[rocqua]

Yes, less payout on rare disease drugs is less of an incentive to research them. But:

* Drug companies have profit margins of 15% on average indicating there is room. * many recent 'orphan drugs' were not newly developed, but off-label uses registered with the FDA for a whole new patent. * these drugs rely heavily on research done by universities through public funding. It stands to reason the public should get to benefit. * there is something morally wrong about setting the price of drugs purely based on demand. It is essentially blackmail: pay me or die / suffer.

[Freak_NL]

The blackmail part is literally by-design. They call it value-based pricing, where the price of the medicine is not related to its cost plus a profit margin plus a margin for research and development of new or improved medicines, but on what each nation (pricing is adjusted per country) is willing and able to bear to keep a small group of people alive (or at least comfortable).

It puts quite a dent in public health care resources.

People who are in this business to actually help the sick hate this system with a passion, and some national governments are now willing to allow hospitals and pharmacists to experiment with creating their own medicine again as a result.

[pault]

This model is perfectly fine for most of the economy, but is a perfect example that for-profit medicine is inherently flawed.

[aaavl2821]

Drug companies increasingly fund r&d with their balance sheet, not with internal r&d. So the money they pay for new drugs is not reflected in the profit and loss statement.

There are maybe 15 pharma companies that commercialize a large portion of the drugs developed in the world. The vast vast majority of drug companies never make a penny in profit. They sell their products or companies to bigger, commercial companies

So the profits in the industry all accrue to a few big players, and the losses largely accrue to companies you've never heard of

Something like 65% of FDA approved drugs are developed by small companies that will never generate revenue. Bigger companies buy these drugs and plug them into their established sales forces

Virtually (probably literally in the last few years) no drugs emerge fully formed from academia. For profit companies bear the brunt of the r&d costs. 30% of public r&d goes to academic "overhead" and much goes to research that will never come close to informing drug r&d. The NIH spends $30-35B a year, the top 15 pharma companies spend $75B in r&d

[dmitriid]

R&D spending has been relatively stagnant. While industry revenue increased by 45 percent, or $241 billion from 2008 to 2014, industry spending on R&D increased just 8.5 percent in that same period, from $82 billion to $89 billion (GAO 2017). By some measures, R&D expenditures are actually falling, as more firms are outsourcing R&D to third parties. In that seven-year period, purchased R&D increased from $20.5 billion to $31.2 billion while in-house R&D fell from $61.7 to $58.2 billion (GAO 2017). Finally, the industry can only claim partial credit for recent medical breakthroughs. The federal funding provided by taxpayers contributes around 25 to 30 percent of all R&D spending per year, and a Bentley College study found that all 210 drugs approved between 2010 and 2016 were rooted, in whole or in part, on National Institute of Health (NIH)-funded research (Cleary et al. 2017).

http://rooseveltinstitute.org/wp-content/uploads/2019/02/RI_....

[aaavl2821]

That links a 404 for me but I'd want to investigate the methodologies. The r&d numbers for the industry seem low as do the revenues, I don't know what sample of companies they used

Also don't know what criteria Bentley used to determine how much NIH research contributed to new drugs

This report provides another perspective and highlights the role of industry

http://www.hbmpartners.com/media/docs/industry-reports/Analy...

[dmitriid]

Sorry, copy-pasted from anotger comment without checking the link. Here’s the proper link: http://rooseveltinstitute.org/wp-content/uploads/2019/02/RI_...

The HBM partner report seems to somewhat confirm some of the findings in the report I linked and quoted:

- 50% of drugs come from outside “Big Pharma”

- Less than 50% drugs developed in-house (mostly coming from licensing and acquisition)

Also:

- 58% approved drugs are orphan drugs.

Orphan drugs may mean government incentives, funding, public policy.

[nabla9]

> the top 15 pharma companies spend $75B in r&d

Large sum of that money is wasted because incentives are perverse.

Developing new molecular entities (NME) that do the same thing as already approved new chemical entity (NCE) just for competitive reasons is wasted R&D from the public health perspective.

Evergreening and pay-for-delay costs additional billons for pharma companies and it's just zero-sum game between manufacturers.

[consumer451]

I am pretty uninformed in this space, but the D in pharma R&D includes the cost of direct to consumer advertising, correct?

I see a lot of expensive looking ads on TV. Those ads were made legal in my lifetime. Maybe it’s time to ban prescription ads again?

[aaavl2821]

The "d" is for development. Basically "research" is finding a potential drug (making a chemical that has an effect on disease in animal or in vitro models and has good pharmacological properties) and "development" is testing it in tox studies, scaling up manufacturing, testing it for safety and effectiveness in humans. There is a ton of risk and cost in the "development" stage

DTC ads would be in the marketing budget under SG&A

[consumer451]

Too late to edit my original comment, but here is the history of direct-to-consumer marketing of prescription drugs.

https://en.wikipedia.org/wiki/Direct-to-consumer_advertising...

[marcosdumay]

> Yes, less payout on rare disease drugs is less of an incentive to research them.

What is just one more reason for the government to bear that risk, from research up to distribution.

[marcell]

> Drug companies have profit margins of 15% on average indicating there is room.

This seems to contradict itself. 15% profit margin is not that great compared to the opportunity cost. Someone working at a drug company could in theory switch (retraining etc.) to working at, say, Google which has a 22% profit margin. I realize it’s not apples to apples, but that’s not a huge, monopoly level profit.