Big Pharma spends billions more on executives and stockholders than on R&D

https://arstechnica.com/science/2024/02/big-pharma-spends-billions-more-on-executives-and-stockholders-than-on-rd/

by PaulHoule • 2 years ago

503 267 2 years ago

Solvency• 2 years ago

You can write this article about the vast majority of corporations.

You eat an elephant one bite at a time. If we’re gonna start anywhere, pharmaceutical companies are a fine place to compress margins. You know, because people need these products to survive, and corporate existence as well as profits aren’t guaranteed.

We can always come for additional sectors in the future, depending on objectives and resourcing.

anonym292• 2 years ago

Why don't the scientists actually doing the work of drug discovery just start a not-for-profit, since the executives and shareholders aren't actually adding any value to the customers here?

carlosjobim3• 2 years ago

You're speaking as if you were a movie villain or a communist dictator. Pure day dreaming.

notact• 2 years ago

corporate existence as well as profits aren’t guaranteed.

This sounds like a terrible business environment. Are you thinking through the long term consequences of this?

mdorazio2• 2 years ago

So... what is Congress actually going to do about it? Fix the broken patent system? Put a ceiling on pharma profits the same way health insurance profits are limited (80/20 rule)? Or just point fingers and continue taking campaign donation checks?

catchnear43212• 2 years ago

they will continue to beat the markets.

(not because they cheat, because they are our betters.)

transcriptase• 2 years ago

Nancy Pelosi’s success at options trading at 83 years old is really quite remarkable.

Imagine having returns that dunk on even the best financial minds on Wall Street as an octogenarian congresswoman nailing calls on tech stocks. I guess the rest of us just have a “skill issue” as the kids say.

toomuchtodo9• 2 years ago

https://www.hhs.gov/about/news/2023/08/29/hhs-selects-the-fi... ("HHS Selects the First Drugs for Medicare Drug Price Negotiation")

https://finance.yahoo.com/news/pharmaceutical-groups-lawsuit... ("Pharmaceutical group's lawsuit over Medicare drug price program dismissed")

Jon Stewart says it best (because of course he does): https://youtu.be/NpBPm0b9deQ?t=1153

"The work of making this world resemble one that you would prefer to live in is a lunch pail [bleep] job, day in and day out, where thousands of committed, anonymous, smart, and dedicated people bang on closed doors and pick up those that are fallen and grind away on issues till they get a positive result."

You keep on grinding.

The Inflation Reduction Act requires the federal government to negotiate the price of certain high-spending drugs covered by Medicare Part D, Medicare’s outpatient prescription drug benefit program, and Medicare Part B, which covers physician and outpatient services, including drugs administered by physicians and other providers. Under the new Medicare Drug Price Negotiation Program, the number of drugs subject to price negotiation will be limited to 10 Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. The number of drugs with negotiated prices available will accumulate over time.

https://www.kff.org/medicare/issue-brief/a-small-number-of-d...

mdorazio2• 2 years ago

That's great, but private insurance and out of pocket accounts for almost 2x the annual drug spend that Medicare does [1]. So there's nothing stopping pharma companies from shifting the costs to maintain profits. In a way, this is a cost shifting exercise from Boomers to everyone else.

Without a Medicare-for-all system, Congress could still easily stop this by capping pharma company profits but I haven't even seen an attempt to do so.

[1] https://www.kff.org/medicare/issue-brief/how-does-prescripti...

twoodfin8• 2 years ago

In case anyone is confused, the Part B “negotiation” is essentially price-fixing: If you reject the government’s final offer, your product is subject to a punitive federal excise (sales) tax no matter who you sell it to.

That’s in no sense what we typically think of as a “negotiation”.

petre2• 2 years ago

France caps the prices the state is willing to pay, so the drugs are compensated through state owned health insurance if the company isn't selling much. Not all of them are 100% covered, but one can additionaly buy private insurance to cover everything.

insane_dreamer8• 2 years ago

The latter.

andxor_• 2 years ago

Unfortunately, we gave them record, windfall profits with no downside or obligations by forcing drugs on people under threats of ostracisation and loss of employment. Now we don't get to whine about them.

burnJS• 2 years ago

And we don't get to wine why?

refurb13• 2 years ago

That year, the company spent $17.8 billion on stock buybacks, dividends, and executive compensation, while the company spent just $14.6 billion on R&D, the report states. "In other words, the company spent $3.2 billion more enriching executives and stockholders than finding new cures," it concludes.

