I'm really busy this morning, and probably won't be blogging much, but there's an interesting debate going on in the comments threads about the return on investment in the pharmaceutical industry. You have to be very, very careful with this stuff, because there's enormous survivor bias in stock screens. A pharma that has a long, bad run of no good drugs disappears from the sample through merger or failure. Sadly, this is pretty common, which is why so many pharmaceutical firms have obviously compound names. If you have relatively binary outcomes--companies are either very profitable, or not profitable at all--then if you drop the non-performers from the sample, being in the pharmaceutical business will look like a license to print money. The fact that so many new entrants find it so hard to actually grow to pharma size indicates that it might be a little harder than it looks.
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We'd love to see numbers or references. Most pharma firms have histories that go back to the early 20th century. Mergers and Acquisitions happen, but the companies that combine have been around a long time. There aren't many new players.
And the amount they spend on advertising is an indication of profitable most of them are. We can do fuzzy math and number crunching, and take Pfizer's recent problems into account. But overall, you will see that big pharma is big for a reason.
Big pharamceutical companies would better survive a failed drug program... given that a huge part of the cost of bringing a new drug to market is the FDA approval process, which is going to be expensive no matter who you are, a small company that tries and fails will probably just go out of business. One that succeeds probably gets bought by a bigger one...
I'd also be interested in the numbers of failed firms.
a huge part of the cost of bringing a new drug to market is the FDA approval process, which is going to be expensive no matter who you are
More expensive than the cost of being litigated to death, though? Even drugs that go through the FDA process, like Vioxx, can end up creating enormous liability problems for drug companies. Imagine if thalidomide had been available in the US market, instead of blocked by the FDA... even more lawsuits.
Dhalgren,
There are lots of new players every year, you just never hear of them because they never make it to the market with a drug or treatment, or they get bought out by the bigger players.
I thought the argument on the earlier comments thread was chiefly about the relative effectiveness of government research and private research. There are some people who just don't understand that, while the government is good at basic research (which is non-excludable), private companies are better at creating specific products that fulfill the needs of consumers.
Hence, as Paul Romer argues, the Soviet Union had a very impressive collection of scientists doing some first rate research, and yet was unable to translate that into real welfare gains for its people.
According to some here, private innovation is of little importance and government innovation is always (or at least generally superior). To them, then, the Soviet Union should have been a flourishing paradise.
Anyway, those of us who understand something about economics know that private innovation is hugely important and that for that reason we allow companies (like the drug companies) to get monopoly profits out of their new products, at least for a time.
Technological improvements are the key to increases in the standard of living over time. We threaten that technological progress (which is largely driven by the private sector) at our peril.
Let me put some perspective on what a new pharma company is up against.
I am a medicinal chemist that has worked at large pharma for 13 years. In that time I have worked on 6 different drug discovery projects doing either lead optimization or lead discovery. The projects have had life spans of 12 years, 10 years, 7 years, 3 years, 2 years, and 1 year (my present project).
Two of these projects made it into the clinical trial stage, one died just short of it (the 10 year long project, and the one I personally worked on the longest). Of the remaining three, one was canned, one is on life support, and the last is too young to make any judgment yet.
If I am lucky, I will have worked on two projects that lead to marketed drugs (the two projects in the clinic), but the odds are actually against both on a historical basis, even at that stage. It is quite probable that at the 20 year mark of my career, I will have worked on no market-successful projects. This is not uncommon in my field- there are far more failures than successes.
Ah, well, Yancy, it's probably because you're such an intellecually stunted fool who rejects the importance of evidence.
[/sarcasm]
My wife worked at a biotech for several years; we bailed out before it was bought up. They actually did produce one marketable (and highly effective) drug, but failed financially even so.
As someone who works in the industry, I can tell you first hand that Megan is absolutely right on this one. Pharma is enormously profitable if you're successful, but the odds of being successful are pretty slim, especially if you're not one of the major pharmaceutical players, who by this time have all been merging together to firm up ailing drug pipelines.
Pharmaceuticals has to be profitable in order to encourage the level of risk taking that's necessary to bring drugs to market. Note that it's not just a bunch of large companies that do this, it's a lot of smaller pharmas and biotechs who are supplying much of the innovation these days in the pharmaceutical field. The reason investors are willing to dump large sums of cash into operations, like the small biotech I work for, is because of the potential payout on success.
The truth is that most pharma and biotech ventures fail, and they are enormously costly operations to run, both in terms of labor and capital costs. No one would willingly undertake this kind of risk if the profitability is legislated out of the sector. We're already starting to see real problems in pharma innovation because of a variety of factors, which I won't get into here, but if price regulations suddenly limit profitability, the number of new drugs hitting the market will slow to a trickle.
According to some here, private innovation is of little importance and government innovation is always (or at least generally superior). To them, then, the Soviet Union should have been a flourishing paradise.
That logic wouldn't get past a freshman who took Intro to Philosophy.
There is an interesting post here by Greg Mankiw about the profitability of drug companies. He cites a CBO report which argues that their profitability tends to be overstated and that they are in truth only modestly more profitable than the average company.
A quick glance at the P/E ratios of the major drug companies confirms that:
Company P/E
J&J 14.0
Wyeth 11.3
BMY 15.9
PFE 9.8
AMGN 11.6
* (All data taken from MSN Money.)
And the average P/E for the S&P 500 is 14.8. So, the stocks are not trading at abnormally high valuations--indeed, most of them seem to be trading at a below average P/E, indicating that making money in the pharma business is not as easy as some have made it out to be.
By the way, Freddie, logic has never been your strong suit. Nor has economics. Why don't you leave these discussions for more informed and thoughtful people?
Don't lose heart though. Everyone must have a comparative advantage in something. Even you. I'm sure you can make a valuable contribution the next time Megan posts something about the JCrew catalog.
Even if this: "According to some here, private innovation is of little importance and government innovation is always (or at least generally superior)(sic)" wasn't an complete strawman, this: "To them, then, the Soviet Union should have been a flourishing paradise" in no way follows from it.
You can see that, if you can see beyond the politics of resentment for a moment, can't you? You don't really think one follows logically from another, right? I chose my critique carefully; that's such an elementarily flawed line of logic that the most disinterested undergrad could see it.
Freddie, that was a bit of hyperbole. I offer a link so you won't have look it up yourself. It was but a rhetorical flourish, as should have been obvious. The substance of the argument was that, although it was able to produce very fine scientists, the Soviet Union was not able to translate their research into welfare gains for the people. Part of the reason for that is no doubt the heavy military expenditures which took resources away from the consumer sector. But a major reason was also that governments are much better at basic research--which is a public good--than at the sort of R&D private companies do to create particular proprietary products that improve the lives of their customers. This is well known among economists.
The argument about the Soviet Union is also in the interview with Paul Romer I linked to on the last thread. Much of what I have been arguing here derives from his work on endogenous growth. If you are interested, you should read more about it. Romer makes much of the role that monopoly (or monopolistic competition) plays in innovation, technological change and growth. After you read more about his work, you might have an easier time participating intelligently in these sorts of discussions.
One strange thing about the Pharma critics behavior is that they aren't acting on their economic model.
They tell us that pharma is incredibly profitable and if done slightly differently would be even more profitable AND do more good.
Yet, they don't set up pharma companies consistent with their models. This is strange because if they're correct, such companies would do a lot of good and be incredibly profitable, making it possible for them to do even more good.
And, the competition with their good companies would cause the existing bad companies to either go out of biz or change their ways.
If pharma critics are correct, there's no down side and considerable upside to them doing pharma companies.
Yet they don't.
A lot of the discussion from the last few days has been covered in an excellent PBS Frontline Documentary. It includes interviews with (former) CEOs of Merck and Eli Lilly, Princeton Economist Uwe Reinhardt, and industry critic/former editor of NEJM Marcia Angell.
The FAQ section gives a cursory explanation on the issues of opportunity cost, price discrimination, profitability, R&D vs. Marketing...etc.
The video isn't available online but the website contains everything that was discussed in the documentary, and more. I found it to be a very useful resource before writing a paper on the economics of pharma a few years ago. Have a look.
p.s. If anyone is interested in peer-reviewed articles that cover these issues, just holler and I'll try to post that info in the comment section.
Anyone remember the late 90's when stock prices were going up and up and up? Except that the stock prices for big pharmas didn't--they remained flat. As a friend who works for one said at the time, "If we are so profitable as everyone thinks, then why hasn't our stock price risen along with all those other companies?"
There are lots of new players every year, you just never hear of them because they never make it to the market with a drug or treatment, or they get bought out by the bigger players.
