2005 April 02 Saturday
Drug Price Controls Reduce Incentives For New Drug Development

Doug Bandow of the Cato Institute says price controls in other countries are decreasing the incentives for new drug development and hurting us all. In the latest extension of harmful socialist interventions in drug markets Germany is eliminating the ability of drug companies to charge more for most patented drugs.

Health care is expensive, but inadequate treatment is even more expensive. This is a lesson the German government has yet to learn. For years much of the world has been a free rider on U.S. medical R&D. Most industrialized states rely on a mix of price and volume controls to limit pharmaceutical spending. These governments expect American drug makers to keep supplying their products, almost irrespective of price.

As a result, U.S. citizens are bearing a steadily increasing medical burden: Since 1999 America has accounted for 71% of the sales of new chemical entities, up from 62%. Japan and Germany, the next two largest pharmaceutical markets, account for just 4% each.

Washington is under increasing pressure to end this sweet deal for other nations. In fact, the U.S. has started to raise the issue in trade negotiations.

The real solution, however, is for other nations to pay a fair price for what they use. After all, countries that impose drug-price controls are degrading the health of their citizens while raising other treatment expenses.

Germany's newly tightened therapeutical reference-pricing program is an unfortunate example. Under reference pricing, drugs are grouped by pharmacological equivalence. Generics and patented products are listed together and reference prices are set based on the difference between the cheapest and most expensive drugs.

I see the drug price control issue as a matter of life and death. If more countries allowed market pricing for drugs more and better drugs would be brought to market and we'd all benefit from better treatments, better health, and longer life expectancies.

Where a disease can be effectively treated or avoided by use of a drug it almost always saves money over other treatment options. Surgery and other methods of treatment are typically much more expensive and often orders of magnitude more expensive.

According Dr. James Cleeman, coordinator of the National Cholesterol Educational Program in the U.S., statins are cost effective even at $100 a month because heart disease costs "hundreds of billions of dollars." Treatment for high cholesterol demonstrates how Germany fails to balance lower cost with better treatment. Some 1.8 million Germans take Pfizer's Lipitor, sold there as Sortis. Numerous studies have demonstrated that Sortis lowers cholesterol and thereby reduces the risk of heart attacks and strokes, even among high-risk populations suffering from diabetes and hypertension.

However, Sortis is being bundled with generic statins, which would impose a price cut of 38% this year and a cumulative reduction of 63% next year. The other medicines work, but studies indicate that Sortis works better -- reduces cholesterol more with fewer side-effects. Yet GemBa refused to delay implementation of the reference pricing for statins. Average Germans are the big losers.

The Germans are preventing better drugs from having a higher price than lousier drugs. They are also preventing drugs under patent from earning back their development costs and thereby decreasing the incentive to develop new patented drugs. Short term cheap drug prices come at the expense of reducing the number of new drugs that will be available in the future. I can understand the selfish motives of those who are old enough to know they won't benefit from new drugs 20 or 30 years hence. But anyone who is young enough to expect to need new treatments 20, 30, 40, or 50 years from now has a vested interest in deregulating drug prices in Europe, Canada, and other price-regulated markets.

The Bush Administration ought to make drug price controls and intellectual property rights violations of pharmaceutical companies a far higher priority in foreign relations. Far more lives would be saved by better protection of pharmaceutical intellectual property than from the vast bulk of the issues which are the focus of current US diplomacy.

As Tyler Cowen points out the US market's funding of the bulk of current drug development is "a massive form of implicit foreign aid". Other industrial countries should stop freeloading off of the American drug consumer and adopt market pricing. The result will be better health for all of us as much larger numbers of drugs and more effective drugs are developed.

Share |      By Randall Parker at 2005 April 02 12:19 PM  Economics Health

Bartelson said at April 2, 2005 3:17 PM:

I believe that this is less of a problem than it seems. So many of the "Wonder Drugs" pushed relentlessly by the drug industry are either useless or outright dangerous. It's always "Studies show" and "Studies Reveal" that Drug X does this or that, the studies usually funded by the drug industry.

Randall Parker said at April 2, 2005 3:38 PM:


The new drugs that do not cause big problems attract far less attention than the ones that turn out to cause unexpected problems. So the press reports about drug side effects provide a distorted view of the value of modern pharmaceuticals.

Would you like to turn the clock back 15 years and have access to only the drugs available then? If all these newer drugs are dangerous or useless then if you get high cholesterol are you ready to forgo the use of statins? Or how about the newer antibiotics? Want to go without them if you get an antibiotic resistant infection?

Or how about the anti-angiogenesis drugs? Suppose you get one of the forms of cancer that are totally curable by an anti-angiogenesis drug. 15 years ago none were known.

Or how about antihistamines that do not make you sleepy? You want to do without them? I think most came out in the last 15 years and while one or two of the early non-drowsy antihistamines were pulled due to rare side effects many more have been released that do not have those side effects. Want to do without Claritin and the like?

