Good (IMO) editorial from David Frum

[Razgovory]

I've never asked a doctor for a medication.  I don't feel reading the advertisements for a medication make me any more competent to decide if I should have it.  Even doing a bit more research doesn't really make me much more knowledgeable whether one medication is better for me then another.  Note that I mostly take Psychiatric medications and those are kind of hit and miss.

I did have a doctor come by when I was in the hospital and asked me what medications I wanted.  I a bit flabbergasted.  That struck me as weird.

[DGuller]

Drug companies do not sell drugs in Canada and Europe out of the goodness of their hearts - of course they are making profits here as well. Just not the obscenely inflated profits made in the US.

This is saying nothing at all.  Of course drug companies are selling at a profit.  But that's only true because the US consumer is covering their fixed costs (including R&D) and they can sell to Canadian consumers at a markup over marginal cost, which in the cost of a pill is pennies, if even that.

You owe me royalties for this response, Yi.  That would be $20, please. 

[Malthus]

Drug companies do not sell drugs in Canada and Europe out of the goodness of their hearts - of course they are making profits here as well. Just not the obscenely inflated profits made in the US.

The problem with drugs is that they're the kind of good that take very high fixed expenses to come up with, and very low variable expenses to produce.  These kinds of goods are problematic for a number of reasons.  One of the problems with them is that it allows price discrimination.

Since the variable costs are low, you can sell the drug at a profit per unit even if you sell it for a pittance.  Therefore, you can sell with profit per unit at a wide range of prices.  Those who can tolerate the highest prices are financing the biggest chunk of your fixed expenses or profits on top of that.

Yes, and that is why innovators get patent protection in both US and Canada.

The prices in Canada are not "a pittance". They are of course appreciably lower, but this varies by type of drug. In Canada, manufacturers can get a big increase over comparable prices, in fact closer to the US price, if they can prove to the PMPRB that your drug is truly "innovative". You can't if your drug is basically a line extention. That's where the big price differential comes into play - in the US, consumers pay radically more for not-particularly-innovative drugs. Evergreening of patents is what is being funded on the backs of US consumers.

I suppose you could argue that the extra profits, no matter how derived, are necessary for innovation - but what's the limit to that?

[Malthus]

I've never asked a doctor for a medication.  I don't feel reading the advertisements for a medication make me any more competent to decide if I should have it.  Even doing a bit more research doesn't really make me much more knowledgeable whether one medication is better for me then another.  Note that I mostly take Psychiatric medications and those are kind of hit and miss.

I did have a doctor come by when I was in the hospital and asked me what medications I wanted.  I a bit flabbergasted.  That struck me as weird.

I think asking a crazy person what medicines they would like to take is a great idea. 

[Admiral Yi]

You owe me royalties for this response, Yi.  That would be $20, please. 

As soon as you show me the copyright. 

[Malthus]

Just not the obscenely inflated profits made in the US.

I call a spade a spade. 

Note that drug prices are high because innovators get a monopoly. This isn't a case of capitalism red in tooth and claw - it is a case of a government-enforced monopoly. The problem, in the US, is that the patent laws can be manipulated so that non-so-innovative products can get a monopoly, as well. Way it works is this: company comes up with a lifesaving drug; gets its years of patent protection; then, when that starts to run out, invents a new type of capsule, or some other molecule that is basically the same as the wonder-drug, and patents that - thus "evergreening" the patent; continues to charge innovator's rents on it. That's what a goodly portion of "research" consists of, those famous "fixed costs" that the US consumers have to pay to benefit the whole world.

The price controls in Canada and elsewhere are an attempt to balance that out, to restrict price increases to drugs that are actually innovative. Of course, it is a bureaucratic nightmare, but that's the price you pay.

[Sheilbh]

Though drugs are significantly more in the US than other OECD countries I was under the impression that the real difference in the US cost (where the US costs more than you'd expect) is in hospital treatments and administration.  The drugs are more costly but they're not as ridiculously more costly.

[Iormlund]

The prices in Canada are not "a pittance". They are of course appreciably lower, but this varies by type of drug. In Canada, manufacturers can get a big increase over comparable prices, in fact closer to the US price, if they can prove to the PMPRB that your drug is truly "innovative". You can't if your drug is basically a line extention. That's where the big price differential comes into play - in the US, consumers pay radically more for not-particularly-innovative drugs. Evergreening of patents is what is being funded on the backs of US consumers.

Yep. Most biologics are very expensive, but in that case it does makes sense. They are brand new (less than 10 years in use), costly to develop and manufacture and provide real alternatives to current treatments.