This is such a bizarre criticism. Note they include executive compensation, despite it being $26M out of the $14.6B (0.15%). And "spending" on dividends? You mean "returning money to shareholders".

How do they think businesses work?

And since I have a 401k invested in index funds, I'm a shareholder. So the criticism of "spending on shareholders" they actually mean "vast swaths of Americans whose retirement and pensions are invested in the stock market".

consp• 2 years ago

returning money to shareholders

There is nothing to return. Handing out is what it is.

And since I have a 401k invested in index funds, I'm a shareholder. So the criticism of "spending on shareholders" they actually mean "vast swaths of Americans whose retirement and pensions are invested in the stock market

This is a common repeated fallacy. Nice for you to profit but this is no whole gain for society.

throwawayqqq113• 2 years ago

Even better, the more ground level and more risky research is often funded publicly, only to be bought or go private, once a product could emerge. Big pharma is hawking over public research.

BenFranklin1002• 2 years ago

The ‘whole gain’ for society is the medications that come out of investors putting money into these companies, instead of, say, Facebook. In 10-15 years, every new medication released today, will be off patent — and with insurance helping with payments taking into consideration — essentially free. Mind you, we are also talking about diseases for which no therapies exist today, and therefore the cost is effectively infinite in 2024.

Another point this story glosses over is that the $14.6B spent on R&D, represents nearly 1/3 of the entire National Institutes for Health $47B 2023 budget. And this is by a single company.

insane_dreamer8• 2 years ago

"returning money to shareholders"

unless you're just getting your money back, it's not "returning" money to shareholders; it's "paying out profits to shareholders"

since Pharma has exclusive control over products that citizens must have or they will get sick and/or die, they are not the same as your average company. so the question is -- what's more important, that shareholders get their dividends or that the money is either spent on 1) developing more drugs to combat more diseases (or improve the drugs we have, or 2) lowering the cost of drugs so people who are sick can actually get them without going bust.

remember that unlike almost any other industry, Pharma is allowed a __monopoly__ on drugs for a long time, and because we can't import drugs from outside the US (try buying from Canada), they control prices almost perpetually

People complain about Apple but all least you can get a Google phone if you want one. But if you need a drug that's monopolized by one company, they can set whatever price they want and you have no recourse (unless you do move to Canada).

gruez• 2 years ago

remember that unlike almost any other industry, Pharma is allowed a __monopoly__ on drugs for a long time, and because we can't import drugs from outside the US (try buying from Canada), they control prices almost perpetually

It's not a monopoly per se. Anyone can import drugs as long as they meet the relevant regulations.

nashashmi• 2 years ago

Further considering how money is getting devalued, investing the surplus money into stock reserves is the correct investment.

anonym292• 2 years ago

Now compare R&D and exec/shareholder pay to expenditure on "lobbying" (i.e. legalized bribery) and corporate capture of the "strong" and "independent" government regulatory agencies that were meant to keep these very same companies in line.

jimmar3• 2 years ago

"Spending billions on stockholders" is an odd way to frame giving profits to the owners (the shareholders). Does a small business owner spend money on herself when she makes a profit and moves money from the company account to her personal checking account?

Calling stockholders an expense misrepresents how businesses operate. "Spending" implies expense. Stock buybacks are a way of returning value to shareholders.

lcnPylGDnU4H9OF• 2 years ago

They led with mentioning executives, which is spending on employee salaries and bonuses. At any rate, I think it’s the same point to say “makes billions more in profit than they spend on R&D”.

haswell• 2 years ago

Plenty of companies do stock buybacks without also engaging in predatory pricing that customers are powerless to fight. The situation is even more problematic when you consider the lack of alternatives, and the often live-preserving nature of the product.

Stock buybacks are a way of returning value to shareholders.

This is also a problematic framing that ignores the broader situation. And that’s the tricky thing about framing things. It’s easy to manipulate the narrative and obscure the unreasonableness of the underlying reality if you sufficiently narrow the frame.

s1artibartfast8• 2 years ago

I think this understates the power and options of the customers.

The typical alternative to receive what was state of the art care 10 years prior and off patent, and now 5% the price. The unfortunate part is the desire for such products is so low, that most of the time they are discontinued.

