Why are prescription drugs cheaper in Canada?

[preslove]

Well, you guys didn't seem to get my point. The fact is that the major us pharmaceutical companies are rapidly expanding their MARKETING budgets and staff rolls while R&D is stagnating. Linky. Here is a good quote:

?These staffing patterns call into question the brand-name drug makers? self-definition as
?research-based? companies,? commented Socolar. ?Since they now employ nearly 40,000
more people in marketing than in research, they might more appropriately call themselves
?America?s marketing-based pharmaceutical companies.? Their priority today does not
seem to be developing new treatments but defining and selling their brands.?

Marketing does not just involve all those stupid commercials and magazine ads. If any of you have ANY contact with a hospital, clinic, doctors office, then you know that drug reps are a near ubiquitous part of daily life for people with the authority to prescribe drugs. These drug reps don't just give free samples and marketing materials, but SPEND GREAT DEALS OF MONEY on things like catered lunches, retreats, conventions, and even a vacation (kind of like a combination of all those examples). So in every minor/midlevel/major urban market there are a bunch of drug reps spending hundreds, and, more often, THOUSANDS of dollars each on doctors. My mom works as a social worker at a major mental health facility here in florida, and she sometimes gets invited to informational lunches that are given to the psychiatrists. These lunch's are catered sometimes by places like chili's and sometimes by gourmet places, but in any case the ones my mother gets invited to (she's a social worker so she can't prescribe drugs and therefore is not a target of the reps) contain dozens of people, so the budget for each function is gonna run close to a grand. This is one medical facility on one day.

Marketing has replaced R&D as the main object of US pharmaceutical companies because it is a more predictable way to gain revenue. You invest a certain amount of money in one drug and you can reasonably expect a certain amount in return. They use modern management techniques to guide their business plan.

Large drug makers spend just one-third to one-half as much annually on R&D as they spend
on marketing, advertising, and administration, analyses of their annual reports have shown.

The problem is that the drug campanies' bottom lines may stay high, but medical technology does not improve and the cost of the drugs remain exorbitantly expensive. The entire pharmaceutical industry has to be reformed, with price controls and bans on the extravagant marketing of drug reps put in place before we can catch up to our western counterparts.

edit: grammar

 

[rjain]

Ok, anecdotal evidence is cute, but it doesn't make a fact. The fact is that computing how much is spent on R&D can only really be done by following trails of debt and equity across mergers, joint ventures, takeovers, and especially bankruptcies and liquidations. Only then can we really see how much is spent on R&D vs. marketing and administrative overhead. The fact that you bought out a biotech firm in order to get a new drug in your portfolio doesn't mean that there was no R&D expense.

That said, I do agree that all this marketing that the companies do is completely counterproductive from the standpoint of the society as a whole. They aren't a frigging M&A department, they're selling a product which will then be given (usually without any reasoning why) to consumers. We need to increase the contribution of the efficacy of a drug and decrease the contribution of expensive wine to the decisions that are made by healthcare professionals. I'm not sure how price controls will do that. They'll just spend even less on R&D.

 

[preslove]

The fact is that computing how much is spent on R&D can only really be done by following trails of debt and equity across mergers, joint ventures, takeovers, and especially bankruptcies and liquidations.

This is a meaningless line that obscures the truth.

Anecdotal? Partly. But you ignore the research I provided. Where's your research? huh? I did a quick perusal of your posts in this thread, AND YOU HAVE NOT PROVIDED A SINGLE LINK!!!!!!!! How about this, try to advance the discussion by providing evidence instead of shooting your mouth off with incoherent babbling.

Want some more research? Kablow! Where Drug Dollars Go. This is actually a better link than my first one, but it required a little more time, as i followed ngo links whereas the last one was a simple google. It's more up to date, longer, and has a more transparent methodology. They research the major 9 pharmaceutical companies and look at their revenue and spending programs individually. They show that it is a market wide practice to focus on marketing brands instead of researching new drugs.

This article brings up another point that hasn't really been discussed. As the drug companies have focused on branding their products they have started to repackage old drugs that are losing patent protection and altering them only slightly so that they can keep charging their huge prices.

As the industry demands high drug prices and special tax concessions to fund R&D, studies show
that it is providing the public with fewer and fewer new drugs that offer signifi-
cant clinical improvements over existing therapies.

From 1989 to 2000, the vast majority of new drugs approved by the FDA, 65
percent were for drugs that contained active ingredients available in products that
were already on the market.10 Those approvals were mostly for incremental changes
to existing drugs, such as changes in dosing or method of administration. Only 24
percent of FDA approvals from 1989 to 2000 were eligible for FDA's priority review,
a review process for drugs that offer a significant clinical advance over products
already on the market.

