[marcusbuffett]

I think Ozempic cost somewhere around $3 billion to research and develop. What’s the steel man argument for how we could charge the same for the drug in America, and fund future research with the proceeds? I don’t want to be paying $800/mo for my drugs, but if the alternative is that everyone is paying $5/mo and there’s no hope of recouping the R&D costs, then we just won’t get biomedical breakthroughs like this at all.

I think it’s easy to look at places in Europe that get drugs virtually for free, and want to be like that, but the US despite being 1/20 of the world’s population, funds something like 80% of the biomedical industry, due to our lack of price controls.

There’s so many areas of medicine where we don’t see progress because the ROI just isn’t worth it. Do we want to risk making all medicine like that?

[bognition]

Ok I’ll bite.

Ozempic cost 3B to bring to market. Let’s 4x that to include the cost of drugs that never go to market. Raising costs to 12B. Let’s say a company can recoup their costs over 6 years, meaning they need to make 2B a year in a drug.

In 2023 [1] Novo made 12B on Ozempic. So they’re doing 6X better than the estimate above.

So they could cut the cost of Ozempic by 6, bringing the monthly price to $125 (which would be material for most people). They would still be raking in the cash.

I get the above model is overly simple but with the amount of money Novo is making they cannot justify these high prices.

[1]https://www.axios.com/2024/01/31/novo-profits-jump-wegovy-oz...

[sanderjd]

I think doing this analysis against possibly the most commercially viable class of drugs ever created may lead to misleading conclusions.

[bognition]

My conclusions were not about how to do drug pricing in general. Rather about how we could justify a lower price for this specific drug.

The success of Ozempic is exceptional Without a doubt, And I’m arguing that because of this exceptional success, the company can afford to dramatically lower price

[sanderjd]

You can't realistically discuss "how to do drug pricing in general" without taking into account the dynamic where companies recoup their research costs on a tiny number of hit drugs. It doesn't work if those hit drugs only make a small margin.

[WWWMMMWWW]

You're over thinking it.

Americans are just fatter.

[sanderjd]

That's true, but I'm honestly not sure what you think that has to do with this.

Is your theory that demand is higher in the US and that's why the prices are higher?

I don't see any reason to think that would be the case for a product that is very easy to transport globally. That is, absent other effects, like regulation and the differences between how insurance works in different places, I think this would be a global market with prices driven by global demand.

[wjnc]

(As a though experiment) The problem would be how to combine shareholder capitalism with post hoc lowering of prices. Why should the shareholders Novo accept less returns on their bet, in order to give Americans a better price than 'the US' with all it's market power (or lack thereof considering their institutional arrangements) can bargain for? My opinion: The US could obviously change their institutional arrangements and get lower prices for patients (plus the shortages that go along with low prices), but this change would face stiff opposition in Congress from those gaining from the current status quo. You get what you pay for. Massive prices, and all the preferential treatment of suppliers and those involved in the supply chains that money can buy.

[EasyMark]

Because we live in a society. Other countries don’t pay nearly as much for it. Is it the duty of the US to subsidize those countries? Why are they paying less than us? It’s the US society that lets the corporation exist here, so why shouldn’t we leverage that against their interest. No one is calling for them to give it away free, but why should they get away with what is essentially usury? We aren’t really in a “free market”, lots of things have price controls especially those things which a necessary for life. In particular this could save tens (hundreds?)of thousands of lives a year, so when is enough $$ enough for stockholders? Who is really in charge here?

[sanderjd]

It isn't the duty of the US to subsidize them, but many of us think it is nonetheless worth the bargain in order to incentivize research into novel medicines.

I personally don't think this is the only way we could accomplish this, but I think it's a better outcome than it would be if nobody nation "over"-paid for medicine in order to subsidize research.

[overrun11]

You'd think people on a startup accelerator forum would understand power laws.

[paulmd]

That is the point of a steel man, yes. OP was asking “how could this possibly ever work” and the parent did the math.

[lotsofpulp]

> So they could cut the cost of Ozempic by 6, bringing the monthly price to $125 (which would be material for most people). They would still be raking in the cash.

If your assumptions are true, why are investors not jumping up and down to throw money at researching medicine? Is there no risk involved?

Why are governments around the world unable to pay for the development and approval of these medicines?

[throwup238]

They are? Biotech VC is bigger than tech VC in volume invested and most biotech companies that IPO do so with zero revenue to fund clinical trials. It’s only gotten bigger after COVID.

