My take on that problem. There are others. https://pietersz.co.uk/2007/02/patents-inefficient
I made the same point nearly 10 years before that with regard to R & D vs marketing expenditure. Its not a new problem.
However, it is hard to find real examples that bear this out. I think that this View overestimates the capability of institutions and underestimates the utility of price signals and an open market with competition.
Pharma companies receive very little (relatively) in terms of grants or research funding.
R&D spending can be amortized as a business expense when calculating a tax bill, so I suppose that could be repealed, raising the effective tax rate.
The price signals are already broken. The people doing the research that is fundamental to pharmaceuticals are paid by grants which aren't connected to the price signals. There is a market failure here.
So for the market it looks like 99% of the cost comes after academic research but in reality that's only 40-60% of it.
At the end of the day the price signal doesn't even reach most of the ressources and it is itself a poor proxy for the metric we actually want to optimize, which would be something like QALY.
You dont have to imagine a top down economy and fail to find examples, when simply regulation would do the trick and keep some enterprise freedom.
> The beer must be brewed within the walls of a Trappist monastery, either by the monks themselves or under their supervision.
> The brewery must be of secondary importance within the monastery and it should witness to the business practices proper to a monastic way of life.
> The brewery is not intended to be a profit-making venture. The income covers the living expenses of the monks and the maintenance of the buildings and grounds. Whatever remains is donated to charity for social work and to help persons in need.
It's funny to see above the suits and ties a layer of habits and scapulars[1]
https://www.koningshoeven.nl/media/127/compilatie-inkleding....
I.e. in my native Germany, health expenditure per capita is 2/3 of what it is in the U.S. if faced with a life-threatening illness, I would vastly prefer to be in Germany than in the U.S. (with the possible exception of being super-rich and being able to buy top-of-the-line health care).
It is not really an open market with competition: the government creates incentives, and only a faction of the increased cost to buyers goes into what the incentives are supposed to support.
Any useful information from price signals is lost too amid bad incentives: https://pietersz.co.uk/2007/01/pharmaceutical-incentives-dev...
It's just funding. Not like non-profits are magically unable to have talent, or to achieve results.
No one's giving away billions on a pharma non-profit when they could invest. Even though the result is sometimes similar for the investor.
There has to be some middle ground between the 2 branches of insanity?
And to have funding, you have to attract investors. How to attract investors? By making it quite profitable to invest in the company, i.e. making it profitable for the shareholders.
With enough money, you can do anything big pharma is doing. But how to get that money consistently is another question that have an uncomfortable answer. Plenty of startup and small biotech companies go bankrupt every year. This isn't something you can do in a garage and turn it into a multibillion dollar business like software. Biopharma has too many regulations and rules to follow and it makes the entire field incredibly risky and less likely for a small and unattractive player to succeed, even if they are driven by passion.
People aren't upset by for-profit grocery stores taking tax dollars in the form of food stamps. They aren't upset by taxpayers giving money to for-profit hospitals to treat poor patients.
The government is paying a For profit company to do something that the government wants.
If the company would do it anyways, then of course I agree that the government shouldn't pay for it.
Not what I would call ‘incredibly profitable’. And they are one of the biggest.
If the goal is to go after 'extremely profitable' companies, maybe we should be looking at tech companies, that are in fact, 'extremely profitable', unlike most pharma companies.
and for the record, I have zero love for pharma companies, or how they operate - but they are not - in general - 'extremely profitable' companies. Far from it.
I thought HN was better, focus on the actual problems and not let every discussion turn into a profit/capitalism = bad debate.
If that sounds too much like socialism for your taste, give rich people the option to buy additional services or restrict the public system to basic medical services and drugs and require private insurance on top for cutting-edge stuff.
Profit is a great thing, but it is not an end to itself. The point of liberal democratic societies is to guarantee basic rights for everyone, while constantly improving the welfare (which is not the same as wealth) of as many people as possible. Capitalism has made great contributions towards that goal, but it also contradicts it in several critical places and thus needs to be regulated where necessary.
One think I think worth mentioning is that there is a significant difference between price controls and purchasing controls. purchasing controls is simply refusing to buy if the price is too high, while price controls is mandating a miniumum or maximum price for X. nearly every successful medical system uses purchasing controls, not price controls.
IMO, one of the main reasons costs are out of control is a lack of purchasing controls.
Pfizer's annual net income has been around $10 Billion continually since 2009: https://www.macrotrends.net/stocks/charts/PFE/pfizer/gross-p...
Annual revenues for that period were mostly between $45 and $60 Billion.
Not sure about you, but that is what I'd call "incredible profitable" on any day of the week.
So what exactly makes it so perniciously awful for pharmaceutical companies to do so?
Apart from that I personally think that excessive profit is reprehensible for any type of business, as someone, somewhere is the sucker on the other end of that equation. Tremendous profits usually come with someone being exploited somewhere along the value chain. For many of the businesses that you have listed this is painfully obvious for anyone who is willing to think about this for even a minute.
They might feel different if foodstamp-bought food was 10x as expensive as regular food, and those with foodstamps were forbidden from buying food for non-foodstamp prices.