Schering-Plough's Clarinex illustrates the industry's increasingly com-
mon practice of developing drugs that offer only marginal improvements
over existing products. Clarinex is a next-generation non-sedating antihis-
tamine. It is very similar to Claritin, Schering's blockbuster antihistamine,
which is losing patent protection. Schering's marketing strategy is to get
physicians to switch patients from Claritin to patent-protected prescription
Clarinex, which the FDA approved in December 2001.

So even their R&D practices have been influenced by their marketing consiousness. Instead of doing hard-core research on new and revolutionary drugs, they just produce new brands with the same ingredients so that they can enjoy patent protection. Then they spend tons of money on marketing to convince doctors to push the new, higher priced, brand.

They have an excellent position on why price controls are necessary on page 14:

14
Why Price Moderation Is Necessary
Rising drug prices hurt everyone who pays for health care especially
the estimated 65 million Americans who lack insurance coverage for pre-
scription drugs and must shoulder these price increases on their own.
Price increases are a particular hardship for Medicare beneficiaries. As a
group, Medicare beneficiaries use more drugs than any other segment of the
population, yet Medicare has no outpatient prescription drug coverage
Although some have other sources of drug coverage, 50 percent of Medicare
beneficiaries are without prescription drug insurance at some point in time
during the year, and nearly 30 percent have no drug coverage at all. Those
individuals, many of whom are on fixed incomes, must pay for increasingly
expensive drugs themselves. All the research and drug development in the
world means little if drugs are priced out of the reach of those who need
them.
Rising drug prices also make a Medicare prescription drug benefit less
affordable. Continued double-digit increases in prescription drug spending
raise the price tag for a prescription drug benefit in Medicare, which makes
it more difficult to afford a benefit that will provide Medicare beneficiaries
with real relief from prescription drug costs. Price moderation would help
reduce drug spending increases, making a real benefit in Medicare more
attainable.
It is unlikely that the industry will moderate prices on its own. However,
price moderation could be accomplished through greater competition in the
industry. Real competition in the drug industry comes when generics enter
the market. Generic drugs are about half the price of brand-name drugs in
the first year after a generic enters the market. Access to generics could be
increased by removing existing legal loopholes that allow brand-name drug
manufacturers to extend their monopolies through manipulation of the
patent system.
Moderating drug prices might have another effect as well. The industry
appears to be maintaining its high level of profitability in part by focusing
resources on developing knock-offs of successful products and on market-
ing, reaping greater and greater revenues by simply increasing prices for
drugs already on the market. Although expedient, these practices do not
give the public real innovation, and they keep drugs priced out of the reach
of millions. If some of these more expedient approaches to making money
were tempered, the drug industry might be forced to compete through
greater real innovation and, to do that, would devote more resources to
R&D.

So, again, rjain try reading the information i have provided and come back with a reasoned argument, rather than your usual rambling. And, perish the thought, why don't you provide a link from a ngo or academic paper that supports what you have to say. You don't want people to think you're just making things up, do you?

 

[rjain]

My arguments are supported by common sense. Simply looking at R&D spending at big pharma does not count the R&D costs involved in sending a new drug to market. Please show me how the total (or majority of) R&D expenditure of all companies involved in the R&D process is refected in the financial statements of big pharma. The "breakdowns" in your referenced paper are the same as those I've already responded to and are still misleading. Where is the rest of the money going? That paper makes all of big pharma look like Enron, which is totally unfair.

Where is your evidence that price controls will reduce marketing expenditures and not R&D expenditures? If they're already preferring marketing expenditures, why should price controls change their basic philosophies?

When a patent expires, it expires. How are the generic manufacturers forbidden from using the now-public-domain technologies? This is the main reason why the stocks of big pharma have been suffering so badly of late. Do you think investors don't realize that big pharma is in trouble and all the rebranding they're doing is merely covering up the fact that they don't have sustainable growth? Pipelines are dry and investors are moving to more lucrative companies like the small biotechs and pharma where there is actual research going on and the generics, who can cheaply mass-produce the drugs that big pharma has now lost.

Simply reiterating the same tripe over and over again doesn't make my objections any less relevant. Address them or acknowledge that they're material.


Edit: Gotta love the way the government reacts after a problem has resolved itself. Yeah, we really need to force things too far in the direction they're already going. I guess we just can't have too much of a good thing, can we?

 

[preslove]

My arguments are supported by common sense.

Ah, the final defense of the ignorant. So far, you have supplied no evidence for any position you've taken, just your good old "common sense." This seems reasonable...

The problem is that you are refuting the bases of both of the carefully researched articles that I have supplied. In doing so you have not supplied a single shred of evidence. If we were to believe your "common sense" then everything I have said so far is irrelevant. So let's look at what you have said.

