Almost all new drugs are developed for the U.S. market, no matter where the company’s headquarters are. Why? America is a large, rich country with an advanced medical system. America’s gross domestic product per capita is 65% higher than Britain’s, 57% higher than Germany’s and 87% higher than France’s. There are four Americans for every German and nine Americans for every Canadian. We have many wealthy people. The Food and Drug Administration, which moves slowly, is still often faster at approving new drugs than regulatory bodies in other countries. While far from a free market, our medical system is freer than in many other nations. Countries with single-payer systems often take one to two years to negotiate the price of a new drug. If a patent is granted for 20 years but the first 13 years are dedicated to development and approval, then only seven years of patent-protected sales remain. If two years are added to that timeline for reimbursement negotiations, the interval drops to five years.
If new drugs can make it in America, they are developed. If they can’t, they aren’t. Other countries are considered secondarily. They are the cherry on top; we’re the sundae.
This is from David R. Henderson and Charles L. Hooper, “Be Thankful for High Drug Prices,” Wall Street Journal, February 4, 2024 (February 5 print edition.) We closed the op/ed with a WSJ editor on Sunday, something I’ve never done before.
I’ll post the whole thing in early March.
I haven’t been posting as much in the last few days because once again, our electric power is out. We had huge winds that blew over big trees. Our electric power went out Sunday morning while we were closing the piece–thank goodness for modern technology in the form of a hot spot on my phone–and it won’t be back until Thursday evening. This time, though, we have a generator and it’s saving the food in our fridge–and providing some light.
Around the time we were closing the op/ed I saw a talk by Deirdre McCloskey that she gave in D.C. on Saturday. It contradicted what we wrote. I’ll post on her reasoning in the next few days.
UDPATE: Robyn Pennacchia, at The Wonkette, replies. YMMV.
READER COMMENTS
Dylan
Feb 6 2024 at 8:25am
Finally a piece by you and Charles on pharmaceuticals that I agree with! At least these two paragraphs. I haven’t kept up with the regulatory world in pharma very much, but I will say that about a decade ago, the EMA had become slightly faster than the FDA for drug approvals. And, they were much faster than the FDA at approving biosimilars (generic versions of biologic drugs). Still, you are absolutely right that drug companies make the bulk of their profits from the U.S. market and develop new drugs accordingly.
Brandon Berg
Feb 6 2024 at 11:30am
I’ve lost count of how many times I’ve seen people offer the fact that European drug companies develop a lot of drugs as a rebuttal to the claim that price controls reduce the supply of new drugs, and…I just have no idea how, or whether, these people’s minds work. It’s like they’re reasoning process is based entirely on vibes.
Brandon Berg
Feb 6 2024 at 11:31am
“their”
steve
Feb 6 2024 at 3:08pm
I agree that drug prices need to be pretty high to cover developmental costs, I am just not sure that the US needs to bear so much of that burden. Will have to read your reasoning if you address that. Also, I think there has been a change in the way pharma is pricing some of its drugs. I think they used to do it based upon some combination of actual costs and estimated profits. For some drugs that is now based upon the costs of alternate treatments, which in some cases has lead to very high prices.
So if lifetime costs were $100k for alternate therapy, pharma charges $80k, at least until they have competition. While it is a total savings you are absorbing many years worth of care into one brief period. That does cause issues.
Anyway, overall I dont see pharma as being especially culpable in high health care costs. Depending upon how you measure it they add more or less, but the high costs in the US are a systemic issue.
Steve
Matthias
Feb 6 2024 at 8:08pm
You can argue that the rest of the world benefits from Americans paying high drug prices. But I’m not sure this is a good deal for the Americans themselves?
From what I’ve read, old stuff like insulin or even just saline solution for IV is quite expensive in the US.
Your arguement does not cover those long out of patent medications.
(The most convincing explanation I read for healthcare costs in the US in general is that they are almost exactly on the international trendline for total medical expenditure vs disposable income.
As an interesting aside, Singapore spends a much smaller charge of GDP on healthcare than the US, but a similar proportion of disposable income. Singapore and the US have approximately equal GDP per capita, but Singaporeans have less disposable income.)
johnson85
Feb 7 2024 at 3:31pm
The extra burden on Americans is what annoys me. You want a poor, undeveloped country to have access to drugs at a price approaching the marginal cost to produce it, great. But it seems reasonable to me that the Medicare not pay more than 15% more than the ten richest OEDC countres and then some appropriate multiplier as they get poorer. Especially considering a decent number of citizens of those richer countries like to mock us for the fact that they free ride off our drug expenditures.
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