Actually, there's a third category: small, specialized companies which are contracted by larger pharmas to perform one or two focused tasks.
A friend of mine works for one such company in Oregon. They employ less than fifty people and their sole service is research in delivery mechanisms, typically for use in clinical trials -- pills, essentially. Most of the employees are chemists who figure out what works, what doesn't, what chemical reactions contribute to one or the other, dissovling rates of various coatings in different human body environments, etc. Also a few alternative concepts that are straight out of science fiction. The company contracts with Pfizer and works very closely with Pfizer staff, but has the efficiency advantages of a small, independent entity: no bureaucratic red tape, no lengthy procurement procedures, flat office management style with a strong team-building environment, etc.
Combine three or four such entities and drum up investors, and you might have the foundation of a new pharma; but why do that, and take all of the associated risks, when you can focus on one or two areas that you love and let a large corporation write the checks and accept most of the liability?
"The FAQ section gives a cursory explanation on the issues of opportunity cost, price discrimination, profitability, R&D vs. Marketing...etc."
cursory, is a good descriptor..
http://www.organicconsumers.org/toxic/drugsinwater.cfm
might help them round it out a bit.
I invested in 5 little pharma stocks in the past year: ASPV, BVF, AXCA, VPHM, and KG. Two of them were bought out for modest (~25%) premiums, and the other three are down significantly from where I bought them, even though all are profitable and trade at low valuations. For example, VPHM, which I bought at 14.05 is at 8.80. Look at the valuation. Despite having half of its market cap in cash, it's trading at only 7x its trailing twelve months earnings and 10x its forward estimated earnings, with a PEG of .5. That abysmal valuation gives you an idea of how risky the market thinks even profitable drug companies are, since they are always at the mercy of litigation, regulation, etc.
RWE:
There are some people who just don't understand that, while the government is good at basic research (which is non-excludable)
I'm not sure the government is good at basic research. It pays people to do research and write a bunch of papers, and occasionally something useful comes out of it, but that doesn't mean the government is good at basic research--it's just means that it's not hopelessly incompetent.
I'm not saying that the government is bad at basic research, either--just that there's really no way to gauge its performance because we have nothing to compare it to. At most we can say that it has a comparative advantage in doing the kind of basic research that isn't profitable to private companies, but like everything the government does, its priorities are out of order because they're not subject to market demand.
Also, basic research isn't always non-excludable, which is one reason some companies (mostly big ones with lots of cash on hand) do some basic research. Even if you can't keep the fruits of your research secret indefinitely, you can often keep it secret long enough to get a head start on turning it into a patentable product.
Brandon, I agree with you. What I really meant was that when important basic rsearch is non-excludable the best option is for government to fund it because there just aren't adequate incentives for private firms to pursue it on their own.
Indeed, even when research is excludable, there can be positive externalities that justify government subsidies. Of course, this line of argument is prone to abuse. Government might choose to fund things (like ethanol) chiefly for political, not economic, reasons.
Anyway, my main point was that we can wreck private incentives with impunity--by imposing price controls, for example--are sorely mistaken. Government is not particularly good at meeting the needs of individual consumers. It can do some good by subsidizing research, but it cannot replace private innovation.
I suspect you would agree with that.
"Anyway, my main point was that we can wreck private incentives with impunity--by imposing price controls, for example--are sorely mistaken."
My apologies. That should read:
"Anyway, my main point was that those who think we can wreck private incentives with impunity--by imposing price controls, for example--are sorely mistaken."
Over at my day job, I run a pharmaceutical trade magazine. Every summer, I write the Top 20 Pharma and Top 10 Biopharma annual report, based on drug revenues. For my From the Editor page in 2006, I decided to compare the sales figured for the Top 20 Pharmas ranked in the first year of the report (FY2000) and that year (FY2005). The number #1 company in the 2006 edition had almost double the revenues of the #1 in the 2001 edition.
The number one company in 2006 consisted of a combination of the #2 company and the #9 company of 2001. There are also other mergers within the lists over that time frame- Sanofi and Aventis, AHP and Wyeth, and probably a lot others between top 20 and non-top 20 pharmas I simply don't remember.
So how do we ensure that the needs of individual consumers are met when those needs don't align with maximizing profit? Berg seems to think that the invisible hand will push investment in needed research; but that hand is reaching for profit, not utility.
I just don't see how we can avoid some kind of public intervention in the private sphere, here. Wasn't there at one time talk of public-private partnerships? Maybe the public sector can guide the invisible hand a bit? (Berg won't like that, I'm sure.)
Wasn't there at one time talk of public-private partnerships?
Why talk, when we already have similar examples to guide us, such as US defense contracting or Japan, Inc.? In the first case, we see that very big projects can be completed successfully, but with an inordinate amount of waste. In the second case, and it worked great until the market turned south -- and suddenly, nobody had a clue what to do because the process of running the entire market via large companies had left both the legal infrastructure and the population at large with very little experience in small business technique and private entreupreneurial skill.
Personally, I like the idea someone suggested last thread: determine what areas of pharma research are underserved, hang out a suitably large cash prize for a well-defined discovery in each, and then let the various private entities compete to see who can reach it first.
A little over a year ago googling +"drug development"+"cost of capital" gave two links to news releases from the Tufts Center for Drug Development, and then the third link (again from the Tufts Center):
http://www.cptech.org/ip/health/econ/dimasi2003.pdf
where we read on page 32:
"These studies of the profitability of new drug development have not found evidence of significant and sustained excess profits. The estimated internal rates of return are quite close to the cost-of-capital. The much higher R&D cost estimates of for this study raise a question about the recent profit experience of the pharmaceutical industry. However, Grabowski and Vernon (2000) found substantial growth in pharmaceutical sales for 1990s drug cohorts. A new study [Grabowski et al., 2002] on pharmaceutical profitability using some of the cost results in this study and recent sales data is qualitatively consistent with the outcomes of the earlier profitability studies (i.e. the internal rate of return is close to the industry cost-of-capital)."
And the average P/E for the S&P 500 is 14.8. So, the stocks are not trading at abnormally high valuations--indeed, most of them seem to be trading at a below average P/E, indicating that making money in the pharma business is not as easy as some have made it out to be.
That's not really what those P/Es mean. The low P/E reflects a lack of positive-NPV investment opportunities for the firms, and/or the short lives of the firms' earnings streams.
Bob, the valuation should reflect the present value of the earnings streams (ar free cash flows) from here to eternity. If making money in the pharma sector were as easy as some have suggested, their returns on reinvested earnings would be enormous and their valuations would be well above the market average.
So what I (and Fred) wrote was correct.
Ah, you were just itching to go there, weren't you? /grin
"It's a sunny day, so I don't how we can avoid having public intervention in something, because something, somewhere, isn't totally screwed up yet."
Liberalrob:
Berg seems to think that the invisible hand will push investment in needed research; but that hand is reaching for profit, not utility.
Profitability--what people are willing to pay for something minus what it costs to make--is a proxy for utility. It's not perfect, especially when externalities come into play, but for most purposes it's the best one we have.
Maybe the public sector can guide the invisible hand a bit? (Berg won't like that, I'm sure.)
That's exactly what patents are for. Innovation is a public good, and as such it tends to be underproduced in a free market. Patent (and copyright) protection acts as a subsidy to increase the incentive to innovate.
So what's your objection to the status quo? Do you think that pharmaceutical innovations are underproduced? Overproduced? That we're getting the wrong kinds of innovations? How do you propose that we address this?
Anony-mouse:
If it's the company I'm thinking of, there's a lot more than 50 people now. Still, very flat structure, great place to work, etc.
Sigh. Has anyone here heard of expectation value?
http://en.wikipedia.org/wiki/Expected_value
http://www.dartmouth.edu/~chance/teaching_aids/books_articles/probability_book/Chapter6.pdf
http://www.referenceforbusiness.com/encyclopedia/Ent-Fac/Expected-Value.html
I hope that's not too many links, and anyone is free to crack open a book on this stuff. One error I did find in the wikipedia article was that the payoff for the roulette example is $35; it's not. It's $34, $35 less one dollar to play.
The point is, that the risk of any one trial in a series of trials is irrelevant. In an earlier example, I used a lottery game in which one thousand lottery tickets were used costing one dollar each, with a payoff of $1 million.
The expectation value for this game is just [-$1]*999+[$(1,000,000-1)]*1=+$990,000. So each investment is 'risky' in the sense that each individual trial has only a one-in-a-thousand chance of succeeding, but one is also equally certain that repeatedly playing the game will result in a net win.