Engineer-Poet said at April 2, 2005 8:37 PM:

I think Bartleson has a point.  Too many "new" drugs are either trivial variations on the old designed to get renewed patent protection, or marketing gimmicks to try to keep users from moving to generics.  Few if any are tested against the existing best treatments.

Would we have had Vioxx if it had been tested against aspirin? if it had been tested only for those people who could not use aspirin? if its value had been calculated against only the segment of the market which needed it rather than all the consumers (or their prescribing physicians) who could be persuaded by marketing rather than by the merits of the drug?  All of these questions are pertinent, yet the answers may be different.

I don't want to do without new drugs.  I do want to discourage drug companies from looking at marketing as their first priority rather than improving health, and the rewards built into the patent, approval and price systems are important for determining which will get the most attention.

Stephen said at April 2, 2005 8:43 PM:

Isn't it just market forces at work? First, the drug company isn't forced to sell the product to the country, and is only doing so because it has decided that it can make a worthwhile profit by making the sale. Second, perhaps its simply that the drug company's preferred price isn't enough to justify the higher price? Consider the following purchasing scenarios in, first, a socialised health system, and second, in a free market health system:

DrugCoy has just developed a new drug, named "Fastdrug". Fastdrug is better than competing brand "Slowdrug" because it will cure a person in one week instead of two weeks. Unfortunately, Drugcoy wants to charge a $1,000 per treatment for Fastdrug, whereas Slowdrug retails for only $100.

In a socialised health system, the Government says, "Hmm, on my current budget I can cure 1,000 people every week if I start buying Fastdrug, but for the same money I can cure 10,000 people every fortnight (ie 5000 people a week) if I continue to buy Slowdrug. The better rationing decision (that's what governments of any colour do, they ration things) is for the Government to continue buying (or subsidising) Slowdrug, while letting those citizens who want to be cured in one week instead of two choose to dip into their own pockets to buy Fastdrug.

Now consider a free market health system. The sick person says, "Hmm, I can buy Fastdrug for $1,000 and be cured in a week, or I can buy Slowdrug for $100 and be cured in a fortnight." The sick person makes an economic decision as to which drug to buy (balancing severity of symptoms, quality of life, lost earnings, size of cash reserves etc), and some of those sick people will opt to suffer the symptoms for an extra week rather than shell out an extra $900.

So ultimately, Randall seems to be arguing that in a socialised system, Drugcoy has a legitimate gripe simply because it lost a sale, whereas Randall would presumably have little sympathy if Drugcoy lost a sale in the free market system. Yet in both health systems the reason for the lost sale is identical - Drugcoy's Fastdurg was simply uncompetitive with Slowdrug.

Maybe the real lesson is that Drugcoy made a mistake spending a billion dollars developing Fastdrug and that it should have spent that money developing a drug that didn't have any close substitutes so that people would have been willing to shell out the extra cash to buy it.

Finally, in economic terms, what's the difference between a government representing a population of say, 25 million, declining to buy Fastdrug, and a HBO insuring 25 million people declining to buy Fastdrug? Right, from Drugcoy's perspective there isn't a difference.

gcochran said at April 2, 2005 8:53 PM:

The rate of introduction of new molecular entities is a good deal slower than it was 30 years ago. The amount of real research done by big pharma is a tiny fraction of the billions claimed. Whatever we were doing 30 or 40 years ago was significantly more effective than today and a hell of a lot cheaper.

Randall Parker said at April 2, 2005 9:09 PM:


The new variations on existing drugs are pretty rare. But so what? There is nothing forcing people to use them rather the existing drugs that go off patent. Most of those variations that modify the original molecule do not end up doing that well in the market. But if they do it could be they really offer some advantage.

Vioxx: I saw a C-SPAN FDA hearing about the Cox2 inhibitors and other NSAIDs. An FDA expert said that some of the NSAIDs that are older may have some of the same problems. But noone has done the big studies on those drugs because - get this - they are off-patent and there is little financial incentive to study those drugs to look for harmful effects from long term usage.

As for the multiple Cox2 inhibitors: We are lucky the market developed them. For some people nothing else works as well. Also, some people switch from one Cox2 inhibitor to another to find one that doesn't have side effects. I can tell you that a family member of mine felt spacy from using Vioxx and had switched to it when Celebrex seemed to stop working. Then a switch to the third Cox2 inhibitor (the name escapes me) worked to relieve the pain without the spacyness. I saw it as the market working to provide enough alternatives so that something worked.

As for the supposed evil of drug marketing: Doesn't that depend on whether the drugs work and provide net benefit? The world needs more statin marketing, not less. Why? If used more widely statins would do even more reduction of heart disease and an assortment of other diseases.


You are constructing an elaborate strawman.

First off, if a government won't let the people buy Fastdrug at the market price and declines to buy it themselves then the choice isn't even available to the populace. Germany isn't letting the statin drug companies market to the public at a market price. Germany is defeating the ability of the buyers to make their own personal decisions. Whereas HMOs do not have the sovereign power to do that.

