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June 19, 2003

Drug Prices

I do not take any prescription or recreational drugs for that matter. I cannot remember when the last time I did. I do take an asprin each day along with my vitamins for mature adults. Cleaning out the cabinet where we keep my wife's medicines I was shocked at the number of bottles I found there. She takes a number of different medicines that I wasn't aware of. Some of the bottles contained medicines she had taken in the past. Since we no longer have kids running around I do clean the bottles out as religiously as I used to. Bottles of drugs are like loaded guns as far as I concerned when you have children.

I watched a very good FrontLine report tonight on the issues surrounding the drug industry. I worked for an animal pharmaceutical company for 21 years so I have some knowledge of how the business works. Most people do not. It seems like if a company is big, the tendency is to hate it. Companies need a certain mass to be able to afford and conduct the research necessary to bring drugs to market. Research costs a lot of money and it takes a lot of time. In my company we spent 7 years and millions of dollars developing an antibiotic that was not approved by the FDA. We had many many false starts during the research process. Our success rate was probably one out of 20 new compounds that made it through to a final product. Those drugs that were finally marketed were very expensive. Being a cost accountant I knew what the production costs were for our products. One had a cost of goods sold of less than $4 a bottle. We sold it to veterarians for $45 a bottle and they, in turn, sold it to their customers for $120/bottle. It was the only drug of its kind at the time. While I was there the drug went 'off patent' and generic manufacturers began making it and selling it for $9-10/bottle. We dropped our prices to $18/bottle to the vets and still sold a lot of it. That drug paid for a lot of successful and unsuccessful research while it was on patent.

I think that most people think that new drugs appear like magic. The process for developing a new drug is demanding. The FDA has stringent requirements for new drug approvals in order to protect the public. Some of our submissions for approval were at least 4 feet thick representing millions of dollars and years of research. It would take the FDA at least 3 years to review our submissions. For human drugs the approval process is probably even more difficult.

The high cost of drugs is a puzzle to the average person. Everyone knows that drugs in Canada and Europe are a lot less expensive for the same drug. The difference is that they have price controls on their drugs. We do not. If we did research for new products would dry up like it did in France after they put in price controls. Drug companies could not recover their research costs so they cut out research. France went from being #2 in new drug discoveries to being #9. We are basically supporting drug research for most of the world with our high drug prices.

Those who are advocating drug price controls do not realize what will happen to the drug industry if that happens in the US. It will stop conducting research. If that is what these advocates want then they will reap what they sow for a short term gain. Most drug prices do come down when the drug goes off patent if the manufacturing process is simple for the drug because the generic manufacturers will jump into the market. Prozac went off patent and its generic price was 85%-90% less than the brand name drug. Same drug, same efficacy, different name.

Two states have developed two different approaches to soaring drug prices. Maine has chosen a price control route while Oregon has developed a consumer based approach that gives the consumer of drugs and the doctors information about the efficacy and the price for various drugs and allows them to make the choices based on professional comparsions between the alternatives. I like the Oregon model. The drug industry fought both approaches. The Maine approach went all the way to the Supreme Court where it was upheld.

One of the reasons why heathcare cost are out of whack is because there is virtually no real competition between different brands of drugs. Individuals do not make choices to buy drugs. They accept the recommendations of their doctor or HMO. The HMO, doctor or patient does not care what the drugs cost because the insurance company or government will pay for the drugs. If the patients paid for them they would be looking for cheaper alternatives. The seniors without healtcare coverage in Maine do that when they take buses to Canada to buy their medicines The Oregon law restores a measure of competition to pricing of medicines.

The general public should get off the we-them approach to drug pricing. The hatred that people have for large companies will get them nowhere. We need large companies that can do the expensive long-term research. These companies will not survive without vital research departments that reliably come up with new products that benefit us all. The mom and pop drug companies operating out of someone's garage cannot compete with the giant companies because of the cost for development so we are stuck with what we have.

Discuss Drug Prices
- posted by Mad Jayhawk and Seven @ 6/19/2003 11:10:00 PM    |

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