Drugs & Politics by Dr. Sowell

[theinvisibleheart]

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http://jewishworldreview.com/cols/sowell112601.asp

Drugs and politics

http://www.NewsAndOpinion.com -- A TOURIST in New York's Greenwich Village had his portrait sketched by a sidewalk artist, who charged him $100.

"That's expensive," the tourist said. "But it's a great sketch, so I'll pay it. But, really, it took you just five minutes."

"Twenty years and five minutes," the artist replied.

The same misconception of costs runs through the much more serious issue of the prices of medicine and government regulation of those prices. When a pill whose ingredients cost a quarter is sold for two dollars, that is an open invitation to demagogues to begin loudly denouncing the pharmaceutical drug company's "obscene" and "unconscionable" profits at the expense of the sick. But the people who are doing this are counting only the five minutes and ignoring the 20 years.

The physical ingredients of the medicine are its cheapest ingredients. The ingredient that costs millions of dollars -- sometimes hundreds of millions -- is the knowledge gained from years of research, and trial and error, which finally results in the creation of a new medicine. That is what the price of the pills has to cover, if we expect investors to continue to pour vast sums of money into drug companies that are trying to discover new cures for such diseases as cancer, AIDS and Alzheimer's.

Other companies, manufacturing generic equivalents, pay only the costs of the physical ingredients, having copied the enormously expensive formula free of charge -- legitimately after the patent has expired and not so legitimately in other countries, where patent laws are not taken as seriously as in the United States. The company that simply uses someone else's formula free of charge can sell the same pill for 35 cents and still make a profit.

Somebody has to pay the high costs of discovery or the development of new drugs will be slower and therefore more people will needlessly suffer and die. While allowing patent laws to be over-ridden by politicians allows some people to buy the drug at low prices, based on the low current costs of manufacturing the medicine, that just leaves the far greater overhead costs of creating these medicines to be paid by others.

Worst of all, it leaves the even higher costs of needless pain, suffering and premature death to be paid by those whose relief is delayed by policies like these, which slow down the development of new medicines to cure their afflictions.

The United States has been one of the few countries resisting political pressures to impose price controls on pharmaceutical drugs, or to water down the patent laws which allow the original discoverer of new drugs to have a monopoly for a fixed number of years, so as to recover the costs of discovery before other companies get to use their formula free of charge.

The United States also produces a wholly disproportionate share of all the new life-saving drugs in the world. But politicians ignore this connection. Other countries have scientists capable of developing new medicines, but the economics and politics of the situation discourage companies in those countries from making the huge investments made by American pharmaceutical companies under American patent law.

Unfortunately, the Bush administration has recently begun to cave in to the demagogues at home and abroad. After congressional liberals like Ted Kennedy, Henry Waxman and Charles Schumer began making noises about a need to get the drug Cipro cheaper because of the anthrax scare, the administration threatened to over-ride the patent for the drug unless the manufacturer supplied it at a cheaper rate.

The retail price of Cipro was $5 a pill and the government itself says that someone stricken with anthrax needs to take two pills a day for five days and cheaper antibiotics thereafter. Is $50 too much to pay to save your life? And is it worth jeopardizing a whole system that has made this country the leading creator of life-saving drugs, just to get the demagogues off the Bush administration's back politically?

The administration also caved at a recent international conference in Qatar, where foreign countries gained the right to set aside international patent agreements whenever they choose to decree a public health "emergency." This allows them a free ride on costly American research, at least until they kill the goose that lays the golden egg -- new life-saving medicines in this case.
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[theinvisibleheart]

caveat

1. most of Rx research in the world is subsidized by US taxpayers.

2. the last figure I heard was the average development cost of new drugs was around $800 million dollars.

3. pharma(pharmaceutical companies) sell Rx drugs @ lower prices to Canada and other countries for 2 reasons:

i. price differentiation (like airline tickets) in order to maximize the profit

ii. intellectual property protection is weak in other countries and it's relatively easy for the Canadian government or other government to reverse engineer the new drugs and produce it for pennies...so the pharma companies have 2 choices when dealing with f/x(foreign) gov...agree to lower prices or get zero dollars while their intellectual property rights are violated.

4. for drugs under patent protection, the seller or the companies which created the product do have the right to dictate the terms of distribution and redistribution...in fact, this is very common and we can even see it in firearms industry.

