I Say Thank You to Big Pharma
Don't reduce incentives for medical R&D
The typical drug patent lasts 20 years. However, it takes many years from the time a patent is granted until a drug actually appears on the market. On average, a new drug gets patent protection in the market for only 8 years. There are circumstances under which short extensions are possible. But remember, a life-saving drug might go 20 or 30 years before it is replaced by a better drug. What is true of drugs is true of all innovations and inventions. Economist William Nordhaus has estimated that innovators (including drug developers, tech companies, etc.) capture only about 2.2% of the total social value created by their innovations. Arguably, we should be thinking about how to increase the rewards for innovation and discovery—not only for pharmaceuticals but in many other areas as well.
I take a pill every day that helps to prevent cancer of the esophagus, which killed my father. One of my daughters takes a medication that put into remission her Crohn’s disease, with which she suffered through her late teenage years and much of her twenties, before this medication became availablle. My wife and many other women her age take medication for osteoporosis, strengthening their bones so that they do not suffer crippling spinal fractures.
These drugs are profitable. But rather than curse Big Pharma’s profits, I say thank you for the benefits that they bring.
Medical research brings social benefits. Our society uses a mix of private incentives and government subsidies to encourage medical research. Although this mix is not perfect and never will be, we should appreciate what it does accomplish. I do not believe anyone knows the perfect system for finding and distributing medications. I am worried that our existing flawed system will be replaced by a worse flawed system.
If you think that the way to improve pharmaceutical policy is to drive down drug prices without doing anything to offset the disincentive effects of doing so, think again. Or if you think it helps to cut funding for medical research instead of coming up with better ways to allocate grants, think again.
I would like to see more experiments with using prizes rather than patents as a reward for drug discovery. The patent system makes the price of a drug artificially high relative to the marginal cost of producing the drug once it finally has been shown to be safe and effective. Instead, a prize would allow a drug developer to earn a reward without charging a high price protected by a patent.
Prizes awarded for achievements in medical research might be a way to reduce the cronyism and politicization in the grant-making system. But we could never come up with a set of prizes that could serve as a complete funding mechanism for medical research.
In my opinion, the Trump Administration has been good in some areas and bad in others. I put drug price controls and cuts in medical research funding on the negative side of the ledger.
This is one of those areas where I'm a subject matter expert, and I find the commentary in this space dismal.
First, most of the things that bother people in the drug space don't relate to life saving meds or Pharma profit margins. They focus on me-too drugs and absurd pricing regimes like manufacturer rebates. By far the biggest pain point in Pharma was insulin, which is an old drug with many equal alternatives (who the fuck cares if your on Humalog or Novolog) that was priced 10x higher then net in the worlds biggest gross to net bubble ever. None of that 1,000% nominal price markup was funding drug R&D.
Second, its an extreme irony that the IRAs drug price negotiations INCREASED drug prices. CMS and the CBO, being incompetent and corrupt sycophants, don't acknowledge this. But it's true, and anyone that's looked into it with even cursory math knows that the IRA dramatically increased the cost of Part D. Again, it's not "life saving drugs" that are the subject of price negotiations, but the garden variety brand drugs that are part of the rebate game gross to net bubble.
I do in fact hope that Trump negotiates lower prices on many of these drugs. If he doesn't nobody is going to cover them and none of the money is going to go to R&D.
Third, not all drugs are actually useful. A lot of them are of marginal or even negative benefit. When you reduce cost to the patient a lot of them will start utilizing drugs they don't really need. Take for instance the recent $2,000 out of pocket max from the IRA. It turns out that a lot of people that didn't think they needed Dupixent or a bunch of other garbage specialty drugs all of a sudden decided they would give it a try now that the cost is $2,000 (or if they take a brand drug already which most do, $0 additional). Dupixent is BTW the #1 advertised pharma drug in the world. You don't need to advertise that much if your product speaks for itself. It was a blast watching the company pay prescribers to mass enroll people in the drug on 1/1/2025.
I hope that someday, sooner rather than later, a pharmaceutical company makes a lot of money by exploiting my need for a medication for the disease that killed my mother.