[lotsofpulp]

VC investors are not the only investors. If developing a medicine was so guaranteed, the total returns of pharma stocks (all of them) would reflect that.

If the above poster is correct, then one should be able to invest all their money in just pharma stocks, and make a killings.

But you wouldn’t. You can’t pick the winners after the fact and claim the risk wasn’t there.

[throwup238]

At this point pharmaceutical companies don’t do a lot of their own research - Novo Nordisk is a bit of an exception, largely because it’s the commercial arm of a diabetic foundation.

Pharmaceutical companies acquire the winners when it’s obvious they’re winners and they pay a lot for the privilege. That’s how biotech investing has worked for decades now. The risk of drug development is spread among several layers from publicly funded grants to VCs to public investors and finally pharma pays for the winners.

VCs fund the early stage, once the startup has something promising that can go to clinical trials they IPO (VCs often fund phase I), then when it’s cleared phase III a pharma company acquires it. Sometimes its so obvious that a drug will work and there’s so much competition that they acquire them early like Sofosbuvir for $11 billion, years before its approved.

You can’t make a killing investing in pharma because everyone before them takes all the risk and gets a lot of the profit. Pharma makes a commensurate profit for providing an exit for public investors and the expertise to mass manufacture and distribute the final product, not all the windfall from developing the drugs.

[lotsofpulp]

> Sometimes its so obvious that a drug will work and there’s so much competition that they acquire them early like Sofosbuvir for $11 billion, years before its approved.

Then why doesn’t someone else pay $12B?

Clearly there is a limit, and it must be related to risk. The risk of the drug failing to sell at the price you hope it will sell in the quantities you need it to sell to earn the desired ROI.

[overrun11]

Your link says Novo earned 12B total in net profit not just from Ozempic. It seems like most of Novo's profits do not come from Ozempic so the profit from Ozempic would be substantially lower.

[flakeoil]

Maybe your comment is correct for say 2023 or 1H 2024, but Ozempic has far from ramped up to full production. Also, Ozempic isn't launched yet in most countries.

[bdzr]

The ars article says 10 billion to make.

[ericd]

What about all the $3B shots on goal that don’t yield anything?

[Octoth0rpe]

That is accounted for here:

> Let’s 4x that to include the cost of drugs that never go to market.

Also, that's a hugely generous multiplier. IANA pharma marketer, but I'm fairly confident that if a drug is ultimately unsuccessful, it's cut off long before the 3b mark. Not saying that the investment isn't substantial, but it's not like they have millions of doses produced/distributed before they discover that it's ineffective.

[ericd]

I really don't think that's a generous multiplier, at all. I'm pretty sure it's not manufacturing doses that's costly, it's probably nearly free on a marginal cost basis, the costly part is trying a huge number of options, getting all the way to testing on them, and then it not panning out, and paying the researchers who are doing that all the while.

Another comment nailed it, this is a power law return market, like startup investing. Those very few 100-1000x returns pay for everything else. You can't look at one of the most successful drugs and the costs of making it and decide that they should get a 50% return on top of that, it needs to cover a huge number of failures.

[Ferret7446]

Not only is medical research extremely risky in that you fail to develop a drug, you also have to take into account the risk if something goes wrong and you injure people.

IMO, the multiplier would be at least 10x, though I'd love to hear from an industry expert.

[infecto]

Not sure why this gets downvoted? Certainly a lot of money goes into failed drugs?

[infecto]

Your post will probably get a lot of flack but it is fairly well established the way the economics work out. America does fund a lot of the drug research that happens and a lot of the rest of the world reaps the benefits.

I already see posts of people trying to explain how they could charge less money. Nonsense, this is a drug that cost a lot of money to bring to market, along side countless other failed drugs. Unless we have a unified world effort to research and produce drugs, I don't see any valid arguments against the current pricing regime.

[RobotToaster]

According to one report[0] in three months there were 9m prescriptions for semaglutide, which can be extrapolated to 36m in a year.

3b/36m = 83.34.

So they could have recouped their development cost in a single year, just from USA sales, charging only $84 over the cost price.

https://www.cnbc.com/2023/09/27/ozempic-wegovy-drug-prescrip...

[Tade0]

There's currently approximately 100mln obese adults in the US alone.

Assuming only 10% get the treatment that's $300 per person to recoup the costs.

There's really no reason why a drug for something affecting tens of millions of people should cost so much.

