Novo Nordisk pledge re insulin price increases


#41

I work in a price regulated industry. It always has been and always will be because ours is a product for which we have a monopoly on the distribution process. Our industry thrives because it is an essential, sought after product. Even though our industry is regulated we still make a reasonable profit.

The reason we can be regulated and profitable at the same time is because we are not actually price controlled but rather because we are profit controlled. Never are we denied the cost of doing business, investments in infrastructure are allowed or even encouraged. The cost of doing business is never questioned or denied as long as we can justify the cost. The only thing that is actually regulated is actual return on investment.

This works in our industry because we are a single product industry, the cost involved are known and there is an established procedure for the regulatory process to function. Even though we are similar to the drug industry in the respect that we an essential and necessary product we differ in the complexity and range of products we deliver.

Regulation does work I see it work every day. The question becomes how do we do it for the drug industry. How do we make the model I have described work in the complex high stakes industry of pharmaceuticals.

At this time I do not see how this can be done but if a way can be figured out that will not kill innovation I will jump on the band wagon.


#42

This ended up being a major vent, and therefore quite long. I doubt anyone will read through all the way, but if you do, thanks for listening!


Gary, you and I see this in much the same way, although I have a more provocative way of making the point.

As I said earlier, I am NOT opposed to regulation. Indeed, with something such as healthcare, arguably unique as compared to most other needs/wants that people have, there are moral reasons to regulate the healthcare industry.

Unless I’m delusional, it seems we do regulate that industry and Boy Howdy!

Viewed through the lens of the 3 questions I posed above, again there are moral reasons to regulate so that healthcare is broadly available, affordable, and accessible. Where opinions start to diverge is in how to do this, and what impact various parts of the regulatory apparatus have on meeting these goals.

One “side” argues that lack of regulation is responsible for insane drug prices in the US. The reasoning behind the argument is greed. (I pause for a moment to sincerely ask that my short summary be corrected if I have it wrong – these are the arguments, seen through my own filters admittedly, that I recall).

The other argues that it is over-regulation, in the form of price controls outside the US well below normal market pricing, leading to inflated prices in the US to compensate.

The truth, of course, is almost certainly some mix of these, and other explanations not offered here. However, HOW this problem is addressed – insane drug prices in the US – critically depends on what predominantly is the cause of the problem.

I’ll say this: I’d really like to know. I mean “know” in the cold, emotionless, factual way. I’m not interested in ad hominem “evidence” about how bad executives are, or how evil the industry is in general, or anything like that. Nor are those suspicious of the industry’s integrity too interested in hearing about the marvels of the free market.

So, if anyone has any actual facts, evidence – whatever – to make the case, I’m very open to hearing about it. When I look at the cold facts I can dig up that seem relevant – company financials – it just does seem to support this claim.

This is critically important to me. Unlike @Hay_Dude, I think pharmaceutical treatments and therapies developed over the last 50 years are miraculous countless times over. Diseases have been cured. Some are completely livable now that were horrible burdens before. We discuss how diabetes treatment has advanced regularly in TuD.

I, for one, am gigantically, enormously, incredibly grateful that we are wealthy enough as a country to afford to spend trillions of dollars a decade on pharmaceutical research. Again, unlike you, Sam, I don’t consider insulin analogs just “slightly better”; indeed, they are life-changing compared to the old R/N regimen. I quite surprised your would say this, given what you’ve been posting about Tresiba.

Finally, R&D costs what it does because it takes some of the smartest, most innovative people to do this research. Would the engineer, scientist, doctor, etc. here that feels they are paid well in excess of what their skills, capability, and productivity command? Are you all over paid in your industries?

Or, if your pay was cut in half, are there other things that pay just as well or better that a smart person like you could find to do instead?

That’s how economics works, and that’s why R&D costs what it costs. It’s the same reason physicians are expensive.

You want iPhones? Well, we engineers don’t come cheap, and not a lot of people can do what we can.

You want new incredible drug treatments? Same answer.