[Malthus]

The prices in Canada are not "a pittance". They are of course appreciably lower, but this varies by type of drug. In Canada, manufacturers can get a big increase over comparable prices, in fact closer to the US price, if they can prove to the PMPRB that your drug is truly "innovative". You can't if your drug is basically a line extention. That's where the big price differential comes into play - in the US, consumers pay radically more for not-particularly-innovative drugs. Evergreening of patents is what is being funded on the backs of US consumers.

Yep. Most biologics are very expensive, but in that case it does makes sense. They are brand new (less than 10 years in use), costly to develop and manufacture and provide real alternatives to current treatments.

Also with biologics copying the drug isn't so easy. The saying is that with biologics "the process is the product", meaning that the way they are produced tends to affect the drug; it isn't as easy to make truly generic biologics.

[derspiess]

Way it works is this: company comes up with a lifesaving drug; gets its years of patent protection; then, when that starts to run out, invents a new type of capsule, or some other molecule that is basically the same as the wonder-drug, and patents that - thus "evergreening" the patent; continues to charge innovator's rents on it.

I'm not very familiar with this.  Are they getting a new patent every time they make some change, or does that somehow renew the original patent? 

In general I'd definitely agree that patent law and the patent process in the US is royally screwed up.

[Iormlund]

Another point to consider about medication is that many potentially effective avenues of research are not profitable at all for pharma companies. For example, studies on intestinal flora I tend to read about are mostly carried out in Euro labs with public money.

[Malthus]

Way it works is this: company comes up with a lifesaving drug; gets its years of patent protection; then, when that starts to run out, invents a new type of capsule, or some other molecule that is basically the same as the wonder-drug, and patents that - thus "evergreening" the patent; continues to charge innovator's rents on it.

I'm not very familiar with this.  Are they getting a new patent every time they make some change, or does that somehow renew the original patent? 

In general I'd definitely agree that patent law and the patent process in the US is royally screwed up.

Getting a different patent or patents for essentially the same drug, by modifying the drug. The idea is to squash competition from generics for as long as possible.

http://en.wikipedia.org/wiki/Evergreening

This is why the issue isn't a straightforward one, with free marketers on one side and price-controlling socialists on the other ... high monopoly rents are why drug prices are so high in the US, and they are a creature of government-backed monopoly. The argument goes that if the government is handing out monopolies, it should place some limits on the rents that are charged pursuant to those monopolies, and make the reward match the achievement - the last thing that the "innovative" drug manufacturers want is a truly free market. They have a point, which is that innovation ought to be rewarded (and if it isn't you won't get innovation). The issue is, just how much should that reward be?

My sense is that the US system is out of wack on this - that the monopoly rents are too high. Some justify this by saying, the higher, the more innovation. But where's the limit to that?

[Admiral Yi]

Getting a different patent or patents for essentially the same drug, by modifying the drug. The idea is to squash competition from generics for as long as possible.

How does this prevent generics from competing with the old, unmodified drug?

[Malthus]

Getting a different patent or patents for essentially the same drug, by modifying the drug. The idea is to squash competition from generics for as long as possible.

How does this prevent generics from competing with the old, unmodified drug?

The patents relate to the old drug - just different aspects of it.

To be a "generic" for the purpose of various insurance formularies (public and private), you have to be "equivalent" to the existing brand-name product. Thus, if the original drug is put into a brand-new capsule that (allegedly) has some advanced new feature, like time-release, you have to copy that too - but surprise! That new capsule is also patented! Sorry, you can't copy that or you are sued; you can't be really equivalent if you don't have it. 

Here's a euro generic complaint:

http://www.egagenerics.com/gen-evergrn.htm

A Canadian Supreme Court ruling on the topic:

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1660583/

[OttoVonBismarck]

Sure, Canada is a small market. That would of course be true no matter what system Canada adopted.

Though the Canadian public research system has historically punched above its weight in terms of biotech discoveries. Case in point: insulin.

You guys keep discounting the importance of public research, and inflate the importance of private research. Fact is, much of private "research" is of dubious worth, aimed as much at prolonging patent monopoly by developing "me too" products than at discovering fantastic new breakthroughs, or at essentially selling existing product through the fiction of "phase 4" trials.

The reason is quite simple: actual breakthroughs are rare and unpredictable creatures, best deveoped by pure science, which is unpredictable. Think of the discovery of DNA - what company would have the patience to fund pure speculation?

Obviously, tyhere is a role for private research, but the notion that Americans (or anyone) has to pay absurdly inflated drug prices to fund it, and that the whole world is beholden to Americans selflessly paying,  is a mirage. I can understand why this mythology would ease the pain of being had by the drug companies, but there is no reason for intelligent peopole to buy into it.

I'm sorry, I thought the tone of my post would have made it obvious I've no interest in debating this topic in a serious manner with you.