Yes, the qualitative argument beloved by the drug company apologists is that each individual trial is 'risky', and this justifies the huge payouts on individual winners. This is easy to use as an emotive ploy, just as the "The industry spends One Billion Dollars per trial" is an emotive one.
What matters is the expectation value, and to get that, you have to plug in some actual numbers. If anyone needs assurance that the business heads of such companies act more like cold calculators trying to make this number as large a positive number as possible, and a lot less like Dan Dare jumping with an untried new parachute, or flying an experimental plane with all the corners cut in a life-or-death situation, well, consider that I just gave you the assurance.
And of course, experience tells us that, for the big guys at least, the 'risk' seems to be a rather profitable one, year after year after year . . .
Of course, there are ways to minimize risk and maximize return, for example, one could do something like this:
http://www.gooznews.com/archives/000947.html
Has anyone here heard of expectation value?
I have. And your lottery analogy is perfectly apt, in the event that you have large amounts of money to burn through waiting for the big payout (also assuming that the probabilities can be accurately calculated, which I somewhat doubt in the drug context). A long-shot lottery ticket--even with a positive expected value--isn't a rational investment if you really need that dollar to buy some food.
Note also that the lottery analogy--like real life--requires that the payout be big relative to the cost--if we start capping drug prices and thereby reducing the payout, the expectation value drops, possibly into negative territory. This has been our gracious hostess' argument from day one, and there's nothing in anything you say which refutes it.
Finally, note the point of the original post, which is that there is a survivor bias. Little companies often don't have a big portfolio of drugs in the pipeline (or, analogy-wise, a lot of cash to buy lottery tickets) so they sometimes end up betting the farm on a couple of products, and losing. That is, indeed, "risky."
SoV:
No one has yet answered the question I asked in the other thread: If the pharmaceutical racket is so profitable, why aren't more people getting in on it?
Even if we assume that there's a winner-take-all effect with respect to drugs treating a particular condition, we should still expect to see enough entities competing to bring the best drugs to market that the chances of winning any particular race fall and the chances of having a blockbuster drug displaced by an even better drug increase, reducing the profitability of the industry as a whole.
The sort of profitability you claim pharmaceutical companies have is not sustainable without huge barriers to entry. Not just barriers to selling a particular drug (i.e., patents), but barriers to entering the pharmaceutical market at all.
Obviously the massive capital requirements are one barrier, but I don't think this is an adequate explanation, since there plenty of corporations, and even a few individuals, that have or could raise enough cash.
SOV, you let us know when you find that million dollar lottery with only one thousand $1 tickets, eh? But very quietly, please, we don't want to let the whole world in on it.
Back in the real world, we're talking about "lottery tickets" costing over $100 million apiece. That makes it rather difficult for even a big corporation to keep playing until it wins - and as I read the news, some of the big pharmaceutical companies are keeping new drugs in their pipelines only by buying out the little companies that got a winner on their first (and only) play. That's good for the little companies with winners, but there must be close to a hundred failures for every winner. But I guess you socialists just expect people to keep risking their money without the lure of a big payoff if they get lucky...
The fact that so many new entrants find it so hard to actually grow to pharma size indicates that it might be a little harder than it looks.
This will be confirmed by anyone who has worked in or around Pharma for any length of time.
This:
and this:
Seem to me to be subjective calls. What would convince you that 'more people are getting in' and opposed that 'not enough people are getting in'? The same for the massive capital requirements. Without the numbers attached, we simply don't know if the market is already saturated, or crying out for new entries. One thing, however:
I'm not making any sorts of claims for (the amount of) profitability. I'm saying that the argument that justifies the high cost of drugs is an emotive one, not a quantitative one. Now, if I'm ever in a gambling situation, I might be induced to feed the one-armed bandits a succesion of $5 tokens for a half-hour or so. I might lose $200; I might win $5,000. But the odds of me losing $200 are a lot higher than the odds of winning the higher amount. I can afford to play these odds because losing $200 doesn't mean that much to me and I'm not expecting to make a profit.
The big companies, spending $100 million a shot? You better believe that they wouldn't be spending that money unless they had some reasonable calculation that suggested the expected value of the play was positive, and highly positive at that.
And again, a look at the fortune 500 companies suggests that for some companies at least, the payoff is quite handsome.
I'm saying that the argument that justifies the high cost of drugs is an emotive one, not a quantitative one.
Your very own argument refutes this, at least in principle. If the lottery payoff is capped by statute at $10 instead of $1 million, the expectation value of a 1/1000 lottery ticket is negative. In the face of long odds or large costs (or both, as in the drug industry), the big payoff is essential to the positive expected value.
Nobody is asserting (I don't think) that successful drug companies aren't profitable. The broad claim is that capping the price of drugs will reduce innovation. Given that capping the price is equivalent, in your analogy, to reducing the lottery payout, and given also that neither the price of the ticket nor the odds will be affected by the proposed cap, the expected value of the ticket will drop, which will result in fewer people being willing to take the risk.
Really, is anyone actually disagreeing with anyone here?
In case anyone is keeping score, I was accused of 'starting trouble'. Let's look at this post here:
Note the derisive tone, as well as trying to push the assumption that this is something I believe happens in the real world, as opposed to an example that shows that 'high risk' is not the important factor, it's the expected value of return.
Need I comment on the hostility, the lack of content? Or the fact that I have done _nothing_ to deserve this sort of abuse?
Good.
The only other thing I wish to comment on is the "$100 million . . . that's a LOT of money" comment. Yes. It is a lot of money. I don't think anyone is denying this. But if a company runs, say, seven of these trials. and one of them generates profits of $1 billion, then this has been money quite profitably spent. And again, I don't think that this sort of money would be ventured if the odds of any given trial drove the expected value negative, or even too low. Each trial has a one-in-six chance of success? Go for it? One in thirty? Probably not(to get even a fifty-fifty chance, n=Log(1/2)/Log(29/30)~21 trials, ie, dropping over $2 billion to get an even shot at a return of $1 billion. For the on-in-six chance about four trials - a fifty-fifty shot at $1 billion for plunking down $400 million.)
"Why is everybody so mean to me? All I did was call Rob Lyman, Mixner, Yancey, and about a dozen other people 'morons'. But I really am a proponent of civilized discussion. It's true that my ususal line is quite dishonest one: I incessantly demand citations but won't offer them (at leat not legitimate ones), and I rely chiefly on ad hominems while decrying even the slightest hint of derision directed at me. But really you should all listen to me anyway, despite my consistently venomous and intellectually mediocre contributions here."-Stench of Mediocrity
'high risk' is not the important factor, it's the expected value of return.
In principle, the expected value of returns in any investment should equal the cost of capital, or capital will flow to the investment with higher expected values.
Need I comment on the hostility, the lack of content?
I see the hostility, but there is most assuredly content: markm is pointing out that lowering the big payoff lowers the expected value, and in the absence of a concomitant reduction in volatility/risk, the investment becomes a worse one.
Thus, "high risk" isn't an "emotive" argument for high payoffs in pharma, it's an argument based directly on your own expected value calculations.
I don't think that this sort of money would be ventured if the odds of any given trial drove the expected value negative, or even too low.
Exactly. So if you capped the payout for drugs, the expected value of a new drug would go down and less money would be invested in drug R&D.
What do you think you're arguing against? You've just restated the argument in a nutshell.
So, thinking about this in the proper way (finally! I hope), what would the managers of a pharmaceutical company do if they were half-way competent?
Well, they'd probably go for the least riskiest/most lucrative options. They'd try to field products that cost relatively little to develop, had a relatively good chance of passing review, and had the promise of relatively high profits.
Congratulations. You've just described a good fiduciary motive for the 'Me Too' drugs. Let me quote something from Ezra's blog:
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=01&year=2008&base_name=a_new_page_for_pharma#104117
Iow, from a 'just fiscally prudent' perspective, the perspective I would demand from the managers of any company I had stock in, innovation is not a good thing.
Sure, if it hits, great. But if it doesn't, that's a whole lot of money down the rat hole. And if you do that too many times (and that's a rather small number), you'll find yourself answering to a rather angry board. Probably they would rather icilly tell you that developing a more effective AIDS vaccine is all very well, but that doesn't put money into the hands of the stockholders.
I don't make this argument as something I'm necessarily defending, btw. My point is that I can construct arguments that are at least as plausible as the ones being offered up that purport to claim they are trying to preserve 'innovation'.
PS, you fool, you're misquoting SoV. I'm not a moron, I'm a noisome little excrescence. Get it right, dude.
