The Answer Is Quite Simple, But Nobody Will Pick Up The Ball

The Market-Ticker ^ | Sept. 23, 2015 | Karl Denninger

[kingu]

But the plaintiffs' lawyers that own the democrats would never let something like this through. That's big money you're taking from them and they'll fight hard to keep it.

Oh, please, there is no limitation to the Democrat party - the uniparty in Washington moves in almost perfect lockstep on major issues, and it is just the tiny ones they bicker over like little children. Package it right - call it the 'Patient Wellness Assurity Act' or some other lie, pass it, have it signed, and kiss goodbye all those idiotic class action lawsuits.

[Bloody Sam Roberts]

But to claim that cancer researchers and pharma don’t want to cure cancer is disingenuous.

I made no claims about either one. It was the American Cancer Society that my barb was aimed at.

[RinaseaofDs]

If you want to pay less for drugs, the answer is exceedingly simple - eliminate the FDA completely.

Cost of getting a drug to market in the US exceeds a gigabuck.

Not every compound a drug company has under development is going to pay off. If a drug company comes up with a single blockbuster in two years, it funds the development of every other compound they have under development. Profitability, generally, is determined by deciding which compounds you intend to shelve, and when.

The other thing you can do is force Europe to buy meds on a hospital system by hospital system basis. Today, governments buy drugs on behalf of their entire health system. I wouldn’t be surprised if the EU has taken to doing it for all member nations.

That’s the opposite of a monopoly. It’s called a monopsony - when there is one buyer only, and they dictate to the manufacturer what it is they are going to pay.

Today, Europe shoulders none of the cost of development. They get a free ride on our tail.

[Bubba Ho-Tep]

Yes, but isn't this also due to monopsony powers, where there is only ONE BUYER, in this case a foreign government, who can force the price down for their purchase?

That can be a factor, but I don't think that, say, the Canadian online pharmacies that offer large discounts over US prices are obtaining their drugs from the Canadian government.

[norwaypinesavage]

It’s time to get real here. The production cost of almost all drugs is so close to zero that it can usually be ignored. The real cost is totally due to government regulation. It costs on the order of a billion dollars to bring a new drug to market. That’s BILLION, with a B. Unless you include that cost, don’t waste my time. And don’t whine about drug company gouging you unless you can show me a drug company that earns an extraordinary net profit.

[MD Expat in PA]

I used to think that pharmaceutical companies were just greedy SOBs for charging so much for some their drugs. I thought, “just how much could that really tiny little pill actually cost to make?” That was until I started working for a small pharmaceutical company as a payroll and accounts payable manager and eventually as a senior staff accountant.

For the first time I became aware of the tremendous costs and time (an average of 12 years) and effort involved in getting a new drug from the lab, through all the various trials- first the animal trials and finally, only if it makes it that far in the FDA approval process – human trials and then patient clinical trials, to getting FDA approval and then post approval monitoring for any and all side effects (whether actually attributable to the drug or not ) and which can last for many, many years and has to be under FDA rules, outsourced to an impartial 3rd party and BTW, at no small cost.

And most people are largely unaware that a large number of drugs that enter clinical trials don't actually ever get approved by the FDA. That’s not to say that these drugs are necessarily “bad” or harmful or ineffective. Sometimes the FDA will not outright reject a drug but send it back to the pharma for further research and additional trials, or sometimes on a minor technicality over claims of efficacy or sometimes for reasons not completely understood or even well supported against approval by the science or clinical trial outcomes.

I used to see and process for payment invoices for lab equipment and supplies (and guess what – not cheap) and some equipment was in fact so expensive that (and as I am sure many other pharmas and biotech firms do) we did not really purchase some pieces of high tech equipment but entered into capital lease – purchase – lease -buy back arrangements to keep much needed cash flow flowing. Then there are the specialized computers and computer software, the cost of the clean rooms and maintain them, and then the highly specialized manufacturing equipment and packaging, the cost of quality control…. the costs I saw were staggering. I had no idea before that the costs were so high.

I also saw and processed the invoices for animal trials, sometimes to the tune of a half million $ at a time. My department’s weekly AP check run was well over three million dollars and our semi-monthly net payroll was close to a million. And we were a rather small pharmaceutical company – we only employed about 250 people and another 25 in sales and marketing nationally and internationally.