Second, a lot of people would prefer to use a more expensive drug that cures them faster. Why spend $20 and stay sick for 2 weeks if I could instead spend $400 and stay sick for 2 days? My time is worth a lot more than the difference in prices. Also, why suffer longer? So the market should be allowed to offer different drugs at different prices so that each individual can decide which choice best meets their needs.

Third, you are assuming the drugs that Germany is lumping together are close substitutes. I think this assumption is false. For a person who has an intolerable side effect on one drug that drug is not a close substitute for another durg that does not have that side effect. For a person who finds a particular anti-depressant doesn't lift their depression that anti-depressant is not a close substitute for a different anti-depressant that does lift their depression.

Randall Parker said at April 2, 2005 9:21 PM:


The burden of proof for new drugs is much higher now than it was 30 or 40 years ago. Do you want to return to that earlier and cheaper level of burden of proof? I'd be happy to. But with so many people upset by the side effects of Vioxx I don't think that is politically possible.

I'd love to allow patients with fatal conditions who are not enrolled in trials to buy phase I and phase II drugs. If that was possible to do right I know someone very close to me who is too weak and unwilling to travel to clinical trial centers who I'd arrange to get some of the monoclonal antibody treatments and vaccines for cancer. He has little to lose at this point. But the FDA doesn't allow it.

As things stand now lots of old off-patent generics are probably causing harm that is unknown because the big clinical studies needed to ferret out the side effects are not going to be funded. The government has too many competiting uses for medical research money. No drug company has in interest in doing safety trials for off-patent drugs. But new drugs get approved after being made to go through more thorough trials and then after initial product release are forced into yet more safety checking trials.

Look at the Cox2 inhibitors. The safety issue doesn't even show up until at least 18 or 24 months of continuous use. With the exception of aspirin I don't think most NSAIDs have been through those sorts of trials. Ditto for lots of other drugs.

Stephen said at April 2, 2005 9:54 PM:
...if a government won't let the people buy Fastdrug at the market price...

Randall, there's no straw man. I don't know where you're getting the idea that a government would stop someone buying Fastdrug at the market price - the story doesn't say that.

Socialised health systems *don't* prohibit consumers buying whatever drugs they want at whatever price they want to pay irrespective of whether the government has decided to also offer it to their public patients.

Indeed, if you think about it, why on earth would a government running a socialised health system be interested in stopping a person opting out of the system? The more people who opt out (ie buy a drug outside of the socialised system), the more there is for everyone else.

Randall Parker said at April 2, 2005 10:38 PM:


This statement is incorrect:

Randall, there's no straw man. I don't know where you're getting the idea that a government would stop someone buying Fastdrug at the market price - the story doesn't say that.

Yes, in Germany the drugs have price limits set on them. Your so-called FastDrug would get grouped with the SlowDrug and the allowed price for both of them would be the same.

This statement is also incorrect:

Socialised health systems *don't* prohibit consumers buying whatever drugs they want at whatever price they want to pay irrespective of whether the government has decided to also offer it to their public patients.

A number of socialized systems do exactly that. For instance, in Canada each provincial government sometimes decides for some drugs that they are no better than existing drugs and cost more and so some drugs are just not available there. Never mind that some people have side effects or do not get benefits from existing drugs. The Canadian system does not care.

Also, the UK NHS (National Health Service) delays availability or does not approve drugs because it does not want to have to pay for their use. So the drugs end up not becoming available in the UK at all. You can find UK newspaper reports on controversies over new drug approvals.

You are also wrong to argue that socialized systems are happy to see people opting out. The Canadian system does not want people to be able to opt out of public care because the ability to do so will undermine the motivation of the public to demand that the system be well-funded. The system wants a monopoly. It does not want the people to have alternatives. In the UK there is a greater ability to opt out with private hospitals. But in the UK new drug costs are seen by the NHS as new claims to their budget.

In this respect the Canadian system is behaving in ways similar to public schools that do not want kids to escape the public system. They want the revenue that comes with having more people in the system.

PacRim Jim said at April 3, 2005 12:26 AM:

American pharma companies aren't helping the situation by selling below cost to Canada. India is outright stealing drug patents. Maybe I'll set up a lab in my basement. Any volunteers for clinical trials?

Stephen said at April 3, 2005 3:18 AM:

I think that the instances you cite are where the drug company has decided not to sell the drug (at any price) in that country - ie its not the government that's decided its citizens can't obtain the drugs at all, rather its simply saying that it isn't going to dole them out or subsidise them, and instead leaves the supply of that drug entirely to the private sector.

by the way, R&D expenses contribute only around 30% to the end price of your average new drug. Not much when you consider that marketing expenses come in at around 25%...

I wonder if the real issue isn't so much that drugs are cheap OS, but is really that drugs are expensive in the US? I'd look at US-centric expenses like massive legal liability expenses, oh, and the huge consumer advertising campaigns that tend to be illegal in most of the western world.

Bob Badour said at April 3, 2005 10:12 AM:

No Stephen, you are wrong.

The drug companies would love to sell lots of drugs in Canada that Canada prevents them from selling -- by force of law.

