This JAMA "study" will fuel screaming headlines about the cost of drugs, but it mainly addresses the tiniest tip of the iceberg. Modern Discontent brings up R & D, one of the biggest contributors to drug cost, that is ignored when considering only cost of physical production, as well as the fact that U.S. consumers and tax payers have subsidized the cost of drugs "sold" to other countries for decades.
Ideally profits from current drugs would drive R & D for new drugs.
Even huger economic elephants are the funding of the FDA regulation and its revolving door relationship with Pharma. This is probably the majority of the cost of doing pharma business. These companies are effectively and collectively running their bloated subsidiary called the FDA.
Lastly, inundating the U.S. population with drug advertising has to be adding another 20% or more to the cost of pharma business.
I’ve worked for years in pharma . Gross margins are high, for sure. On a small molecule, high volume pill, 90-odd pct is not uncommon. Even complex biologics can have gross margins in the 80-90 range. Old style vaccines with low prices for sale globally, mid 50s (average…US will pay more, Ghana a lot less).
But then up to 20pct for R&D (most of which wasted on projects that go nowhere), and SG&A can be a big number depending on how many sales reps you need (more in primary care, a lot less in speciality). Your operating margin is going to be in the range of mid 20s for a global company with a a fragmented primary care portfolio, up to mid 40s for a US focused specialty care company with a few big blockbuster drugs. It could well be higher but optics demand you keep it below a certain level and so you start to see fancy HQs, giant salaries, massive boondoggles etc.
It’s a rip off, especially for Americans. On top of that, a lot of drugs don’t work very well.
Thanks for your perspective. We can argue that drugs are likely a lot more expensive than they should be while also pointing out that pricing for these drugs is more complex than estimating the cost to produce. It's one of the reasons I wanted to point out that a little more nuance is needed rather than going with the argument that these drugs should cost only $5 a month.
Yeah that was part of my research into GLP-1s. Exendin-4 is a bit of an interesting protein, and although it sort of helped launch the research into GLP-1 RAs most of the compounds in use are derived predominately from GLP-1. For instance Semaglutide shares over 90% homology to GLP-1 with modifications made to reduce its metabolism and increase its half-life. Most of the GLP-1 RAs that were developed using Exendin-4 hardly show much homology to native GLP-1 and they don't seem to be as effective, and it doesn't appear that they are popular.
Exenatide is probably one of the only exendin-4-derived GLP-1 RAs that someone may come across.
I do not see here a mention of "value-based pricing" (search for it if not familiar with the term). So now value-based is bad, and cost-plus is good, or so some people say.
What I find interesting is that the value of the product has been influenced in the minds of customers to be perceived as far greater than it really is. (I wonder what _that_ cost.) A particularly rational and informed individual might even conclude that the product has negative value, but that's not to whom these things are marketed.
But no, let's pin the responsibility on the pharmaceutical companies. They're the cause of our problems. Let's not consider real causes that might implicate us and our behavior. Or the possibility of collective individual behavior that would make it impossible for companies to get away with such things.
I wouldn't be surprised if the high cost was also validated by celebrities coming out about their use of the drug. It pretty much makes it a fashion accessory to be taking Ozempic- you're just like the celebs! They certainly helped to make these drugs less accessible, and they no doubt helped to make GLP-1 RAs acceptable as a weight-loss alternative. No doubt that this has helped raise the perceived value of the drug.
I’m not doubting there is likely higher prices than “reasonable”. As you point out the costs are manufacturing - cost of goods sold, not true costs which would include non-recurring costs like r&d, which is a huge number. Also it is worth pointing out that while ‘cost’ can be used in various colloquial meanings, there is a difference between cost (to the seller) and price (paid by the buyer). In a true market economy, price has nothing to do with cost: if a company’s cost vs the price the market can bear will result in loss or insufficient profit then that company wouldn’t make the product. However if the product is not a commodity and there is not competition due to patents or lack of alternative offerings, then prices can rise from restrictive supply in the face of demand. I’m no economist but that’s what it seems to me.
That's generally been my sentiment with drug pricing. Likely far higher than they should be, but figuring out an actual price for consumers would be rather difficult unless we can peer into how these companies figure out their pricing and they won't disclose that information. That's why it would likely fall somewhere in the middle, but where in the middle that will be is something we can't answer concretely.
I think the cost that a company incurs to develop, manufacture, and sell a product has no bearing on the price, in a healthy market, as that is determined solely by the amount that consumers are willing to pay for the product.
