Friday, August 29, 2003
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Puncturing the conference vacuum
One of the quirks of APSA is that even though everyone -- well, almost everyone -- attending the conference is interested in current events, during the four days the conference is in progress people exist in a black hole for news. Free copies of the New York Times are available for participants, but few attendees have the time to peruse the news in the same way.
However, my blogger training permitted me to notice that the U.S. was cutting a deal on generic medicines in advance of the Cancun trade talks. While the deal hasn't been officially sealed yet, it looks like it will.
In the short term, this is double good news. It will benefit those in developing countries and suffering from AIDS or other diseases. It's also a boon to the trade talks and a signal that the U.S. is committed to completing the Doha round on time.
Make no mistake, however -- in the long term, there are potential costs. If pharmaceutical firms believe than any drug developed for a disease that is widespread in the developing world will have poor intellectual property rights protection, it will affect their research and development trajectories, and not in a good way.
NGOs are bitching that the deal does not go far enough, as are African activists. That actually makes me feel better, in thinking that the deal will not gut property rights so much that it will blunt new drug research.posted by Dan on 08.29.03 at 08:25 AM
I cant imagine that any amount of payment for Aids drugs from Africa would have a significant impact on R&D. After all, our Ag. subsidies are greater than sub-sahara's GDP.
The real fear is reimporting the drugs through the grey market, cutting into western sales.
Also, one should keep in mind that big pham. co.'s spend more on advertizing than R&D.
Property rights have important purposes, but it is society that defines them.posted by: mrkmyr on 08.29.03 at 08:25 AM [permalink]
"I can't imagine that any amount of payment for Aids drugs from Africa would have a significant impact on R&D. After all, our Ag. subsidies are greater than sub-sahara's GDP."
On AIDS drugs, probably not. On malaria drugs, it could. African poverty is one reason why there's not a lot of funding on malaria.
"The real fear is reimporting the drugs through the grey market, cutting into western sales."
Right, and this was actually the sticking point; the US wanted very strong assurances against smuggling and reimportation. Subsidizing very poor countries is one thing. Subsidizing well-off countries is another.
"Also, one should keep in mind that big pham. co.'s spend more on advertizing than R&D."
Not really. It's actually something to NOT keep in mind. In fact, almost any time someone brings up pharmaceutical advertising, odd are they don't really understand what they're talking about. The companies advertise in order to sell more drugs; more specifically, in order to make more profit. Companies try to spend the amount of money on advertising that brings them as much profit as possible, where any more or less spending would give them less of a profit.
Once you view it in that way, you realize that advertising money doesn't really suck money away from the R&D budget, or at least not in the simplistic way that people often assume. It's much more complicated. R&D spending is related to the potential future profits. Higher chances of success, or the potential for higher profits later mean more R&D spending. Advertising budgets are affected by the ability to sell another pill with more advertising.
Certainly if property rights changes make it unprofitable to invest in new drugs, R&D spending might go down and advertising go up. Or if great new drugs are invented, more advertising might be used to sell them. But to suggest, as people sometimes do, that all the advertising money could just be spent on R&D is wrong. If the company is spending about the right amount on advertising (judged by economic profit), then cutting advertising spending will mean less net profit, and eventually less, not more, money to spend on R&D.posted by: John Thacker on 08.29.03 at 08:25 AM [permalink]
One of the big burdens on drug companies is FDA rules that drive up development costs by a factor of 10X.
Why do the drug companies like these rules? They keep small companies out of the market. Profits are protected.
What this means for the consumer is that is a drug that can't profitably meet the cost of this added R&D burden does not get developed.
In addition these added costs are coming back to bite them in government controlled prices. And reimportation.
I expect drug companies like the rest of the medical establishment will be nationalized before too long.posted by: M. Simon on 08.29.03 at 08:25 AM [permalink]
To Mr. Thacker, my point about the cost of advertizing in the production of drugs is not to show that the individual companies run ineffieciently under the current system, but that if advertizing is so important to drug companies 1) the vast majority of their profits come from places where such advertizements will have an effect (the US) and 2) the current privatized/insurance system we have in the US for prescription drugs is malformed. Like a perpetual CA deregulation sceme: the prices for the drugs are initially paid by the distributor, not the end consumer, so there is no reason to be price concious, so prices rise unchecked, and eventually everyone pays through higher premiums. In this system, there would be over-advertizing, because the pay-off from having a patient demand a particular drug is high, and the patient does not see the cost of that drug (only the co-pay).posted by: mrkmyr on 08.29.03 at 08:25 AM [permalink]
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