It is essentially a tragedy of the commons in the US. Because all the costs are shared, every individual is happy to pay 20X for a product that is 10% better.

refurb13• 2 years ago

What is “predatory pricing”? It seems like “predatory” is just a word people attach to things they don’t like.

graemep2• 2 years ago

The point is that most of that profit comes from government incentives that are supposed to encourage R & D. i.e. we pay several times more on drugs than we would without paying those incentives to the businesses, but only a small proportion of that extra money goes into R & D. Its incredibly inefficient funding.

My take on that problem. There are others. https://pietersz.co.uk/2007/02/patents-inefficient

I made the same point nearly 10 years before that with regard to R & D vs marketing expenditure. Its not a new problem.

jimmar3• 2 years ago

It seems like we want for-profit pharmaceutical corporations to act like non-profit institutions. Any idea why non-profit institutions haven't risen in the world of pharmaceuticals?

s1artibartfast8• 2 years ago

I feel like it is very easy to claim a top down command economy would be more efficient. On paper it makes sense. You have no stakeholder profit and no marketing budget. You just tell scientists what to make and doctors just prescribe whatever comes out the other end.

However, it is hard to find real examples that bear this out. I think that this View overestimates the capability of institutions and underestimates the utility of price signals and an open market with competition.

bryanrasmussen• 2 years ago

we pay several times more on drugs than we would without paying those incentives to the businesses

that really depends on your economic system doesn't it? In the more capitalist systems you pay what the market will bear and there is no consideration as to what the incentives are or aren't.

LudwigNagasena2• 2 years ago

Seems that the problem is with government incentives rather than with companies?

petre2• 2 years ago

Hopefully you'll never need cancer treatment, because it would probably change your opinion.

s1artibartfast8• 2 years ago

Hopefully I will never have to test it, but I imagine cancer patients are also glad they don't receive a 1900's standard of care.

Those that I do know who have had cancer were absolutely thankful that someone developed their treatments.

oaiey• 2 years ago

While that is true and how unregulated capitalism works, a society which enables capitalism (by laws, judges, ...) does not need to tolerate excessive profits on costs of its populations. Capitalism is not a law of nature. It is made by humans and can be adopted by the society. This is very common around the world.

aknfffn2• 2 years ago

The moral dilemma is profiting from disease and the ill-health of a population.

The only argument against publicly funded drug production is that profit seeking is more efficient and the societal outcome is improved by not funding a public body to do this.

As other comments highlight, not only do societies publicly fund research (eg C19), they provide a legal system that protects monopoly profits, and won’t use single-payer bargaining on price…

So when pharmaceuticals then drop more cash on executives and shareholders it’s natural to question turning Covid19, cancer, or obesity etc into a profit centre for the wealthiest in society

carlosjobim3• 2 years ago

Profiting from hunger, those pesky cooks. Profiting from people freezing, those deplorable tailors...

__loam3• 2 years ago

Okay but stock buybacks should be illegal.

ejb9996• 2 years ago

why?

positr0n• 2 years ago

In favor of just dividends or what?

darth_avocado• 2 years ago

Okay, but they also spend more money on sales and marketing than they do on RnD. Surely that can be considered as “spending”.

btbuildem• 2 years ago

"Oh no, would someone think of the poor shareholders"

They're parasites and freeloaders, contributing absolutely nothing, and consistently siphoning off value. Americans love to harp on socialism / communism and look down on "useless eaters", but there is no class more useless, more entitled, and more toxic than The Shareholder.

gahikr• 2 years ago

I wonder what would happen if a critical mass of people with Roths, 401ks, index funds gave their proxy vote to Bernie Sanders instead of BlackRock, Vanguard, etc.?

monkburger• 2 years ago

Big Pharma's profits are a result of taxpayer funded research via the NIH and others for drug discovery.

https://www.ineteconomics.org/perspectives/blog/us-tax-dolla...

Big Pharma has a very powerful lobbying arm that is against Medicare negotiating down prices.

suzzer99• 2 years ago

Big Pharma has a very powerful lobbying arm that is against Medicare negotiating down prices.