I would not take it even for $5 per month
This JAMA "study" will fuel screaming headlines about the cost of drugs, but it mainly addresses the tiniest tip of the iceberg. Modern Discontent brings up R & D, one of the biggest contributors to drug cost, that is ignored when considering only cost of physical production, as well as the fact that U.S. consumers and tax payers have subsidized the cost of drugs "sold" to other countries for decades.
Ideally profits from current drugs would drive R & D for new drugs.
Even huger economic elephants are the funding of the FDA regulation and its revolving door relationship with Pharma. This is probably the majority of the cost of doing pharma business. These companies are effectively and collectively running their bloated subsidiary called the FDA.
Lastly, inundating the U.S. population with drug advertising has to be adding another 20% or more to the cost of pharma business.
I’ve worked for years in pharma . Gross margins are high, for sure. On a small molecule, high volume pill, 90-odd pct is not uncommon. Even complex biologics can have gross margins in the 80-90 range. Old style vaccines with low prices for sale globally, mid 50s (average…US will pay more, Ghana a lot less).
But then up to 20pct for R&D (most of which wasted on projects that go nowhere), and SG&A can be a big number depending on how many sales reps you need (more in primary care, a lot less in speciality). Your operating margin is going to be in the range of mid 20s for a global company with a a fragmented primary care portfolio, up to mid 40s for a US focused specialty care company with a few big blockbuster drugs. It could well be higher but optics demand you keep it below a certain level and so you start to see fancy HQs, giant salaries, massive boondoggles etc.
It’s a rip off, especially for Americans. On top of that, a lot of drugs don’t work very well.
Thanks for your perspective. We can argue that drugs are likely a lot more expensive than they should be while also pointing out that pricing for these drugs is more complex than estimating the cost to produce. It's one of the reasons I wanted to point out that a little more nuance is needed rather than going with the argument that these drugs should cost only $5 a month.
A 25-45% operating margin is still a very healthy profit, compared to many other industries
I hope you see this https://www.businessinsider.com/what-is-ozempic-glp1-drugs-developed-by-gila-monster-2023-3
Yeah that was part of my research into GLP-1s. Exendin-4 is a bit of an interesting protein, and although it sort of helped launch the research into GLP-1 RAs most of the compounds in use are derived predominately from GLP-1. For instance Semaglutide shares over 90% homology to GLP-1 with modifications made to reduce its metabolism and increase its half-life. Most of the GLP-1 RAs that were developed using Exendin-4 hardly show much homology to native GLP-1 and they don't seem to be as effective, and it doesn't appear that they are popular.
Exenatide is probably one of the only exendin-4-derived GLP-1 RAs that someone may come across.
I do not see here a mention of "value-based pricing" (search for it if not familiar with the term). So now value-based is bad, and cost-plus is good, or so some people say.
What I find interesting is that the value of the product has been influenced in the minds of customers to be perceived as far greater than it really is. (I wonder what _that_ cost.) A particularly rational and informed individual might even conclude that the product has negative value, but that's not to whom these things are marketed.
But no, let's pin the responsibility on the pharmaceutical companies. They're the cause of our problems. Let's not consider real causes that might implicate us and our behavior. Or the possibility of collective individual behavior that would make it impossible for companies to get away with such things.
I wouldn't be surprised if the high cost was also validated by celebrities coming out about their use of the drug. It pretty much makes it a fashion accessory to be taking Ozempic- you're just like the celebs! They certainly helped to make these drugs less accessible, and they no doubt helped to make GLP-1 RAs acceptable as a weight-loss alternative. No doubt that this has helped raise the perceived value of the drug.
I’m not doubting there is likely higher prices than “reasonable”. As you point out the costs are manufacturing - cost of goods sold, not true costs which would include non-recurring costs like r&d, which is a huge number. Also it is worth pointing out that while ‘cost’ can be used in various colloquial meanings, there is a difference between cost (to the seller) and price (paid by the buyer). In a true market economy, price has nothing to do with cost: if a company’s cost vs the price the market can bear will result in loss or insufficient profit then that company wouldn’t make the product. However if the product is not a commodity and there is not competition due to patents or lack of alternative offerings, then prices can rise from restrictive supply in the face of demand. I’m no economist but that’s what it seems to me.
That's generally been my sentiment with drug pricing. Likely far higher than they should be, but figuring out an actual price for consumers would be rather difficult unless we can peer into how these companies figure out their pricing and they won't disclose that information. That's why it would likely fall somewhere in the middle, but where in the middle that will be is something we can't answer concretely.
I think the cost that a company incurs to develop, manufacture, and sell a product has no bearing on the price, in a healthy market, as that is determined solely by the amount that consumers are willing to pay for the product.