The latest report from the UK Pharmaceutical Price Regulation Scheme documents that drug companies in the United Kingdom invest proportionately more of their revenues from domestic sales in research and development than do companies in the US.
That supports what the article calls a myth. If you have lower overall prices, and your going to have any R&D at all, you would invest a large proportion of them.
The key point is not the proportion, but the overall R&D level. Now even with the same prices the UK's market would be smaller than the US, but you can substitute the EU of the UK, or you can look at how much per pill sold goes in to R&D.
Prices in the UK are much lower than those in the US yet profits remain robust.
They are robust in large part because R&D and overhead costs can be recovered in the US. Also "profits are robust" isn't the issue. Lower return on investment, even if profits are still robust (or at least called robust by this study, its a rather subjective term), usually means lower investment.
Companies in other countries also fully recover their research and development costs, maintain high profits, and sell drugs at substantially lower prices than in the US.
Companies in other countries sell drugs to the US, so that statement is entirely meaningless as an argument.
A corollary to this claim is that drug companies are shutting down their European operations because prices are too low and moving to the US. This assertion is contradicted by the industry's data.
Drug companies spend less on reseach because of lower prices in Europe, does not imply or lead to "drug companies are shutting down their European operations". Its irrelevant in terms of trying to counter the free rider argument.
The table presents the spending on research and development as a percentage of gross domestic product for eight developed countries.14 The US is about at the median.
Again these other country's pharmaceutical industries sell drugs in the US.
The US accounts for just under 48% of world sales and spent 49% of the global total on research and development to discover 45% of the new molecular entities that were launched on the world market in 2003, less than its proportionate share. European countries account for 28% of world sales, 36% of total research and development spending, and 32% of new molecular entities, more than its proportionate share.
They keep harping on this same irrelevant issue, they just state it in different ways, or provide new data about it. But it doesn't matter how many ways you state it, or how much data you provide. All that does is argue for the point, but if the point itself is irrelevant to the overall claim (and this one is) it doesn't get you anywhere.
Once again these countries/companies sell drugs in the US. I never claimed they don't do R&D, but a large part of the motivation behind this R&D spending is to reap profits in the US market. If anything the data Light and Lexchin provide help confirm my point. 48% of sales are in the US, which has just under 5% or the world population, and has less people than the EU. Europe which has more people accounts for just 28% of sales revenue.
Well I guess the data may show that Europe isn't a total free rider market. 28% of sales is still a lot of money. That's why in another posts I refered to them as "cheap riders". But if the only choices are "free rider" or "not free rider", than free rider fits.
Although all types of research are valuable, it is basic research that leads to important therapeutic breakthroughs.
Nice way to downplay the other forms of research which are just as important. In fact perhaps more so. Forgo basic research and you still get some new drugs. Forgo the other forms of research, development, and testing, and you get no new drugs on the market.
But as I pointed out Europe, Canada, etc. are not free riders, perhaps not even "cheap riders", on basic research. That doesn't mean they aren't free or cheap riders, it just defines the area where they are free riding.
Firstly, counting which country discovers the most new molecular entities is irrelevant in a global market. Companies know that where a good drug is discovered does not matter, and often a discovery comes from research in several countries. Whether domestic revenues recover a given country's research and development costs is also irrelevant. If this were not the case the industry would have shut down operations in Switzerland long ago because of its small market size.
True but irrelevant to the larger point. Demolishing the weakest most foolish arguments of the other side doesn't make your case, or mean that no one on the other side has made theirs.
If revenues are inadequate, it would make more sense to conclude they do not cover all marketing costs rather than research costs. Research is central to the industry, and costs associated with it should be deducted first.
R&D and testing expenses are the long term investment of the industry. They are also a risky investment. Reduce the expected returns on risky investments and you reduce the investment.
Secondly, every student in introductory economics learns that fixed costs like research do not determine prices.21 The market sets prices, implying they are open to free trading like stock prices. Patents, and especially patent clusters, turn the market into a monopoly, and only a monopoly can claim that fixed costs determine prices because it can make that a self fulfilling prophecy.
Research isn't a fixed cost in the long run. Take a snapshot of any given moment and yes the R&D is mostly fixed, but if profitability after such costs is reduced then you get less investment in such "fixed costs" in the future. Reduce it enough and it becomes a much better bet to take all that money and just put it in to T-bills, or if you still have a taste for risk to buy stocks, or to use it to move the company in to other markets.
As for the monopoly, well yes patents create temporary monopolies. And in doing so they increase the return on investment in new drugs enough to get such investment. |
