" wrote:

On Oct 27, 10:34*pm, wrote:
Kurt Ullman wrote:
In article ,
"Robert Green" wrote:

"Kurt Ullman" wrote in message
*"Robert Green" wrote:
What I noticed helping my neighbor with her Part D problems (they are
substantial) was that the veryt same meds she was taking in 1998 have almost
tripled in price. *I believe that a lot of that rise was meant to compensate
for any future discount the drug companies might have to give to Medicare.
You have to use this drug's profits to pay for the next drug's
development.

No you don't any more than you have to use the revenue gained from
(say) an oil well to search for new oil elsewhere. Even worse, in the
pharma area it's like using the profits from an oil well somewhere to
look for copper ore in another part of the world. Bringing it back to
the pharma area why should someone who needs (say) BP medication pay
an excessive price for it so the drug company can search for a drug
for an unrelated illness.

The costs of that have been going up, too. I am reminded of
a line from West Wing. Josh and Toby are discussing drug prices. One of
them holds up a pill and notes that this one cost 14 cents. The other
agrees but then added that the first one cost over $500 million (and
that was years ago).

So what. The 14 cents is just the immediate raw material, production,
and selling cost and will be burdened with its share of the
amortization of the original research cost. Plenty of industries like
this. A case in point is the movie business where billions are
invested in movies that will not earn their keep until the future.

* *Also most of the low hanging fruit has been picked in the
pharmaceutical industry as we can see by the more expensive to find, get
approved and then make biologics and similar medications. We have seen
the obstacles just over the last couple months when drug companies have
pulled the New Drug Applications for 3 late-stage drugs because the
studies did not show efficacy. VERY expensive failures.

Just the usual lousy job of the researchers.

* *When price fixing occurs (and no matter how you want to paint the
picture when government decides how much they will that is price fixing)
in the US one of two things HAS to happen. Prices elsewhere will have to
go up or innovation will dry up. (And either way we might get an answer
to the nagging question of exactly to what extent has the US consumer
been subsidizing overseas drug costs.) *There are no other viable
alternatives.

So I suppose the financing of development of a promising new drug (or
avenue) can't be done by the entrepreneur going to the venture
capitalist (or Wall Street, or the banks, or some other money source)
and presenting a proposal and obtaining financing?

There are so many things wrong with the above, that I don't know
where to begin. First, let's for the moment just accept the premise
given that the govt is going to somehow fix the price of drugs at a
low
level producing low or no profits.

No. I don't accept the premise that the government is setting the
price of drugs at a low or high level. The confusing thing (for you)
is the paragraph above:

"
What I noticed helping my neighbor with her Part D problem (they are
substantial) was that the veryt same meds she was taking in 1998 have almost
tripled in price. *I believe that a lot of that rise was meant to compensate
for any future discount the drug companies might have to give to Medicare.
"

I'm not commenting one way or the other about Medicare, part D or any
similar interference in the market. I'm simply using the post to
correct the two erroneous assertions: that new drugs have to be
financed from inflated prices for old drugs and that we're subsidizing
the drug cost for other countries.

First, for the most part, you'd never get to the stage of having
a promising drug to seek financing for. The drug companies
today spend huge sums on speculative research trying to find
drugs. Everything from sending teams into rainforests to
search for plants, to advanced bio labs. Usually, only after
huge expenditures do you get to the point where you THINK
you might have a new viable drug. And even then many, if
not most wind up failures.

And this differs in principle from other industries how? Don't the
extractive industries have the same problem? Lots of dry holes? Have
you not noticed on a much smaller scale someone starting a business
(say a retail store) in the hope of making a profit and finding that
the customers aren't coming in? This is perfectly normal for all
businesses.

And given that prices are going to be fixed artificially
low, what entrepeneur is going to seek to go into business
with a new drug?

Why do you keep going on about prices being fixed? I'll do what you do
and say: "Let's just accept that the drug company can set its prices
for what the market will bear just as in any other industry." That's
certainly the case for the drugs I use.

Even in today's environment, how many
entrepeneurs show up with a new drug seeking financing
to start a new company. It's rare indeed. Compare that
to other businesses, like the internet or software and the
barriers to entry are clearly very high.

