Why Do Drugs Cost So Much?
Are you still under the delusion that drug companies deserve high compensation for their research? I'm hopeful RFK, Jr. will help.
Okay. I admit it. I thought drug companies did their own research and drug prices were high to compensate them for their investment. Maybe. Maybe sometimes. What about when they are not?
An article published in ProPublica (legit?) titled What a $2 Million per Dose Gene Therapy Reveals About Drug Pricing, gives us reason to think. Zolgensma is a gene therapy drug to help children with spinal muscular atrophy. Private charities and grants from the federal government funded initial research. The price was determined to be over $2 million based on “the value it provides to patients” or what I call what-the-market-will-bear. “This was a case where the charities and the government did everything to get this thing commercialized, and then it just became an opportunity for a bunch of people to make transformative, generational wealth,” said James Love, director of the public advocacy group Knowledge Ecology International.”
I first became aware of the role of government financing while listening to The Real Anthony Fauci by Robert F. Kennedy, Jr. (RFK, Jr). For some drugs, the process seems to be that the major heavy lifting of research is funded by National Institute of Health. The drug is patented and then licensed to drug companies. The payments from the drug companies help make our government workers millionaires. According to Money, Inc., in 2021 Dr. Fauci received $456,028 in royalty payments from pharmaceutical companies. That doesn’t seem right to me.
Before IBM hired me in 1978, I signed an agreement giving them rights to any intellectual property I created while working for them. Shouldn’t we have the same agreements with scientists working for taxpayers? If we are paying to develop drugs, shouldn’t the drugs be delivered to patients on a cost-plus basis and not on a whatever-the-market-will-bear basis? That change alone could be huge.
Lest you believe some “scientists” on the news lately, let me give you a couple of quotes that should make you shudder. The first is from Richard Smith, editor of The BMJ until 2004.
In 2009 Marcia Angell wrote: “It is simply no longer possible to believe much of the clinical research that is published, or to rely on the judgment of trusted physicians or authoritative medical guidelines. I take no pleasure in this conclusion, which I reached slowly and reluctantly over my two decades as an editor of the New England Journal of Medicine.”
When we have editors of the top medical journals saying medical research is fraud, we need to do something. RFK Jr. seems to understand the problem better than most and has vowed to confront it.
Government pays for the research, if it is even done. Patents the drug. Licenses the drug to pharma. Bureaucrats get a cut of the licensing fee. Academics and bureaucrats determine the “value to the patient” and set a super high price. Insurance must pay the price, but they don’t care. Think about it. They are getting a cut too. If you could afford the drug, you wouldn’t buy insurance.
The system is corrupt. For the first time in a very long time, I am hopeful.
Just after I sent the above comment… I change my focus to the news on TV. Dammit, there was another pharmaceutical commercial.
Kennedy at HHS is a story yet to be told. The one thing that I hope changes, and Kennedy is an advocate for change, is the removal of prescription drug commercials from the airwaves.
The U.S. and New Zealand are the only two countries in the world where drug commercials are allowed.
Those commercials and the psychosomatic tendencies of the public manipulated by those commercials are turning the public into junkies.
(Luckily, I don’t watch much TV. However, I do appreciate commercials because of the psychological thought put into them. In fact, commercials are about the only thing on TV with any thought put into them 🙃)
As usual, the larger story is more nuanced.
The vast bulk of NIH research is via funding of competitive grants to university academic researchers. NIH awards grants based on merit (risk, need, track record, etc). This is 80% of NIH’s budget.
The university gets the bulk of any resulting patent royalties with researcher getting some amount of the crumbs.
In the drug discovery process, the pharmaceutical company does very little. The high risk portion of the research has already been done. They license the patent from the university. They then usher the drug through testing required by the FDA prior to commercial release.
Pharmaceutical companies charge high prices because they can. It is an obscene application of supply-demand economics. If one is ill and the only cure is via a patent protected drug, one will pay whatever the price is; the demand is infinite while the supply is protected.
10-11% of NIH budget goes to intramural (in-house) research while the remaining 9-10% goes to overheads.
The intramural efforts typically are focused on issues that classically high impact but low commercial value (e.g. fluoride for teeth, lithium for bipolar disorder). The various focus centers are organized somewhat like universities. The patent royalty situation works similarly.
The case of Dr. Fauci is too wrapped in political bias to effectively suss out. Factcheck.org gives a fairly balanced analysis regarding royalty payments. It isn’t as simple as depicted in the consumer news.
https://www.factcheck.org/2023/08/scicheck-conservative-posts-misrepresent-royalty-payments-to-fauci-and-collins/
You mentioned that during your tenure at IBM, you had to agree to assign any patents to your employer. You (and I) got a nice fat wage in return. That is not the case in academia. The pay is usually terrible and patent royalties are incentives for academic productivity as well as financial stability. In academia, you buy your job; no grants, no royalties means finding a new job.
To go back to your main premise, I do not see how the NIH is mainly responsible for the high price of drugs. The pharmaceutical companies are allowed to charge what the market will pay.
One might find better return on the drug reform-effort by taking a critical look at the patent and patent-extension rules. Generics (expired patent) drugs are pennies on the dollar relative to patent drugs.