Where I see far too many people go off the rails is in focusing on bonafide malfeasance, and then extrapolating that to the industry as a whole across time and space. The truth is quite the opposite – most of the work done in the pharmaceutical industry is laudable, most of it done with care for patients in mind, most of it sincere and ethical. Exceptions stand out – that why we all hear and know about them. Epipen, for example. Or that other drug that jerk raised the price on by something like 4000%, in the news in the last few years. He was dragged before Congress for a tongue-lashing (as he should have been).

For every Tujeo – snake-oil, IMO, and on the ethical edge – there are hundreds of other drugs that have changed, or even saved people’s lives.

This cost a lot to have. Like I said, engineers and scientists are rare and expensive in human society. I don’t want less R&D, I want more! Lot’s more. I want a cure, or a really effective treatment, for Alzheimers in the next 10-20 years. In time to save me, if I’m a victim.

I could go on and on about what miracles are being researched right now, and that I wish we all made a priority to see well-funded. Really, there are few other careers one can devote themselves to that is more socially redeeming than trying to cure disease.

Yet, I’m very pessimistic and melancholy about the whole thing. The “evil, corrupt, greedy drug industry” belief seems to predominate more and more. I’m not surprised, given the burden US patients are carrying to bring these drugs to market. I’m just sad that it doesn’t look good for it to continue, with attitudes like this.


#43

Absolutely-- tresiba is 2-3 times better without a doubt and has every right to demand 2-3 times the price. And that’s all it’d sell for if the consumer was the one weighing the costs and benefits instead of a dysfunctional system.

I’m not suggesting the manufacturer is the only one gouging the system here… I think that’s far from the truth but the fact that it costs them something like 20x to deliver their product to the consumer than it would if the consumer just bought it directly from them troubles me


#44

So If the cost to research and develop the drug results in the cost being 4-5x the cost, would you say the drug shouldn’t have been developed? Obviously we can’t simply demand they only charge 2-3x – how would they stay in business?

Finally, the statement “2-3 times better” is very subjective. I point this out as a critical thing to consider… What is mere convenience and not worth the price to one person is life-changing and a bargain to another. That’s freedom, and what a “market” is all about.

So, if the former person is allowed to dictate what something is worth, the drug/device/whatever would never have been developed. The latter person misses out on a life-changing treatment.

Price controls screw those that value things more than those setting the prices. I find that very unfair, and far more pernicious and harmful to society than ANY greed on the part of anyone in business anywhere.

When the power to mess in the market like that is allowed, eventually everyone gets screwedat some point when those in power don’t think the same way they do – and that eventuality is certain.

For a preview of what public funding for R&D looks like, just take a look at the NIH, and how decisions are made there for what gets funded, and what doesn’t.

Oh, and compare the NIH budget to the private pharma industry R&D budget.


#45

Sam, one aspect of “the system” that I think you and I are totally on the same page about is how screwed up the pricing and payment process is. You mentioned that things would be cheaper if people just paid directly for stuff – I agree completely.

I’m a big fan of the HSA, high-deductible approach to paying for health care. The poor can be helped with HSA annual seed money, for those that are concerned about this.

Anyway, I’ve lived this sort of plan. I went 2 years without health insurance, paying everying out of pocket. The “retail” prices posted for most services and medications are almost always negotiable, and I was able to keep my costs down by about 35-40% by speaking with the right people and making my case regarding their cost savings with direct payment from me. Also, virtually every drug manufacturer and pharmacy has some sort of discount program for uninsured, usually with big savings.

Anyway, my point with all that is that the pricing system is totally whack, so normal market pricing signals that people use to make decisions do not exist. Regulation makes competing on price illegal (ever wonder why you never see prices advertised in drug ads?)

In short, the Fed and the states have there fingers so far up the behinds of just about every participant in the health care industry that normal market forces don’t apply. Result: Insanely expensive stuff.

Mankind has not found a better system than the free market yet that produces minimum prices with balanced supply and demand. Interference inevitably reduces supply and increases price. A regulation that says competitors can’t advertise price as a means of competing is obviously going to screw up pricing signals as a means to respond to demand, no?