You say that the total R&D expenditure is not "refected" in the financial statements analysed by both papers. These are SEC filings that will be used by their accounting firms to compute the taxes that they need to pay the federal government. You say, without evidence, that the total R&D expenditures by the big nine pharmaceuticals are not adequately shown by these statements. The problem is THAT THESE R&D EXPENSES ARE TAX EXEMPT and it is therefore IN THE PHARMACEUTICAL COMPANIES' BEST INTEREST TO INCLUDE AS MUCH MONEY AS POSSIBLE IN THIS CATEGORY SO THAT THEY CAN PAY LESS TAXES. You would have known this had you read the material I have supplied, you didn't. Instead you have maintained a falsehood, using your "common sense" as justification.

So, please, come back with solid information that we can examine. Only then can we determine the credebility of your statements.

edit: grammar

 

[rjain]

Um.. tax fraud isn't usually in the best interests of the company. Stating M&A expenditures as R&D is NOT a good idea. Your logic would imply that it is in the company's best interest to NOT issue preferred stock or stock options to the employees. The actions of real companies is in stark contrast to this theory. So do you have any other ideas on how we can estimate true R&D costs?

Your "carefully researched" articles are just reiterations of income tax returns, and we all (at least those of us who have filled out a 1040) know how relevant those are to actual economics. In addition, there is a blatant anti-producer bias which blinds the author(s) from fully evaluating the situation. They, like you, just want to assign blame and punish without understanding what that punishment will achieve. I agree that something needs to be done, but misrepresenting the facts and irrationally bloating our law books is not going to help.

 

[preslove]

Again, you have not given a single link to justify your blind assertions. On top of that, you have totally misrepresented what I said. Since the drug companies recieve all kinds of tax benefits for their R&D expenditures, it is in their best interest to include ALL OF THEIR RESEARCH EXPENSES. So, if they spend money on research in collaboration with another company THEY WILL ITEMIZE THAT RESEARCH UNDER THEIR TOTAL RESEARCH EXPENDITURES. That is legal. They could put some M&A under R&D but that would be illegal and unethical. If they could get away with it it would be in their best interest, but with all of these corporate scandals going on that is a moot point.

edit:
Oh and this little line:

Your "carefully researched" articles are just reiterations of income tax returns, and we all (at least those of us who have filled out a 1040) know how relevant those are to actual economics.

: well it shows you have no idea what you are talking about. These are statements sent to the Securities and Exchange Commission (SEC) not the internal revenue service. They cover much more than income. They cover the pay executives recieve (the second paper goes into this at great length), they cover income break it down into sources, they cover expenses, they cover stock options. They involve a whole host of things not covered by the IRS. All kinds of people view these documents, ESPECIALLY INVESTORS, because these are usually the most comprehensive public documents concerning these companies. So, again, you have no idea what you are talking about.

 

[rjain]

So I need a link to show that I have thought about the issues and responded?

Where do they cover M&A? Where do they cover license fees (I don't know, maybe they are considered R&D)?

Where have you addressed the issues I bring up? Where have you shown that your effort at making this point is not merely showing that your so-called solution is just lashing out at the closest thing (with the deepest pockets) you see?

 

[preslove]

How Financial Data Were Computed

-- Total Revenue: reported as either net sales or revenues.

-- Marketing/Administration: reported as marketing, selling and adminis-
trative, marketing and administrative; selling, general and
administrative; selling, informational and administrative expenses.
One company, Bristol-Myers Squibb, reported advertising costs in a
separate category, advertising and product promotion. In this case,
the total marketing, advertising, and administration costs were com-
puted by adding the two reported figures.
-- Research and Development: reported as research and development expenses.

--Profit: reported as net income or net earnings.
page 24 of 44

There is an entire section devoted to methodology. Then they break down the financials of the individual companies. They do not explicitly refer to "license fees" but it would be reasonable to assume they fall under Marketing/Administration.

So I need a link to show that I have thought about the issues and responded?

No, but you should link to evidence that supports your controversial statements. You have said quite a few questionable "facts" without support. Then you talk about common sense. If you did this in an academic/professional environment you would be fired/failed. Also, you misinterpret the facts that I give. I mean, come on, if you knew anything about corporate finance then you would know the difference between SEC filings and tax documents.

 

[rjain]

So you destroy your argument even further. License fees are payment for R&D. Those must be subtracted from Marketing/Administration and added to R&D if your assumption is correct. The point remains that what is legitimately reportable as R&D expense of a big pharma company is not the total R&D cost of the drugs that they market and sell.

Furthermore, you're beating a strawman, since there is no reason why doing what you want to do will achieve the goals you claim to want to achieve. If you're interested in giving some reason why price controls and not simple market dynamics will cause big pharma to stop their marketing excesses, please do so.

