Corante

About this Author
DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

Chemistry and Drug Data: Drugbank
Emolecules
ChemSpider
Chempedia Lab
Synthetic Pages
Organic Chemistry Portal
PubChem
Not Voodoo
DailyMed
Druglib
Clinicaltrials.gov

Chemistry and Pharma Blogs:
Org Prep Daily
The Haystack
Kilomentor
A New Merck, Reviewed
Liberal Arts Chemistry
Electron Pusher
All Things Metathesis
C&E News Blogs
Chemiotics II
Chemical Space
Noel O'Blog
In Vivo Blog
Terra Sigilatta
BBSRC/Douglas Kell
ChemBark
Realizations in Biostatistics
Chemjobber
Pharmalot
ChemSpider Blog
Pharmagossip
Med-Chemist
Organic Chem - Education & Industry
Pharma Strategy Blog
No Name No Slogan
Practical Fragments
SimBioSys
The Curious Wavefunction
Natural Product Man
Fragment Literature
Chemistry World Blog
Synthetic Nature
Chemistry Blog
Synthesizing Ideas
Business|Bytes|Genes|Molecules
Eye on FDA
Chemical Forums
Depth-First
Symyx Blog
Sceptical Chymist
Lamentations on Chemistry
Computational Organic Chemistry
Mining Drugs
Henry Rzepa


Science Blogs and News:
Bad Science
The Loom
Uncertain Principles
Fierce Biotech
Blogs for Industry
Omics! Omics!
Young Female Scientist
Notional Slurry
Nobel Intent
SciTech Daily
Science Blog
FuturePundit
Aetiology
Gene Expression (I)
Gene Expression (II)
Sciencebase
Pharyngula
Adventures in Ethics and Science
Transterrestrial Musings
Slashdot Science
Cosmic Variance
Biology News Net


Medical Blogs
DB's Medical Rants
Science-Based Medicine
GruntDoc
Respectful Insolence
Diabetes Mine


Economics and Business
Marginal Revolution
The Volokh Conspiracy
Knowledge Problem


Politics / Current Events
Virginia Postrel
Instapundit
Belmont Club
Mickey Kaus


Belles Lettres
Uncouth Reflections
Arts and Letters Daily
In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

« Empty Shelves | Main | Living by the IP Sword »

August 24, 2004

I'll Have the Price They're Having

Email This Entry

Posted by Derek

Thanks to Arnold Kling, I found this piece on the economics of the drug industry. It comes from the remarks at a recent industry conference, and it's worth reading (even if it does make an approving reference to Marcia Angell near the end) - an excerpt:

If the prosperous flow of innovations was to be sustained (he said), either the industry would have to find a way to dramatically alter its cost structure, or else "we are going to have to figure out collectively some way across political parties and countries to construct and maintain a structure of global price differentials."
With the promise that changes in the cost structure would be addressed in another meeting later in the fall, attention turned to various schemes for differential pricing.

Berndt skimmed quickly over the traditional argument for differential pricing. Many industries had high fixed costs and relatively low marginal costs, he said -- electricity, telecommunications, software, database services, movies, and so forth.

But none was the same class as pharmaceuticals, where the difference in incremental cost between the first tablet of a new medicine and the second is on the order of $800 million for an average medicine --$800 million to "get the science right" and make certain that the treatment works in some degree, 25 cents to make the second copy, and the third and as many more tablets as can be sold.

Not being an economist, I'd never thought of it in quite that way. It's a familiar illustration of the problem of software piracy, though, or file-sharing of copyrighted work. We don't have as much of a piracy problem in pharmaceuticals (although it's certainly there), since it's harder for a third party to run off further copies of our pills.

The focus on differential pricing is justified. That's what the whole drug reimportation debate comes down to, and it's the corner my industry has painted itself into. This meeting seems to have mostly tried to find ways to maintain the existing system, which is at least better than suddenly yanking it down. That is, it's better for all of us who would be suddenly pitched onto the street, and it's better for our customers, who in a few years might wonder why there haven't been any new drugs to treat their diseases for a while.