Violating that right is not free market. You see the same thing when Leupold or STI sells their product to distributors...Leupold and STI dictate the terms of how distributors can sell their products.

So if J&J or other companies sell their patented Rx drugs to Canada with the contractual terms preventing it from being exported to US, and Canadian government or US citizens get the Rx drug re-imported into US, that is a violation of property rights. It's also theft at expense of stockholders who originally bought the stocks in pharma companies and indirectly funded the R&D cost of new Rx.

5. if the profit from new drugs are lowered (return on R&D for new pharma are reduced), there will be less new drugs and release of new wonder drugs will be less effective or innovative in the long run. After all, investors are willing to fund the pharma companies if and only if the return on their investment is adequate for the risk they undertook.

6. best way to reduce the prices of pharma is to lower the cost of FDA regulation (speed it up and reduce the paperwork) and to shield the pharma companies from legal lawsuit. This will result in lower barrier to entry for small startups, just like in other fields. As it is, it is very difficult, if not impossible, for a startup to research and produce new drugs without partnering up with a major pharmaceutical companies due to tremendous cost associated with complying with government regulations.


--John

 

[SecDef]

You charge what the market will bear. However, when a large client (US Govt) refuses to negotiate and will pay whatever the companies want, Capitalism is cut off at the knees.

Besides, companies (via shareholders) make their money in the stock market. The real business just needs to grow at a modest rate for everyone to win.

 

[Eghad]

Go across the border into Mexico and Canada and see how much you pay for some of the same drugs. Its amazing that the guy who helped passed medicare drug programs when he left office took a very well compensated job with the drug lobbyists. conflict of interest.

so what does it take to develop a new drug? seems that there is a difference of opinion there.

http://www.citizen.org/publications/release.cfm?ID=7065

Over the decade between 1989 and 1998, the 10 largest pharmaceutical manufacturers spent about 11% of their total sales on research and development, according to a study done for the Kaiser Family Foundation by the Sonderegger Research Center in School of Pharmacy at the University of Wisconsin-Madison.

At the same time, net profits before taxes amounted to about 23% of total sales.

"They (big drug companies) are talking about spending so much money on research, but in reality, they are making twice as much in profits," said David Kreling, co-author of the report and a UW-Madison professor of social and administrative pharmacy.

What drug industry executives also often don't point out is that U.S. taxpayers, primarily through grants from the National Institutes of Health, already invest heavily in basic and applied research that directly benefits pharmaceutical makers.

With a budget of $20.3 billion, the NIH is the largest medical research institution in the world. In fact, 36% of all biomedical research in the U.S. is funded by the federal government, primarily through NIH, compared with 57% by private industry funds and 7% by non-profit organizations, according to a U.S. Senate report issued last May.

http://www2.jsonline.com/news/state/apr01/scrip02040101.asp

from the Merck consolidated financial statements for 2006 the second column is the 2005 numbers.

Marketing and selling expenses [3] –1,475.4 –1,367.8

Research and development [6] –751.6 –713.0

http://www.merck.de/servlet/PB/show/1651280/Merck_GB_06_en_Consolidated_Financial_Statements .pdf

hrmmm...they spend more on marketing and advertising than they do R&D...lol.

So is it the advertising or the R&D that we are paying for? Not to mention the government grants and tax breaks they get....

poor, poor drug companies we should quit pickin on em

Damn you mean the FDA actually regulates the drug companies maybe somebody should tell them that.

 

[theinvisibleheart]

Eghad, GAAP accounting? is R&D cost expensed or amortized

Go across the border into Mexico and Canada and see how much you pay for some of the same drugs. Its amazing that the guy who helped passed medicare drug programs when he left office took a very well compensated job with the drug lobbyists. conflict of interest.

I've lived and worked in several different countries...cost of living as well as prices paid for same products and services in different countries differ. Guess what? What does Leupold, Merck, and United Airlines have in common? They sell the same good, whether it be optics, Rx drugs, or airline seats at vastly different prices to different segments of buyers based on their willingness to pay.

In regards to medicare drug program, I don't know how to answer it in the space allotted here. This is assuming that you care to understand the issue from perspective other than the price you are paying for medical services and products.

so what does it take to develop a new drug? seems that there is a difference of opinion there.

http://www.citizen.org/publications/release.cfm?ID=7065

Quote:
Over the decade between 1989 and 1998, the 10 largest pharmaceutical manufacturers spent about 11% of their total sales on research and development, according to a study done for the Kaiser Family Foundation by the Sonderegger Research Center in School of Pharmacy at the University of Wisconsin-Madison.