Let it never be said that I don't stick up for those outside of my tribe, or provide links when necessary to prove somebody wrong.
Iow, from a 'just fiscally prudent' perspective, the perspective I would demand from the managers of any company I had stock in, innovation is not a good thing.
This is a decent argument, but reducing potential rewards for innovation by capping profits (especially profits on lifesaving drugs, where the political pressure to give them away is greatest) doesn't solve the problem, it makes it worse.
Jiggering the patent system to make Clarinex (a metabolyte of Claritin) hard to patent or to make it possible to patent known drugs with new applications (or even known applications, such as THC and glaucoma) for the company that pays for the trials might help.
On the flip side, 42% innovation doesn't seem that bad to me. How many other industries get anywhere near Rthat high?
Rob Lyman, don't forget the other ones: "idiot", "dishonest little weasel", "twit", "joker", "lightweight", "nut-job" and "negligible persona." All in one post, and that's not even to mention the accusation that you have "orange-stained underpants."
But really, I take it all back. SoV is clearly a believer in civilized conversation. Mea culpa.
Sigh. Let me try one more time. The argument is that some sort of cap - any cap - will 'discourage innovation'. That is _not_ what I have been pointing out. I am saying that the money flows to areas of greatest expected return, regardless of 'innovation'. Therefore the 'discouraging innovation' trope is inapplicable.
This is the sort of stuff that would play well at Cafe Hayek, btw, and the same sort of argument that would be used for any business, and to justify saying that no profit is 'too high' on principal alone. If that is what you truly believe, then you should come right at and say it, rather then behaving as if this argument applies only to drug companies. That is pure ideology talking, and a waste of my time.
Now, as I was saying, the argument about caps 'discouraging innovation' just doesn't make sense. If, for example, my project ROI falls from $4 billion to $3.5 billion because of caps, I will still undertake it (all other things being equal), diminished return or not. The only time this argument would make apply is at the margins, which are by definition, marginal. (This is the same type of argument that 'proves' that any tax increase will have a deleterious effect on the economy.)
To show that this will not necessarily discourage innovation, one could, for example, imagine capping the price of viagra. In fact, reduce the price so far that genuinely innovative drugs would have a higher ROI, thus redirecting investment dollars into better avenues of health research. I suppose one could argue that to the extent that there are better venture to invest the money in, that's where it will flow regardless of 'innovative drugs' . . . but then that does rather undercut the original argument, doesn't it?
I think I'll bookmark this thread for the next time someone says I'm just out to cause trouble, that I'm the one who initiates unpleasantness, etc.
I would say that the responses here give quite unmistakable evidence to the contrary.
If, for example, my project ROI falls from $4 billion to $3.5 billion because of caps, I will still undertake it (all other things being equal), diminished return or not.
Not if you can get $4 billion somewhere else. That's why opportunity costs are sometimes included in the "costs of drug development," although such costs are sufficiently speculative that it's somewhat deceptive to include them.
To show that this will not necessarily discourage innovation, one could, for example, imagine capping the price of viagra. In fact, reduce the price so far that genuinely innovative drugs would have a higher ROI, thus redirecting investment dollars into better avenues of health research.
I don't think (though I could be wrong, there are a lot of comments) that anyone has specifically argued that a Viagra-only cap will reduce innovation. I don't think a Viagra-only cap has been mentioned or proposed until just now. What has been argued is 1) cutting prices to European-style cost-plus or some variation thereof will reduce innovation, and 2) the government is not in a good position to determine what is and what is not a "better avenue." Neither of these positions are inconsistent with your argument.
But Scent, I have already retracted my charges. You are clearly a person of civility and charm. Rob Lyman convinced me of that ("nut-job" though he is). Indeed, I think I'll try to emulate your rhetorical style, which is something of a hybrid between the styles of Joeseph Goebbels and Hugo Chavez, both very effective rhetoricians.
SoV, it occurs to me that you're thinking--and reading--like a mathematician, which is causing the appearance of disagreement where there is none.
The distinction is easily understood by considering the difference between what a mathematician means by "generally" and what everyone else means by "generally." Here's what I mean:
The argument is that some sort of cap - any cap - will 'discourage innovation'.
To the extent that by "any cap" you mean, quite literally,m "any imaginable cap in this universe or any other" (i.e., what a mathematician means by "the general cap") the statement is both patently false and not what most of us are thinking. A cap on profits on ordinary aspirin will not discourage innovation. But what most of us mean by "a cap" is, roughly, a cap on profits from newly approved, patented drugs. Such a cap would cover both highly innovative lifesaving treatments and borderline-useless "me-too" drugs.
Since you have argued--probably correctly--that the "me-too" drugs are easier and cheaper to invent (higher probability of success and lower costs to discover), they might remain profitable under such a cap; indeed they might already be selling for prices low enough to fit under it and still make money. But "innovative" drugs really, really, need that huge markup to make the long odds worthwhile. Any capping system which does not take account of this will suppress innovation more than it will suppress me-tooism.
In economics, the marginal cases are the ones that are close to the boundary. In other words, a cap on all drug prices would reduce the profitability of all drugs. Since each drug varies in how prifitable it is, the only ones that would not be produced are the ones that were profitable before the cap and are not profitable after the cap. These are marginal drugs. That doesn't mean they aren't vital, life-saving drugs. In fact, given that innovative and new drugs are more likely to have higher development costs than "me-too" drugs or variations on existing drugs, the innovative and new drugs are more likely to be the "marginal" drugs (in economics terms).
To avoid this, you'd have to have a selective cap or have the government price negotiation committee carefully negotiate prices so that expensive to create but necessary drugs were more profitable. Actually, you'd have to convince the drug companies that if they develop an expensive and vital drug, the government price negotiating committe won't suddenly demand that they sell it cheap.
Meanwhile, activists will be holding up pictures of sick poor people and demanding to know why the drug company gets to charge more for drug x than drug y when grandma needs drug x and is poor.
The argument about obscene profits is that any market where producers make higher than average (for the whole economy) profits will attract new investors until the profits drop to the average. So pharmaceutical companies wouldn't be able to sustain above market profits for long. Eventually, there would be more companies competing for drug sales.
And SoV, you have very thin skin... you need to chill out. It's not interesting to read the litany of ways in which you've been mistreated. You've been dishing it out, too... so take it.
The only other thing I wish to comment on is the "$100 million . . . that's a LOT of money" comment. Yes. It is a lot of money. I don't think anyone is denying this. But if a company runs, say, seven of these trials. and one of them generates profits of $1 billion, then this has been money quite profitably spent. And again, I don't think that this sort of money would be ventured if the odds of any given trial drove the expected value negative, or even too low.
No, but it's not like that overall value is high right now. The figures you just proposed, assuming they are accounting for all costs (IIRC there's been some qualifiers hung on that figure in previous discussion) are roughly indicative of spending $1 to get $1.43 back.
Comparatively, Intel, one of the largest and most innovative technology companies, spent $1 and got $1.27 back in 4Q07 ($2.3B profit on $10.7B revenue) for 51% 3Q-to-4Q increase and a 10% 4Q-over-4Q growth, and the market promptly hammered their stock by 14% because investors were following guidance of $10.8B revenue.
I still don't see the evidence for the root thesis here -- that innovation will maintain if we start capping all or portions of the pharma markets.
I think I'll bookmark this thread for the next time someone says I'm just out to cause trouble, that I'm the one who initiates unpleasantness, etc. I would say that the responses here give quite unmistakable evidence to the contrary.
No, don't. Someone else here (not me, I wash my hands of it) has doubtless bookmarked the other fifteen threads that prove the contrary.
What, precisely, do you think I meant when I said 'at the margin'?
No. The claim was that I 'start things'. I think that claim has pretty much been exploded. And since I'm not a 'leftist' or a liberal weenie or whatever, when someone hits me, I hit back. Harder, and much more accurately, which again I think has been amply demonstrated.
I don't understand how you can say that the marginal drugs will be discouraged and yet this somehow still isn't discouraging innovation. If drug company returns on investment are reduced, they will stop researching drugs that they believe won't be profitable with the reduced profits. This will cause there to be less research. This pretty much defines "discouraging innovation."
In fact, the marginal drugs are probably the more innovative one while the "sure things" are probably mostly me-too drugs or variations on existing drugs... so reducing profits will disproportionately discourage innovation.
I was assuming that you were using "marginal" differently but I guess you were just contradicting yourself in a single paragraph...
No. The claim was that I 'start things'. I think that claim has pretty much been exploded
A wise person once told me that what I think has nothing to do with the truth of the matter. I suspect this axiom may have wider applicability.
