Free Trade Agreements are bad for your health

Russkie, I posted about those precise questions a while back, here and here, examining the arguments Big Pharma makes in order to use trade negotiations to prop up prices in the US. The comments have a lot to say about R&D and pricing – well worth a look.

But I think you’re missing a very important point that John makes. So did I when I took at face value the argument that foreigners buying drugs cheaply means Americans pay more, missing John’s point that;

“Big Pharma hates this (governments buying drugs more cheaply in bulk), not so much because of the loss of profits in Australia as because of the fear that the US government might one day follow the Australian example.”

It makes sense to me that the pricing question is a lot less important to Big Pharma than the demonstration effect to Americans that drugs are cheaper when bought in bulk by governments. Governments have an incentive to keep prices down (unlike, to some extent, HMOs), and the clout to negotiate. Big Pharma’s not really worried about marginal pricing effects in a foreign market, but rather by the possibility of this affecting public policy in the US.

Which makes me feel a little less snippy that John had to go to such pains to refract an issue of direct and material interest to Australians through the prism of US domestic policy…

Can’t say that I’m dramatically swayed by those posts. Economics, rather than “public choice theory” or what-have-you is the relevant discipline IMO.

The basic point would be that the free market (which includes both drug companies and collective bargaining by HMOs and gov’ts) is not effective for pharmaceuticals, since it will cause the companies to focus on the most profitable drugs, and will make them abandon research on treatments for diseases that affect only a small number of people, especially if they live in poor parts of the world etc.

You agree that market distortions are necessary, but your arguments against the scheme seem summary and dismissive.

And I don’t think you provided an example of innovative non-academic pharm research occuring outside the US.

_Ulysses_, written a hundred years ago? Um, it’s not a documentary.

And gosh, “Russkie”. One might think that your talking loud was actually saying something. Guess where sildenafil was discovered.

Also worth mentioning that “success” in concluding the Australian agreement will embolden the US in its practice of doing end-runs round the WTO process and concluding bilateral “free trade” agreements with third world countries that sneak in a whole load of TRIPS propositions explicitly rejected by the WTO. (example).

To make pharmaceuticals a bit more expensive in Australia is bad enough; to do it in Uganda is (and I do not exaggerate here even a little bit) downright genocidal.

Russkie, I reject your argument out of hand on the following grounds:

1) There are no American pharmaceutical giants. All private drug breakthroughs come from international firms with at best tenuous connections to the US. Lab work is mostly done in Europe and Canada, in part because of tax breaks, in part because of easier clinical testing rules and in part because of easier visa rules for scientists.

2) Private pharmaceutical R&D budgets amount to some 5% to 10% of pharmaceutical revenues, US revenue represents a good deal less than 90% of sales.

3) Government pays for most drug research, and US public pharmaceutical R&D expenditure is probably not higher than the rest of the world combined. Even if it was, it would be the rest of the world and the drug companies mooching off the US taxpayer. If you were complaining that Europe and Japan don’t sink enough money into public R&D, I’d totally agree with you, and not just because then I could get more money out of the buggers for my own research. But considering how little pharmaceutical giants pay in US taxes – incorporation in Bermuda or Switzerland has distinct virtues – I fail to see what Americans gain by having their government protect drug firms that are nicking them once for public R&D and again on their prescription drug costs.

Ah, I love exposing how dumb the trolls are in the morning. The anonymous coward known (temporarily, I’m sure) as “Russkie” said, “And I don’t think you provided an example of innovative non-academic pharm research occuring outside the US.”

I provided one, sildenafil, known to its British developers as UK-92480, but perhaps better known to “Russkie” as Viagra, maybe especially on Saturday nights.

Now he whimpers, “If you want to make a point, make it. This kind of sarcasm can sound like an attempt to intimidate.”

It’s not an attempt, “Russkie”. I’ve succeeded. You’ve just shown you don’t know fact one what you’re talking about.

Life is good.

C.

“, they inserted a clause allowing US drug companies to seek a review of unfavorable decisions, and some additional clauses about patent protections.”

The EU countries found themselves in a similar situation seeking review of previous decisions since prices varied, sometimes wildly, for different countries with their own cost-benefit analysis.

Periodic review seems sensible regardless of trade agreements; drug efficacy comparisons and costs change as new drugs are brought to market and production improves. I’m guessing that a push for review is to reconsider drugs currently excluded from the Australian formulary.

Scott:

“All private drug breakthroughs come from international firms with at best tenuous connections to the US.”

Excuse me? Could you please provide the names of these international firms with tenuous connections to the US?

I’m sure you aren’t talking about Pfizer, GalxoSmithKlein, Merck, AstraZeneca or J&J. (Top 5) since saying they have a ‘tenuous connection to the US’ would not only be incorrect, but would in fact be a complete inversion of the truth.

And you don’t get off with the ‘international firm’ either. Most of the nominally European firms still do a huge portion of their research in the US. I suspect you are hinging your statements on the Michael Moore-like distinction of “American Firm” from “international firms” instead of dealing with the economic reality of firms who do a huge portion of their research in America and make a huge portion of their profits in America.

