High Drug prices- From Wall street Journal

[stevenash]

For perspective on the national angst over drug prices, let’s pay a visit to the ballpark. The average Major League Baseball player

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of more than $4 million (plus $100 a day in meal money)—far more than it takes to lead a comfortable, well-appointed life. Let’s say the team owners cut those salaries by half, to $2 million or so. Putting aside the union protections that the players enjoy, surely they would continue showing up to work. Almost certainly fans would continue to enjoy the same quality of play on the field.

Now consider the parallel to top-selling pharmaceuticals. The high price tags on popular drugs allow pharmaceutical companies to earn revenue far in excess of the cost of developing those drugs. Even if prices were cut drastically, these drugs would continue to sell. The question, both in the ballpark and the drug lab, is what happens next season, and the season after that.

For every successful Major Leaguer, there are hundreds of disappointed players whose careers end before they ever reach the big leagues. The promise of a big-league payoff must remain strong enough to continue to attract players to a career path with a high rate of failure. For the players of tomorrow, a drastic cut in the potential rewards of playing would encourage them to consider other sports, or even other careers. The 2014 Super Bowl-winning Seattle Seahawks quarterback, Russell Wilson, chose to enter the 2012 National Football League draft over spring training with the Colorado Rockies.

 

In the same way, the return on capital invested in successful drugs must be enough to compensate for all the lost bets on failed drugs. The typical investor—even a professional—places both winning and losing bets; as in baseball, no one goes undefeated. Thus, the winning bets must produce enough “excess” wealth to offset the losses from betting on the losers.

In baseball, the issue of player salaries faded long ago. The talent pool is deep, stadiums are full, beer and hot dog sales are brisk, and lucrative TV contracts keep owners flush. Equilibrium has been achieved. In drug pricing, the debate remains at full throttle. The big question: How much do we need to pay today to attract the investment that will keep drug discovery alive tomorrow?

Economists have tried to answer from a variety of angles. In all cases, price reductions are associated with less innovation, although the magnitude varies. A 1% reduction in price reduces innovation—meaning the number of new drugs launched—by

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or

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. A 2015 study published in the RAND Journal of Economics found that it takes about $2.5 billion of additional expected pharmaceutical revenue to generate one additional new drug launch.

This research demonstrates that prices matter, but it doesn’t answer the big question: What is the “right” price to guarantee innovation? Innovators should be able to share in the value they create for society, but how much?

Economists Anupam Jena and Tomas Philipson have

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that the manufacturers of new medical technologies have historically captured about 15% of the surplus they generated for society. Drugs and devices allowing companies to exceed this threshold tend to face the greatest pushback. For example, the biopharmaceutical company

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earns 20% to 40% of the total social value created by sales of Sovaldi, which is used to treat late-stage hepatitis-C patients. Insurers, politicians and advocates

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in 2013 at Sovaldi’s hefty $1,000 per pill price tag.

The pharmaceutical industry might find itself on safer ground politically if it remained closer to historical norms for the harvesting of social value. Such self-restraint may already be too late, given calls from President Trump and Sen. Bernie Sanders for a crackdown on drug prices. The levers they could reach for—increased importation, regulation of advertising and competition, even price controls—have broad popular support.

 

Economists agree that higher drug prices spur more drug discovery, but they still don’t know how much discovery is enough or how high prices need to be. What is clear, however, is that if pharmaceutical prices only covered R&D costs—with no surplus left over—then no one would want to play ball.

[LumRaiderFan]

Come on, Nash, we all know the real problem is CEO salaries...not sure what they are but they're too high.

[1989NDN]

I agree.

- Price matters;

- Innovators should reap a profit (if the innovator is a CEO of a privately held company, then so be it; if not, then give that profit to those who deserve it, i.e., the innovators and/or the investors);

- The pharmaceutical industry might find itself on safer ground politically if it remained closer to historical norms for the harvesting of social value; and,

- Higher drug prices spur more drug discovery, but they still don’t know how much discovery is enough or how high prices need to be.

Nowhere in the article does it advocate for drug companies to rip off consumers so CEOs can reap $10M-$20M or more.  If your telling me that the CEO is an "innovator", my response would be prove it.  If the CEO is not the "innovator" then give that profit to those who deserve it, e.g., R&D or the investors who made the R&D possible.  My complaint is not about a corporate entity recovering its R&D investment and making a profit.  The complaint comes when the recovery is outside of the historical norms for harvesting of social value...just as the article above points out.

3...2...1...the response will be that the marketplace will control the bad apples like Gilead Sciences.   Maybe, maybe not.  But, public scrutiny and government regulations have a place in the discussion.  Without public scrutiny and push back, maybe Gilead Science would charge $5,000/pill instead of $1,000/pill.

Go Indians.  Peace.

 

 

[stevenash]

11 minutes ago, 1989NDN said:

I agree.

- Price matters;

- Innovators should reap a profit (if the innovator is a CEO of a privately held company, then so be it; if not, then give that profit to those who deserve it, i.e., the innovators and/or the investors);

- The pharmaceutical industry might find itself on safer ground politically if it remained closer to historical norms for the harvesting of social value; and,

- Higher drug prices spur more drug discovery, but they still don’t know how much discovery is enough or how high prices need to be.

Nowhere in the article does it advocate for drug companies to rip off consumers so CEOs can reap $10M-$20M or more.  If your telling me that the CEO is an "innovator", my response would be prove it.  If the CEO is not the "innovator" then give that profit to those who deserve it, e.g., R&D or the investors who made the R&D possible.  My complaint is not about a corporate entity recovering its R&D investment and making a profit.  The complaint comes when the recovery is outside of the historical norms for harvesting of social value...just as the article above points out.