I particularly liked how all the Congresspeople involved in writing that the government couldn't negotiate drug prices into Medicare Part D immediately retired and went to work for the drug industry.

consumer4514• 2 years ago

When faced with a regulatory issue in the USA, I often look at EU regs for reference. Here is their inquiry on the "revolving door" issue:

https://www.ombudsman.europa.eu/en/decision/en/155953

refurb13• 2 years ago

What’s even funnier is this apparently powerful lobbying arm didn’t stop Congress from passing a law..that allows Medicare to negotiate drug prices.

https://www.cms.gov/inflation-reduction-act-and-medicare/med...

ossyrial• 2 years ago

I particularly liked how all the Congresspeople involved in writing that the government couldn't negotiate drug prices into Medicare Part D immediately retired and went to work for the drug industry.

Wow that is wild. Could you share a source for this? I would love to look further into this.

blackbear_• 2 years ago

It is true that pharma companies take advantage of publicly funded research, but from there to brining a new drug on the market it takes further 10/15 years and 100s million dollars of R&D. A large portion of the cost comes from the fact that most of these projects prove infeasible and are abandoned during development or later during trials.

The vast majority of this effort remains unpublished, so I am not sure that the article you cite supports your argument. Most of the research mentioned in that article talks about possible associations between target and disease, which is just the earliest step of drug development.

swores3• 2 years ago

The thing is, pharma industry is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire industry and in return take half (or more) of the profits to either keep as revenue or reinvest in pharma or in other healthcare?

(Obviously theoretically ideal economically would be if the government could just have a socialised department discovering and developing all new drugs needed with no profit margins, but then you lose out on benefits of competition, profit motives etc. so a split model makes sense, where they're still private companies but the gov invests hugely in them - but in return for the fair share of profits, rather than so many current grants where the gov pays funding and it doesn't even get them a good discount on buying the overpriced final drug.

consumer4514• 2 years ago

100s million dollars of R&D

It is worth noting that a significant portion of the D in R&D is money spent on direct to consumer advertising. This only happens in the USA, as I believe that it is not legal elsewhere.

edit: I am now not 100% sure about this, please see comments down-thread.

passwordoops• 2 years ago

Forest for the trees. The main point of the main article still holds true:

Big Pharma (and Big Everything, really) consistently spends more on executive compensation and shareholders than R&D. And to the commenters' point, maybe if they put more of that in R&D, we'd have more promising and successful targets

svara• 2 years ago

It's way more than hundreds of millions, it's now well over a billion and most of it by a large margin goes into failed programs. Though it does seem to be getting better (or getting worse more slowly?) recently.

https://media.nature.com/lw1024/magazine-assets/d41573-020-0...

https://en.m.wikipedia.org/wiki/Eroom%27s_law

mywacaday2• 2 years ago

A huge part of the expense of Pharma is compliance. A simple example of a PC connected some lab equipment. The PC and the equipment have to be validated which means that every step used to install the PC, equipment and software has be in an approved procedure that used to deploy them. Any deviation from that procedure will require a exception reports that will have their own approval process. Once in use every action is performed has a procedure. Any deviation from that procedure will result in an investigation that can be reportable to the FDA etc. Every task done on the system will have a log that has to be manually filled out by an analyst or an admin. There are regular system and user access reviews that are reviewed and approved. Once the system is no longer in use a formal decommissioning has to occur. Date may have to be kept for 25, 40 or even 100 years. Now picture a lab with 100s of systems.

DonsDiscountGas• 2 years ago

Yeah still though, if we're going to be funding basic research (a necessary though not sufficient step in drug development) then drugs should be affordable, and the government should be able to negotiate on prices.

beloch3• 2 years ago

It's a really odd system at first blush. People pay taxes. Taxes fund research. Research is then developed by private corporations into products that are sold back to the people.

It does solve a few key problems though. If universities and other research institutions were encouraged to bring products to market, they'd change what they work on and how. Basic curiosity driven research would give way to commercially oriented research. Moon-shots that might take multiple decades to develop would be replaced with things that can be brought to trials in just a few years. Brilliant researchers that might have made multiple earth-shaking discoveries over the course of their careers might get bogged down bringing one product to market. There's a lot to be said for insulating academia from quarterly reports.

However, things go awry when corporations that turn government funded research into private profits start lobbying too much and regulatory capture occurs. Even if it takes a decade to turn novel research into something you can buy at a pharmacy, the debt pharma companies owe to taxpayers should not be lost sight of. There should be stringent regulations on how drugs based on public research are priced. Yes, pharma company investments, market size, projected sales, and all that should be factored in, but drugs based on public research should be made available to the public at reasonable prices. That's not happening in the U.S..