At the same time, net profits before taxes amounted to about 23% of total sales.

"They (big drug companies) are talking about spending so much money on research, but in reality, they are making twice as much in profits," said David Kreling, co-author of the report and a UW-Madison professor of social and administrative pharmacy.

Quote:
What drug industry executives also often don't point out is that U.S. taxpayers, primarily through grants from the National Institutes of Health, already invest heavily in basic and applied research that directly benefits pharmaceutical makers.

R&D expense for Rx development like most other R&D cost have to expensed immediately that fiscal year due to GAAP regulation.

As a toy example, suppose Rx drug X took 10 years to develop annually at the cost of $100M/year in R&D cost. The profit from drug X have to cover not only the cost of 10x$100M(10 years of development cost) but also the R&D cost of other drugs which never even made it past the FDA trial phases and never even got approved. For example, if only 1 in 3 drugs gets approved and is successful, then the profit from the successful drug needs to cover cost of unsuccessful drugs, as well as investor expectations.

You see, if an investor invested in a risky project when he can get 10% return on a less risk project, he would not invest in a risky project if his expected return is 10%. If this were so, he would be cheating himself. It would be like buying an used gun for much, much more than it is worth.

So comparing one year's R&D cost against 1 year's profit realized from years and years of R&D cost doesn't make sense. Also, the profit gained from new Rx is subject to market forces in terms of substitute Rx drugs from other drug companies...so the first initial years of profit has to be large enough to compensate for years of R&D cost of both failed and successful drugs.

from the Merck consolidated financial statements for 2006 the second column is the 2005 numbers.

Marketing and selling expenses [3] –1,475.4 –1,367.8

Research and development [6] –751.6 –713.0

http://www.merck.de/servlet/PB/show/...tements .pdf

hrmmm...they spend more on marketing and advertising than they do R&D...lol.

In financial statement, marketing and advertising goes under SG&A. I don't understand the reasoning behind comparison of profit, SG&A, and R&D cost.

Profit of patented drugs reflect years of R&D expense.

R&D cost are expensed immediately that year due to GAAP regulation.

SG&A expense are used to increase the sales of successful patented drugs which is only a fraction of drugs under development.

The only relationship b/w SG&A and profit is the marketing and advertising should go so far as to maximize the profit for the successful drugs. Not only that, the profit from successful drugs is transitory...it last only as long as patent doesn't expire.

The whole reason for the patent is to encourage innovation and new product development.

This is the reason why most of the new pharmaceutical products in the entire world are developed here in United States.

With a budget of $20.3 billion, the NIH is the largest medical research institution in the world. In fact, 36% of all biomedical research in the U.S. is funded by the federal government, primarily through NIH, compared with 57% by private industry funds and 7% by non-profit organizations, according to a U.S. Senate report issued last May.
http://www2.jsonline.com/news/state/...ip02040101.asp

First of all, this applies to many other fields other than drugs, such as engineering. For example, I have a degree in engineering and have worked as a development engineer. Without fundamental and applied research from universities which get part of its fund from federal government, many of today's products will not exist.

However, taking fundamental and applied research, and bringing it into marketplace is a completely new ballgame.

Today, it's accepted (correctly through vast amount of supporting empirical data) that government is not very good at taking fundamental and applied research, and producing commercial products from it.

Whenever government provides any services, be it hospital care or Rx drug or even something as simple as road construction, it costs substantially more compared to having equivalent function performed by a private firm in a commercial setting. However, the cost is hidden because it comes from general tax revenue which subsidize the low price paid by the consumers...e.g., so called free public highway, medicare benefits, etc.

There are malpractices and poor products and services in free market, as well as in countries with socialist welfare system. The differences is that when a private hospital or J&J(Johnson & Johnson) screws up, they have to respond or they lose market share and/or go bankrupt.

In the case of government owned system, this doesn't happen. You see, if an US hospital repeatedly declared live people as dead, they would eventually cease to exist. When a criminal tampered with packaged Tylenol bottles, J&J responded by creating a tamper proof bottle for it.

So is it the advertising or the R&D that we are paying for? Not to mention the government grants and tax breaks they get....

poor, poor drug companies we should quit pickin on em

Damn you mean the FDA actually regulates the drug companies maybe somebody should tell them that.