I live in Canada. For more than 6 years, I was forcibly prevented from spending any of my own money on my own healthcare while I was simultaneously forced to pay for the healthcare of others. You argue in favour of an obscenity from a position of total ignorance. But oh such bliss you must have.

Your straw man, and it is a straw man, starts from the axiom that the outcomes are the same, proceeds to prove the similarity of outcome and then moralizes on the basis of the similarity. That's called logically fallacious reasoning.

And yet, your straw man actually mentions the reasons why a free market outperforms the centrally planned market. The patient has information regarding costs that the lazy, stupid civil servant lacks. (While there are some small numbers of civil servants who are neither lazy nor stupid, the primary reasons for seeking a career in the civil service are laziness and stupidity.) Therefore, the patient makes more rational decisions regarding the allocation of resources.

You state that governments ration. That's not what governments are, though. Governments exist primarily to wield a monopoly on violence. They can wield that monopoly to ration or not. Certainly, socialism rations -- as evidenced by the miles long lineups and empty shelves in Moscow circa 1987. Socialism disgusts me as I think it should disgust any informed and intelligent being.

Stephen said at April 3, 2005 8:27 PM:

Bob said:

I live in Canada. For more than 6 years, I was forcibly prevented from spending any of my own money on my own healthcare...

Bob, I'm not a Canadian so I looked at this comparison of the various Canadian pharmaceutical schemes. I also looked at the Canadian part of an international summary of socialised health schemes. I can't find any mention of a Canadian scheme that stops someone from "going private" and paying for their own health care. Indeed, most of the Canadian schemes appear to go out of their way to exclude people from subsidised medicine, and I can't believe that excluded people aren't allowed to buy pharmaceuticals via the normal channels.

So, to what scheme/circumstance are you referring when you say you were "...forcibly prevented from spending any..." money on healthcare?

Randall Parker said at April 3, 2005 9:40 PM:


Canadians are not allowed to pay to see a doctor - unless they cross the border. If a Canadian can't get a G.P. (and Bob couldn't for many years because there is a shortage) then they have to go to a hospital emergency ward no matter how much money they have.

Also, lots of drugs on the market here are not available there.

You need to find some better articles on the Canadian system.

Randall Parker said at April 3, 2005 10:03 PM:


Also, when a Canadian goes to an emergency ward he can easily find himself waiting for 4, 8, 12 hours to see a doctor. So a trip to get medical care becomes a very time consuming ordeal. Ask Bob and he'll tell you horror stories.

Bob Badour said at April 3, 2005 10:07 PM:


Pretty charts made by socialists to gloss over the nightmare reality do not impress me much.

The .fr pdf file is laughably incomplete and misleading. You really do have to watch for the weasle words. "Eligibility" will get you nowhere if you cannot get a referral because no general practitioner will give you one and no specialist will give you the time of day without one.

The .fr pdf file does not mention drug availability or prohibition. Neither does it mention politicians like David Peterson who as I recall passed laws forcibly preventing me from spending my own money on my own healthcare nor does it mention the laws themselves.

Neither does the .pdf file from the national review of medicine. As I said previously, and as I reiterate, you argue from a position of complete ignorance. And the citations you provide only prove it.

I have already documented here the millions of Canadians who (while "eligible") are excluded from healthcare in Canada.

Stephen said at April 3, 2005 11:37 PM:

and then there's this (about of a third of the way down):

In Canada, the term "private health care" is generally care that is paid for by private sources: private insurance plans, employer-provided health plans, deductibles and other out-of-pocket expenses. Like the United States, Canada has both publicly and privately owned hospitals, clinics, and other facilities. Ownership is a separate issue from sources of payment; a physician in private practice may receive all of her or _ his income from the public health insurance program. The vast majority of physicians practice entirely within the public sector, that is, all of the care they provide is paid for by public sources. Very few physicians practice entirely in the private sector; some practice both publicly and privately. Private clinics generally offer procedures that are not covered by the public purse. Some types of cosmetic surgery, _ such as breast implants or tattoo removal, fall into this category. Sometimes the procedure is covered publicly but the overhead expenses at the private clinic must be paid for by the patient. Despite the extra expense, patients may-and some do- opt for private health care because they perceive waiting times in the public system to be unacceptably long.

I'm still not understanding how the stuff I'm reading means that you can't 'go private'? Are these sites making up stuff about private health insurance, private hosptials etc? Are there really no private patients who attend the private hospitals and supplement the income of the doctors working in the private sector?

Ryan said at April 4, 2005 7:00 AM:

"Indeed, if you think about it, why on earth would a government running a socialised health system be interested in stopping a person opting out of the system? "


Because that would create two social classes. The goal of socialized medicine is egalitarian. It's not about providing healthcare for all, it's about making sure that everyone has the same quality of healthcare regardless of their ability to pay. Since they can't have 1000's of identical top-of-their-class doctors, they settle for a common denominator of healthcare and pacify the masses by claiming "equality for all".

