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zoLVDQ Looking forward to reading more. Great post.Much thanks again. Great.
Submitted by John on Sat, 2007-08-04 11:31
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Comments :
Great summary of the problem
I agree, there's no ideal solution here.
The problem is that the drugs aren't worth what the companies want to charge. That is, once the basic formula for a given drug is discovered and clinical trials are completed, it's usually cheap to manufacture. So the cost (as you say) represents the R&D that went into the drug, but that cost is chiefly borne by US consumers.
Viewed in this light, drugs are basically intellectual property akin to software or music -- easy to generate/duplicate/distribute, hard to develop and test. We've been exploring methods of regulating intellectual property within the US for the last decade and maybe some of the lessons are transferable. For example, the way MS makes money is roughly analogous to the drug companies: some clients pay large amounts up-front to offset the rampant piracy. Ditto music with high-priced CDs and widespread filesharing until recently, when companies finally wised up and started selling by the song instead of by the album. In software, the legit alternative to MS is open-source stuff that still manages to make a profit for programmers in support and customization.
Extending this paradigm to drugs, we might surmise that strict controls are ineffective (not quite true; drugs are much easier to regulate and track than software and music), lawsuits against consumers (ie, arresting seniors who go to Canada) are disastrous for PR, and a business model of providing exactly what the customer wants at a reasonable price appears to be profitable. Maybe drug companies can get into customizing drugs -- tweaking basic brands to match the medical restrictions or personal preferences of sub-groups of customers. Maybe they can transform their public image into altruistic life-savers and pull in public donations. Maybe they can put more into the packaging (like CDs now) -- not sure what that would mean in practice. Maybe they can contract ahead of time with countries or customer blocks to develop a particular drug and thus have the projected R&D covered. Maybe they can convince other countries to not force them to sell at lower prices by promising extra features -- e.g., more (or specialized) testing. I dunno, none of these options really sound good to me, but intellectual property is difficult to control in a cost-effective and non-destructive/invasive manner, and so are drugs once they've hit the world-wide market.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
the solution to intellectual property
is to enforce the laws that protect it.
In the case of drugs, as the Economist Blog quote says, there's a danger in being to too rigid with other countries. Governments can overpower drug companies by simply ignoring patent laws and taking control of the drug for use in its country. This quite unfair and amounts to bullying by short sighted politicians who indirectly steal from private companies.
In a perfect world, drug companies would retain the rights to their work across borders and have more room to make contracts with other countries that avoid the side effects we see described in the diary. Being strong armed by other governments into selling low or having their rights infringed upon is not a pleasant choice to make but they make the less evil choice and Americans get screwed in the process.
The real solution is to have the integrity of the property and privacy rights of these drug makers respected by other governments.
What the undermining of these rights causes is basically a disruption of market forces that set prices correctly through rational processes of the drug maker in the market.
With more natural market forces, drug companies would price the drugs in a way that avoids these problems. But for this to happen, other countries that bargain (blackmail) for unfairly low prices would have to pay a more correct price...which would add extra burden onto their socialized systems.
We lose in terms of price. And if the drug companies start losing too much in profits, we ALL lose in future drug development.
Well, sure
and the solution to MS not charging $300 for Vista (or whatever it is) is to prevent people from pirating it, and the solution to $18 CDs with 11 filler tracks and one hit is to prevent filesharing*. Except that doesn't work all that well (since we're not in a perfect world, after all), and in a similar way I question whether countries are going to "pay a more correct price" when they can pressure for lower prices or evade patents -- even though I agree that would fix the problem nicely.
I'm just wondering if there are other options for the drug companies that preserve their ability to make a profit despite what is essentially theft of their R&D work (albeit sometimes with noble intentions, and even in the US the government is not shy about taking, for example, private property in the name of the public good, so it's not all that absurd really).
* Or to sell by the song and have ~20x more people pay $1 for that track than would have wasted $18 on the CD. Adapt to the realities on the ground or perish.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
I understand, but
but we do manage to protect against other forms abuse of property.
With Music, for example, artists have gotten creative and relied more on other means of making money like concerts and other value-added services as you describe.
People also sell fakes of designer fashion...I bought my girlfriend a pair of Chanel Imitation Sunglasses for $50 that, after looking online at Chanel, were over $300. Louis Vuitton bags are another case of this. But it doesn't seem to make a huge difference because the cost involved isn't so damaging and people still want "the real thing"....but in matters like drugs, the costs of fraud and theft are enormous on new products.
I don't think:
is a good way to handle it....especially when the theft is legal and involves vital, high stakes products that come at a huge cost.