3...2...1...the response will be that the marketplace will control the bad apples like Gilead Sciences.   Maybe, maybe not.  But, public scrutiny and government regulations have a place in the discussion.  Without public scrutiny and push back, maybe Gilead Science would charge $5,000/pill instead of $1,000/pill.

Go Indians.  Peace.

 

 

Please let me know how one defines "historical norms" and how those should be enforced.   Following that, tell my why it is OK for Apple to make the profits they make.  They have 250 billion in cash which is also well above "historical norms".  I have no problem with public scrutiny and pushback, but I have a very large problem with a few bureaucrats making the final decision on what will be sold and at what price.   It wasn't but a few years ago that the "evil" and "greedy" oil companies were making "obscene profits" and many wanted something done about it.   The markets seem to have taken care of that pretty well.

[stevenash]

3 minutes ago, stevenash said:

Please let me know how one defines "historical norms" and how those should be enforced.   Following that, tell my why it is OK for Apple to make the profits they make.  They have 250 billion in cash which is also well above "historical norms".  I have no problem with public scrutiny and pushback, but I have a very large problem with a few bureaucrats making the final decision on what will be sold and at what price.   It wasn't but a few years ago that the "evil" and "greedy" oil companies were making "obscene profits" and many wanted something done about it.   The markets seem to have taken care of that pretty well. By the way, in a quasi- government influenced health care plan, the last remaining participant in Obamacare in the state of Iowa announced today a 43% premium increase for next year.   Love that government supervision/assistance/guidance/conscience/efficiency.

 

[1989NDN]

Historical norms are industry norms over time.

If Apple made life saving medications and those products were not affordable to the elderly, disabled, working poor, and children, then I would make the same argument against it.  To me, people matter more than money.  You may disagree.  If so, we can agree to disagree.

I'm not advocating for government control of private business.  I don't want bureaucrats setting price.  I don't want the government overtaking the free marketplace.  I do think the government and public interest groups should have a regulatory function and/or some voice in the debate.  For example, the FDA, OSHA, EPA, CDC, Consumer Product Safety Council, and the SEC, are examples of worthwhile government agencies and public interests groups that help industry and the public.

As with most things, public/private interests can share the stage.  Who defines each role on the stage, I agree that is where most of the debate gets rowdy.  I don't claim to have all the answers, but I don't want anyone excluded from the debate, e.g., private business, government agencies, public interest groups, etc.

Not a fan of ObamaCare.  The private insurance market had its problems, too.  People were left with medical care.  ObamaCare has not been the answer.  It's a failure.  But, we as a society should not just throw out the baby with the bath water.  There has to be a way that our society can create and a fund system to take care of the elderly, disabled, working poor, and children.  I know the majority on this message board don't want any of their income/wages/salary/profits spent on such programs.  I'm not opposed to paying taxes to help those in need.  I don't want a bloated government system that gets robbed by welfare kings and queens, but in an ideal world, I would like a system where those that need care can get it.

Politics = good healthy discussion/debate.

Off to vacation with family.  Back to reviewing the board in 2-weeks.

Go Indians.  Peace.

[stevenash]

24 minutes ago, 1989NDN said:

Historical norms are industry norms over time.

If Apple made life saving medications and those products were not affordable to the elderly, disabled, working poor, and children, then I would make the same argument against it.  To me, people matter more than money.  You may disagree.  If so, we can agree to disagree.

I'm not advocating for government control of private business.  I don't want bureaucrats setting price.  I don't want the government overtaking the free marketplace.  I do think the government and public interest groups should have a regulatory function and/or some voice in the debate.  For example, the FDA, OSHA, EPA, CDC, Consumer Product Safety Council, and the SEC, are examples of worthwhile government agencies and public interests groups that help industry and the public.

As with most things, public/private interests can share the stage.  Who defines each role on the stage, I agree that is where most of the debate gets rowdy.  I don't claim to have all the answers, but I don't want anyone excluded from the debate, e.g., private business, government agencies, public interest groups, etc.

Not a fan of ObamaCare.  The private insurance market had its problems, too.  People were left with medical care.  ObamaCare has not been the answer.  It's a failure.  But, we as a society should not just throw out the baby with the bath water.  There has to be a way that our society can create and a fund system to take care of the elderly, disabled, working poor, and children.  I know the majority on this message board don't want any of their income/wages/salary/profits spent on such programs.  I'm not opposed to paying taxes to help those in need.  I don't want a bloated government system that gets robbed by welfare kings and queens, but in an ideal world, I would like a system where those that need care can get it.

Politics = good healthy discussion/debate.

Off to vacation with family.  Back to reviewing the board in 2-weeks.

Go Indians.  Peace.

But you have already stated that "something needs to be done about CEO pay at drug companies"

[1989NDN]

Correct...keep reading...that is where the regulatory function comes into play.  We can reel in the pay of those non-innovating CEOs...let's give it to the workers in R&D.  They can use it to pay high premiums.   

Now, I gotta go.  Wife is tapping her foot asking me to get things ready for tomorrow's flight.

Go Indians.  Peace.

[stevenash]

Sorry, but regulating compensation is a very slippery slope. Once again, the markets know far in determining appropriate compensation levels than the government.    I dont like the price I have to pay to see Major League baseball, NFL, and NBA.   I insist that the government decide if Steph Curry earning 205 million is improper.