Try an extractive industry or an energy producer where the financial
barriers to entry are high too.

And finally, even if they did seek financing, what fools
would invest knowing the govt was going to screw around
and set the price for the drugs?

And once again you bring in a red herring. But even here where there's
the constant threat of government intervention, oil exploration
companies (for example) continue to search for new fields.

Isn't this the way
new ideas come to fruition (and the product to market) in most
industries?

I'd like to see the percentage of new drugs that were approved
over say the last 3 years that came from new companies formed
within say the last 10 years. I agree they are there, but I'll bet
they are dwarfed by the drugs brought to market by the established
drug companies. Also, the assumption per the above discussion
is the govt is going to fix prices artificially low. If that happens,
goodbye to the new companies.

You're fixated on these price controls eh?

The situation is complicated in the pharmaceutical
industry because the current players have all the expertise, contacts,
politicians in their pockets etc. and drug development requires oodles
of money. But even if it's the current players doing the new
development there's no reason (other than a "gimmie more" gambit) *the
new drug or idea should be subsidized by an older drug. Big bucks from
(say) Lisinopril should simply give the drug company the idea that
some other product can also make a fortune. It's not some socialist
equalizing of the cost between (say) the high BP people and those
suffering from senile decay.

This is one of the stupidist things the resident commie has posted
yet.
It's like saying the profits from Apple's MACs should not have
been used to develop the iPOD. Or the profits from the iPOD should
not have been used to develop and market the iPhone. Obviously
totally clueless about business. Even the local bakery uses profits
from the bakery to expand into a cafe or add a deli, etc.

It's not the profits from the MAC (do they actually make a profit?)
that are used but the cash flow that is generated by the MAC which
allows Apple to produce the iPhone etc. You're using the wrong word!
The profits have nothing to do with it except in the generalized sense
that profits are generally part of revenue and the revenue generally
represents inward cash and of course if you can't make a profit
eventually you'll go out of business.

Apple is in a competitive environment at least to some degree. It
can't jack up the prices of the MAC beyond what the market will bear
so it can't say that it has to charge a higher price so that it can
fund either a new MAC or a new line of business (or iPhone). This is
exactly what the drug companies are doing or say they're doing.

One would have thought that a rabid capitalist like yourself would
understand that what the drug companies do or propose is the socialist
way: eventually make everyone pay the same for their drugs!

As to the subsidizing of overseas drug costs this is another red
herring showing just how little most people know about business.

After posting the above, we know the really clueless one is you.

If
you have a product that has a finite life span (here drug patents but
it could be tomatoes rotting in the fields) you have an interest in
getting what you can for the product as long as it covers the marginal
cost of production and distribution. In the case of tomatoes there's
not much capitalized cost to recover but in the case of drugs (and
movies) there are huge amounts. Sell the product for what you can get
as long as you don't detract from the sales at full price.

Wrong again. From economics 101 we know that the correct
goal is to sell goods at the price that maximizes profits.

And that's exactly what the drug company is doing when it sells the
product at a lower price in a poorer foreign country.

To beat a dead horse (apparently that's the only way you'll
understand) manufacturers put their product on sale from time to time
-- i.e., they sell it for a lower price than it normally is sold for
-- but in doing so they actually make more money. Not only do they
sell to customers who would otherwise buy a competitor's product and
some additional sales will be made to people who would buy neither but
also they amortize the fixed costs (like machinery cost, or insurance
for their factory or repair costs or accountant's fees, or any of
hundreds of items that do not depend on number of sales) over a
greater number of items thus reducing the per-unit cost. Revenue for
each item minus unit cost (fully burdened in this case) equals profit.
Lower price = maximumized profit! Or, as an intermediate step for the
drug companies, lower price (but not below marginal cost) = earlier
recovery of the R&D cost and in future greater profits.

Anything
over the marginal cost will go to reduce (or repay) the capitalized
development cost. You're only subsidizing the overseas consumer if you
could make more elsewhere (which you can't). In fact, by selling to
(say) Bangladesh at half price really does the American consumer a
favor; the drug can be priced lower in the US than it otherwise would
be.