One former manager for Bayer Aspirin (she had a PhD in biology from Columbia University) told me that to make one very minor change for a drug that was considered non-critical(not life threatening), the amount of document submitted to FDA for approval filled up a whole trailer.

What do you think was the cost of all that paperwork that had to be filed? Also, please realize the human capital involved in getting a PhD in biology...it's considerably more difficult than an undergraduate degree in business, art, or history, or even accounting.

--John

 

[theinvisibleheart]

Eghad, 1 ? for you

Go across the border into Mexico and Canada and see how much you pay for some of the same drugs. Its amazing that the guy who helped passed medicare drug programs when he left office took a very well compensated job with the drug lobbyists. conflict of interest.

so what does it take to develop a new drug? seems that there is a difference of opinion there.

http://www.citizen.org/publications/release.cfm?ID=7065

Quote:
Over the decade between 1989 and 1998, the 10 largest pharmaceutical manufacturers spent about 11% of their total sales on research and development, according to a study done for the Kaiser Family Foundation by the Sonderegger Research Center in School of Pharmacy at the University of Wisconsin-Madison.

At the same time, net profits before taxes amounted to about 23% of total sales.

"They (big drug companies) are talking about spending so much money on research, but in reality, they are making twice as much in profits," said David Kreling, co-author of the report and a UW-Madison professor of social and administrative pharmacy.

Quote:
What drug industry executives also often don't point out is that U.S. taxpayers, primarily through grants from the National Institutes of Health, already invest heavily in basic and applied research that directly benefits pharmaceutical makers.

With a budget of $20.3 billion, the NIH is the largest medical research institution in the world. In fact, 36% of all biomedical research in the U.S. is funded by the federal government, primarily through NIH, compared with 57% by private industry funds and 7% by non-profit organizations, according to a U.S. Senate report issued last May.
http://www2.jsonline.com/news/state/...ip02040101.asp

from the Merck consolidated financial statements for 2006 the second column is the 2005 numbers.

Marketing and selling expenses [3] –1,475.4 –1,367.8

Research and development [6] –751.6 –713.0

http://www.merck.de/servlet/PB/show/...tements .pdf

hrmmm...they spend more on marketing and advertising than they do R&D...lol.

So is it the advertising or the R&D that we are paying for? Not to mention the government grants and tax breaks they get....

poor, poor drug companies we should quit pickin on em

Damn you mean the FDA actually regulates the drug companies maybe somebody should tell them that.

I have one question for you. If drug companies are making so much money, how come other companies doesn't get into the same business of producing patented prescription drug?

You see, in every other areas, when abnormally high profit are made relative to risk incurred and cost of producing the goods & services, then other companies start doing the same thing, and the REAL prices(inflation/cost-of-living adjusted price) of goods & services drop down.
Not only that, usually, the quality and total value you get from that particular goods and services actually goes up.

You see this in something as simple as polymer pistol, enhanced 1911A1, railed handguards, cars, computers, laptops, computer accessories, etc...the list goes on and on.

--John

 

[Playboypenguin]

1. most of Rx research in the world is subsidized by US taxpayers.

You beat me to it. Most drug research is not done on the pharmaceutical companies dime. It is done on OUR dime.

The US Govt pays the vast majority of the cost. Not the drug companies. But then the drug companies are allowed to reap all the profits. Often at the expense of the very tax payers that payed for the research up front.

I have stated before that my father-n-law and bother-n-law are both doctors. They deal with drug reps all the time. It is no secret that drug companies make profits off tax payer money.

 

[theinvisibleheart]

SecDef, gov negotiation is not the answer

You charge what the market will bear. However, when a large client (US Govt) refuses to negotiate and will pay whatever the companies want, Capitalism is cut off at the knees.

Besides, companies (via shareholders) make their money in the stock market. The real business just needs to grow at a modest rate for everyone to win.

If the profit from Rx drug goes down due to either government negotiation or price control, then it will come at the expense of new drugs. You won't realize what you have done since the only thing you see is lower price for drugs.

The hidden cost is what your parents and grand-parents suffered(lower quality of life or shortened lifespan due to lack of many of our modern medical miracles) except it will be borne by your children and grand-children since the incentive to develop new pharmaceutical products have being lowered while the cost have remained the same.