Say the development of a drug costs $1 Billion on average and that only every tenth drug gets approval. So you are looking at a $10 Billion cost for every successful drug development. But you can then sell this drug exclusively under current patent laws for about 20 years, worldwide. By that calculation, you'd need to sell 1.000.000 doses of the drug for a price of $500 each every year to break even.
That sounds trivial to achieve given that there are 7 billion people alive and innovative drugs will go for vastly more than that even in strictly regulated markets like many European countries (my son gets a pretty advanced drug that costs about $12.000 (EDIT: yearly) to procure but which is covered by our (national) insurance scheme).
Additionally, a lot of the cost of basic drug research is actually covered by government-financed research, not private investment.
If you are still worried, you could use a prize model, similar to what was done during covid: Identify certain qualities that a new drug should have (i.e. be an effective vaccine against malaria) and guarantee a big enough market (i.e. promise to buy at least 1 Billion doses at $10 each) and you can bet that there'll be plenty of companies trying to get at that money.
If that is what non-profits in Pharma are supposed to be, what is the difference with for profits?
that really depends on your economic system doesn't it? In the more capitalist systems you pay what the market will bear and there is no consideration as to what the incentives are or aren't.
> Stock buybacks are a way of returning value to shareholders.
This is also a problematic framing that ignores the broader situation. And that’s the tricky thing about framing things. It’s easy to manipulate the narrative and obscure the unreasonableness of the underlying reality if you sufficiently narrow the frame.
The typical alternative to receive what was state of the art care 10 years prior and off patent, and now 5% the price. The unfortunate part is the desire for such products is so low, that most of the time they are discontinued.
It is essentially a tragedy of the commons in the US. Because all the costs are shared, every individual is happy to pay 20X for a product that is 10% better.
What is a "reasonable" profit in an industry where it costs hundreds of millions to develop a product and 95% of the products fail?
So, margins in the hundreds of percents is definitely predatory. I'd personally argue anything higher than 10-20% is morally bankrupt and I wouldn't be able to sleep at night if I were in the shoes of those responsible. If there is a hell, there's certainly a circle dedicated to people praying on the sick.
And of course there are alternatives. A brand new drug is replacing something older (even if just supportive care).
Plenty of universal healthcare systems choose not to pay for new drugs because “they aren’t worth it”.
10-20% all included, of course, including R&D costs on failure.
> Plenty of universal healthcare systems choose not to pay for new drugs because “they aren’t worth it”.
Source?
https://www.reuters.com/article/idUSKCN1SK2QM/
Many such cases!
So again, sources for medical devices or medicine not available in single payer healthcare systems because they're too expensive, but available in the US via an insurance?
To expand on this, the FAA also showed itself to be criminally incompetent to the point of sacrificing human lives in service of Boeing. European (and other countries if they wish to, but as a European they're the only ones I can directly advocate for) regulators should stop trusting American regulators, and only pay attention to them to get inspiration and see what to do/what not to do. European regulators are far from perfect, but they're doing a better job and more trustworthy than their underfunded, hated by 1/3 of the country, revolving door corrupt American counterparts.
Look, if you don’t want to engage with this specific example, there are many more. Cerdelga to treat Gaucher’s disease was approved by the EU in 2015, but the English NHS didn’t agree to pay for it for another two years:
https://pharmatimes.com/news/nice_u-turn_backs_sanofis_gauch...
Canada as well, not approved for coverage until 2017:
https://hpr-rps.hres.ca/reg-content/summary-basis-decision-d...
Prices aren’t static. Competitors enter the market. Governments are willing to offer more or less. Eventually, generics or biosimilars become available.
It’s 100% accurate that English and Canadian citizens were denied access to these new drugs until they ceased being “too expensive” (at which point they were no longer “new”).
Available shortly after launch in the US in 2012. Even Medicaid patients (insurance for poor Americans) had access.
The UK didn’t pay for it until 2020. Eight years later.
And in Canada only 6 of 12 provinces/territories pay for it and only for children. If you’re an adult, well, you’re out of luck.
Look at the profit margins of the successful companies. It’s in the 30-40% range.
That doesn’t include all the money put into startups that fail.
All in, that’s probably the overall return for the average dollar.
Those that I do know who have had cancer were absolutely thankful that someone developed their treatments.
Patients and doctors want better treatments. There are government all around the world that want to save money? I know big pharma has a bad reputation, but they dont send out hit-men after competitors.
The only argument against publicly funded drug production is that profit seeking is more efficient and the societal outcome is improved by not funding a public body to do this.
As other comments highlight, not only do societies publicly fund research (eg C19), they provide a legal system that protects monopoly profits, and won’t use single-payer bargaining on price…
So when pharmaceuticals then drop more cash on executives and shareholders it’s natural to question turning Covid19, cancer, or obesity etc into a profit centre for the wealthiest in society
They're parasites and freeloaders, contributing absolutely nothing, and consistently siphoning off value. Americans love to harp on socialism / communism and look down on "useless eaters", but there is no class more useless, more entitled, and more toxic than The Shareholder.
Calling stockholders an expense misrepresents how businesses operate. "Spending" implies expense. Stock buybacks are a way of returning value to shareholders.