “right” organizations, agencies or researchers

A lot of marketing is a prisoners’ dilemma. There is little if any gain from the steady state where everyone does it, but you have to do it because if you don’t then your competitors will and they’ll eat you alive.

In which case you could kill this stupid marketing budget without much effect on R&D by outlawing drug advertising.

That’s why they get together and make a bunch of rules about what is “ethical” marketing.

In reality, the established players halve their marketing expense and make it difficult for any upstarts.

Why are prescription drugs marketed at all?

I ask myself the same thing and usually think: "Because they're not good enough to sell themselves".

I thought this was capitalism? Isn't the idea of a company under a capitalist system to generate the maximum amount of profit possible for each product they sell?

Drugs aren't priced relative to what they cost to make or develop any more than airlines price flights based on how much it costs to fly someone between any given city. They're priced at the highest level the market will bear. Is it any surprise that the largest, most powerful economy in the world will bear higher prices? The drugs by definition have higher value because treating someone in a strong economy delivers more marginal value than in other markets. That's math.

Now we can talk about different systems but this is the one being held up today.

I' am sure pharma board meeting go like this

CFO: ABC pharma just got FDA approval to sell a generic version of Viagra, our revenue is projected to take a $1.5 billion hit.

CEO: Fuck. Start raising the price of insulin, I gotta hit these wall street estimates.

Indeed charging the max possible is the idea. The idea is also that the market is free so a competitor could also extract profit by making the same drug for slightly less. Of course another competitor could come in and make it for even less. All these price cutters force the higher priced competitor to lower their price to still produce profit. The lower bound here is the cost of production below which all companies would stop production. So in a capitalist system in a free market profit should always be trending towards zero.

The issue is government allowing companies to be anti competitive. For example, the government is currently entertaining a lawsuit by one insulin company against another company trying to sell insulin for a lower price. While that lawsuit is ongoing Americans must pay the higher price. Thus really government willing to enforce continued monopoly is one of the problems

Is the market for drugs really free though? I believe that in a free market there is supposed to be no coercion between the parties to a transaction. In the case of drug purchases there may be a kind of coercion involved -- a health issue (diabetes, cancer, etc.) that makes one party to the transaction unable to negotiate effectively.

Free markets mean that other sellers are free to compete. This is why food, an essential good, is generally cheap. Any seller of food can charge an arbitrarily high price but cannot exclude competing sellers.

In the US, food is generally cheap because significant portions of what we eat are heavily subsidized by the government.[1]

[1] https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...

In a free market no outside agent interferes with buyer and seller. Nature has no will and thus no agency and thus is not an agent. Indeed the free market is key to solving the disparity between what someone has versus what someone needs. It is one of the few systems we know that solves this issue efficiently

If I understand you correctly, then it does seem true to me that nature has no agency. However, when the choice a consumer has is to either pay the asking price for a <em>needed</em> drug or to die then I think the consumer has no meaningful choice at all. Given how unequal the bargaining power is between the buyer and seller in this situation, it's hard to see a free market solutions applies: it might be efficient, but it's also brutaly inhumane.

I know I've set up kind of a straw-man. It might be that the consumer could choose to forgo an expensive drug or medical procedure without fatal consequences, but that's not the interesting case.

The choice shouldnt be between whether they need the drug or not but rather who to buy it from. The fact that there exists someone who needs a product is what drives the profit to zero in a free market because newer manufacturers are incentivized to provide the product. The choice is among from whom to buy not whether to buy at all.

Right now insulin is expensive because the government is preventing companies that can produce it for cheaper from selling in the united states because of a lawsuit by the current market holder. That the government even has this power is a textbook example of the danger of governmental interference in the free market. People are literally dying because the government has made the market less free intentionally

Indeed, it's extortionate. "Boy, it'd be a shame if you didn't take your insulin and died, wouldn't it. That'll be $700." Thanks, free market!

Like food, right? If people stopped selling you food you would die, so surely they can charge extortionate rates for it.

Of course, there are competitive markets for both food and insulin in the US. Quoting from a letter to the WSJ yesterday,

> Eli Lilly makes three types of insulin, which in most states you can buy over-the-counter at Wal-Mart for $24 per 1000 unit bottle. One hundred syringes cost $12. I have serious diabetes mellitus and have managed it with Lilly insulin for a decade for under $100 a month.