Bottom line, public money must come with strings attached that serve the public interest. Pharmaceutical companies should be under heightened scrutiny and regulation because of where they get their IP.

lyu07282• 2 years ago

I love how circular neoliberals argue, lobbying and regulatory capture are a real problem with big pharma, to fix it the government really should put them under heightened scrutiny and regulation. These politicians are really corrupt, they should really stop being corrupt.

Here is a wild idea: Perhaps the core of the problem just simply IS for-profit health care itself. Perhaps if someone has cancer, nobody should profit?

anonuser1234563• 2 years ago

Bottom line, public money must come with strings attached that serve the public interest. Pharmaceutical companies should be under heightened scrutiny and regulation because of where they get their IP.

Drugs go off patent, and generics don’t have to undergo clinical trials. Sounds like the public benefits quite a bit. After a relatively short period of time (usually 10 years post FDA approval) a generic comes in the market for a fraction of the price.

The problem is, once a drug gets approved everyone thinks they are entitled to it. It is fundamentally a selfish problem; “I deserve XYZ” as opposed to “everyone will benefit after it’s paid for”.

mrtksn• 2 years ago

This is a problematic position, you can say that big tech profits are also funded by the taxpayers since they employ people trained through public resources(most people don't study %100 private).

apwell232• 2 years ago

Yes this is the classic Obama’s ‘You didn’t build that’ argument.

Ntrails• 2 years ago

Not just taxpayer, but also charity funded!

apwell232• 2 years ago

Yes this is the classic Obama’s ‘You didn’t build that’ argument.

amelius• 2 years ago

Big Pharma's profits are a result of taxpayer funded research

The same can be said about any BigTech company, actually.

missedthecue• 2 years ago

I think a lot of laypeople have the idea that there are an infinite number of positive return projects waiting to be funded and pharma execs are just too fat and greedy.

There are very few pharma projects that aren't outright frauds and that actually have potential and that don't cost way more to get to market than they can ever possibly justify.

Very seldom do those project lack money.

anonzzzies• 2 years ago

I think everyone here knows how big pharma works (well, doesn’t ‘work’ as such) however this needs to get into the press a lot more for the public to see.

__loam3• 2 years ago

Amgen is basically a finance firm that does drug development as a hobby.

mfiguiere• 2 years ago

As mentioned by several comments, while one can argue that Big Pharma should spend more on R&D, the title of the article is not so relevant.

From Apple financial statement for 2023 [1]:

- Spent on R&D: $29.9B

- Spent on stockholders (dividends + buybacks): $92.6B

[1] https://www.apple.com/newsroom/pdfs/fy2023-q4/FY23_Q4_Consol...

mplewis• 2 years ago

We aren’t spending public money on Apple.

victorbjorklund4• 2 years ago

Are you sure govts never bought an Iphone?

twoodfin8• 2 years ago

The iPhone doesn’t exist without mobile networks that telecommunications companies used government subsidies to build. (The same subsidies, by the way, that some like to complain weren’t spent on FTTH. Personally, I think mobile was the right call.)

bart_spoon9• 2 years ago

Apple’s products are almost entirely dependent on the internet and telecommunications networks and tech, all of which was funded and researched by the government.

nitwit0052• 2 years ago

We're spending public money on every corporation. Who built the roads their goods travel on? Who educated their workers?

We're spending the money less directly perhaps.

verteu• 2 years ago

Agreed. I'm sympathetic to the article's cause, but Pfizer/JNJ shareholders haven't done particularly well in the past couple decades.

Since 2000, the CAGR for (PFI, JNJ, SPY, IWM) was (1.56%, 7.68%, 7.79%, 7.63%) respectively.

(Per portfoliovisualizer.com. 2000 is the earliest date with data for IWM.)

insane_dreamer8• 2 years ago

Poor comparison.

- Apple doesn't make critical products that people must have or they will be sick or die.

- While Apple certainly benefits from some tax-payer funded basic scientific research done at universities (like all tech companies) that pales in comparison with the amount of NIH-funded research that Big Pharma relies on (to be clear, I don't have a problem with taxpayer funded research).

gitaarik2• 2 years ago

Yes, but Apple sells mosrly overpriced luxury products that needs rich executives for the customers to identify with.