But I'll really be interested in the next conference mentioned above. I think that eventually we're going to have to move to a new pricing structure, and I don't know what it's going to look like. The article itself has a suggestion, which I'll address separately - Arnold Kling has a follow-up on it here. Whatever it is, we're going to need some time to get ready for it.

Comments (5) + TrackBacks (0) | Category: Drug Prices


COMMENTS

1. Greg D on August 27, 2004 9:14 PM writes...

What I'd like to see is the US Gov't passing a law banning ALL differential pricing (with, perhaps, and exception for Africa).

Something straightforward and simple like: if you want to be able to sell your drug anywhere in the US, you can charge different prices for different quantaties (i.e. one price per 1000 grams / pills / cc / whatever, and a different price for 2000), but you must offer everyone in the US the lowest price you offer anyone, anywhere.

On the one hand, this sucks, because it attacks incentives to cut the cost of bringing a drug to market in the US.

On the other, it totally ends the "reimportation" debate, and stops whatever free ride Europe and Canada have been getting from US consumers.

If the US really is the major source of pharma profits, such a law should work.

Permalink to Comment

2. Brian Ledford on August 28, 2004 11:08 AM writes...

I'm s bit dubious of the "25 cents to make the second copy" bit. 20 mg is a reasonable amount of active ingredient so 25 cents for 20 mg is about 12.50 a gram. Given what aldrich charges for nonracemic alpha amino alcohols or unnatural amino acids or protected amino acids, I don't see how 12.50 a gram is a reasonable price. No clue what things really cost for super large scale but I'd peg it at closer to 500-1000$ a gram for anything with more than one step, so 10-20 bucks for that second pill (less than 800 million obviously).

Permalink to Comment

3. weirdo on August 30, 2004 12:38 AM writes...

Anything over about $10K/kilo is considered a pretty expensive drug substance (~$10/gram).

Sad, but true.

Permalink to Comment

4. Eric Pobirs on August 31, 2004 10:57 AM writes...

Don't forget, a important step in the R&D process is perfecting the means of dependably producing the new substance in quantity. That falls into the $800 million part. In addition to making it available for researchers a big step in investigating a newly discovered substance from some exotic source is the need to synthesize it so that it can be economically viable if it should prove useful as a drug.

Permalink to Comment

5. Steven Den Beste on September 1, 2004 5:49 PM writes...

I sometimes wonder if the proponents of "reimportation" might actually have a good idea, though not for the reason they think.

Take Canada, for instance. If the US did in fact start massively reimporting drugs from Canada, the Canadian system would be drained of drugs and Canadians wouldn't be able to get them -- because Americans were willing to pay a higher price. Canada could conceivably try to prevent it legally, but NAFTA would be a problem, and in any case it's pretty difficult to prevent.

The government of Canada might ultimately have to raise the price of drugs in Canada, so that they no longer were attractive for Americans to reimport. If they did, the drug companies could reasonably ask for a cut of the increase -- and that, then, would help subsidize the research and might permit the drug companies to lower the price in the US.

Yes, I know some of the links in that logic chain are a little weak, but the larger idea is simply that as long as other nations are trying to free-ride on high American drug prices paying for all the research, then reimportation spoils the game by draining all the artificially-low-priced drugs out of their system.

Permalink to Comment


EMAIL THIS ENTRY TO A FRIEND

Email this entry to:

Your email address:

Message (optional):




RELATED ENTRIES
Conference in Basel
Messed-Up Clinical Studies: A First-Hand Report
Pharma and Ebola
Lilly Steps In for AstraZeneca's Secretase Inhibitor
Update on Alnylam (And the Direction of Things to Come)
There Must Have Been Multiple Chances to Catch This
Weirdly, Tramadol Is Not a Natural Product After All
Thiola, Retrophin, Martin Shkrell, Reddit, and More