I would be really interested in seeing the waits/costs of surgery for "elected" officials in socialized systems vs. the common proletariat folks. Wanna bet they aren't waiting weeks for a CAT scan, like joe schmoe dock-worker, all the while screaming equality?

GUYK said at April 4, 2005 10:38 AM:

Maybe I'm looking at this problem wrong but seems to me that letting the marketplace work would solve the problem. If a drug manufacturer wants to sells the drug out of country at a cheaper price than in country then they should have no bitch if consummers import the drug at the cheaper price. Get the government out of it and let the market work. The manufacturers will either have to lower the prices in the USA or raise the export price. I have heard all of the warnings about importing drugs and fully understand there could be a danger. However, if I can contact a reputable outlet in Canada and have the drugs shipped to me cheaper than my local druggists can even buy the same drug something is wrong with the marketplace-and the wrong is government intervention to protect the drug companies.

Ryan said at April 4, 2005 11:41 AM:

Randall points out that it's the high drugs prices in the US that allow for R&D. If the population chooses to re-import from Canada, then how will the companies make up for the lost revenue? Its the US's out of control drug costs that are paying for the lowering of drug costs in price-controlled systems. It's about time they paid their fair share.

RYAN said at April 4, 2005 4:22 PM:

Ryan-my whole point. As it is now the Federal government indirectly subsidizes the drug companies by forcing residents to buy in country. If the market place was allowed to work then the drug companies would have no choice but to either lower prices in country or raise export prices or maybe some of both.

In any event, drug prices are already negotiable. I have no doubt that my HMO negotiate drug prices with providers if not manufactures just as they do with doctors and hospitals. I believe it is those who do not have a good health insurance that are actually paying the R&D bill.

Randall Parker said at April 4, 2005 5:00 PM:

There are two problems with raising export prices:

A) Some foreign countries will break the patent on a drug and make the drug themselves if they can't get the pharma cos to drop their prices. Kinda hard for the pharma cos to wage that battle. They do not have the power of sovereign entities. Though the US government does have the power to go toe-to-toe with other governments.

2) In some cases the pharma cos sell below US prices in poor countries because the poor folks could not possibly afford First World prices and would not use the drugs at all at US prices. The pharma cos still sell in those countries as long as prices are above production costs. The poor folks just end up paying little of the development costs.

I understand the libertarian sentiments behind the view that the US government should just all drugs be purchased abroad. But I suspect such a move would result in lower average world prices and less incentive for pharma companies to invest in new drug development.

Stephen said at April 4, 2005 9:16 PM:

Here's a pharmaceutical industry publication that quotes an industry exec saying that pressure to lower prices is causing (horror) improved products!!! Here's the closing para of the article (my emphasis):

Right now, the United States is a free-pricing environment, which means that, in general, pricing is driven by value and
market forces. But we’re also in a world of value-based pricing. The more difficult the environment and the more pricing pressures there are, the more important it is for companies to prove the value of their products. Pharma companies are getting more sophisticated in doing that by
developing clinical programs to meet the specific needs of payers
● conducting health economics modeling
understanding what the market values
● developing products and information that support those needs.

Yet again, downward price pressure appears to be encouraging better R&D decisions.

The queue to thank Europe for putting downward pressure on drug prices is forming to your left...

gcochran said at April 4, 2005 11:08 PM:

The idea that high drug prices in the US are needed to finance most drug R&D is simply not true. Hardly any of the billions that Merck, for example, claims to spend on drug R&D is real research. Nor is it true that tighter safety standards are responsible for the slowdown in the development in new drugs.

I think the problem is rooted in a fad for ineffective research strategies. The rate of introduction of NMEs has gone down by more than a factor of two while the claimed expenditures on research by US pharmaceutical companeis has tripled, while NIH has roughly tripled as well. We're not just talking lower efficency, the absolute number is going down while expenditures soar. Methods that are known to work have been replaced by more scientifically respctable approaches that don't. For example, Edisonian approaches are just not cool nowadays, but they're pretty good at generating NMEs. because they're not at all limited by what we understand. Or consider the developemtn of useful psychiatric drugs: the great majority of useful psychoative drugs were discovered by fluke, and that tursn out to be a better way than basic scientific invetigation - p[robably because we really don't understand the brain that well.

This has happened in physics. We had teh BCS theory wit etensiosn and that was good: and we foudn tha6t niobium-tin allys were useful and had the highest transition temperatures. So people ebat tehm to death, tryint adn trying to get the transition temperature one or two lousy degrees K higher, so that we could cool them with liquid hydrogen instead of liquid helium. Couldn't quite do it.

Then Bednorz and Muller found the cuprate semiconductors by a purely Edisonian approach. They tried shit and they got lucky. . Suddenly the transition temp move up more than 50 degrees - and we didn't do it with theory. We _still_ don't really understand how the suckers work. Theory is cool, but it shouldn;t be a straightjacket. Then we found magnesium dibnoride, a simple two-element superconductors with a transition temp of 39 K: we could have found it 60 years ago, but systematically investigating all the 8000-odd two-element compounds wouldn't have been cool. Zeldovich figured out the merits of just looking around after the discovery of the cuprate semiconductors, but biomedicine hasn't even learned to use theory right yet, let alone know when to ignore it.