We don't want our medicine makers to have the same attitude.

abhisheksingh013• 2 years ago

I read somewhere that the amount of money that Pharma companies spend on research is the highest in healthcare but they get only about ~13% of the healthcare's revenue. There are other middle-man in healthcare that get a revenue share without putting in any work.

This is obviously not to say that Big Pharma cannot do better and there are no red flags.

ajmurmann3• 2 years ago

This is only revenue though, not profit. Do other orgs maybe get a higher share of revenue but also have higher cost because their business scales differently because it's labor intensive like hospitals?

abhisheksingh013• 2 years ago

Possibly. But I think, in general - Pharma companies are not very profitable because of the amount of research required to come out with a drug. And the success rate of research is not very high. On average, it takes over 4 billion dollars to get a drug out in the market. And not all drugs earn billion dollars in their life time

rabf3• 2 years ago

In the US as far as I recall the system is somewhat convoluted. Insurance companies buy their drugs through brokers who act as middle men to negotiate bulk prices with drug companies. No insurance company actually ever pays the sticker price on most drugs.

abhisheksingh013• 2 years ago

Yes, that's what I meant - Pharma companies earn money but not like people assume. These brokers earn a good amount. Maybe they had some purpose decades back but it is increasingly hard to justify their value now.

ajuc• 2 years ago

I grew up as an enthusiast of free market capitalism without regulation (probably because my country was just exiting communism when I was 7 and I've seen what good free market reforms can bring).

But over last 15 years I've moved significantly towards free market social welfare state. It's true that central planning doesn't work, and that communism doesn't work. It's painfully obvious to anybody who lived it. But capitalism leads to results just as bad if left unchecked for too long. It's just getting there slower than other systems. Even the rules we add don't stop it, they only slow down the gradual descent into oligarchy. At which point it doesn't matter what the rules are - because the oligarchs are choosing presidents, PMs and judges.

Now I think the perfect economic system would be free market capitalism for 50 years, then a total nationalisation of everything, reshuffle and restart. Rinse and repeat.

Capitalism is like a game of football that lasts forever. No matter what you do, if you're born into Real Madrid you'll win, because the score is already 1000000000-10. There's a reason we restart the scores after every game.

timthorn2• 2 years ago

free market capitalism for 50 years, then a total nationalisation of everything, reshuffle and restart.

You could argue that's similar to the UK's recent history, if you can be flexible with the 50 year period. Minimal regulation and state ownership pre-war, mass nationalisation post-war, mass privatisation in the 1980s

mordae• 2 years ago

This should actually happen on a rolling basis.

We should be nationalizing cellular networks, physical internet infrastructure and generic drug manufacturing because they are critical and don't really innovate besides following the slowly evolving, committee-defined standards.

dleavitt• 2 years ago

The article didn't focus too much on solutions, though a couple of things were mentioned: 1. Reducing patent protection 2. Price controls (?)

So let's assume we want these companies to reduce their profit margins (and instead lower drug prices or spend more on R&D.) What _are_ the best policy tools to incentivize this while minimizing market distortions, etc?

ajmurmann3• 2 years ago

Wouldn't both reduced patent protections and price controls reduce incentive to invest in R&D and for private investors likewise reduce incentive to invest in pharma that invests in R&D?

victorbjorklund4• 2 years ago

Big pharma is big pharma because they had success. It is like only looking at the most profitable tech companies and say "they spend more on profits than R&D". Many pharma companies never make a single dollar in profit. It is just like VC investing. You invest in 20 companies and 19 goes bankrupt but 1 is a massive success. It then becomes weird to only look at the 1 success and say "wow they spend so much on profit distributions" and ignoring all the losses the same investors made on the 19 other companies.

rightbyte• 2 years ago

Is there any data to back this up? There is no way the startups even make a dent in total cashflow for the sector.

refurb13• 2 years ago

This is a logical fallacy in their arguments.

Compare the list of biggest pharma today versus 20 years ago. A bunch were acquired or merged because they couldn’t sustain profitability.

Take a look at the return of the industry as a whole. It’s not that great.

victorbjorklund4• 2 years ago

Yes, that is exactly what I am saying. Overall the industry isnt making any outsized returns. It is just the few unicorns that does.

nabla9• 2 years ago

The framing is wrong. Pharma is (government-supported research) -> (pharma R&D + production + distribution) -> (government subsidized spending).