[lotsofpulp]

>There's really no reason why a drug for something affecting tens of millions of people should cost so much.

The reason is becoming very rich is the carrot for taking the big risks to develop the medicine, because you will likely fail for years and years, and maybe never succeed.

If the discussion is changing to limit how rich someone should be able to get, that is a different topic about tax policy and wealth redistribution, not medicine prices.

[Tade0]

> The reason is becoming very rich is the carrot for taking the big risks to develop the medicine, because you will likely fail for years and years, and maybe never succeed.

Not how it works. It's rare for a drug to reach the most expensive phase of clinical trials without demonstrating efficacy.

[lotsofpulp]

What does that have to do with anything? “Develop” includes everything it takes to start getting paid for it.

Surely the equity is not left up for grabs for cheap by the time it is a guaranteed to earn the owner lots of money.

[Tade0]

It's not a "big risk" in any capacity because drugs with low probability of success usually never reach the phase where they accumulate $3bln in costs.

The pharma industry has over a century of experience in managing risks of this sort, which is why it's so profitable.

[lotsofpulp]

Risk and reward are proportional, absent corruption. Managing risk does not make it disappear. Managing risk is what people get paid for, it’s the hard part that requires knowledge and expertise.

If there was no risk, then there would be no failed pharmaceutical businesses. If it was so easy to take medicines from idea to market and make a ton of money, people wouldn’t be wasting their time on buying stocks for other businesses.

It is also simultaneously possible that US patent law, as implemented with medicines, is too rewarding to pharma companies.

[mcphage]

It’s all the same conversation.

[lotsofpulp]

Except it is not. One is about price controls, which distort supply and demand.

The other is about societal harmony.

For example, price controls on medicine results in society incentivizing more efforts to be put forth toward slinging advertisements, which is obviously not a good thing.

Then you say, well put price controls on advertisements, in which case..why chase the tail when it would be far less corruptive and complex to subject everyone to the same rules via tax and welfare policy.

[ikesau]

I highly recommend you listen to the recent 80000hours podcast with Rachel Glennerster on Market Shaping, or read her book, Strong Medicine.

Advanced market commitments, i.e. governments signing contracts that guarantee they'll pay $X hundred million for a solution BEFORE the research has been done, is the way to incentivize this while avoiding the disincentive of governments becoming extremely tough monopsonic price negotiators once the drug has been developed.

The development of more drugs could be funded this way, through global health organizations like GAVI, such that medicine wouldn't need to be developed by gouging some for the benefit of others.

[bdzr]

> governments signing contracts that guarantee they'll pay $X hundred million for a solution BEFORE the research has been done

Did you say "hundred million" intentionally? Because the average cost of a drug has been estimated in the billions for over a decade now. [1] I'll take a listen to the podcast, I'm generally skeptical of the government deciding funding levels since they're likely to be worse at assessing demand than consumers.

[1] https://www.appliedclinicaltrialsonline.com/view/tufts-cente...

[ikesau]

Great, thanks. I'm sure you'll find it thought provoking.

re: hundred million: I was trying to imply that AMCs can be large but not necessarily always in the billions - it depends on the market size and estimated economic damage of the thing we're trying to incentivize R&D for - though yes, both medical AMCs to date (pneumococcal and covax) were in the billions.

Just to clarify, AMCs aren't the same thing as governments "fixing" the price of R&D with wishful thinking. It's when a government/funder uses epidemiology and economics to calculate the cost of leaving a disease untreated, and agreeing in advance to pay that much for it. That way, if set correctly, companies will invest to develop a solution without fear of being punished by the moral/political forces that make them suppress their prices once the solution is developed.

It's a way to fix the incentives that have left us with a whole class of neglected tropical diseases (firms needing to recoup investments, governments needing to negotiate cheapest possible prices)

[HDThoreaun]

Bounties are tough imo. You quickly run into goodharts law where everyone just looks for loopholes or how to satisfy whatever requirement as easily as possible. With markets we know that everyone involved is better off for partaking. With billions of dollars on the line you better believe the pharma lawyers will find some way to get the bounty with a suboptimal product. A bounty on QALYs would probably be the best method, but that makes it difficult to commit to a sum before development.

[tl]

> There’s so many areas of medicine where we don’t see progress because the ROI just isn’t worth it. Do we want to risk making all medicine like that?

You can have a market for R&D and see progress. You cannot have a market for lemons and expect the same. For every Ozempic, you can expect one or more Nexium, where the company (AstraZeneca in the case of Prilosec/Nexium) uses the first research win to pretend to have a second win (or third, or fourth, or even first because acquisitions) using marketing and distribution channels to bury the cheaper med.