#46

Freedom is the consumer themselves being able to determine the value of these things in their own life, and being able to afford them if the benefit outweighs the cost. Under the current system, none of those things happen. The problem is that this is NOT a free market-- fundamentally because the consumers aren’t the ones paying for the treatment-- and all the problems you list are manifestations of that single reality


#47

Sam, I agree with you, mostly. Where maybe we differ is something I can say more plainly than I have been: Some technologies just are very expensive, nothing more complex than that.

CGMs are a great example… I don’t think anyone serious charges that anyone at Dexcom is becoming obscenely rich on their product. However, it costs what it costs to develop, and the size of the market is pretty small, so no economies of scale kick in to spread those development costs over millions and millions of purchases.

Hence, its expensive. Nothing more complex, sinister, etc. need be offered to explain why the Dexcom system costs what it does.


#48

I am really surprised at some of the discussion. I personally believe that the price of older modern insulin analogs like Lantus and Humalog are substantially greater then the cost of production and the cost of recovering R&D.

All the modern analog insulins are produced with recombinant DNA, exactly the same process as with Regular (which is sold for $25). The only difference is the gene modifications that have been made to the bacteria (often E. Coli). All the rest is basically the same. It is like a paint factory with two production lines, one making blue paint and the other making red. How could you argue that the red is so special it should be more than ten times more expensive. It isn’t justified based on production costs.

And the R&D argument just doesn’t hold up. Lilly spends an industry average of 20% of revenue on R&D and in the three years leading up to the 1996 approval of Humalog it spend an average of $900M a year (on everything) (that is about $1.4B in current dollars). In 2015 Lilly reported revenue of nearly $3B on Humalog alone.

So if Lilly is recovering the R&D on Humalog as 20% of sales on $3B in sales that is $600M a year. Over the 20 year life that is like $12B. I’m sorry, just the basic economics says that Lilly recovered the R&D a long, long time ago and the rest is just profit. I’m not saying whether this is right or wrong, Lilly is a publicly traded company with a duty to make it’s shareholders money.

The real question is whether something is broken in the market. And it is. This is not a free competitive market. Payors can’t and don’t negotiate prices. They in fact have incentives to pay higher prices as they make money on a percentage of how much is bought. Higher prices, more revenue and more income. I suspect the solution isn’t to beat the pharmaceutical companies into submission, rather it is to fix the market. Given Medicare the ability to negotiate prices. Remove the PBM intermediaries ability to insert themselves in the market taking incentives and driving up prices. And make the pricing fair and transparent.


#49

Brian, it’s impossible to comment meaningfully on your analysis, as it’s based much on assumption. Since we don’t have access to the data regarding R&D costs for Humalog – in 1990s dollars, BTW – what you outline above is speculation.

One thing I can speak to that is mistaken in your analysis is that “if you’ve seen one rDNA process, you’ve seen them all”. The patent on Humalog has run out. Yet, we do not see generic competitors. Do you know why that is?

Because it’s NOT easy to make Humalog. That’s why, it’s no more complicated than that.

rDNA engineering – both the genetic engineering, and the process engineering to map this to a large scale – is not simply like baking a cake, as you seem to think. The process can differ radically from one target molecule to another, varying in terms of the strain of bacteria used, what sort of nutrients solution, temperature, oxygen, etc. etc. etc., and these factors can be extremely finicky depending on what you’re trying to coax the bacteria to produce.

Then, to make matters worse, sometimes a molecule is more prone to getting messed up due to mutation in the multiplying bacteria than others.

That said, I agree it is a near certainty that Lilly has recovered their R&D costs by now. Most R&D costs are amortized to be recovered over the patent life of a drug.

All of this is beside the point to some degree, though, for the point I’ve been making: Drug manufacturers are not making money hand of fist, greedy bastards, so there’s a huge pile of cash there for us to tap to lower drug prices.

According to Lilly’s 2015 report, net earnings were just a bit over 10%. A modest net profit margin, and quite reasonable. You’re on shaky ground to call this “greedy”. Under those standards, pretty much all business and business people are “greedy”.

