Never been a big fan of the perception equals reality mantra, I have felt only reality equals reality
I agree to an extent. But when you're talking about beliefs, perception is reality. When I'm speaking with a doctor, it doesn't matter what the truth is in that moment, what matters is what the doctor believes. I couldn't
begin to count the number of times I've encountered a healthcare provider who believes something which simply isn't true. But it's my job to start from a common point of understanding and correct their misunderstanding. At that point, the new understanding is reality.
but lets double back to the Epipen example. You state that the producer's income is 50% of what it was two years ago, which is a fair point, but is that fair to comsumers that the price of their potentially life saving device goes up 600% over the last decade to cover what could be defined as the producer's other bad business decisions? All while annual ceo compensation has gone from $2.5million to over $18million over the same period for that same producer, a 700% increase?
Nope. Which is why I called it despicable
All for a product that has cost about $30 to make over that period of time?
The news media
latches on to the concept of "what it costs to produce" drugs. They're always talking about manufacturing costs. What they don't factor in is R&D, infrastructure, actually employing people and paying for their benefits, dividends to shareholders, etc. The cost of production of a drug is minuscule compared to all of the other costs in the pharmaceutical industry - ESPECIALLY R&D. I mentioned in another post that only 30% of drugs that make it to market actually turn a profit in their patent lifetime. The INSANE cost of R&D (including drug failures) is the reason why. The last estimate I saw (2014 or 2015, in Forbes) was that it costs half a billion dollars to get one drug to market. That's BILLION, with a "B". And because drugs patents are the same as most other patents (20 years) and R&D typically eats up half of that, a drug company only has about 10 years to recoup their investment and then turn a profit. And then we're back to "what's an appropriate profit?" Is a 100% return on investment appropriate, especially for such a HUGE investment? 200%? 300%? 10%? Once a person figures out what's appropriate, then do the math. How many prescriptions per year (a very small number the first year, more the second year, and so on until the product matures) and at what cost will return that money? My company is about to launch a drug next month that I will be promoting. The TOTAL MARKET for that therapeutic class is valued at $1.5 billion and there are 6 branded products, 1 generic product, and the 3 top products (market share wise) make up about 80% of the market and have been around for 10, 70, and 20 years, respectively. My company expects that our INCOME (not profits) will be about $7 million the first year of product promotion. We have 9 more years to make up the rest of the investment and turn a profit for the product to be considered a success. That's the reality of the VAST majority of new Rx product launches. Oh, and that $7 million in income will easily be eaten up by paying for sales promotion. So that income really doesn't even start the process of covering the cost to get to FDA approval and launch.
You can tell the free world the reality of the net income situation, but the producer has created horrible optics in this situation. If your company is hurtin, whether through your own bad decisions or through other market circumstances, the first thing you should consider doing is cutting ceo pay to a more reasonable level rather tha drilling parents of little kids with allergy problems. Any sane board that cares about optics would look at it that way, and in most of this case, the producer is deserving of a lot of the backlash.
Agreed. As I mentioned, I think what Mylan did was despicable.
Big pharm is some what unique, without big profits on the drugs that work, there is no revenue to develop new ones. And like many industries, as you state, the ones that work have to pay for the ones that don't, mine is the same way. They are also unique in that each drug has its own litlle mini monopoly while the patent is in effect, something most goods dont have.
Patents work the same way in all industries. Most patents protect for 20 years from the date the patent is filed.
But they are a good example of the value of investing in your image so that people's perception isnt skewed in the first place. If you are asking the public to pay 700% more for your drug, one that has little competition because of the protections afforded, you had better not funnel it to the ceo if you care about your reputation.
Again, agreed!
