It’s not really capitalism. Their willingness to loose everything they put into it and get nothing rather than get something but less has got to be unique to that industry. They’re being sheltered or protected in someway that makes that okay for investors. I’m sure it’s very complicated, but removing that would go a long way to change that kind of behavior.
I’m guessing there is some mechanism that is more financially beneficial for them to do so. I have two speculative answers, but bear in mind these are entirely speculative.
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these is some form of tax structuring they can do where writing off this loss as ‘R&D’ or similar is financially worth more than actually selling the product. I.e. they can show $35 million in ‘research’ for drugs not on the market, and this somehow helps them
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they are using it to justify artificially high prices in other sectors. They freely came out and said the price was based on looking at long term treatment of substitutes, and so their cure treatment was not based on costs to develop or produce, but purely on not undercutting chronic treatment options. And by lowering the cost on that drug, it would cause people to look askance at other drugs that cure a problem, when it is competing against symptom treatments.
I.e. a hypothetical gene therapy to cure diabetes would be potentially trouble for companies that financially benefit from indefinite treatment drugs, and so taking a hit on this to maintain artificial pricing structures was deemed more lucrative.
Crony-capitalism is a form of capitalism. I suspect it’s involved in some way.
Like Craig says, they likely get write-offs and can claim this as a loss or something similar. Plus that money paid salaries at the end of the day that had to be paid. A little, likely legal, creative accounting and they come out ahead.
Not saying the company is not at fault, but it could be a legitimate economic decision to cut their losses rather than keep trying to move the drug into the market. Suppose their cost structure is such that they can’t support a drug with revenues below 50 million a year. The condition is rare enough that they might not see that much revenue if they can’t get a huge price for treatment. They aren’t morally obligated to operate at a loss. In cases like this, government or a charity has to step in, which is why there is an orphan drug law in the US. I wonder if the EU has anything similar.
Well don’t need to go into a long debate about capitalism in a tax based system. There is plenty of material out there on that, but competition is more than just a key concept, and this company felt zero need to actually compete. I am using the term sheltered loosely, but if outside forces, like threats from competitors is zero then attempt to handle how R&D, which I think has needed a look at for along time, and targeting these write-offs should definitely on the table.
It should not be a more financially sound decision for a company to sit on a working drug, pull it off the market, rather than sell it themselves or sell it to another. And if it is due to the fact they have a competing product, one they can sell for the lifetime of a patient rather than a single cure, then yeah that needs to be addressed.
ie. we value our investors more than your lives. If you don’t pay up, you die an early, miserable death.
This is where capitalism is fucking evil.
Capitalism isn’t evil. People are evil, and if given power, they will do evil things, regardless of the system they are operating within.
That is true. But those who claim to work specifically within the confines of true market capitalism, have said people like myself should be left behind if they can’t make healthy profits off us.
More and more I think medication needs to be regulated like electricity/natural gas. They get a set % of profit once everything (research/development/production) is taken into consideration. If they want to raise prices, they need to go to a Public Service Commission to make a case. Maybe med patents should last a bit longer to spread those redevelopment costs over a longer period of time thus lowering the prices. Not sure on that.
Yes. I’m not sure if that is the solution, but you are hitting again on what I said, just in different areas. There’s a reason we regulate things like providing heat in the winter. Because again, some areas that involve life and death aren’t really amenable to unfettered, unregulated pricing.
Or perhaps more accurately, they are, but I do not think it is the type of civilization that we want to have.
There’s the general concept that capitalism is a tool, and it’s value depends on how it is used, which means regulation IMO.
Then there’s also specific issue that the health care market has the inherent market imperfection of inelastic demand.
One thing that market forces normally do really well, which they fail miserably at in regard to health care, is set prices. Because in health care you can’t say say “oh well if I don’t get a new gadget at the price I want this year, it’s not like it will KILL me”. In health care, if you don’t get exactly what you need exactly when you need it, that CAN kill you.
So it’s pretty clear to me that some form of price regulation is necessary for health care. There are many ways to do that, ranging from the type of system jpinard suggests to “all payer rate setting” and many other variations in between.
The problem in this case has been that, rather than engage in the nuts and bolts of how to patch in pricing reform to account for the market failure engendered by inelastic health care demand, we’ve had a major party for decades opposing any efforts at this either by relying on magical thinking to deny there’s a problem or by the moral dereliction of saying “It’s not my responsibility!”
This gives some detail from a different perspective. In particular the French drug evaluation body were not convinced that the drug is as effective as the article makes out:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5333067/
Strimvelis (the third drug discussed in the linked article) has subsequently been authorized by UK’s NICE as well as the Italian system.
“These price increases, although necessary to support patient access commitments and ensure a minimum level of profitability for the business, led to public scrutiny regarding [Novum’s] business model and further increased prescription rejection rates,” Novum Chief Restructuring Officer Thomas O’Donoghue wrote in the filing.
So they priced themselves out of the market when they couldn’t bully insurance companies, and everyone who pays for insurance, to cover that drug.
And their response to being rejected wasn’t to lower the price to lead to more sales, it was to just call it a day and declare bankruptcy.
“We’ve tried nothing and we’re all out of ideas!”
Yeah there is something really wrong here. They there are generics in the space but to just pack it up and not lower the price… that was in another article too, something about protecting their investors so they couldn’t lower the price. It’s basically price fixing. Competition in a market doesn’t actually work if everyone in the space is not competing.
Seems like their rationale to purchase the company was predicated on getting insurers to to subsidize the creams so they could move more volume. When that didn’t work they tried to make up for it by jacking up the prices. Probably they paid too much for the company, and there’s no way to make it back now.
(This is not meant as an excuse. They were evil, but they were even more stupid than they were evil.)
You’re absolutely right. This what they tried to do with the EpiPen too. They kept saying out of pocket costs like it totally didn’t matter that insurance is paying through the nose and the only thing that matters if the the co-pay amount. They think the public largely doesn’t care if the insurance pays, as if we don’t know that rising costs in insurance in general is actually related to what the insurance companies have to pay.
It was the gene therapy article above
Which their argument basically was that they would rather not sell a drug than lower the price, because that would potentially devalue the premium rates they charge for other drugs, by exposing the whole edifice as a sham.
It’s basically “we don’t negotiate with terrorists”, except they are the terrorists.
https://www.cnn.com/2019/03/04/health/insulin-price-humalog-generic-eli-lilly-bn/index.html
I presume Lilly are expecting to be hailed as the good guys for introducing a generic version of their own insulin at prices that are only in the ‘extreme gouging’ range, rather than the ‘you gotta be kidding us’ level of the name-brand.
Interesting comment in the company statement:
And no one should pay the full Humalog retail price,