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| The 32 non-US countries used in the comparisons, i.e. "...the rest of the world..." |
Key points:
- The study used Manufacture's Suggested Retail Price as the basis for their analysis
- The 60 drugs with the highest US sales volume had prices that were almost 4X higher for US consumers than for the rest of the world.
- Conversely, generic drugs had MSRP prices in the US that were slightly LOWER than in the rest of the world.
Editorializing Part I
There are precedents for what appears to be an anomaly. Coal was, in fact, exported to Newcastle.
Production costs come in two forms. Specifically, up-front fixed costs and on-going variable costs.
When an industry like Pharmaceuticals or mining has very large up-front costs compared to the on-going costs of production then there is a strong incentive to price (later) incremental sales less than the prices set for early-production sales.
The up-front costs to produce Pharmaceuticals is beyond brutal. Not only must your product pass an expensive array of field-trials which a very low percentage of drugs manage, but the revenue of the ones that do pass must bear the burden of the costs of the ones that failed.
Once a drug has been approved by the FDA, the manufacturer prices the drug based on expected domestic sales volume such that the costs of development (including the costs incurred by the drugs that didn't make it) are covered.
Those new drugs also incur marketing costs. They are advertised in media AND handsome and beautiful "drug reps" drive from doctor's-office to doctors-office like so many Fuller's Brush Sales Cheerleaders touting the value of the drug and offering samples.
Only after the new drug has elbowed its place along the feed-trough domestically is any real effort made to gain approval in non-US countries. Since all of the heavy-lifting in covering the fixed-costs has already been accounted for, the profit margin is considered to be the sales price minus the cost of on-going production.
In the arcane world of accounting, the sales price in a foreign country can be 25% of the price in the US and the profit margin for those sales will still noodle out as many times higher.
Editorializing Part II
Politicians LOVE to say they reduced the cost of drugs! Prescription drugs are a large part of older citizen's cost-of-living and older people VOTE.
Because of the temptation, politicians "game" the numbers. For instance, they will fold the "sample" population into the pricing and they will stack all of the manufacturer's discounts (even though the discounts are often mutually exclusive or time-sensitive). The biggest games are to cherry-pick just one or two drugs...insulin and epi-pens seem to be favorites and just report those...or to report the increases in prices rather than the actual, base prices.
One of Trump's initiatives was to beat the Pharmaceutical companies down so that the US Medicaid and Medicare prices for major drugs was the same as the prices for the rest of the G-7 (a subset of the 32 countries used in the study quoted).
This initiative was very unpopular with the Pharma companies because those other-country prices were not sustainable without US prices amortizing the fixed-upfront costs of introducing those drugs.
At the risk of understatement, the Pharmaceutical industry did not favor Donald Trump and his America First policies because it was in conflict with the accounting models that drove their pricing and profits.
It is also worth noting that Pharmaceutical advertising puts a lot of revenue into the pockets of the mainstream media. Threats to Pharma profits are also an indirect threat to the mainstream media's revenues. The top-60 drugs by revenue are the top-60 due to heavy advertising.
Older people take medication chronically because frequently they failed to care for themselves properly when younger. Obesity, diabetes, hypertension, cardiac disease. All caused by or contributed to as a result of poor diet, lack of exercise and excessive intake of alcohol, tobacco and crappy foods. Big Pharma LOVES lazy fat gluttonous Americans. Drugs cost less in foreign countries often because there's just not much of a market for those that treat chronic illness, which is rarer in those countries. But yes....drug prices have only a remote relationship to the costs involved. And over time that relationship becomes nonexistent. Take Metformin...a drug that has been in use for almost a century. The current cost for a three month supply is now about 30 dollars. It costs the manufacturer less than a 10% of that to produce it. The price is kept artificially high because a LOT of Americans use Metformin and thus it produces OBSCENE levels of profit.
ReplyDeleteYou've made assertions without offering any evidence.
DeleteFrom my experience as a nurse, I am not aware of evidence to support any of your allegations.
Would you care to support?
A drug that costs the manufacturer $3 "...to manufacture..." still has several gates it must pass through to get to the consumer. In some cases, there are stringent temperature, humidity and shelf-life requirements. Then it has to be doled out by a pharmacist...their wages have to come from somebody.
DeleteBack in the day word got out that "It cost GM $1400 to make a Pontiac Grand Am." Everybody thought GM was making money hand-over-fist making small cars and crying crocodile tears regarding lack of profitability in that sector.
The statement that triggered that was ALMOST correct. It cost GM $1400 to ASSEMBLE a Grand Am. That is the cost of the labor required to reach into bins, walk over to the vehicle and install those parts. It did not include the cost of the parts or the cost of the tools and facilities and engineering to develop and make those parts.
