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Comment by mft_ | Hacker News Reader

Using the word “subsidised” makes it sound like companies are deliberately selling for artificially low prices outside the US, because they can charge more within the US to make up the difference. That’s not usually the case. Pharma companies generally aim to make as much as they can, everywhere they sell. It’s just that they can make much more in the US than elsewhere. Of course, this is built into their business models, but I’d still argue the term subsidy doesn’t quite fit.

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Pharma companies are making healthy profits in, e.g., the EU as well. And those include R&D costs as well.

For interest, I had a quick look at a couple of financial statements from three big pharma companies not selling COVID vaccines.

For Q1 2022, pharmaceutical sales only...

AbbVie: 10.345 Bn US vs. 3.19 Bn ex-US [0]

Roche: 5.292 Bn US vs. 5.308 Bn ex-US [1]

BMS: 7.694 Bn US vs. 3.954 Bn ex-US [2]

So US provides at least >= 50% of total revenue, and in some cases considerably more. Also, given the higher prices, it's likely that the US represents a considerably higher proportion of profit than this - and therefore a major change in drug pricing in the US would be hugely disruptive for the industry.

[0] https://investors.abbvie.com/static-files/b37af441-45e9-4e16...

[1] https://www.roche.com/cec228fd-2a55-41e7-a718-19e658c7048d

[2] https://news.bms.com/news/details/2022/Bristol-Myers-Squibb-...

You're not subsidizing us.

That's the wrong way to look at it.

Your companies are just skinning you alive, because you're letting them.

I think the question is, what would happen if the USA passed similar laws like everyone else and the profits plummeted? How would the pharmacy companies react? If nothing changes, the USA is not subsidizing. If things get worse, they are subsidizing.

It is likely that costs outside of the us would rise somewhat. Hard to say for sure.

Life would go on and companies would adapt after the initial shock.

So MANY of these discussions are pointless when we've had huge changes in the past and 5 years later people can barely remember the past discussions.

Fear of change is huge, the impact of the average change is in general quite small, in the medium to long term.

Question is how would it adapt, which is a fair question to ask and answer

I’m surprised a company doesn’t sell the product for a lower price... Oh, the US prevents this due to patent laws? Then diminish the patent rights... Oh, that would stifle innovation? Hmm, I imagine mandating lower prices might have the same effect.

I think a pretty strong case could be made that the cost of innovation is not worth it. Would it be better to have revolving door of new medicines with 1% better efficacy or all medicines for 10% the price?

Unfortunately, this requires the intellectual honesty for people to admit that profits do in fact Drive Innovation which seems to be a sticking point for most.

No... it is subsidizing. Developing drugs is expensive and high risk... there has to be a monetary mechanism to incentivize drug development and, right now, that is the promise of high profits, which mostly happens in the US. Therefore, US is carrying most of the incentivizing burden for pharma development.

The rate of innovation would slip for global drug development without the promise of high prices and blockbuster profits in the US market.

I have worked for a couple different Pharma companies, including those HQ'ed in Europe, and this is basically the situation. EU based Pharma companies make most of their profit in the US (almost every pharma company does).

There are other ways to incentivize drug development and/or defray the financial risk of development, of course... but this is situation today... has been for a long time.

Set up a straight forward division of labor. Government serves as incubator, funding basic research, early stage trials, angel investor for promising teams.

Govt then auctions rights to productize drugs. Industry pays govt a royalty. Modulate the royalty to incentivize desired outcomes. eg zero (or negative) royalty for malaria, 3000% for esteem remedies like viagra.

Further, when there is no market demand for obvious public health priorities, govt contracts with industry, paying for mfg, distribution, marketing, training, whatever.

But, what would happen if the USA adopted the Canada model and the pharmacy companies started collecting a fraction of their former profits?

I'm not sure we can accurately predict what would happen, but a few thoughts:

* Clearly, this would hugely disrupt the current pharma business model.

* One obvious initial response would be to limit investment into research. However, this isn't a viable long-term solution, given research is the lifeblood of continuing success in the industry. It would therefore increase pressure for regulatory reform - essentially to reverse the trend of recent years, and make medicines easier/quicker (and therefore cheaper) to develop.

* Other typical business-leader responses: cost-cutting, job losses, mergers, etc.

* Pressure on developed countries outside the US to pay higher prices

* Longer-term, it might disrupt the current model of drug research funding altogether. The industry is already at a point where development of many drugs is close to unprofitable, and that trend is worsening as regulators become ever-more conservative, and of course with each new successful drug, the next one becomes progressively more difficult to find. The change we're discussing might well mean that drug discovery and development is simply no longer an area where profit can be reliably made - and as such shareholders remove their investments, and pharma companies would merge/struggle/fold. Faced with this, governments and regulators would presumably need to work together to find ways to continue the funding of drug development - and make up a overall shortfall in research and development funding similar to the GDP of a decent-sized country.

(To be clear, I'm not disagreeing at all that the US is effectively supporting the industry - just the term subsidy in the way it was used.)

Maybe new drug development and investments world move to outside the US, where salaries are lower,

And development would continue there.

I'm guessing that'd be the best for everyone except for the profit maximizing pharma companies in the US

drug development happens all around the world already, a lot of it happens in the US because of the NIH (which is good, but could be a lot lot better: https://newscience.org/nih/)

Yes I know there's outside the US, I had in mind that (some of) the development in the US could move abroad

Didn't know about NHI.

Keep in mind that development location isn't tied to sale location. For example, companies located in EU already develop drugs for the US, and some may not launch in EU or launch much later.

> and of course with each new successful drug, the next one becomes progressively more difficult to find

citation needed

> as regulators become ever-more conservative

... cough

the simple problem is that the drugs that work very well are hard (eg. personalized gene therapy) and there whole healthy-industrial complex is not set up to solve hard problems, it's set up to sell treatments to the market, keep the machine churning, buy promising new formulas from small research labs, do the larger trials, manage the FDA, market the shit out of those that make the cut, rework formulas to keep generics at bay, and so on.

the other trivial problem is that no one wants to confront basic problems affecting health. (obesity comes to mind. nutritional studies are so underpowered it's laughable. also let's say mental health. tinkering with the brain always has the nasty side effect of oh what if the drug accidentally makes you feel funny/good instead of just not-miserable - see the weak results of the esketamine, also see how psychiatrists are afraid to use desoxyn [meth], because oh the paperwork & peer pressure.)

note, I'm not saying that the current setup does not deliver results, and that your predictions are without merit. (they are realistic.) what I'm trying to make explicit is that the industry is already ripe for structural reform. (the easiest no-brainer would be to simply fast track drugs already approved by the EU EMA; tax waste spending [spending that is not R&D or manufacturing - eg. marketing/sales]; make the FDA approval process a lot more standardized and faster; start running publicly funded trials on drugs that are already prescribed by doctors but are not authorized to be marketed)

>citation needed

Look into eroom's law of drug development. There are a lot of papers on the subject. It describes R&D cost, which covers more than just discovery, but gets the point across.

https://www.google.com/search?q=eroom%27s+law&tbm=isch&ved=2...

does the slope disappear if we control for the usual cost increases? (Baumol's cost disease for example pushes up everything that involves human time, and running trials is 99% that)

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