And of course, "starting it" need not mean making the first move; it can mean a hysterical overreaction to , too:
when someone hits me, I hit back. Harder...
That's pretty much exactly what is meant by having "thin skin" and needing to "chill out." We all take it, and we all dish it out. Your refusal to respond to provocation in this thread has made for an interesting series of comments and the injection of some necessary linguistic precision. Maybe you should consider making this an everyday sort of thing.
http://www.argumentation.us/
I. Think about your essay topic. - What are you arguing about? Are you for or against it? How does it relate to your life or the life of your reader? If time allows, spend a day or so analyzing the issue.
II. Start Pre-writing. - Now that you have been thinking about the essay topic, start plotting it out. Decide what position you want to take, and begin doing some basic research on the subject. As you are doing the research, take note of information that surprises you, whether it is for or against your position, information that surprises you can be useful. For example: I once was doing research on FCC regulations and came across the fact that the FCC does not regulate violence in the media in any way. This fact ended up stunning my professor, as he had no idea of this and stated to me that he had always assumed that it was regulated. Teachers spend their time reading papers and anything that seperates your paper from the rest of the papers will have an effect on your grade.
III. Research, Research, Research. - The most useful thing you can have when writing a paper is information. Do enough research for two, or even three papers if possble. That way, when you sit down to assemble your paper, you will not have to worry about not having enough material to work with.
Sigh. You're not very good at puns, are you? That statement is true both in the sense of 'at the boundary', and in the sense 'small compared to the whole'. Iow, wordplay.
You're making the assumption that the marginal drugs are the 'good ones'. Is that what you really want to maintain? That statistically speaking the drugs that most people really need as opposed to merely want are the 'marginal' ones? Can you back that up?
Further, this is _exactly_ the same sort of argument that claims that increasing taxes will always 'shrink the economy', as I think one not too articulate individual once put it, the notion being that marginal operations will go under, so ipso facto, the economy has shrunk.
Wrong. As any macro text will quickly tell you. No, there is no reason why a frivolity like viagra can't be capped while other, more medically beneficial drugs aren't.
Just as increased taxes collected for various improvements can have the effect of increasing the size of the economy while still causing marginal players to lose out.
Really, this is all quite standard.
And your arguments, as I have already noted, are standard libertarian dogma; you might just as well come out and say this is a philosophical rather than a debating point.
SoV,
In fact, reduce the price (of Viagra) so far that genuinely innovative drugs would have a higher ROI, thus redirecting investment dollars into better avenues of health research
That statement just shows how ridiculous your positions are here. Viagra was a blood pressure medication all the way up until it no longer showed promise in human trials for that or angina. The erectile dysfunction help was a side-effect. At that point tons of money had been sunk in its development for a purpose you wouldn't be capping, and when it failed at that you would rather they stopped?
Also, as you can see here http://en.wikipedia.org/wiki/Viagra there are other things besides ED that Viagra works for, so how should discriminate what we charge for the lifesaving uses and for non? Also, who should maintain the list of "medical conditions and the associated profit margins allowed." That seems like an impossible task rife with corruption.
And since you clearly think ED meds are not real medication, shouldn't those be the ones we don't cap? They, in theory, would subsidize the more innovative ones.
Skullberg
No, there is no reason why a frivolity like viagra can't be capped while other, more medically beneficial drugs aren't.
The problem lies in the smooth gradation between "frivolous" and "medically beneficial."
Is risperidone "frivolous" or "medically beneficial?"
How about escitalopram? If you like, I can titrate you down through a series of less and less "medically beneficial" drugs, in the sense of delaying mortality. Is a mood-enhancing drug "medically beneficial?" How about if given to a suicidal patient?
Bottom line: just like on the street, drugs are worth what those buying them think they're worth, not what you think they should be worth. Welcome to capitalism - the market decides value.
SoV:
Without the numbers attached, we simply don't know if the market is already saturated, or crying out for new entries.
That the market isn't saturated is implicit in your claim that the pharmaceutical industry is consistently more profitable than other industries. A saturated market is one in which profits are below average due to an abundance of competition.
The big companies, spending $100 million a shot? You better believe that they wouldn't be spending that money unless they had some reasonable calculation that suggested the expected value of the play was positive, and highly positive at that.
No one's disputing that. What I'm disputing is your claim that this consistently averages out to extraordinarily high expected profits for no good reason. If this were really the case, more companies would enter the industry until the market approached saturation. So the question remains: Why has competition not driven expected profits down to normal levels? Or has it?
And again, a look at the fortune 500 companies suggests that for some companies at least, the payoff is quite handsome.
I'm not sure that return on equity means what you think it means. It may. I need to think about it some more.
There's a lot about the "me-too drug" narrative that rings false to me, or at least suggests a different takeaway lesson than the one you want us to get.
First, what exactly is a "me-too" drug? Is it something which cures a disease already treated by another drug, but using a completely different mechanism? If so, it may not be useless. Many drugs don't work in all people.
Or is it a drug which is changed just enough from another to be patentable, but offers nothing new? If so, this is a good argument for granting broader patents to the developers of the original drugs (in order to discourage wasteful gaming of the system), but it's not a good argument for price controls (which also discourages the development of the original drugs).
There's also the question of why people would buy "me-too" drugs. By the time a drug reaches market, it may have only ten years or so of patent life left, so a company bringing a "me-too" drug to market will soon find itself competing against generics. If it really adds no value, then why would anyone be willing to pay the premium?
Consumers don't care, because their insurance insulates them from marginal costs. But why don't insurers care? Proponents of socialized health care are fond of telling stories about insurers denying necessary coverage at every opportunity--so why would they waste money on patented drugs when generic equivalents exist?
None of this makes any sense (which usually means that government is involved somehow). This may be a good argument for investigating and addressing whatever is causing this odd behavior among drug consumers, but it's not a good argument for price controls.
Regarding price caps on Viagra specifically:
1. If it's frivolous, why do you care that it's expensive? If people don't need it, why does it matter whether they can afford it?
2. Do you really think it's frivolous? Would you feel the same if you developed ED? It's easy to make jokes, but I suspect that impotence is a serious quality-of-life issue for those who suffer from it.
Do you know that they aren't? Are you willing to put price controls on drugs and then wait and find out? I'm really not worried about drug companies stopping research on a cure for cancer... they'll do that under any scheme as it would be obscenely profitable. I'm more worried about life saving drugs that treat diseases that are not so common. Those are the drugs that are being neglected. There are plenty of problems out there that only affect a small number of people but that cause those people great difficulty (pain, inability to work, death...). Those are the drugs that would most likely be impacted first by a reduction in drug company profits. They have a smaller potential market so are less likely to make loads of money.
Except in one case you're talking about taking a portion of income from individuals and letting the government spend it and speculating on how that affects the economy while in the other case you're talking about how a market driving companyy responds to price controls in allocating research funds... the differences vastly outweigh the semantic similarities.
Who cares how much viagra costs... if we're going to mandate the price of viagra, we should raise it to raise more money for research into important drugs like cures for cancer, etc...
Of course, there is the problem of who is deciding what drugs are "frivolous" and what drugs are really important. And who is setting the prices? And how long before the drug companies gain influence with this committee through campaign donations, or whatever?
Maybe you are projecting, but I'm arguing from the basis of my knowledge and logic and experience. I tend to believe that markets allocate resources better than the government or any other agent, but I'm not a fanatic or religious about it. There are plenty of examples of how markets can fail.
I'm sure there's a nifty latin name for the logical fallacy of arguing by virtue of comparing your opponent's argument to some groups dogma and then writing it off as reflexive rather than thoughtful.
I still can't understand what SOV is arguing for (or against). I think there's a strawman somewhere who's being thrashed to within an inch of it's life, but I don't quite know what it is.
That said, the thought of introducing an ED surcharge that's used to subsidize economically marginal but medically useful research strikes me as being potentially an interesting concept.
Reference, that is an _excellent_ suggestion!
This is exactly backwards - evidence has to be presented for the so-called root thesis that innovation won't be maintained if we start capping some or all portions of the pharma market.
That _is_ the objection to the original proposal to cap prices, is it not?
This is exactly backwards - evidence has to be presented for the so-called root thesis that innovation won't be maintained if we start capping some or all portions of the pharma market.
No, the burden of proof is on the person proposing the change. That's you, kemosabe.