“Government pays for most drug research, and US public pharmaceutical R&D expenditure is probably not higher than the rest of the world combined.”

Are you just making this up? Government in the US pays for most drug research? Since when? Which drugs are we talking about here?

“But considering how little pharmaceutical giants pay in US taxes – incorporation in Bermuda or Switzerland has distinct virtues”

Are you completely nuts? You think companies which sell most of their product in the United States somehow avoid paying taxes? How little do you think they pay in taxes?

Anyway back to the original post.

Even if the only fear was that the US would follow Australia’s example (and frankly I don’t think that is the main reason but whatever) so what? What are the ramifications of the fact that pharma profit is mainly centered in the US? (Which contra scott it most certainly is.) What would the ramifications be of cutting it so there isn’t any major market in the world where pharma companies can recoup their research costs? Do you think that would increase drug discovery rates? Why do you think that?

Come here to San Diego (one of the places where a huge portion of the research is done–and I hear San Diego is in the US) and explain to me how dozens of pharma research companies can afford to pay the salaries of thousands of researchers and scientists while very few of them get useable drugs. Does it have something to do with the large reward for success that lets people get investment money in what is a horrible long shot? Who is going to fund those companies? Who is going to discover those drugs? And if your answer is that public research is more efficient and thus could take over for those companies, please explain why a majority of the new drugs in the world are not in fact discovered by Australian and French and German research universities.

And while we are at it, please explain why government planning isn’t smart enough control farming without causing famines but mysteriously is able to do fantastically more complicated drug research with excellent efficiency.

Perhaps John’s objection to the copyright amendment is more valid: increasing the lenght of copyright goes against much of current economic research – which increasingly avocates no copyright in productive fields. this may be particluarly important in future as computer

1. Drug research is the 3rd biggest expense in the pharmaceutical industry. Salaries and ADVERTISING are bigger. And much of the “research” is just patent protection: eg: Nexium, which has nothing in it that is not in Prilosec. Real breakthrough. Extended release Paxil when paroxetine goes generic. Etc.
2. Most research IS funded by governments. Basic science breakthroughs are done in the academic world, then cannibalized by the drug industry. Where would the genetically engineered drugs be without Crick’s and Watson’s research.
3. I hadn’t noticed that big Pharma had pulled out of the price controlled countries. Does Pfizer still make a profit in Australia? I thought so.
4. On the larger issue of patents and copyrights. These are useful if LIMITED. Note that, while the US urges Australia to extend copyright for music and books to about a century, nobody suggests doing the same thing wiht drugs. That is because drugs have an obvious utility beyond making money, where the only utility to art, according to the Philistines in government, is the money. They see no intrinsic value to art, so why free up our cultural inheritance. When Biz Markie was sued for sampling Gilbert O’Sullivan, rap turned from socially relevant and political, to comercially safe, formulaic gangsta misogyny. Yippee.

epistemology,

Salaries are higher? Duh? And how do separate out the saleries of researchers when comparing the two?

And advertising lead me to prilosec which lets me sleep at night. And since Prilosec is the same as Nexium but cheap and over the counter it is a really good deal.

No private investment is greater than public. Read the reason link.

Sebastian:

I recall that NON research salaries are higher than research costs at drug companies. And much of the research is utterly bogus. As I said, MOST research is oriented to me-too drugs, long acting versions of drugs already available, etc. The pipeline is anemic currently because of research geared, not to the health of the nation, but the health of the pharmaceutical companies. And you have a VERY narrow view of scientific research. Much of the basic science research is done in Universities and the drug companies swoop in when something marketable is uncovered. It would be very hard to break these costs down, but you could look up NIH, NIMH, NSF, and even basic chemistry grants. Basic science may be distant from the final product but who would argue they are not essential to discovery of the long run? And what about orphan drug legislation.? Are you against it as being anti-free market? The fact is that there is no categorical difference between, say, betaine for homocystinuria (a very rare condition, subsidized by the government) and say gene research for a more common (but still unusual condition) like cystic fibrosis may be less so. The truth is there is a sliding scale of profitability and the government should intervene to level the playing field. We should rely on the free market approach entirely for contagious diseases too? Flu? AIDS? The bottom line is that even if you can’t afford meds in the US (say insulin) and you develop gangrene, you can walk into any ER in the country and get free meds and care. This is penny wise and pound foolish.

Understand, I am a big supporter of the pharmaceutical industry. I just think that drug prices are too high (they are) and that the basic science needed for breakthroughs will never be properly funded by firms listed on Wall Street for the obvious reasons.

My father spent his life doing research in organic chemistry (with a Ph.D. from MIT) and regularly submitted novel compounds to the National Cancer Institute for testing. My brother and sister-in-law, on the other hand are high up in Pfizer (she is a vice president with responsibility for Zoloft and other psychopharmacologicals) and I see it from both sides. I am a lowly general practioner for the last 25 years and know what a joke our healthcare delivery system is. Especially regarding drugs.