I read the report and have some issues with it:
One of the findings is that the NIH found that the NIH was responsible for much of the research that went into many blockbuster drugs. Gee, that's a shock... "NewsFlash! NIH Report Says NIH Really Important!"
The report criticises drug companies for spending most of the R&D budget on applied research and product development instead of basic research. Um... duh? Drug companies are usually trying to develop a . . . drug. So most of their R&D is going to be applied and/or geared towards making a fancy molecule into something you can take in pill form. That's actually a pretty important part of bringing a drug to market.
It also criticises the drug industry for using tax credits. It actually makes a pretty good argument for ending some of the benefits that the government provides to drug companies. I'd be okay with that. But I feel that way about a lot of corporate welfare. But I don't blame the corporations for taking advantage of it. I claim my mortgage tax deduction and any other benefits I can legally claim.
Price and profit controls – which exist in virtually all European countries – haven’t hurt the thriving drug industry in Europe where companies such as Glaxo Wellcome, Novartis, Aventis, AstraZeneca and Roche all have revenues that put them in the top 10 companies in global drug sales. (There are five American and five European companies in the top 10.) While it is true that many European companies have substantial sales in the U.S., they still maintain robust R&D activities, despite the price controls in the European market.
This paragraph actually supports the claim that high U.S. prices subsidize European drug consumers... even the European drug companies use the U.S. to make their profits. So slashing drug company profits in the U.S. would probably hurt European R&D, too!
On this last point, the OTA study was clear and unequivocal – returns were more than enough to stimulate investment. Specifically, the OTA found: “Each new drug introduced to the U.S. market between 1981 and 1983 returned, net of taxes, at least $36 million more to its investors than was needed to pay off the R&D investment.
Meaningless statement obviously made to scare people. What was the percentage return on investment? If the R&D investment was $36 million, then the return is 100%... pretty good. If the R&D investment was $500 million, then $36 million is 18%, not so good considering there are other costs than R&D.
Finally, the OTA said it’s not clear whether a reduction in R&D spending would necessarily be harmful. “Whether a decrease in R&D would be good or bad for the public interest is hard to judge. It is impossible to know whether today’s level of pharmaceutical R&D is unquestionably worth its cost to society [in high prices].”
So let's cut their prices/profits and find out! When faced with uncertainty, the obvious course is to impose government regulation just to see if it works!
It could very well be that some research can wither without significant consequence. Section VI showed that the majority of drugs that companies bring to market are not drugs that represent important therapeutic advances. Rather, most are me-too drugs that replicate already successful drugs so that different companies can gain a cut of a burgeoning market. Some industry critics argue that less research on me-too drugs would improve the overall quality of industry research and decrease clutter in the market.
So they believe that cutting prices and profits will encourage drug companies to move away from the safer "me-too" drugs to more risky drugs? They are counting on the drug company management to be incompetent?
Then there's a whole section on how advertising works and how awful it is that drug companies advertise... I guess they should stick to strategies that don't work. Or get punished by the government. And in the discussion, "Marketing and Administration" is sometimes used as a proxy for "advertising"...
The prescription drug industry is arguably America’s most government-coddled industry. It receives a 20-year monopoly patent on the drugs it develops, permitting companies to charge whatever the market will bear for life-saving drugs.
Um... every industry receives 20-year monopoly patents on their inventions, allowing them to charge whatever the market will bear. Heck, even people who sell life jackets and smoke alarms charge whatever the market will bear. Bastards.
The paper's recommendations range from some sensible reductions in corporate welfare to a massive enlargment of the FDA in order to micromanage the drug industry. They would have the FDA set prices (indirectly) based on non-market factors, leading to surpluses and/or shortages.
Actually, one of the big problems with the drug market is that the market is currently screwed up by the fact that most people pay a co-pay and don't have an incentive to shop around. Two-tiered co-pays (higher for name-brand when generic is available) help this, but maybe we should try making the market MORE efficient (by requiring drug co-pays to be a percentage of price or something) before we make it much LESS efficient.
One of the conclusions of the paper is that the drug industry is very healthy and profitable. Um... so let's be sure and put a stop to that nonsense.
Posted by Earnest Iconoclast | January 30, 2008 2:31 PM
meganmcardle.theatlantic.com |