 

[heartsurgeon]

Why are prescription drugs cheaper in Canada?...

why does Canadian Beer cost more in Canada?

it has to do with the local market, goverment regulations, tariffs, legal liability issues (our buddies the trial lawyers of america exact a heavy price, lawsuits in Canada are non-existant compared to the U.S.)

Also, the FDA has a legal obligation/mandate to approve drugs for sale in the u.s. that are "safe" and "effective" for a particular medical problem. While this may seem
reasonable at first blush, European countries allow approval of drugs for sale if the drug is "safe." The efficacy, and indeed the indications for use of the drug are left up to the doctor and the patient to decide upon. This results in much lower costs for introducing new drugs in Europe, much faster approval of drugs, and probably reduces liability issues.

 

[rjain]

It also assumes, incorrectly, that most doctors are able to judge whether the drug will be effective (let alone effective in this particular case). Just look at how often antibiotics are prescribed for viral infections to see what I mean.

 

[kandarp]

LINKY FOR PBS DOCUMENTARY ON DRUG PRICES


PREHAPS I CAN SUGGEST A COURSE OF ACTION

1) CLICK
2)WATCH
3) DISCUSS
4) GO OUT FOR BEERS

 

[sandorski]

Originally posted by: kandarp
LINKY FOR PBS DOCUMENTARY ON DRUG PRICES


PREHAPS I CAN SUGGEST A COURSE OF ACTION

1) CLICK
2)WATCH
3) DISCUSS
4) GO OUT FOR BEERS

[Homer]Hmmmm beeeeer![/Homer]

 

[Bitek]

I work for a big Pharma company (in manufacturing no less,) and I can offer a little insight into this.


One aspect that has been overlooked in this thread is the role of the FDA itself. The enormous regulation imposed by the FDA greatly adds to the company's overhead. It is estimated that 30% of our overhead goes to FDA administration costs (as opposed to EU or Canadian regulation requirements.) Also, the way the FDA regulates stiffles innovation and process improvement, further driving up costs and reducing profitability.

For example, once a process approved and begins to manufacture a product that is commercially sold, it is virtually impossible to change this process afterwards. I mean ANY aspect of the process, down to installing a CD drive or RAM into a computer that may control one machine that is used in some part of the process (without a lengthy *and expensive* re-validation of the process.) Let alone improvements in the actual process that may make the process faster, more effcient, less expensive or more robust. What is the result is that we may not employ any improvements in technology or technique that may have arisen since the initial manufacture for the lifespan of the product, which may be decades. Instead we (I'm speaking generally for the industry, not specifically about my company) are left with some ancient processes that rely on outdated technology. They *can* be changed, but the regualtory hurdles are so high that it often outweighs the expense and risk of doing it.

Imagine if this regulation was applied to *any* other industry. The analogy would be still driving cars with carbs and drum brakes (hell you couldn't even change the color.) The initial version of a software would be its last. Patches and updates would be near impossible, even if it greatly improved the function.

The customer is the one that ends up paying for all this regulation in drug prices. The real question is what is the benefit?

 

[rjain]

The problem is that they don't know if any impurities introduced will have harmful interactions. I agree that they need to realize that a minor upgrade to a component that is completely sealed off from the actual chemicals used won't add impurities to the product. Maybe the FDA needs to hire better quality control engineers who actually understand what affects the quality of the product.

 

[Bitek]

The mantra of the FDA is consistancy and reproducability. Any change, no matter how trivial (you cannot even imagine how far down this goes...) must be conclusively proven to not effect/change the process. This is a lengthy and highly bureaucratic process (its like proving something doesn't exist...)

Now, this is not nessarily the result of FDA officials individually. Rather this is the end result of a (failing) regulation strategy that has evolved, and mostly grown over decades. New regualtions are inacted as a result of some event (some change in political initiative, technology etc. or something like an accident, mistake or lawsuit, etc etc.) These maybe fine, and even logical in and of themselves, but when compiled and piled on top of each other over decades, it has evolved into a system beyond itself, cumbersome and crippling. Think law of unintended consequences here. The irony is, for all this trouble, it is not the most effective and efficient system out there.

The good news is that FDA realizes this and is concerned, and is making a purposeful effort to fundamentally change its regulation strategy. But like all such monumentous undertakings (esp governmental ones ) it will be years in coming, and will most likely be much different and certainly compromised from what is being proposed today.

 

[Bitek]

Some more food for thought, for all this regulation is done in the name of safety and protection of the consumer.





None of this applies to the "herbal" medicines industry. There is no FDA oversight and standards whatsoever. You don't have to prove your materials, process, your product, or even its efficacy & safety. An herbal "professionally" made at a "professional" company can sit indistinguishable next to some conconction I produced in my garage and I labelled as doing whatever. Yet many do not think twice about taking these products, and some even tout them as safer. What makes you feel safe?