You see, you can't force investors to continue investing in companies that take high risk and can't produce high return. If I was a pension fund manager and I knew that both young workers depended on me for their retirement fund and elderly retirees depended on me to provide returns that compensate for cost-of-living increase, then if I continued to invest in risky companies that does not provide return high enough for risk taken, then I'm not fulfilling my fiduciary duties. In fact, I would be making both the young retirees and elderly retirees suffer financially at the cost of cheaper drug prices.

Pharmaceutical companies will simply shift their resources to other products that provide equivalent or higher risk adjusted profit margin.

There are really only 3 ways to solve this problem w/o shifting the cost elsewhere and still provide enough incentive to keep new Rx drugs coming.

1. distribute the cost of new Rx more fairly throughout global arena...highly unlikely and difficult to do, since it is so easy to reverse engineer any Rx formula.

2. decrease the cost of drug development

3. make the Rx development market more competitive via tort protection and reduced FDA requirements

--John

 

[2afreedom]

Re: Big Pharma

I believe in the free market but we aren't exactly dealing with a free market here. As previous posters have mentioned, the government subsidises the drug companies. Another problem is the fact that most of these new "wonder drugs" do the same thing that a much cheaper generic does already but they cost much more. A good example of this is heartburn medications. Zantac came out first and now it is available in generic form. Along comes Prilosec which does basically the same thing as Zantac but for several times the price of the generic. Drug companies spend a lot of money on those stupid TV ads telling you to "ask your doctor" about the new Herpes drug or whatever. Before the Clinton era this was illegal. Now you have all these sheeple running to their doc asking for the latest and greatest stool softener and costing their insurance a fortune which in turn costs all of us a fortune. American pharmeceutical companies do come up with some of the most innovative drugs on the planet but they also do a lot of marketing to pad their bottom lines with the help of doctors and the government.

 

[theinvisibleheart]

? for you, Mr. Playboypenguin

Quote:
1. most of Rx research in the world is subsidized by US taxpayers.
You beat me to it. Most drug research is not done on the pharmaceutical companies dime. It is done on OUR dime.

The US Govt pays the vast majority of the cost. Not the drug companies. But then the drug companies are allowed to reap all the profits. Often at the expense of the very tax payers that payed for the research up front.

If this were true, then how come more companies doesn't produce patented Rx? It should be SUPEREASY right, since according to you, "US Govt pays the vast majority of the cost." Anybody can patent new Rx formula and get it through FDA regulation, right, Mr. Playboypenguin?

Why does pharmaceutical companies need to hire PhD in molecular biology, biochemistry, etc. to develop new drugs and comply with FDA regulation? Please answer me, Mr. Playboypenguin.

If it is so easy, why can't pharmaceutical companies hire anybody to just get the drugs (which was already made by US government according to Mr.Playboypenguin) to get it approved through a non-existent FDA regulation("Damn you mean the FDA actually regulates the drug companies maybe somebody should tell them that" according to Mr. Eghad)

I have stated before that my father-n-law and bother-n-law are both doctors. They deal with drug reps all the time. It is no secret that drug companies make profits off tax payer money.

I don't see what relevance that has to do with it. FWIW(zero), I was a pre-med(coursework in molecular genetics) and my two sisters are medical doctors who actually own and run their own medical clinics.

People who do research in this area usually have basic background in accounting and economics so that they at least know that R&D expenses are not amortized while profit from initial years of patented drugs just released need to cover years of R&D expense of both successful and failed drugs. In fact, I don't think anyone of them claimed that their expertise came due to family members being affiliated with medical industries.

You are the first, Mr. Playboypenguin.


--John

 

[theinvisibleheart]

2afreedom, couple of points: Rx cost not via tax but market prices

Re: Big Pharma
I believe in the free market but we aren't exactly dealing with a free market here. As previous posters have mentioned, the government subsidises the drug companies. Another problem is the fact that most of these new "wonder drugs" do the same thing that a much cheaper generic does already but they cost much more.

Government subsidy of fundamental and applied research via NIH and other organizations doesn't mean free market doesn't exist. Definition of free market is when buyers and sellers are free to buy and sell at agreed upon price, not when buyers use the government to fix prices.

There are plenty of high technology university research conglomerate that work with industrial companies to produce applied research that turn into money making product. Product gets cheaper via competitive pressure when other companies produce products that are functional equivalent.

