Politics: Onward from New Hampshire

[Tyrone Slothrop]

Originally posted by sgtclub
I agree with most of this, but would agrue that the recoupment during the monopoloy period for R&D costs and the 100 failures is the most efficient way for the company to recoup those costs, realizing that the pricing may not be the most efficient for the consumers if there are no other alternative drugs to chose from. Are you are saying that the company could charge significantly less, still recoup costs, and make a competitive profit? If so, I would be skeptical.

Why is it so important that we ensure that pharma earns big (or "competitive"*) profits?

* "competitive" with what?

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
I agree with most of this, but would agrue that the recoupment during the monopoloy period for R&D costs and the 100 failures is the most efficient way for the company to recoup those costs, realizing that the pricing may not be the most efficient for the consumers if there are no other alternative drugs to chose from. Are you are saying that the company could charge significantly less, still recoup costs, and make a competitive profit? If so, I would be skeptical.

Sure, but we're talking politics here, not corporate behavior. The political question is whether the regulation of drug prices (directly or indirectly) has net benfits for our society. My position is that it does, because drug pricing is currently ineffiecient because 1) it is monopoly priced, and hence carries dead-weight loss adn 2) is subsidized by over consumption.

I fully believe that drug companies maximize their profits under the given regulatory regime. But that's not necessarily a good thing for anyone other than those companies and their shareholders.

And, yes, drug cos. could be profitable with lower drug prices. They would have to slash costs, including R&D. But I'm of teh view that there's an excess of R&D because of ineffieciently high profits.

[Mmmm, Burger (C.J.)]

Originally posted by Tyrone_Slothrop
Why is it so important that we ensure that pharma earns big (or "competitive"*) profits?

Ty, just because you wouldn't pay the $1000 for the life-saving treatment for your mom, doesn't mean I shouldn't have to.

[sgtclub]

Originally posted by Tyrone_Slothrop
Why is it so important that we ensure that pharma earns big (or "competitive"*) profits?

* "competitive" with what?

We do not need to ensure that pharma earns competitive profits, we just need to not prohibit them from doing so. It is necessary for big pharma to be entitled to earn profits competitive with its competitors to (1) incentivize technological advancement, risk taking, and wealth and creation and (2) allow them to compete in the market place for alternative capital and debt sources.

[Hank Chinaski]

Originally posted by Tyrone_Slothrop
Why is it so important that we ensure that pharma earns big (or "competitive"*) profits?

* "competitive" with what?

It's not ensuring the profit, its keeping from government ensuring the lack therof. There are very few drugs that are truly monopolies. Most have competitive or parallel drugs. If the price is too high, business will go elsewhere.
But if a company invests in labs and scientist and developing drugs that will be thrown away in 99% of the cases, it need some decent ROI to justify continuing.

[Tyrone Slothrop]

Originally posted by Mmmm, Burger (C.J.)
Ty, just because you wouldn't pay the $1000 for the life-saving treatment for your mom, doesn't mean I shouldn't have to.

I thought we were trying to figure out how to bring the price down so that I can afford to pay for your mother, too. You know she's fond of me.

[Mmmm, Burger (C.J.)]

Originally posted by Hank Chinaski

But if a company invests in labs and scientist and developing drugs that will be thrown away in 99% of the cases, it need some decent ROI to justify continuing.

Given that viagra was selling for what $60 a pill on manufacturing costs of probably less than 5c each, I'm pretty sure Pfizer was able to recover a fair amount of costs associated with that drug's development and a bunch of others' as well.

The fundamental proposition you and club have yet to substantiate is that current levels of R&D are optimal from a societal standpoint. I contend they are not, and that regulation could move us closer to that optimal point.

[Tyrone Slothrop]

Originally posted by sgtclub
We do not need to ensure that pharma earns competitive profits, we just need to not prohibit them from doing so. It is necessary for big pharma to be entitled to earn profits competitive with its competitors to (1) incentivize technological advancement, risk taking, and wealth and creation and (2) allow them to compete in the market place for alternative capital and debt sources.

