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Biotech / Medical : Biotech Valuation

CRSP 53.51

-1.3%

Jan 16 9:30 AM EST

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To: Scott H. Davis who wrote (2136)	11/26/2000 10:32:28 PM
From: Biomaven	Read Replies (2) of 52153

The key issue of course is that it's always tempting to eat one's seed corn. Price controls on drugs, whether explicit or implicit, don't produce noticeable bad effects right away, and of course they make consumers happy immediately. The adverse effects come many years down the line, when some good drugs that would otherwise have been developed don't show up. There are some biotechs built on pricing that some would view as extortionate. (For example, some of GENZ's drugs with prices well over $100k a year per patient.) Of course these drugs serve very small populations, and so they would not have been developed at all if their pricing was more "sensible." Further, the drugs are essential to the survival of the patients, which means that insurance companies and HMO's have no alternative but to cover the costs. Nobody much likes to talk about the costs of these super-expensive drugs for obvious reasons. I have no idea what happens to patients without insurance that can't cover the costs themselves. I also worry about what will happen if some biotech with a widely publicized ground-breaking discovery tries to match these prices for something that isn't a niche indication. The big worry is that health care costs are increasingly a giant black hole that will suck up any and all resources that come anywhere vaguely near sucking distance. This is only going to get worse as better and fancier drugs get discovered and organ engineering or xenotransplantation becomes a reality. Ultimately explicit rationing is likely the only way out - the Oregon Medicaid experiment was a first, very wobbly and not very successful step in this direction. Here's a review of what Oregon did: innovations.harvard.edu Peter

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