So, given that Lilly made about $2.3B on about $20B revenue, and as you point out nearly $3B of that revenue comes from Humalog (14%), where do you suggest Lilly find the cash to cut Humalog prices from $250/vial in the US to $25?

How do you propose Lilly stay in business, continue R&D? Let’s get down to brass tack here. I use Humalog, and if push comes to shove, a vial is worth more to me than $250 if I can possibly come up with it, as my behavior demonstrates, no amount of grousing and rhetoric aside. I will spend $250 on a vial of Humalog over $25 if I have the money.

That is how valuable Humalog is to me. The difference it makes in my life vs. R is that big.

I suspect this is true for just about everyone here too.

I want to keep being able to buy Humalog. I also want to support on-going research into better insulins, and as I said before, I’d like MORE of that research than is going on right now, which means – even higher drug prices now to support it!

So, I’ll ask again: Lilly’s Annual Report for 2015 is right there to read. I’ve provided the link. If we are to force Lilly to cut their Humalog revenues by 90% in the US, where will that money come from in Lilly’s budget? That amounts to around half Lilly’s total R&D budget.

Some of that will come out of earnings, but certainly not all of it – that would render the company basically a charity, put them out of business, and then no more Humalog. So a major chunk of it will have to come out of R&D, one of the few spending items with that sort of flexibility.

You are making the charge that Lilly, and others, are gouging us out of greed, and demanding prices be lowered. How?


#50

To be clear, I am hardly a shill for the pharma industry. My arguments probably don’t communicate that I agree that drug prices in the US are outrageous. People are suffering, and probably dying in some cases because of this situation. It’s intolerable.

If the money was there in greedy piles back at Pharma HQ, I’d be on the front lines taking them apart for their greed and social irresponsibility. The problem is, when you look, greed isn’t really to be found. The money simply isn’t there – it’s abundantly clear that the industry is compensating for under-market pricing forced outside the US by political process with high prices in the US that are, at present, not controlled politically.


#51

Even if you buy the R&D justification (which is arrant nonsense), it does not explain the monumental gap between prices in oh, say, Europe, and prices for the same material here. Why sell in a less profitable or even unprofitable market when you have a highly profitable one (ours) that is many, many, many times the size? If I were a board member whose CEO was making decisions like that, I’d vote to fire him.


#52

Other countries don’t spend billions in pharmaceutical advertising each year and don’t have half a dozen middle men in their system to pay. Eliminate those, and maybe prices would be more equitable. And, if not, it would probably be a lot more in line with what other countries are paying and thereofre any gap to close would be much smaller.

Honestly, these comments really bother me. They seem extremely hostile to me.

Insulin was a miracle. Penicillin was a miracle. Vaccines were a miracle. Ventilators were a miracle. These all involve the contribution of many countries, not just the USA.

NovoRapid is helpful. I would not classify it as a miracle.

In most Canadian provinces, the basics are free. (Not really “free”, since the citizenship covers the cost through taxes.) Basic insulin, medication, doctor’s appointments, hospital visits, diagnostic tests. So someone is not going to die on the street because they can’t afford insulin or a visit to emergency. However, if you want the latest and greatest, you cover the costs yourself. Just because Health Canada approves something does not mean it’s suddenly covered by the government and everyone is getting it for free or cheap. I’d bet that the same is true of other countries, such as the UK. Perhaps the fact that we only have “individual patient” prices that have to be deemed affordable to individuals, rather than the two-tiered price system that the USA seems to have, is one reason for the price differences between the USA and other countries.

It makes total sense to me that a new treatment may be costly and, here in Canada, we would be paying that cost ourselves for some time if we wanted to use that treatment right away. But I just cannot see how a drug developed 20-30 years ago needs such drastic price increases to cover R&D costs. Especially when billions of dollars go to advertising and paying middle men in the USA rather than R&D.