I think economics is not the cause or the answer.

Randall Parker said at April 5, 2005 1:03 AM:


If by "Edisonian approach" you mean just trying lots of stuff it is my impression that a lot of pharmaceutical development is exactly that. Yes, drug companies make up libraries of thousands and tens of thousands of compounds and then screen them against various types of assays to check for desired activity.

The screening is done by screening for binding affinity to proteins, for changes in cells grown in culture, and by other means. Of course that means they decide on what receptor or other protein they have chosen as a target. That is a rather more focused "try stuff" as compared to just introducing lots of compounds into whole organisms to look for desired effects.

The "try stuff" attitude is sometimes the wrong approach and has produced some noticable failures. Back in the 1970s massive efforts to try compounds against cancers in lab animals were done and those efforts continued into later decades. Biochemist Ephraim Racker of Cornell told me that this was a huge waste of time (and he told the NIH this when Nixon announced his war on cancer and the NIH asked his advice) and would not produce a cure for cancer. He said we needed to understand cell growth regulation mechanisms so that we'd have targets to aim it. I think he was obviously right and we still need to know a lot more about normal cell growth regulation and cancer cell metabolism before we can aim accurately enough to hit the right targets.

I think the past successes with the "try stuff" approach were in large part due to lower lying fruit. For example, it was a lot easier to find compounds to kill off bacteria than to find compounds to stop viruses or cancer cells.

When there were no effective treatments for just about all diseases and scientists tried stuff the odds were greater that a compound would turn out to be useful against some illness even if the compound was originally tried in hopes it would work against a different illness. The diseases that were the easiest to get control of (e.g. bacterial infections) had compounds found for them much more rapidly. Now we are at the stage for lots of the remaining diseases where what we need to do to cells and organs to fix problems is much more complicated. For instance, how to tell a part of the immune system not to attack self? Or how to tell mutated cancer cells to get control of their cell division when many of their mechanisms for controlling growth are mutated? Hard stuff.

Randall Parker said at April 5, 2005 1:06 AM:

Also, I think economics is the cause of much of what we are seeing. The big shift of pharma cos from Europe to America is clearly the result of economic forces at work. One big force is drug pricing.

One can find fault with US drug research. But US labs are producing well over half the new drugs. Why? Partly unregulated prices. Partly a larger market under a single regulatory regime. Partly a greater willingness to try stuff as compared to the Euros.

gcochran said at April 5, 2005 8:15 AM:

Randall, you're wrong. It would help if you knew a tremendous amount about biomedical research. I think we had a similar argument once on another subject: how did it turn out?

gcochran said at April 5, 2005 8:30 AM:

For example there was 'de novo' drug design: It didn't work, and it's one reason that the drug pipeine is half or two-thirds empty. The big guys wasted years on this. Why? Fashion - which is why they ALL did it- the same reason people abandon phonics for 'whole word'. You can't expect the suits to have any insight on research. Now if drug prices had just soared even further, they could avoided being stupid?

Tripled expenditure, halved or less output: get the picture? The probolem is not a shortage of money. In fact, it's entirely possible that an influx of corporate and NIH money has actually _decreased_ the flow of new drugs. People with imagination who could do something innovative are seduced in to high-paying jobs that are pretend research, unproductive. We have whole heavily funded fields that are known to be theoretically unsound - true of neurogenetics, for example. The people running it haven't even heard of neodarwinisn, and if they had, they wouldn't like it.

Difficulties implementing denovo design

Many of the worlds largest pharmaceutical firms spent millions of dollars on hardware and software in their endeavor to make denovo design a reality. Unfortunately, successes were rare. Except for a few exceptions, denovo design was an utter failure, and did not prove to be an effective method to discover lead compounds. The main reasons were limitations in computing power and the lack of useful software functionality. In scientific computing, accuracy and processing time are always a tradeoff. Thus, in order to make the calculations run in a finite period of time, a plethora of assumptions, significant approximations, and numerous algorithmic shortcuts had to be utilized. This, in turn, greatly diminished the calculated accuracy of any ligand receptor interaction. As such, chemists could postulate numerous chemical structures that could potentially complement the active site; however, the calculated binding had no correlation with reality.

This remains the most significant challenge in denovo design to this day. Although computers have become exponentially faster, the sheer number of calculations needed to accurately predict the binding of a denovo generated ligand to its receptor in a useful timeframe still requires significant approximations. In denovo design, we are attempting to generate a whole ligand from scratch and dock it within the receptor. As stated above, the difficulty lies in predicting how the chemical structure will behave in real life. A ligand is an inherently flexible structure, and can assume a plethora of different conformations and orientations. The big question remains whether the predicted binding structure will mirror the calculated one. Failure in this endeavor has undermined the utility of denovo structure generating software. >

Randall Parker said at April 5, 2005 12:47 PM:


I'm quite aware of the excesses of the "rational design" approach and back in the 1990s I thought the pharma cos were going way overboard in embracing this extremely prematurely. It reminded me very much of what I was seeing in the aerospace industry in software development where the companies were buying complex software packages to design software with all sorts of layered bubbles (control flow diagrams, data flow diagrams, etc). In aerospace their fad lasted a few years until the groups trying to do design were just totally ignored by the developers and the designers started trying to constantly update their diagrams to track what the coders were actually doing.