Sigh. First, I will note _again_ the nastiness here, something I most certainly did not start. I'd say the myth of SoV rabidly attacking those noble, logical, prudent defenders of the faith has not just been exploded, it's been converted into a small pile of glowing ashes.
without any effort on my part, mind you.
Secondly, besides being a little off on the history of viagra - not a show stopper - this objection misses the point: we don't need another 'me too' pill for erectile dysfunction. If one happens to be accidentally discovered (see the history of viagra for what really happened), fine. But caps on viagra for this particular medical reason would, I think, stop this particular form of wastage.
An "impossible task rife with corruption". You can say that it 'seems' that way to you all you want. That is not an argument, that is unsourced opinion. If you want to make the case, feel free to do so (if you could prove - with sources, cites, etc - that the resultant would be worse than the system we have now, that would certainly be a legitimate objection with some force.)
Sigh. Why don't you cite anything that shows that I 'clearly think' that? If you can't, would you admit you were wrong? Or would that be too much to ask of you?
I thought I might throw, ahem, a cite into the discussion:
from: http://www.gooznews.com/archives/000906.html
So why isn't there much innovation? It certainly can't be because of caps of any sort. And if the pace of innovation is so slow and getting slower, what would it matter even if caps depressed the rate even further?
At some point, apparently, the rate of innovation without caps will be the same as the rate with (assuming this is so for the purposes of this particular point). So this objection seems to lack even what force it had before.
Or are proponents saying that even one additional genuinely new drug every five years as opposed to every six, or one additional new drug every decade as opposed to every eleven years, or one new drug every 20 years as opposed to 21 years is a forceful argument against caps? Do they have the numbers that would show the number of lives saved without caps would be greater with, or is this just an ideological argument from the get-go?
Sildenafil is an especially interesting example of why profits on any drugs ought not to be capped. It was, as Skullberg points out, early on discovered to be useful for a purpose completely other than anticipated; and, having had a good run as an ED drug, is being found to aid in the treatment of a deadly and hitherto not very treatable disease, primary pulmonary hypertension. Had profits on it at some point been limited, it is certainly plausible to suppose that no company would have been interested in studying it in other contexts than that in which it was originally used.
which simply underlines sofailedphysicists point that deciding which drugs are "medically beneficial" and which are deserving of profit caps may simply be beyond the wisdom of anyone unable to predict the future...
entertaining that sov thinks he hits back "accurately", although no doubt comforting to him. have to give credit though for his relative civility in this thread.
"And if the pace of innovation is so slow and getting slower, what would it matter even if caps depressed the rate even further?"-SoV
Yeah, I see the force of the argument--innovation has been slower than we would like, so let's make it even slower by imposing price controls on drugs. Yeah, that makes sense.
I'm guessing this is a sock puppet for someone who hasn't the grace to apologize for earlier ill behavior[1], but I'll reply anyway, just in case this is genuine:
This is an example of a logical fallacy, which, unfortunately I don't have the name of, but it comes up a lot. The general form goes something like this:
"You say this is the point where yellow shades into green, but this is a subjective call; I say the distinction emerges here, while she says it is evident there in the spectrum. Since none of us can definitively say in the spectrum where yellow merges into green, there really is no difference between the two colors."
I think the fallacy in the above argument is obvious. Yes, someone will have to make judgement calls, and yes, there will disagreements, some honest, some not-so-honest.
Congratulations. You've just discovered the world of regulation. If you still think your objection is a valid one in the absence of any other evidence, I can only conclude that your objections are ideological. If you want to rephrase and say such triage would cost more in lives and money than the caps would save, well, that's certainly a valid objection, but then you would have to produce some actual evidence to back up this position.
on edit - I notice that "me too" drugs have been excluded in the argument that I replied to. I don't know whether that was intentional or not, but I would certainly include those in the class of 'frivolous'
I emphatically disagree with this, as would most medical professionals, I would wager. Consider this, for example:
This is from:
http://www.gooznews.com/archives/000947.html
And yet, zetia is supposed to be 'worth' something, and patients are perfectly competent to make a rational choice. On every drug that may be prescribed to them, no less. Uh-huh.
[1]I'm guessing this is Yancey, whose misbehavior was so bad he was actually mildly criticized (his reply, in lieu of an apology, was that I 'had it coming' for previous unspecified offenses.
If this is indeed Yancey, note that he is engaging in fraud - I quite explicitly said that I don't wish to talk to him until he admits that what he did was way out of line, that he take responsibility for it, and that he apologize and make an admission that I did nothing to merit his response. I also noted (I believe) that could not compel him to do so, but that if he did not, I would no longer respond to him, which is _my_ privilege.
I'm wondering . . . Megan, could you look up this posters address? If this Yancey, I really don't want to talk to him, even if he is hiding his identity.
i think you're tallking about sorites aguments; that is, a few grains of sand at some point become a heap and a heap is clearly different from the few grains even though the boundary between the two states may be hazy. which, of course, is true. classifying drugs as "useful" vs "superfluous" will have gray-zone cases.
i think that evades the force of the sildenafil example, the point of which is that our classifications may change with scientific progress, the direction of which is unpredictable.
zetia is a case where we don't know yet whether its useful or not, notwithstanding Schering Plough's delay in publishing some relatively discouraging data about it.
So if you were to object on the grounds that this would lead to Soviet style Authoritarianism, or that it would cause our brave men to become impotent, our honest mothers to become infertile, the burden of proof would be on me to show that this would not happen. Uh-huh. And of course, you'd get to 'decide' whether I was 'convincing'[1].
No, there's a reason why the rules of discourse are set up the way they are. And, unfortunately for you, apparently, they require you to actually produce some evidence for your position. This system was designed _specifically_ so you couldn't get away with boiler-plate ideology or vague opinions preface wishy-washy modifiers like 'it seems', or 'I get the feeling', etc.
[1]In case you missed it the first five or six times, I am not arguing _for_ caps at all. I'm pointing out that the argument that caps will 'discourage innovation' is a poor one, not well-thought out, and not grounded in evidence. At least as presented so far.
I care a lot less about the conclusion than I do the way it's arrived at: If a student of mine says the derivative a polynomial function can't have a higher value than the original function, and they're wrong, but they have a good argument, I'm much more prone to award points than I am for a bad proof arguing the opposite.
Between 1993 and 2004, drug industry expenditures on R&D increased 147 percent in inflation-adjusted dollars, from $16 billion to nearly $40 billion. U.S. government R&D over the same period, primarily from the National Institutes of Health, doubled to nearly $30 billion. Yet new drug applications submitted by pharmaceutical and biotechnology firms to the Food and Drug Administration increased just 38 percent.
Wait, I thought the argument was that drug R&D had little risk. It was just put in the money, turn the crank, and obscene profits flow out the other end. A lottery ticket with a near guaranteed payout.
Yet now, your actual cite (as opposed to your ideological theorizing) shows that companies can and do invest large amounts of money and sometime don't get anything to show for it. So there is risk...
SOV, do you actually read what you write? Do you believe you're making some sort of coherent point?
Just in case you genuinely missed the point rather than deliberately misreading what I wrote: what I am saying is that if the pace of innovation is slowing, regardless of caps, then the situation arises where the pace of innovation without caps is slower than a prior time in the alternate scenario where there are caps. So, for example, the rate of innovation in 2016 in the do-nothing approach is the same as the rate of innovation in 2013 in the situation in which caps were imposed.
If this is what is happening(that is, the rate of innovation is slowing and will continue to do so for other, non-market reasons), and given that caps would inarguably save at least some lives due to increased access (at least, I haven't seen anyone arguing otherwise), then mathematically, there _must_ come a point where the capping situation will result in better outcomes as measured by mortality (or other, hopefully equally objective measures.)
That's just the math, and I can easily give examples of functions that model this behavior, or a mathematical proof of why this must be the case.
And if this is indeed what is happening, would you still object to caps? Given that, mathematically speaking, sooner or later the caps scenario _must_ outperform the so-called free market.
SOV,
Are you trying to perform some form of devil's advocacy? I agree there's utility in making an argument more robust, but this is a web forum. The notion that people respond to incentives is not controversial, and doesn't need to be proven from first principles each and every time. If this strikes you as controversial, it says more about your biases and ideology than those you're arguing with.
Can you state your thesis in a single sentence? I still don't have any sense of what you believe you're arguing for or against.
I'm assuming this is the same Tom as on the other thread. Since I didn't say so explicitly, I'll say it now: you were nasty, rude, and condescending, you behaved that way first, and you were quite appropriately smacked down. If you want me to talk to you, the same deal: you've got to acknowledge that what you did was wrong, you've got to apologize, and you've got to promise that you will refrain from behaving that way in the future.