I suspect the $3 to manufacture metformin with a $30 price tag has a similar story.
At the time of the Grand-Am story, approximately 40% of the cost was the cost of part, 40% was the "fixed costs" and only 20% was the cost of direct labor. That put the GM cost to load a base level Grand Am onto a rail car at about $7000 with an MSRP of $8300.
DeleteERJ, a subject I know a bit about.
ReplyDeleteA standard measure used for description is that for every 1,000 compounds in the lab, one of those gets to pre-clinical testing. Of every 100 of those, 1 moves to the start of the first of three clinical trials. The washout continues as you move through Phase 1 to Phase 3. Of products that enter clinical trials, 1 of 10 gets to a submission to the FDA. Of those 1 in 5 will get approved.
That is a long, expensive development process - 10 to 12 years is not an unreasonable number.
Additionally, of course, there are operating costs. Pre-clinical (Animal) testing is expensive - but required, as one should not go directly to humans. Clinical trials are expensive - a small trial will easily cost $1 million; escalate accordingly. And the actual production process is expensive - oddly enough, people want high quality products manufactured with highly reliable reagents, in sterile conditions, with trained personnel.
Obviously, the whole thing costs money. I have heard the number some years ago of $1.5 billion, but I am reasonably sure that number has gone up.
And that "windfall" from a new product often (not always of course) gets invested into the next round of research, because companies have to start that far in advance.
I cannot speak to the marketing - that is something that is beyond my scope of responsibility - but for the other expenses, they are either effectively long term investments or a roulette wheel where companies hope they see results before the wheel stops.
We could, I suppose, make some sort of "cost + model" for biopharmaceuticals - but if the profit motive is not there, likely there will be a lot less medicines. After all, why invest 10 to 12 years for something that has a 2% return?
The argument, to my mind, is similar to that for energy industry: the government and people view it as overpriced and greedy, yet expect it to continue to meet their needs even as they deplore it.
So, TB, can you explain how the COVID jab got to the market so fast. Did they already have in the works as some of the”conspiracy “ theorists would have us believe? Maybe there is no such thing as a conspiracy!
DeleteI suspect there is two sides of the coin answering your question.
DeleteFirst, I understand that a lot of research had been ongoing on MRNA/etc.
Second, there was an unconscionable rush to bring that out and we really should not say with any confidence that the Covid vaccine is "safe"
Anonymous, two factors. One, as Don RN points out, is the fact that MRNA was a research that has been in the works for some years. The other - which he alludes to - was the rush to bring it to market, specifically the Emergency Authorization Use Act.
DeleteThis act allows the FDA, at their discretion, to effectively "allow" unapproved products on the market in the event the FDA deems the need to be great (such as The Plague was perceived to be). That I am aware of, this is the first time it was done in a major fashion, at least in my working life time. What this meant practically was that instead of a long clinical trial process with protocols, data reviews, significant animal studies, etc. manufacturers could submit an abbreviated package for initial approval (mostly Phase 1 studies for safety). The companies are required to "follow up" with additional studies and in some cases the products became no longer approved for emergency use.
To be clear, I objected to it at the time. I object to it now. We have the current system in place for a reason and short-circuiting it will never lead anywhere beneficial.
You forgot to mention that most countries set the prices for drugs without regard to development costs.
ReplyDeleteThere is a reason that over 75% of global drug development is in the US... And with the new Medicare price fixing passed last year, we are already seeing a reduction in new development in the US.
If you force prices below cost, people stop making it.
So, you're saying we're all victims of a gang of drug dealers?
ReplyDeleteWe are all victims of the accounting practices and business models of the drug dealers.
DeleteYep...
ReplyDeletehttps://rumble.com/voz64j-brought-to-you-by-pfizer.html
Not arguing with ERJ's overall points.
ReplyDeleteI will point out that very rarely are drugs "sold" in the US at the MRSP. There are almost always background insurance "allowable" charges, volume negotiated pricing, etc, etc.
The bottom line to objectively observe is that the overwhelming portion of new drugs developed come from the US.
And that drug companies seem to be generally profitable -- but not the "evil corporation" that they are often portrayed as.
The big problem with drug prices is not obesity or Boomers orwhatever else. It's simply that Congress saw fit to ban reimportation of those drugs. If WalMart-sized companies could buy drugs overseas, and bring them back into the States to sell in their local pharmacies, their economies of scale and bargaining power would almost certainly end up being cheaper than you or I ordering from a pharmacy in Belgium, which would be cheaper than paying US prices.
ReplyDeleteOf course, if reimportation were legal, WalMart would have no reason to pay for shipping overseas, then pay for shipping back..