Originally posted by Hank
It's not ensuring the profit, its keeping from government ensuring the lack therof. There are very few drugs that are truly monopolies. Most have competitive or parallel drugs. If the price is too high, business will go elsewhere.
But if a company invests in labs and scientist and developing drugs that will be thrown away in 99% of the cases, it need some decent ROI to justify continuing.

What Burger said.

Hank, Burger's observation that pharma makes its profits before generics can compete tends to refute your suggestion that there are competitive or parallel drugs. Apparently there are no substitutes other than generics, in most cases.

And we all know that unrestrained monopoly pricing is bad for society.

[Hank Chinaski]

Originally posted by Mmmm, Burger (C.J.)
Given that viagra was selling for what $60 a pill on manufacturing costs of probably less than 5c each, I'm pretty sure Pfizer was able to recover a fair amount of costs associated with that drug's development and a bunch of others' as well.

The fundamental proposition you and club have yet to substantiate is that current levels of R&D are optimal from a societal standpoint. I contend they are not, and that regulation could move us closer to that optimal point.

aren't there parallels to Viagra now?* haven't the parallels driven down the cost? Patents were included in the constitution to give incentive to inventors. When inventors attempt to over-profit, then the market tends to ensure parallel products in almost all cases.

*where's bilmore?

[bilmore]

Originally posted by Tyrone_Slothrop
Why is it so important that we ensure that pharma earns big (or "competitive"*) profits?

* "competitive" with what?

Possibly I'm missing something, but I hold a few drug stocks in my bundle, and you'll notice that I'm still here, not retired and living off my capital-gain millions.

I suppose we could just nationalize them . . .

[Atticus Grinch]

Originally posted by bilmore
Possibly I'm missing something, but I hold a few drug stocks in my bundle, and you'll notice that I'm still here, not retired and living off my capital-gain millions.

Typo. It's spelled "bindle," and I think the answer to your unasked question is therefore obvious.

[Tyrone Slothrop]

Originally posted by bilmore
Possibly I'm missing something, but I hold a few drug stocks in my bundle, and you'll notice that I'm still here, not retired and living off my capital-gain millions.

I suppose we could just nationalize them . . .

I'm not opposed to pharma making profits. I'm just trying to understand sgtclub's argument.

[Hank Chinaski]

Originally posted by Tyrone_Slothrop
I'm not opposed to pharma making profits.

speaking of gross profit taking due to patents- every lasik surgery had/has a 600$ license fee going to a patent holder. this overpricing led to a second company designing around the patent and having the incentive to fight the patent. pigs get fat hogs get slaughtered.

[Tyrone Slothrop]

Originally posted by Hank Chinaski
speaking of gross profit taking due to patents- every lasik surgery had/has a 600$ license fee going to a patent holder. this overpricing led to a second company designing around the patent and having the incentive to fight the patent. pigs get fat hogs get slaughtered.

That's wonderful. But you still haven't got anything to say about Burger's observation that profits are made in this business before generics can compete. Evidently it's a tough industry in which to design around the patent. (Which, after all, is a form of government regulation limiting competition.)

[Mmmm, Burger (C.J.)]

Originally posted by Hank Chinaski
aren't there parallels to Viagra now?* haven't the parallels driven down the cost? Patents were included in the constitution to give incentive to inventors. When inventors attempt to over-profit, then the market tends to ensure parallel products in almost all cases.

*where's bilmore?

Yes, there are, or so I was told during the super bowl.

You can go read Pfizer's annual report , which discusses the importance of patent protection.

My point is not that drugs face competition. They do, undoubtedly. How may brands of aspirin are there? But the level of profits for such products are low, and don't provide incentives for R&D into more aspirin, etc. My point, rather, is that companies are geared principally towards capturing the monopoly rents available to a first to market/first to patent on a particular drug. And how you set those monopoly rents are the principle determinant of R&D, not whether they can sell the generic product for 5c or 10c. So, given that those rents are teh prime driver of R&D, you then have to ask whether those rents provide the "right" incentive for innovation.

As for the patent system, I certainly understand the premise. But I don't think you're right about entry. A monopolist prices at the point that maximizes return, and at which raising the price would drive off more customers than it would make up for in higher revenue. Entry is prohibited by the patent system.