And FWIW, while we had a small on-site animal lab (only mice and rats), a lot of our animal trials were outsourced and IIRC, that is actually required by the FDA, but because of animal “rights” wackos here in the US, we outsourced a lot of it (rabbit, dog and primate trials) to Europe – mostly to The UK, France and The Netherlands. But as I understand, it is becoming increasing difficult and hostile and more expensive for these companies to operate these much needed and necessary research anywhere in the world and there are fewer and fewer of them so of course those costs are ever increasing.

FWIW – while the company I worked for didn’t produce any “fun” drugs, i.e. the types of drugs that people get “high” on, we had armed security guards 24-7 at each of the entrances to our two buildings and high tech security systems – swipe badges that limited access to certain areas of the building - the labs and animal labs. Part of that need for security was because of threats of physical violence, bombings, etc. that had been made by ELF and PETA and other extremist groups. When I was hired, even as I was working the finance department, I had to undergo a rather extensive background check as did all our employees, in part because of the very real fear of unknowingly hiring an animal “rights” activist.

And speaking of the payroll costs, yes, it was shocking to me coming from a background in smaller, mostly in engineering/architecture and construction companies, seeing what some the high level executives; the CEO, CFO and various VP’s made. But then again, that made up only a small percentage of our total payroll. Biochemists, chemical scientist, molecular biologists, toxicologists and pharmacologists, especially those with PhD’s don’t come exactly cheap and in a highly competitive market, even as a smaller pharma, we had to compete for talent with much bigger firms in terms of salary and benefits and incentives and the expenses of recruiting them.

When I worked at this pharmaceutical company, after having been in business for just shy of 10 years, we only had one FDA approved drug that we marketed and sold - a very specialized implantable chemo therapy wafer used to treat Glioblastoma multiforme brain cancer and one drug close to getting FDA approval, a drug for the treatment of acute coronary syndrome. We had many other drugs in the R&D pipeline and several others that never got anywhere but at the cost of millions of dollars in R&D, but only one that was producing anywhere near a positive cash flow and given the upfront costs in getting that drug from the lab to FDA approval over a ten year period, we were not anywhere near recouping those costs. So yes, the price of that drug was not cheap. Then again, we also had a program as do many other pharmaceutical companies, in which we donated at no cost to the patient, the drug to treat Glioblastoma multiforme cancer to patients who needed it but either did not have insurance or their insurance company would pay for it. Sure, part of that was for the positive PR we go for doing so, but it was also because our CEO was an MD, and a neurosurgeon and who had seen up close and personal, the devastating effects of Glioblastoma multiforme brain cancer and really wanted to find an effective treatment.

Cost to Develop New Pharmaceutical Drug Now Exceeds $2.5B

http://www.ca-biomed.org/pdf/media-kit/fact-sheets/cbradrugdevelop.pdf

[norwaypinesavage]

Great story. I would only add one thing. You pointed out that "I became aware of the tremendous costs and time (an average of 12 years) and effort involved in getting a new drug from the lab [to market, and costs an average 2.5 billion dollars]."

The drug patent is only good for 20 years (it just went up from 18), and requires disclosure of all of the ingredients in the drug. This means that the company has an immediate per pill cost of $2.5 billion divided by the number of pills it expects to sell in 8 years just to recover the development cost. After that, anyone can produce a "generic" equivalent, and they've been given the formula in the patent.

[MD Expat in PA]

Yes. Good point and I agree and forgot to point that out in my post. I am not sure when a pharma typically first applies for a patent on a new drug but am pretty sure it is fairly early in the R&D phase.

[rollo tomasi]

"Cost of getting a drug to market in the US exceeds a gigabuck."

People often forget the investment side of things, believing the life saving drug just magically popped-up from the ground by itself. Drugs cost billions to produce/test and every once in awhile some get past the FDA. After that it goes through the "personnel injury lawyer phase" which one anecdotal incident could drive the product out of the market.

People who complain about the manufacturing/selling process ought to "walk in pharma's shoes" for awhile.

[norwaypinesavage]

With the new patent law, the first to apply for a patent is given the patent. It used to be that a company could temporarily protect a patent for a year, or so, with dated and signed internal company documents. This change forces companies to file for a patent very early.