#53

I think the point is that R&D costs of unsuccessful drugs are placed on the backs of the successful blockbuster drugs. There is no accounting, no matter how creative, in which Humalog hasn’t earned back all of its upfront R&D costs. It’s just that Humalog’s success is also subsidizing all of Lilly’s failed Alzheimer’s drugs, cancer drugs, etc.
That’s the whole business model: 2/3 of clinical trials fail and I think far more of the early-stage drug discovery also fails. So the real issue is how expensive it is to get to that failure point. Reduce that cost and you can have the same level of innovation without the exorbitant drug costs. Partly that may be paying people less, but honestly I think a lot of it has to do with market incentives, easy versus hard problems, and the types of solutions these companies do pursue.


#54

David, by these arguments it seems you are convinced that maximizing profit is the sole principle guiding these CEOs and companies, or at least this is far and above the most important objective.

My experience leads me to believe something very different.

As for the pricing at a “loss” in Europe, I think you’re forgetting to account for the difference between unit cost of production, and amortized sunk costs. Drugs are very, very cheap to manufacture, so selling more of them even at deeply discounted prices increases earnings.

However, failing to recover sunk costs will eventually put a company out of business, as they net lose money overall, and that’s not sustainable.

In the case of drugs, companies recover most of the sunk costs from US customers, so additional sales at deep discount elsewhere adds to the bottom line. That’s why drugs are sold in price-controlled markets – because they make a small profit.


#56

every one keeps forgetting that all of the money doesnt go to the pharma company. The PBM’s - middle men make a lot of money too…

the culprit is the insurance system - pass on the cost to others while enjoying the latest tech , instead of bearing their own costs.

I bet the day ,one has to pay for their own insulin, that moment, no one will have a problem using the walmart $25 insulin


#57

Of course not all the money goes to the pharma company. Some money is made by the PBMs through service charges and paybacks from pharma companies. And of course pharmacies have to make some money. But anyone looking at Average Wholesale Prices can see that these companies are charging $300/vial and even with discounts negiotated with PBMs the prices have grown at an outrageious pace. Below is a chart from Bloomberg in 2015 show the rise in AWP for various drugs. How does Lantus and Levemir justify a 30% increase.


#58

Have to plot that again Lantus revenue for those Qtr and rebates to paint the full picture.


#59

Oh I’ll have a problem with it. I don’t know if you’ve done the R/NPH regimen but I was on it for 20 years and I’d almost prefer DKA.

You make a good point regarding the insurance system’s role in costs. There is definitely a market-warping effect there. But you can’t treat insulin the same way you’d treat some ordinary consumer product. Where extreme price inelasticity obtains, as it certainly does with insulin in general and to a slightly lesser extent to specific regimens in particular (see my remarks re R/NPH), the supplier enjoys a huge advantage in market power over the consumer. This creates the market opportunity for insurance companies: to spread the burden so that the cost for individuals who need it is offset by people paying into the system who don’t, and reaping some amount of profit from the system thus created. The alternative being that only the rich can afford better treatments (which is ameliorated, not eliminated by this system). You could have regulations that forbid people from forming insurance companies to take advantage of that opportunity but that’s hardly a free-market solution. If you’re going to allow people to form those kinds of companies, you’re going to have to have a legal structure in place–regulations–to ensure that there are rules everyone has to play by, otherwise the advantages all go to the most unethical players and the losers are those who try to play fair.

The problem is, what is “fair”? Since I don’t see a way for anyone to wave a magic wand and banish insurance from the market equation, then at the very least I’d say that the relationship between the insurers and the suppliers needs to be adversarial, not one of collusion. The greater the incentives to collude (i.e., price inelasticity), the greater the argument for stronger regulation, to the extent of making government the only insurer at the extreme end. It’s not a question of regulate or not, it’s a question of how much. The other point I’d make is to agree with @Dave26 that, as I would put it, you also have to take into account that the market we’re talking about is global even though the regulatory environment is nation-by-nation. That means that a nation with a weak (less adversarial) regulatory environment is at a disadvantage, price-wise, to those with very strong ones. I.e, we end up subsidizing the rest of the world by shouldering a heavier burden, both legitimate R&D costs (my wife and I both having worked in the biotech world, I understand something about that) and unethical price-gouging if the system let’s 'em get away with it.