- Big pharma should be praised for making profits. They spend too much R&D to circumvent each other's patents. Zero-sum game for the society as a whole.

- The government should be faulted for not structuring the business-government interaction properly. Mandatory licensing with profit sharing for medical patents, for example.

Ask any healthcare economist, medicine and healthcare has every possible market failure you can think of. You can't arrange it using free markets and marketing. The business must structured better. The US can look to other countries for guidance.

mft_2• 2 years ago

I'm late to the party on this one, but (as I've probably posted here before) the root cause of high drug prices in the US comes back to the US's broken political system.

Pharma companies charge more in the US because they can - because there are no strong reasons not to, and no mechanisms to prevent them doing so. And it's possible for big pharma to maintain this status quo because the political system in the US, with big money from lots of different companies and sectors funding politicians directly and indirectly, allows it.

Short of a conviction-driven leader (in the vein of Bernie Sanders, [or, surprisingly, Trump! - tough rhetoric on drug pricing was about the only thing I agreed with him on, although little was ultimately delivered]) or major changes to political funding (e.g. tight limits on funding of and spending by politicians, as exists in many other countries) nothing will change.

rabf3• 2 years ago

And yet without those high prices drug discovery and testing would progress at a far slower pace. The US does subsidize the bringing of new drugs to the market for the rest of the world, but as the richest nation that seems somewhat unsurprising.

I my mind the development of new drugs is one of the better uses for a nations capitol.

mft_2• 2 years ago

You're absolutely right; but I'd argue that that doesn't excuse the human cost of this situation within the US, or that it's an unfair situation that because the political system isn't actually working in the interests of most people in the US, the country is being taken advantage of in this manner.

lnxg33k1• 2 years ago

I would take libertarians, filo-libertarians, the "small-government" gang, put them on a spaceX and just send them to Mars, a small trip for those men, a giant leap for mankind

DrNosferatu• 2 years ago

And lobbying:

Never forget the s€£t-show that was the Covid vaccine procurement by the EU.

lumb63• 2 years ago

Businesses will do what is most profitable for them. If we want pharma companies to spend more on R&D, we either need to make R&D more lucrative (which would likely require higher drug prices, higher approval rates from FDA, or higher consumption of drugs, all of which seem undesirable) or make “spending billions on executives and stockholders” less lucrative.

The problem is the stock market has become Monopoly money as a result of a decade of ZIRP and the huge amount of excess liquidity in the system. Furthermore, stock buybacks are incredibly efficient from a tax standpoint. And IIRC, there are tax incentives to paying executives in copious sums of shares. We shouldn’t blame companies for doing what’s financially best for them; we should change the rules to align what’s best for them with what’s best for the rest of us.

klabb3• 2 years ago

We shouldn’t blame companies for doing what’s financially best for them; we should change the rules to align what’s best for them with what’s best for the rest of us.

Why not both? Corporations that size are actively working to change, skirt and fight the rules in their favor. This idea that the elected make the rules in a vacuum and companies are just following them isn’t true in reality.

If we insist on having the market be responsible for drug development, it should work for us. We should be leveraging the benefits of market based capitalism in order to achieve a desirable outcome. Standing on the sidelines and hoping for side effects of profit-seeking to trickle down both dogmatic and defeatist. The best way to do markets is competition. And the best way to have competition is a lot of independent companies. A few mega-corps is more like institutions than markets. And the prices follow.

rabf3• 2 years ago

The patent system is what promotes R&D. Once your patents expire anyone can manufacture your drug without ever having done any of the initial work. Drug companies have a pipeline of new drugs going through the decade of studies and trials it takes to bring them to the market and the ongoing survival of the company depends on some of these being a success.

Would love to see some of the people here crying about obscene profits try their hand at investing in pharma companies. Its an easy way to lose a lot/all of your money.

This podcast provides some interesting color on the industry:

https://www.acquired.fm/episodes/novo-nordisk-ozempic

glp1guide• 2 years ago

That podcast is epic, made a post about it on my site JUST to get more word on it out there. Acquired always does excellent write ups -- the competition between Novo and Lilly is also pretty interesting.

The patent system is what promotes R&D. Once your patents expire anyone can manufacture your drug without ever having done any of the initial work. Drug companies have a pipeline of new drugs going through the decade of studies and trials it takes to bring them to the market and the ongoing survival of the company depends on some of these being a success.