2nd, cost of taking government research into successful drug is non-trivial. Ask yourself, if you can do it. Ask yourself if it is trivial, why are not more companies doing it. Ask yourself, why are PhD/people with graduate degrees involved in Rx development when it was already handed to them by US government.

A good example of this is heartburn medications. Zantac came out first and now it is available in generic form. Along comes Prilosec which does basically the same thing as Zantac but for several times the price of the generic. Drug companies spend a lot of money on those stupid TV ads telling you to "ask your doctor" about the new Herpes drug or whatever. Before the Clinton era this was illegal. Now you have all these sheeple running to their doc asking for the latest and greatest stool softener and costing their insurance a fortune which in turn costs all of us a fortune. American pharmeceutical companies do come up with some of the most innovative drugs on the planet but they also do a lot of marketing to pad their bottom lines with the help of doctors and the government.

Have you even read the Dr. Sowell's article? Profit margin on generics doesn't need to cover years of R&D cost of both successful and failed drugs like patented ones.

If you as a consumer is informed that generic does the same job, then it's to your advantage to use the generics instead of patented ones.

When I say cost of new Rx drugs are borne by US taxpayers, it's not directly via taxes. It's via high market prices paid by US taxpayers as consumers.

 

[theinvisibleheart]

SecDef, you forgot risk and your definition of capitalism is strange

You charge what the market will bear. However, when a large client (US Govt) refuses to negotiate and will pay whatever the companies want, Capitalism is cut off at the knees.

Capitalism is not when market buyers use the government to forces price control in form of price ceiling to market producers. Capitalism is when both buyers and sellers are free to buy and sell at agreed upon prices.

Besides, companies (via shareholders) make their money in the stock market. The real business just needs to grow at a modest rate for everyone to win.

You forgot to take into account risk involved.

You see, if a risky project A have a projected return of 10% and less risky project B have a projected return of 10%, then by investing in project A, I'm making myself poorer.

You see, in any society, the amount of capital and other resources are limited. You always need to be compensated for the risk taken via higher return, otherwise, limited available resources(whether it be capital or some other limited asset) will flow somewhere else.

BTW, your statement reminded me of one financial advisor I knew who was ripping off her clients left and right but her clients were too ignorant to realize it. She would basically invest her clients' money in risky project A which gave high return but due to her high fees, they got only normal return(expected return of project B).

Risk has to be compensated. There is no way around it.

--John

 

[SecDef]

I have one question for you. If drug companies are making so much money, how come other companies doesn't get into the same business of producing patented prescription drug?

There are a huge number of companies in the business. San Diego has the biotech version of silicon valley.

My point about the US Govt not negotiating is that the negotiations would (via capitalism) return a value that would be enough to offset the risk. The invisible hand of the market has no problem handling the complex issues discussed here.

 

[theinvisibleheart]

? for SecDef

Quote:
I have one question for you. If drug companies are making so much money, how come other companies doesn't get into the same business of producing patented prescription drug?

There are a huge number of companies in the business. San Diego has the biotech version of silicon valley.

Is the drug market competitive marketplace like other businesses? That is by defining competitiveness as ratio of producers relative to market size.

If it is competitive, how come the price of drugs hasn't come down like other product(computers, guns, daily household accessories, etc.)?

In fact, government subsidy or complete funding of Rx development according to some posters like Playboypenguin or Eghad, then it should be more competitive than other industries because most of the capital cost is already borne by the US government unlike other competitive industries.

Also, what do you think is the human capital involved in venture capital funding of San Diego's biotech version of Silicon Valley? Do you it's high or low? If it is high, do you think VC(venture capitalist) would keep on funding startups with very high human capital when profit is not high?

--John

 

[theinvisibleheart]

2nd ? for SecDef

Quote:
I have one question for you. If drug companies are making so much money, how come other companies doesn't get into the same business of producing patented prescription drug?
There are a huge number of companies in the business. San Diego has the biotech version of silicon valley.

My point about the US Govt not negotiating is that the negotiations would (via capitalism) return a value that would be enough to offset the risk. The invisible hand of the market has no problem handling the complex issues discussed here.

How does government negotiating prices (really another term for price fixing) mean allowing free market or Adam Smith's "the invisible hand of the market" to work? If anything, allowing the government to set the price ceiling means not allowing the invisible hand of the market to work.

It violates fundamental principles in any first year textbook on price theory(microeconomics). In fact, if what you are saying is true, you could probably start a new field in economics and finance and probably get a Nobel Prize eventually.

