[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.

[throwup238]

The value is easily calculated by taking the potential number of patients times how much their insurance will pay, which is itself easy to calculate based on historical information and quality of life improvements. Adjust for risk based on the stage of development etc.

This is all really really basic stuff. Please just google the rest yourself: https://www.baybridgebio.com/drug_valuation.html

[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?