[sshine]

The cost to research and produce the diabetes and weight-loss drug Ozempic is significantly lower than the price charged to consumers:

A new study found that Ozempic costs between $0.95 and $5.50 to produce per unit, or no more than $22 per month at the highest dose. [1]

Another study estimated that Ozempic could be sold for as little as $5 per pen and still be profitable for the manufacturer, Novo Nordisk. [2]

Senator Bernie Sanders stated that a Yale study found Ozempic costs less than $5 per month to manufacture, yet Novo Nordisk charges Americans nearly $1,000 per month for the drug. [3]

The available evidence indicates that the research and production costs for Ozempic are a small fraction of the final retail price charged to patients. The significant markup between manufacturing costs and consumer prices has led to calls for the drug manufacturer to lower prices.[4]

[1]: https://eu.usatoday.com/story/news/health/2024/03/29/ozempic... [2]: https://www.fastcompany.com/91071415/your-1000-per-month-oze... [3]: https://www.sanders.senate.gov/press-releases/news-sanders-s... [4]: https://www.beckershospitalreview.com/glp-1s/5-ozempic-new-s...

[fabian2k]

To be fair you have to include research costs here, which is very tricky as most drugs won't make it that far and still cost some money for research. So even including the development cost of the drug itself is not the whole story as it would not take into account the other drugs that failed.

I'm not saying that Ozempic specifically isn't overpriced, I don't know that. But production cost isn't the only factor for new drugs (it's somewhat different if we talk about older drugs/generics).

[executive]

The drug would not have come to market if it could only 'still be profitable'

[bdzr]

Is this the cost for the "pill" after research is done? The first pill is the one that costs billions after all.

[tjpnz]

My understanding of GLP1 agonists is that they're relatively simple and cheap to produce. People have been able to source semaglutide and tirzepatide online for instance and there are communities on Reddit that will take you through mixing it/whatever you need to do prior to injecting it. I don't know where this three billion comes from.

[ygjb]

This has "I could recreate twitter in a weekend" vibes. I am not out here rallying to lick corporate boots (I am in the 'hand the drug companies a cheque to recoup research costs, and make the drug generic' camp), but this is a really bad take.

The $3 billion comes from researching and demonstrating the role of GLP antagonists, determining how to use them as a medication, developing manufacturing and distribution processes, and dosing mechanisms, testing, documenting, and getting the appropriate certifications and approvals to ensure that the risks of using the medication are reasonably well understood and communicated. Then there is the cost of marketing and educating the medical services providers in various fragmented markets about the effects and efficacy of the drugs and presenting them as alternatives to existing medications.

$3B sounds like a lot of money, but when you consider that the efforts above take hundreds to thousands of people over 30[1] years to achieve, it's not alot.

As for the idea that people should or could manufacture or self-administer these drugs safely at home, yeah, that might be the case for a very limited number of people, but I am going to lean on the ghost of George Carlin for that “Think about how stupid the average person is, then realize that half of em’ are stupider than that”.

[1] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5707151/

[EasyMark]

They’re actually charging more like $1300+ to insurers for it

[DarkNova6]

> I think Ozempic cost somewhere around $3 billion to research and develop

Sure. But how much of that was invested by the company and how much of it came from public research grants?

[llamaimperative]

Public research grants are mostly for super early stage pre-clinical stuff which isn’t really the expensive part of drug development. The expensive bit is testing it in humans.

[bdzr]

Not a lot. https://www.science.org/content/blog-post/rep-ocasio-cortez-...

[throwup238]

Novo Nordisk has been the one funding GLP-1 research since the 1990s. It got started manufacturing insulin in the 1920s so that kind of research was right up its alley. It’s controlled by a charitable foundation too.

Sadly they’ve got a strong claim to being the ones responsible for the basic research here, which is exceedingly rare in pharma. Their latest drugs like Ozempic are the result of decades long research.

[geysersam]

The article mentioned they are expected to make 3x the claimed RnD costs already this year, not sure what fraction of that is profits, but probably quite a large chunk.

There's no risk they won't recoup the costs even if prices were reduced 10x in the US.

> There’s so many areas of medicine where we don’t see progress because the ROI just isn’t worth it

.. because it's so much more profitable making medicines in demand in rich countries than medicines that benefit the largest number of people.