If not, I really have no interest in talking to you; your performance on the other thread was certainly unimpressive enough that I don't eagerly look forward to any contributions you may make.
If you want pointers to sharpen your game: don't assert, cite.
On an earlier thread, I argued that we should at least consider reducing the extent of patent protection for new drugs (for which I received some criticism from the other libertarians and conservatives here). That seems to me a more efficient way of increasing the affordability of new drugs than the imposition of price controls.
It's difficult to tell, though, whether such a change would improve welfare over time. It would very likely improve welfare in the present, but risks reducing welfare for future generations by dampening innovation. These sorts of intergenerational equity questions are always troublesome, though.
As for your argument, it seems to depend on extrapolating from recent trends. But that is highly uncertain. It seems more likely that the recent ebb in research productivity is just temporary (to me at least, though I don't pretend to any special expertise in the pharmaceutical sector).
Anyway, I don't think price controls are a good idea. But altering the patent laws somewhat might make sense. There is nothing sacred about our current system--it could probably stand some improvement.
Sov, the wonder is that anyone here continues to talk to you. Megan and her crew are awfully tolerant. And utterly impressive how well-protected by your ideological shell you are from any actual contact with the world without
You can, of course, produce the text where I actually said that. You've done this "I thought" enough times now without actually showing exactly why "you thought" this, that this is becoming uninteresting. So, either produce the text, together with your interpretation, or admit that what "you thought" was wrong.
And, since you missed it, again, I'll point out exactly what I said and what I meant in post that was a specific reply to you:
I don't see how you could have possibly missed this. Could you tell me why and how you happened to? Civilly?
There have been arguments made, very scary, very plausible arguments, that just about all of the 'easy' discoveries have been made, that all the low-hanging fruit has been plucked.
This is not to say that new agents can't be brought to market, but that they will be very, very expensive. Not hundreds of millions or even billions, but tens of billions or hundreds of billions. Iow, needing capital investments beyond the reach of any private venture. If that's the case, significant innovation in the private sector will slow almost to a halt, with or without caps, in which case, the reasons advanced against imposing them are not particularly good ones.[1]
As a matter of _personal_ ideology, I don't like them either. But I am unwilling to reject them out of hand under any and all circumstances. I'll also agree that the present system of patenting is badly dated.
[1]Like Peak Oil, this has been postulated for at least fifty years; hopefully, the time has not yet come for this prediction.
You can, of course, produce the text where I actually said that.
link
link
And so it is with the pharmaceuticals
If I may throw out a suggestion to raise your game: estoppel. Don't raise objections to a point and then rely on the same point in your own arguments later. It's confusing and illogical.
And please, stop with the whining about your mistreatment. It's rather unbecoming. Your history did not begin with this thread.
That said, you have been reasonably civil in this thread and that should be encouraged. Therefore, I apologize for my invective here on this thread.
SoV, I really don't understand this line of argument, for the same reason as SG I think. It is quite clear that price controls will discourage innovation. You would have trouble finding a reputable economist who thought otherwise (I doubt there are any).
There is a tradeoff between affordability and innovation that is just inescapable. It might well be the case that we have gone too far in the direction of encouraging innovation (and away from affordability), in which case some measures that reduce the monopoly profits going to drug companies are worth consdidering.
But this:
sounds to me like an attempt at "free lunch" economics. As long as the marginal product of research is positive (as it almost certainly will be), reducing the payoff for new drugs will reduce innovation.
That isn't contraversial in economics, I assure you. Anyway, I have work to do today, so I must leave off.
SOV:
The lines of argument you seem to be converging on (is the current balance of innovation vs afforadability socially optimal and have the low hanging fruit been plucked) are reasonable questions to ask.
Given the rate of advance in genomics, I'm very hesitant to say that we've reached the point of diminishing returns on biomedical innovation. But that's just a gut feel.
SoV, just to clarify, I hadn't read your post at 11:56AM when I wrote my last one. I do understand the argument there--that if the marginal product of research is very low, then we might be able to impose caps without much loss of innovation. That, I agree with, though again simply removing patent protecton would be more efficient than price controls.
The notion that the low hanging fruit has been plucked and that biomedical innovation will dry up reminds me of the early 20th century guy who wanted to close the patent office becaause all the useful inventions had been made (which story i cant put my finger on at the moment although im pretty sure its true).
Innovation in given directions may dry up; we cannot predict which other avenues may suddenly become productive and we cannot tell when fruit may suddenly become low hanging. The notion that we can is a questionable basis for profit-capping.
You've cut the quote, quite a bit haven't you? Why don't you supply the full post?
In any event, what you posted is definitely _not_
evidence of your claim, to wit, that I said pharmaceutical research is not risky. I know you've got to know that.
Well, most people would again agree that the risk of losing would be quite small, and investing in $1,000 to play this game would be quite lucrative, even if each particular play was a thousand-to-one shot.
And so it is with the pharmaceuticals
I'm separating this out because I think you missed the end of the quote. I'm putting it in there as mine, even though it strengthens your point.
And if I may throw out a suggestion, try posting something that supports your claim. This most definitely does not. What the posts say, quite clearly, is a) developing 'me too' drugs are not as risky as completely innovative drugs, and b)that citing risk without citing gains is an emotive argument, and not a rational one. Oh, and next time, throw in a little more before and after, and don't put in ellipses.
I repeat, do you have anything to back up your claim that I said something that would back up this:
No, citing an example using lottery tickets to show the absurdity of arguing that risk in and of itself is the only determining factor is most definitely not going to cut it.
Okay. That does it. I'm sick of this. I did not whine, I pointed out that I did not initiate any hostilities, that I merely responded in kind. And then I used examples from this very thread to show that I was 100% right.
You will now apologize for this, and apologize for trying to find something, anything, to defend bad behaviour.
I'm not going to put up with this, I've got better things to do with my time.
You know, you would have been fine if you hadn't had to include the paragraph preceding this. But. This. Is. It. You either apologize, apologize handsomely and quickly, or I'm done with you.
I really don't care.
Proud of yourself, big guy?
Hello all. I've decided to quit this thread, perhaps even this blog.
I'm not going to put up with any more crap.
Now.
If anyone wants to say that certain people were out of line - way out of line - and if they actually want to go out on a limb and say to these people that they have behaved badly[1], I might consider staying. But I'm not here to trade insults, and I'm not here to receive any abuse. If people can't abide by these simple rules, I seen no reason to participate. And don't even give me the lame 'but you do it to.' No, there's a difference. I don't _initiate_, don't even pretend that I do. I only retaliate. And even then, there's a pile-on of how 'nasty' I'm being.
So, until I see otherwise, I'm gone.
Megan, I've had conversations with other people who have said the same thing about what is really the same subset of repeat offenders. They didn't enjoy posting here because of the same hostility and abuse, and they quit participating because the experience was an unpleasant one. I'm not sure this is the sort of behavior you wish to encourage; what will inevitably happen is that nobody will particularly want to participate here unless they are of the caliber of the folks over at Powerline or Little Green Footballs.
[1]No caveats. No weaseling. Just a "Hey you, you bud, I'm talking to _you_. You're being a complete asshole. Stop it."
Btw, this:
and this:
Would have been worth going into, and make a good point or to. But I just can't do it any more.
SoV, I, for one, hope you won't go, and not just because I find your hissy fits immensely entertaining. You have good points to make, and when you stick to your own principle of rigor, you can add quite a bit to the discussion.
Here's a suggestion, worth what you paid for it: when somebody "insuts" or "attacks" you--and as an aside, your definition of "insult" and "attack" is absurdly broad--how about you just ignore the attack and respond to whatever substantive point the person is making? If there is no substantive point, you can just pretend you didn't see the post at all. That way, you'll look like the mature, sober party, and the other guy will look like a childish loser. Snark is a part of blogging life. Sticks and stones, etc.
Another suggestion: if somebody misinterprets what you say, whether unintentionally or deliberatly, why not just correct their misunderstanding instead of pitching a fit and demanding quotes and links to "where I said that"? Unless the misunderstanding is really offensive--suggesting that you're a bigot, say--why would you be upset by it?
Also: if you're going to apply certain standards to others, apply them to yourself. You've put words in to the mouths of numerous people, such as the ones in Tom's mouth that I documented yesterday. If you're going to get offended by the (entirely reasonable, even if incorrect) inferences people draw from your words, and scream "LIE" when the truth is "misunderstanding," you certainly shouldn't be using quotes around things others never wrote.