This is our current system, but I'm not sure it's the only system. There could be a world where medicine moves forward without patents, but that might be a worse outcome for patients -- assuming we wanted to keep profits even across a patent & not patent system, patients or some other revenue stream would have to make up the shortfall.

Would love to see some of the people here crying about obscene profits try their hand at investing in pharma companies. Its an easy way to lose a lot/all of your money.

Also, I think most reasonable people would not immediately take to investing in random pharma companies -- you'd do quite well to simply invest in the biggest companies, or an index. The charts for the index, novo and lilly are pretty decent.

ajmurmann3• 2 years ago

This sounds bad when you first hear it. I do wonder though if this might counterintuitively lead to a better R&D outcome overall than if they individual company invested much more into R&D. This would render the industry uninteresting to private investors which would mean that we might end to in a scenario where it's all publicly funded. This would likely lead to the reduction in salaries also which addresses the other criticism from the article. We'd look at a much smaller pharmaceutical research industry that cannot afford to attract the best and the brightest.

It's also important for tech people to understand how different it looks to start a pharma startup. Funding requirements are orders of magnitude higher which also means the share of the company founders can retain is really tiny compared to tech and so are the gains from an exit that founders get.

Now one could argue that just making pharma a little bit less profitable would be a win, but even here I wonder. If I can get just 1% higher returns on my investment by cutting out pharma from my portfolio I'd do so immediately.

yowayb• 2 years ago

I forget where I read this, but it was saying that the job of a leader was first and foremost to gain and hold power. Although I wish we lived in a better world, this actually makes sense, because constant power shifts and struggles seem far more costly. Isn't this the real reason that executive compensation (in general, not just pharma) is so high?

macinjosh• 2 years ago

Don't forget the money they spend on TV ads, mostly during the nightly news. Really helps to get those news people under your influence when you need to pass laws mandating the public take your drug.

allenm12• 2 years ago

Comparing the prices in the US with those outside is wrong way to look at this, but it feeds the populist narrative. That discrepancy has nothing to do with Pharma but everything to do with the fact that in other countries the only payer is government and to be on the government formulary, Pharma companies have no choice but to accept those prices. If US did the same thing, many drugs would not be economically viable. In the most fundamental sense, for example Canadians aren't paying their fair share, and Americans are picking up the slack. I work in the industry and I am not blind to the issues the industry has but it always baffles me how simplistic the conversation becomes when the subject comes up.

Beldin2• 2 years ago

The discussion becomes simplistic because the moral wrongs are so blatant. See eg the cost of insulin (source from 2018): https://www.visualcapitalist.com/cost-of-insulin-by-country/

USA: 99$

Next most expensive country on that list: 21$

ETA: This is not intended to start a discussion about the price of insulin. The point is that a life-saving drug costs about 9-10x more in the USA than in countries with similar living standards, eg. countries in Europe.

allenm12• 2 years ago

I think you missed my point. Is going out of business and not being in position to provide drugs at all simply because you don't want drug price disparity between USA and countries that arm-twisted you into paying a lot less then what they should because they know you are going to make up the difference in the US market morally superior to what we have now?

berniedurfee• 2 years ago

"That's what you try and do. You try and make as much profit as you can. That's how free enterprise works. You think Chevrolet sits back and says, 'Gosh, how can we get the price of this Chevrolet down?' No, it's like, 'How high a price can I get and maximize the profit for my shareholder?'"

Martin Shkreli got shredded for this attitude, no? Now it’s generally acceptable? Because capitalism?

That any compromise to raw capitalism is derided as socialism is a problem.

It’s sad that even in the context of healthcare we need regulation to control greed. Alas, here we are.

rdlecler1• 2 years ago

Why is this surprising? Big Pharma is not good at innovation so they buy and partner with companies that have done the hard R&D and they focus on commercialization, distribution and manufacturing. It doesn’t mean that pharma R&D is not being done, it’s just that pharma companies are not paying for R&D they are paying up for commercializable assets.

mharig• 2 years ago

Put pharmaceutical R&D into the universities and public research institutes. The pharmaceutical companies could earn money by producing the drugs.

Ethical commitees should decide to what illnesses the money goes.

sweetdekker• 2 years ago

Sigh....and just like that, the media is against big pharma again.

Big Pharma spends billions more on executives and stockholders than on R&D

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