Drug companies WILL spend less on innovation if we continue down this road and few will realize what will have brought on that reality and pols won't care to remind them...like right now.
Clean business is compromised when laws are not respected by government and undermined by force....and that leads to bad side effects.
I say one solution, since we can't force other countries to conduct better business practices and bargain more fairly, is to maybe find ways to make to make drug research less expensive and easier to do with a quicker turn around on new products.
The quicker return on investment coupled with lower costs may ease some of these problems is less invasive ways that respect viability of the pharma companies.
Of course, this is a tricky measure since safety is a concern. But I'm sure we could look for ways to make the process less costly and more cost effective for drug companies without undermining quality standards.
Another, to couple with the shorter testing run, would be to lower the liability risks for drug companies. Insurance to cover costly lawsuits is another huge cost involved here. Perhaps new products could carry a limited liability statute for a certain period of time so that patients know this drug hasn't been fully vetted for a long test period and, thus, their ability to sue is limited during that time.
Just ideas.
Maybe shift more of the onus for testing
onto the FDA -- it's kind of silly to have drug companies "impartially" evaluating the side effects of their drugs anyway. That would cut costs and probably also cut time to market. Charge an upfront fee to the company to partially cover testing costs and prevent abuse of the process, and require the company to conduct basic safety tests before submitting for approval, and then like you say limit the company's liability for a period of time. Most of the lawsuits are about companies covering up or ignoring known dangers, which would be less applicable if the FDA shouldered greater responsibility for assessing safety.
I dunno, as you say we're just kicking ideas around. I agree that there's a problem that ought to be addressed somehow.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Drug importation should be allowed
and the consumer ought to be able to know the origin of the manufacturer of the drugs.
I'd buy medicines made in Canada or Europe. I'd be very hesitent to buy any made in China right now.
And on the larger problem that caused
this legislation?? what do you say?
Which one?
I addressed the purity and integrity of the product issue.
I'm guessing you mean the copyright laws on the manufacture by anyone else during the copyright time. I do support an initial copyright period. I think the original time was 26 years. I know that many have, with some success, pushed to lengthen that time frames of the various copyrighted entities(songs, books, intellectual properties, etc). I don't support the lengthening of the time frame.
If a foreign producer manufactures a generic version within that copyright period, they should pay a fee to the copyright holder. That fee should be reasonable, and not ridiculous.
No.
This diary was about the catch 22 we are in with price controls imposed by other countries....leaving Americans to bear the biggest brunt of cost of R&D...without which, new drug development slows down.
Legislation, like the one proposed is good in that it gets Americans drugs for less money but it also undermines the profitability of pharma companies for future development.
That's the conundrum. There's no easy answer and it's caused by forces outside this country that we can't fix at the source.
Drug companies also risk having their property taken by force if they stand their ground on price with these other countries. But they don't, so we pay higher prices here....which isn't right. But it's not really the drug company's fault.
THIS is the discussion. We all want lower prices and I'm sort of fine with legislation but we are planting seeds for future problems which won't become evident for some years.
The discussion branched
a little bit then.
I don't know how you can control the prices of drugs in other countries, particularly without international agreements to adhere to royalty fees.
That's what I said.
There are similarities to the ag subsidy issue
...in that the essential question is whether to protect domestic enterprises from non-competitive practices by other countries. The answer is allow drug reimportation, which would force the drug companies to take on the countries with the price controls, if the prices in those countries truly do not let the drug companies to recover their costs.
skymutt: accept no substitutes!
what's with the red?
but anyway, I kinda said so much. As much as this is not the fault of the drug companies...meaning other governments strong arm with demands that are not fair market value...our government cannot really do anything about that.
Hopefully, by allowing re-importation, the drug companies will be forced to deal differently with overseas customers with socialized medicine.
As re-importation forces prices down a bit, the drug companies will have to counter that with better prices for themselves abroad.
The red is mainly to protest
...Murtha and his pathetic performance last night "defending" corrupt earmarks, coupled with the fact that Democrats in Congress nearly unanimously passed another bloated defense bill that was only about $3 billion less than the president asked for. Around $470 billion, and the wars aren't even included in the bill. It's just staggering what we're spending on defense, and yet we don't have enough troops for a piddling 20,000 troop surge-- we have to change all the rules about length of tours and breaks between tours just to scrape up a few thousand more soldiers to go into a combat zone. You can't tell me that most of that $470 billion is not going down a black hole.
skymutt: accept no substitutes!
So go yellow like me
and call a spade a spade all the time with no conflict.