In a similar fashion, from my reading I get the impression the pharma cos have retreated from some of their excesses. They discovered that the software was too primitive and the computers were orders of magnitude too slow for doing "rational design". Computational chemistry was a bad idea and still is for the most part. Genomics was similarly overembraced prematurely. Derek Lowe also adds combinatorial chemistry to the mix of things that wasted a lot of money and effort. I get all that. But I think the pharma cos have moved on and are not spending much effort on computer models to produce drug shapes.

Are the pharma cos still making systematic mistakes in their drug development processes? Maybe. If so, my guess is that their assay systems for biological activity may be at fault. Though I don't think this problem can be easily fixed. I just went back through some posts of pharmaceutical chemist and blogger Derek Lowe (who knows a lot more about the drug development process than you do) and found he sees some of the same problems I see. See, for example, his post on how unlike in the past drugs are now more likely to fail in the pipeline due to toxicology than efficacy why a shift to massive screening in animal models may not solve that problem given our current level of knowledge (actually, the earlier stage failures appear to be more due to toxicity and later stage failures more due to lack of efficacy if I read him right).

Maybe if mice or rats could be bioengineered to have human livers and other human parts then animal models could be made more useful.

Here's a Lowe post on some of the technological trends that may have slowed drug development. Note, though, that he does not quantify any of the standard potential reasons in terms of how much they are to blame.

His most interesting post on drug development was on a research paper that phase II failure for lack of efficacy is the biggest source of failure once anti-infectives are removed from the sample. My guess is that this is at least in part a result of a shift toward development of drugs for diseases that are really hard to cure. Lack of efficacy? Sounds like the vast bulk of anti-cancer drugs. Well, anti-cancer drugs are about half of all drugs now under development (at least according to an NY Times article I read a few months ago). You want to tell me that return to tried and true ways of the past will improve efficacy of anti-cancer drugs? Those tried and true ways were already tried against cancer for decades and failed abysmally.

Again, I think the increasing difficulty in drug development represents a shift away from low hanging fruit. Cancer is hard (hardest of all probably). Parkinson's is hard. Alzheimer's is hard. Some illnesses can't even be cured by conventional chemical compounds. We need cell therapies, gene therapies, and biologicals. The industry has certainly stumbled as it has shifted away from the old ways of developing drugs. But while the shifting was premature for some diseases and some of the methods adopted were premature and dumb the drug industry really did need to try new ways to develop treatments.

I see the poor choices made the industry to reflect what happens to a large industry when the technology shifts underneath them. For example, think of the old BUNCH computer makers when microprocessors and desktop computers came along. Some new up-starts are producing a larger fraction of new drugs. The big overly merged pharma cos are stumbling. But just as GM couldn't fix itself by returning to tried and true ways (and GM tried to do exactly that) neither can the pharma cos.

Drug developers could give up on aiming at target proteins and just go screening lots of compounds in whole organisms to look for efficacy. But that would involve more (and much more expensive) animal trials and/or risky human trials. It would also require, in the case of animals, the development of animal models for more diseases. But even if more compounds were initially screened in animals would that lead to greater succcess rates in humans per dollar spent?

For more from Lowe see his category archives Drug Development and Drug Assays.

Bob Badour said at April 5, 2005 10:22 PM:


"'Despite the extra expense, patients may-and some do- opt for private health care because they perceive waiting times in the public system to be unacceptably long.'
I'm still not understanding how the stuff I'm reading means that you can't 'go private'? "

You don't understand because whomever wrote the paragraph you quoted lied to you. (What?!? A socialist lied to you? Say it ain't so!)

While every province is different, I can tell you with 100% certainty that in the major provinces nobody can "choose to go private". The law forcibly prevents any such thing, and the paragraph you posted does nothing to change the law.

Most recently, residents in BC could get around this. While nobody could pay for their own treatment, someone else could. So a friend or relative was allowed to pay for your treatment. The provincial government closed that "loophole" this year.

In Ontario, where I live, some commissar (recall my point regarding laziness and stupidity) decides what is covered, in which case I cannot spend any of my money on it, and what is not covered. Sadly, general practice is covered.

Thus, if I want to alter the appearance of my nose, I must pay out of pocket. If I need to have these damned sebaceous cysts on top of my head excised, I am forcibly prevented from paying out of pocket.

Without a family doctor, one cannot get either procedure done. The plastic surgeon won't take you on unless you have a family doctor to handle the follow-up. And because nobody can walk into a general practitioner's office with cash in hand, nobody can incent them to move to their town. As a result, almost all of Ontario (with the exception of Toronto) has a critical shortage of general practitioners.