Finally, if you really must hit back, could you possibly display some shread of humor in doing so? Liberalrob and I have traded insults that made me laugh out loud.
As for someone being a complete asshole, the only one who comes close in this thread is Putrescent Stench, who 1) is plainly trying to bait you, and 2) simply does not rise to the heights of assholery which you have displayed in response to much milder provocation. Everyone else is, if not saintly, well within bounds, even you.
No apologies coming for anybodys bad behavior, I see, no condemnations, nothing.
Typical. But just for instructions sake, in case people don't know this(and to show that I am not in the habit of indulging in hypocrisy - particularly if it's so easily checkable):
However, another convention when quoting text in the body of a
paragraph or sentence, for example in philosophical essays, is to
recognise double quotation marks as marking an exact quotation, and
single quotation marks as marking a paraphrased quotation or a
quotation where grammar, pronouns or plurality have been changed in
order to fit the sentence containing the quotation (this is the
same as reported speech).
Double quotes mark and exact quotation. Single quotes mark a paraphrase. This is a common convention, and one many people employ when they don't want to make the effort to go back and see precisely what was said.
But that's it for me until someone actually owns up to the fact that what has been going on here is nasty and wrong, and that steps will be taken to prevent this.
I don't merit this crap, I didn't start it, and chastizing me for responding in kind when not a peep was heard against the abuse I was getting (and have been getting from some of the same people for a long time) is nothing but hypocrisy.
No, "well yes, but you're to blame too", no "Yes they started it but you over-reacted", no weaseling.
well, SOV, for what its worth, I also would hate to see you go. I think you owe me an apology rather than vice versa, but i dont really expect to see it because I realize you see it differently; and, whats more, you probably cant help that. why cant you see that I (and others) might see it differently than you do?
You're responding to what you see as bad behavior. Well, I and others are doing the same. Maybe over time we (or you) may come to see the error (or not) of our ways. I'm not about to apologize for being on the receiving end of your little explosion of venom here and in the other thread (yes, thats how I see what happened)...but I do not bear malice and intend to try and give you the benefit of the doubt.
probably not good enough for you, but worth something, I hope. Perhaps you could look at it as a reason to give some of us the same benefit of the doubt. I say us, not as a frequent commenter, but as a longtime and appreciative reader of Megan's blog and of many of those who comment here.
By the way, putting stuff in quotes means you're quoting. I don't think the convention you mention is common currency.
No Tom, you started, pure and simple, there is no "from my perspective", and the record shows this, quite clearly. No, you don't get to say "Well, you just over-reacted to some mild provocation." Just who decides what is 'mild provocation' and what is 'over-reacting'? That is weaseling. _And_ you were nasty here too. Without _any_ provocation. No, if you truly wanted to stop this from the start, you would have apologized for your first rudeness, saying perhaps that you don't see what is so offensive about what you said, but obviously it was. And I would have accepted, and explained, and that would have been it.
And. I. Am. Sick. Of. This. Treatment. This is about the third or fourth time I've been on this merry-go-round of abuse (usually drawn from the same subset of repeat offenders.)
Oh, and for the record:
http://en.wikipedia.org/wiki/Quotation_mark
Although I must say, calling me a liar for saying you called my source a 'partisan rag' when you actually said:
seems way over the top. And which was the bit of nastiness _you_ started, and I did _nothing_ to deserve; I even stated up front that it was a partisan cite when I introduced it.
I think, if nothing else, you might consider more carefully what you say in the future; my faith in people behaving properly when they think it might cost them some face is very low, but at least you can use this as a lesson when next you talk to someone who doesn't agree with you, consider more carefully how you're coming across before hitting the the 'post' button.
Dude, seriously, unbunch the panties.
On the quote thing--I was unaware of that "convention." My bad. So rather than inaccurate quotes, you delivered dubious and somewhat exaggerated paraphrases. Fair enough; it is at least debatable whether your reading was fair. But note: you are notoriously resistant to paraphrases of your own words, and quick to snap at people who you think have delivered unfair readings.
No, you don't get to say "Well, you just over-reacted to some mild provocation." Just who decides what is 'mild provocation' and what is 'over-reacting'?
These things are generally decided in the court of public opinion, whose verdict does not appear to be favorable to you at the moment. Why do you suppose that is? Is it because we're all part of the same "tribe" and we stick up for our own?
To employ a clumsy analogy, if you shoot a guy who gives you the finger, the playground excuse of "He started it!" is unlikely to fly. Technically, he did. But...don't count on much sympathy from bystanders as you stand over his twitching body, repeatedly demanding an apology.
In like manner, your reactions are wildly disproportionate to whatever level of insult you receive, and indeed there are times when I am mystified as to why you think you have been insulted at all. Just because you are (subjectively, internally) offended doesn't mean the other party is in the wrong.
at least you can use this as a lesson when next you talk to someone who doesn't agree with you, consider more carefully how you're coming across before hitting the the 'post' button.
Hey, fine advice. Have you ever wondered how your incessant demands for apologies and threats never to talk to offenders again come across? I can't speak for anyone but myself, but it's frankly one of the weirdest things I've ever encountered on the Internet, and I make a hobby out of reading websites which link redemption via the Uniform Commercial Code to redemption in Christ. I can't think of anyone else in my life, on or offline, who has done something comparable.
Look, you're welcome here. Act like everyone else, and you'll be treated like everyone else. Explode at minor provocation, and you'll be mocked and baited as you have been for the last few days.
Well, SOV, I’m not, to my knowledge, a repeat offender.
Recognizing that this is unlikely to be productive:
I objected to your dismissal of the Dimasi study.
You replied by claiming that the public citizen piece conclusively showed the Dimasi study to be bunk, specifically because of 1) the study’s not factoring in tax breaks and 2) improper generalization of the cost of drugs from the cost of the most expensive drugs.
I focused on the tax issue and quoted you from Dimasi’s very persuasive discussion of why they did what they did. And I did cast some aspersions on Public Citizen—which I stand by, having at one point read a good deal of their stuff.
You replied (rather heatedly) that, dadgum it, my quote showed that Dimasi had treated taxes the way he said he had. And that it was “dishonest”.
It was at this point that things started going downhill; as I saw it you were begging the question in an especially pigheaded way; the question being whether the tax treatment in the study made sense or not—your response being to ignore the question and simply say “those guys are dishonest”.
Its at that point that I replied with what you post above; which still strikes me as a pretty innocuous statement of what was in fact the case, that you had not cited a study but an unpersuasive attempt to rebut a real study—that is, empirical work in the social or harder sciences, which is what a “study” is commonly accepted to be.
That’s when you simply continued with your “Dimasi didn’t figure the taxes right” line and you (not me) got really snippy and suggested I couldn’t read. And you added your all purpose reflex retort that the Heritage Foundation et al are not the scholarly community. Hello? Who had said anything about them? Not me…
I think my reply at this point (the one that sent you into orbit) was still pretty moderate, all things considered…I said that it was your ability to read that was in question (note: reply to your identical accusation, that came first) and added the admittedly flip insult about your not recognizing scholarly work. However, that seemed, to me, and still does, to be true; as an opinion piece from Public Citizen simply doesn’t measure up with peer reviewed work in the economics literature, work which has been very widely cited, independently confirmed (see the health affairs article i mentioned), and is clearly respected. If what Dimasi did with taxes is controversial in some quarters, it was certainly not improper, not dishonest, and makes much more sense to me than your position (which you never bothered to defend, other than by citing the support of the OTA and your brother).
So then you have your little tantrum and call me a “weaseling idiot”, a “retard” and, most amazing of all, accuse me of “starting this one”. And now you have the effrontery to lecture me about your blamelessness in all this and about my being nasty without provocation, and, most rich, that I ought to be careful as to how I might come across in discussion! oy vey!
And, whatever the convention may be in philosophical journals, (haven’t noticed this, by the way, and have been reading such journals for some time) this ain’t no philosophical journal. If you use quotes, you need to be quoting—at least that’s how your audience here is going to see it.
Sigh. _Without_ impugning your ability to read, I suggest that you look at my quote again:
Note the bolded words "for example". I won't suggest that you didn't read it properly, because that would be an 'attack'.
Personally, I'm getting tired of reading pages and pages of proof that everyone is picking on poor ScentOfViolets. I thought you said you were going to leave. Unlike the others, I wouldn't mind if you did. Though if you want to drop the self-pity, then I'd be happy to read your arguments.
The false threat of leaving is just a demand for attention... it's pathetic. Leave or stay but don't make a big production out of it. Nobody cares.
I've been accused of being too stupid to breathe, among other things. I lived.
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