When there was assault weapon ban in effect, people were paying ridiculously high price for high capacity magazines when the actual material and development cost was minute fraction of the actual market price. According to your definition, this was not free market or allowing the invisible hand of the market to work because there was no government negotiated price ceiling like what Pres. Carter did with gasoline.

According to your definition, there was a free market and invisible hand of the market was working when US government in form of Carter Administration mandated gasoline price ceiling with resultant shortage and long wait at gas lines(yes, this is covered in basic textbook on microeconomic theory at freshman level).

Maybe, you can lead me to books, articles, and journals which can teach me about your understanding of free market.

Best regards.

--John

 

[theinvisibleheart]

? for Playboypenguin and Eghad

if most or all of the R&D for new Rx development was done by US government, why is most of new Rx development done in US?

The reason I ask this is because I read research literature in finance and economics from other countries as well as ones done by US government.

The research literature done by US government is free and open to the public on an international basis AFAIK...if it is so easy to development new drugs because it's already funded by the taxpayers and done by the US government, how come companies in other countries don't use the publicly available research from the US government to develop new drugs instead of having to buy drugs from US pharmaceutical companies?

If what you saying is true, it doesn't make sense that companies in other countries doesn't develop new Rx...instead majority of new Rx are produced here in US by pharmaceutical companies via patented Rx route.


--John

 

[theinvisibleheart]

clarification

1. most of Rx research in the world is subsidized by US taxpayers.

When I made the above statement, I didn't mean it was subsidized by tax money. It's funded by relatively high market prices of Rx drugs which is made possible due to strong property rights in US relative to other countries (patent protection).

BTW, research done by US government and fully or partially funded institution (research institution, universities, etc.) is usually available to US public and other countries for little or no fee(practically free).

But despite the fact that same information is available to other countries, most of new Rx products are developed here in US...if Eghad's and Penguinplay's contention is correct, pharmaceutical companies in other country would be able to take the publicly available drug research from US government and develop equivalent Rx drugs at cost of generics (pennies on the dollar).

But instead, they buy patented Rx drugs at reduced prices instead of ultra cheap generic cost (if they developed it themselves...which according to Eghad and Penguinplayboy is already done by tax payer funded US government research).

--John

 

[theinvisibleheart]

SecDef, Eghad, 2afreedom, etc. EASIER SOLUTION

actually, if you just took away the patent protection, all of the market prices for existing drugs will drop like rocks to that of generics(cents per pill).

It would still be free market unlike if government was to set price ceiling, but investment into new drugs and other medical innovation would drop off drastically. Venture capitalists, PhD in chemistry/biochem/biology who were previously involved in Rx development would employ their ultra high human capital elsewhere.

All the people in US who are paying high prices of modern medical miracle will benefit for this one generation but at HUGE HIDDEN COST for their children and grand-children.

Your children and grand-children will suffer what your parents and grand-parents suffered(lower quality of life or shortened lifespan due to lack of many of our modern medical miracles) but at same level as you currently enjoy. Current trend of people living longer and at higher quality of life will start to tail off because resources are shifted into other areas.

--John

 

[Playboypenguin]

theinvisibleheart

Wow, are you trying to just dazzle people with repeated posts and long paragraphs?

The US govt does pay the bill for the majority of all drug research.

Your questions about why everyone doesn't produce drugs doesn't make any sense to me. Of course the research and work has to be done by trained professionals. That has nothing to do with who is paying for it.

If it is so easy, why can't pharmaceutical companies hire anybody to just get the drugs (which was already made by US government according to Mr.Playboypenguin)

Where did I say that the govt does the research? I said the govt pays for the majority of the research.

I am smelling a weird agenda here.

 

[theinvisibleheart]

Penguinplayboy, ?

The US govt does pay the bill for the majority of all drug research.

If the work of majority of developing new drugs is already done by the US government (which means the information is available publicly to everybody in US and pharmaceutical companies in other countries), then how come companies in other doesn't develop the drugs themselves?

You see, reduced prices for patented Rx drugs is more than generics(pennies on the dollar).

If it was so easy, even though it requires professionally trained people(generic drug companies does employ professionals), how come pharmaceutical companies in other countries which already have access to public research by US government doesn't use it and produce lower cost generic equivalent themselves?

I've met PhD from many, many countries in the world...their ability to understand US government funded research is not different in any way from that of a PhD from a US university.

--John