It does not matter one bit that the general practitioners are private businesses when the law prevents them from accepting payment from anyone except the government. They might as well be civil servants--except civil servants don't have to rent their own offices or pay their own phone bills.

You have no clue what you talk about. In your ignorance, you try to convince people to accept your socialist dream. The problem -- if you succeed -- is your ignorance will force intelligent and educated people to live the nightmare.

Bob Badour said at April 5, 2005 10:24 PM:


Even in the socialist nightmare, we have two classes. We have one class of people who have family doctors and another class of people who do not. The issue has nothing to do with egalitarianism. Socialism is pure unadulterated evil that panders to the ignorant masses for the sole purpose of wielding power.

Socialists are sophists -- every one!

Bob Badour said at April 5, 2005 10:28 PM:


"The wrong is government intervention to protect the drug companies."

I disagree. Without government intervention to protect intellectual property, nobody would pay to create it in the first place.

Canada and many other countries ride on America's coattails. The cost of drug delivery has two components: development and production. The cost of development is huge and the cost of production is negligible. The same economics exist in semiconductors, where making the next generation of chips involves years of research and an entirely new fabrication plant, but the cost of materials, labour and energy for production is almost zero.

One would expect in a free market that newly introduced drugs would be expensive and drop drastically in price as 1) the company amortizes the development cost and 2) competing drugs enter the marketplace. How expensive the first dose sold is and how quickly it drops in price generally depends on how long the producer has to amortize the development cost and the size of the overall market.

Countries like Canada hold a gun to the heads of the drug companies to force the drug companies to amortize development costs elsewhere (currently meaning in the US) and to sell the drugs in Canada for production costs plus some markup.

As long as the drug companies have somewhere to amortize the development costs, they are willing to sell the drugs for production costs plus whatever markup these other countries allow.

I think the only way to deal with the problem is through trade sanctions and a law that prevents any drug company from selling a drug in another country for significantly less than in the US. If the US legislates low drug prices, the entire world will have cheap aspirin and little else.

If the US allows people to re-import cheap drugs, the drug companies will lose the ability to amortize development and will stop developing new drugs. The drug companies cannot simply raise prices elsewhere because legislation and regulation set those prices. The drug company's only choice is to sell at the legislated price in those countries or not sell at all.

In many cases, even the "not sell at all" is a non-starter because in that case the legislation generally cancels any intellectual property protections allowing a competitor to profit without any development costs at all.

Unless the US is prepared to protect the intellectual property of the drug developer on foreign soil through trade sanctions, the only choices Americans have are 1) pay an unfair share of development or 2) have no new drugs. I hope the US wakes up and throws its economic weight around to correct this situation while the US still has economic weight to throw around.

Bob Badour said at April 5, 2005 10:39 PM:


Here's a pharmaceutical industry publication that quotes an industry exec saying that pressure to lower prices is causing (horror) improved products!!! Here's the closing para of the article (my emphasis):

What the drug industry exec says: "Parallel trade with Canada is the most likely scenario....Broader parallel trade [with Europe as well] could have significant implications for the pharma industry, as greater volume of product would be available."

What the drug industry exec means: "As long as it is only Canada, we can still amortize development in the US by restricting sales to Canada."

Says: "Given the impact of parallel trade, it is essential for pharma to manage the situation and evaluate alternative scenarios."

Means: "If we have to limit supply to the whole world, we might still have to cut our losses and send the researchers home."

Says: "From an economic perspective, it makes sense to reduce prices if companies can offset lost revenues through volume gains. That strategy has to be evaluated on a product-specific basis."

Means: "We will just drop the low volume products for things like terminal cancer, fatal or chronic diseases to focus on selling things that make people horny."

Says: "It's difficult to figure out if there will be a general reduction in price levels [in the US] going forward."

Means: "Hell no! We'll just sell something more profitable instead."

Says: "[US] pricing is driven by value and market forces."

Means: "HMOs are a pain in the ass, but generally we sell what patients want to buy."

Says: "But we're also in a world of value-based pricing."

Means: "If we don't sell the drugs to the socialists on the cheap, they will just steal it anyway."

Says: "developing clinicial programs to meet the specific needs of payers"

Means: "Who gives a shit what benefits patients when they aren't the ones paying? We have to sell what the commissars want!"

Says: "conducting health economics modelling"

Means: "Hey! We can sell our shitty drug that doesn't work nearly as well if we can convince a civil servant it will take less of his budget (thereby leaving more for that cool flat-panel display and a really nice desk chair.)"

Says: "understanding what the market values"

Means: "Who gives a shit about patients? Do these civil servants accept bribes? What irrationality motivates them and how can we use that to our advantage?"

Says: "developing products and information that support those needs"

Means: "The civil servant needs to cover his ass; let's help him out a little."

As an intelligent person who read the material thoughtfully and in context, I don't see where the drug industry guy said anything about improving products. Why are all these mindless idiots lining up to the left?

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