Well, so how do you fix that? @Dave26 argues that cracking down within our own regulatory environment would only result in killing the golden-egg producing goose, and having a lot of connections to that world–people I know who are not predominantly greedy ogres–I’m sympathetic to that p.o.v. But how do you bring pressure on other countries to share more of that burden without tightening the environment on our end? Because that’s the only end we have any control over, and the more laissez-faire we are, the greater the incentive to keep that burden right where it is and to bring pressure to bear to weaken the regulatory environment even more where possible.


#60

Excellent (and far less provocative than my postings) summary of the situation, @DrBB. Thanks!

I appreciate hearing from someone with “inside” experience on this, and hope this tempers some critics’ judgments. We spend far too much time talking past each other, obsessing over some data, and dismissing or ignoring other data.

ALL the information regarding this issue must be considered to come up with a proper solution. @Brian_BSC posts good information regarding the crazy price increases over the past 15 years. This is very real. It has had a devastating impact on some, and certainly has burdened the health care system in inflating costs to treat diabetes.

Yet, we don’t solve this problem by misidentifying the cause. The case for “greed” just isn’t there – that’s apparent from data I’ve posted. Taking Lilly and Humalog as an example, a case for greed simply can’t be made with a ~10% net profit margin. The huge price increases in Humalog over the last decade and a half have not gone into accumulating giants piles of cash, or building huge mansions for executives.

No, it’s gone into keeping the company going at a reasonably healthy rate. Again, the financials show this. I ask those, such as Brian, to offer some recommendation as to how Lilly drops US Humalog prices to bring them in line with international prices, and still continues funding research on their drug pipeline. Based on the 2015 financial report, doing so would for all intents and purposes eliminate R&D funding in any meaningful way.

Of course, they could cut somewhere else. However, with my decades of experience at various levels of management in big and small companies, I’m pretty confident there isn’t billions of “fat” to be found elsewhere. R&D is discretionary – not spending on operations. When there are large cuts to be made, R&D usually takes one of the biggest hits.

Anyway, to repeat, analog insulin prices in the US are outrageous. I want them to come down, just like everyone else. However, I want figure out how to do that without killing R&D… If Brian, or anyone else can offer a proposal, please do so we can discuss it.

My proposal is to harmonize prices globally at a pricing level that accounts for the very necessary R&D it takes to develop these drugs. I don’t see any other way to do this.

Here’s an idea: Create an international body who’s purpose is to purchase and own patents for particular critical drugs (for example, insulin “yes”, ibuprofen “no”). This organization, perhaps a part of WHO, would purchase the patent rights to the drug at a price tag of the full R&D costs, with an exclusive license to the discoverer for the term of the patent. The company would be then obligated to produce and distribute the drug at unit production cost plus a reasonable profit margin (we’ll say 10% for now for sake of argument).

After the patent expires, the drug is available for anyone to make and sell.

There are all sorts of “what if” problems we can think up with this scheme, and argue about. I’m game – I’m looking for a solution. This is just one I’ve thought of, and offer for your consideration.

What this does is socialize the development costs without interfering with too heavy a hand in the free market, or the business decisions and operations of private innovators. It is the opposite of the approach we usually take – fund research up-front with grants, with government picking the winners.

My approach doesn’t chose the winners… it rewards the winners. This is much more in line with “real life”, and consistently produces better results, more efficiently. The gang at Lilly, Novo Nordisk, Sanofi, etc. know far better what potential drugs to “bet” on than some bureaucrat in Washington.


#61

The concept that patents and copyrights were meant to be temporary has gone the way of other antiquated notions, such as the idea that banks should pay YOU a fee for letting them use your money. The whole patent system has become grotesquely anti-competitive. Speaking of my biotech experience–the company I worked for was sued out of existence based on a ludicrous over-extension of Perkin-Elmer’s PCR patent. Topic for another place and time…