For some drugs there aren't competitive markets, and in some cases the government prevents competition, but both are typically temporary situations (patents, first-mover advantages) that help to get the drug on the market in the first place. An extortionate price for a drug is better than no access at all, and doubly so when it is going to give way to genuine price competition.

The difference is (1) food isn't a specialty good, you can make it yourself and (2) food is provided by the government free of charge if you can't pay and (3) subsidized by the government to a massive degree even if you can pay. If this is the kind of system you're advocating for prescription drugs, I'm all in!

(1) Food producers unilaterally refusing to sell food could be just as disruptive as drug producers refusing to sell drugs. "You can just grow it yourself" isn't a reasonable distinction -- from a practical standpoint most people can't. The reason we don't need to prohibit that behaviour is that the market works.

(2) The government doesn't grow food. Sometimes it pays for it, and sometimes it gives people money so they can pay for it, but there isn't a public option in case farmers decide not to sell us beef, because the market works. (But yeah, the government does -- and should -- help people pay for drugs they can't afford when the prices are reasonable.)

(3) Food production is subsidised, but it shouldn't be. And these subsidies have little bearing on the possibility of extortion in the market.

If you feel like being specific, free markets have to exist without government regulation, without monopolies, without economic privilege, and without artificial scarcity, which doesn't really work in the real world under capitalism. Almost no markets are truly free markets, even the ones that look free, because there are general regulations you still have to follow (you can't legally sell poisonous handmade goods at a craft fair, for example -- laws about that act as a regulation).

Non scarcity is not a requirement for a free market. No artificial scarcity.

If that's the case, why does a flight from SFO-JFK cost way less than a flight from JFK-LHR in business class? Approximately the same distance, approximately the same cost basis. Dramatically more competition between JFK and LHR. It's not always about competition or cost basis.

Because I said profit is driven zero not revenue. JFK to lhr requires all sorts of international permitting that is a fixed and varying cost that domestic routes do not have.

Airlines are a great example of the race to zero profit. Airline margins are slim and thus the cost of travel often reflects exactly the cost of doing the flight itself. JFK to Heathrow requires participation in multiple markets, currency instability, multiple regulators etc which make the cost more excessive. Also london and new York airports are busier than sfo increasing airport fees. Thus in a market with low basically zero margins, the cost from ny to London is more as competitors that cant make the unit economics work leave the market entirely. New competitora cant enter the market at a lower price point because their profit would be zero.

Why do you think there is more competition to LHR than domestically? The airport has been maxed out for almost 30 years, it is incedibly hard to get landing slots there. Also the weather over the atlantic makes flights longer and use more fuel.

No competitor can produce a drug which is still under patent.

If we’re worried about funding innovation, we could do a lot by only funding the innovator.

When every manufacturer has their own statin or their own ARB inhibitor, etc., the revenue is split between a true innovator and a bunch of copycats.

Fixing that could allow much more reward for true innovators, at lower prices but profits protected by volume.

We went through a phase of this in the 1930s-1950s where the government decided that competition was harmful and duplicative. It was a disaster. By your reasoning, we shouldn’t have both iOS and Android—the government should make a single OS where all R&D can be invested without duplication.

It’s a lot easier to see which of two blood pressure drugs that work through the same mechanism works better at... reducing blood pressure.

The usual problem is that we don’t compare drugs in the same class against each other (for fear of negative results).

You only think this because in the case of iOS and Android you can get your hands dirty and form opinions for one versus the other.

In the case of the blood pressure medicine, that process is not possible for the consumer, and as you say, not practiced by the labs. But that doesn’t mean there aren’t a hundred possible pros and cons for one type of molecule versus another to treat XYZ condition in ABC population, with potentially huge variation between patients both explained and unexplained.

> But that doesn’t mean there aren’t a hundred possible pros and cons for one type of molecule versus another to treat XYZ condition in ABC population, with potentially huge variation between patients both explained and unexplained.

There really aren't when comparing different molecules with the same mechanism of action. Individual hospitals and health systems will usually tender out their contracts to the cheapest molecule in each class, or sign up with a buying group that does.

It simplifies prescribing, inventory, distribution and administration too.