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Investing In Research and Registering a Drug Are Independent Decisions

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Sunday, 30 June 2013 07:58

According to the New York Times drug companies are confused about how requirements for getting drugs approved affect the profitability of their investment decisions. In an article about efforts to increase disclosure of test results it told readers that European Union requirements for full disclosure of test results could discourage drug companies from investing in Europe.

"Others warned that such a policy could discourage drug companies from investing in Europe. 'If you, on the other hand, say, "You guys are bad actors, we want to cut your prices, we want to take your confidential data and share it with any one of your competitors," you don’t get the same feeling of encouragement.'"

The European Union rules would apply to drugs that are licensed in the EU regardless of where the research was done. Similarly, if research was done in Europe, but the drugs developed were not licensed there, then there would be no requirement that the drug companies disclose their test results.

The linking of investment location decisions to a requirement to disclose test results only makes sense as political blackmail. It has nothing to do with maximizing the companies' profitability. The NYT should have made this point more clearly to its readers.

Comments (3)Add Comment
They are bad actors
written by Alex Bollinger, June 30, 2013 10:23
They should be discouraged from acting badly.

They have literally and successfully lobbied governments for decades to prevent drug manufacturers from helping sick people (they call it patent law... potayto, potahto). It's not a sign of a sector that can be trusted to regulate itself.

If they wanted to prove that they were trustworthy and should be encouraged, they'd put more energy into making drugs safe and affordable than they do into increasing their profits. Yes, free markets prevent them from doing that, blah blah blah, and the incentive to kill sick people that the market sets up is why regulation is needed.
Gypsies, Tramps, and Thieves
written by John Parks, June 30, 2013 11:48
Mountebanks

Whether you are called "Dr. Good" and selling snake oil from the back of a prairie schooner 150 years ago, or a member of PhRMA using the ship of state to facilitate the sales of your wares today, caveat emptor.

Dr. Good and his ilk also reported great success in their selective trials. That is probably why, in 1773, Connecticut passed laws against mountebanks from selling many of their potions, elixirs, and cures.

Dr. PhRMA and their ilk also tend to report great success in their selective trials. The only difference during the last 150 years appears to be the sophistication of the ruse.

Mountebanks then, and mountebanks now.
Show and Tell Game Theory: I'll Show You Mine If You Show Me Yours
written by Last Mover, June 30, 2013 12:33

Drug Co #1: Why won't you invest here?

Drug Co #2: Because you will steal my secrets, compete with me and drive me out of business for failure to recover my research cost.

Drug Co #1: If I show you my research secrets will you show me your research secrets?

Drug Co #2: Of course not. That just means we would both go out of business undercutting each other on price.

Drug Co #1: If I get a license to sell here will you get a license to sell here?

Drug Co #2: Of course. License is an entirely different question. We sell anywhere we can get into a market because all we have to get is a price above the low incremental production and distribution cost to justify entry.

That way we can claim our research costs are "subsidized" in places like America where we extract maximum high prices from victims of our market power in order to charge lower prices everywhere else.

Works every time. American fools really believe if we got higher prices elsewhere we would actually reduce prices charged to them.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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