Bizarroworld Dispatch: Free Market Edition!

Drug companies particularly favor one argument when they're trying to defend their prices (or their price discrimination). You could call it the 'appeal to capitalism.' You know the routine: "We only charge what we need to fund research. You don't want us to abandon research on new, pioneering medication, do you?"

And yeah, that sounds reasonable. Aside from the fact that profits are actually soaring in addition to the hundreds of millions they're putting into marketing instead of research. But the point still stands, right? It's all about the innovation, and the virtuous work of curing previously untreatable diseases.

Only it isn't. Ezra Klein takes note of a couple of articles highlighting pharmaceutical companies' focus on the quick buck.

From the WSJ: As acting head of chemistry at [Pfizer's now-shuttered] Ann Arbor labs, Dr. Sliskovic earned far above the $112,000 a year paid to the average chemist of his experience level. Dr. Sliskovic says he will receive severance pay for between 18 months and two years. With two children in college and another in high school, he says, two years is the longest he could afford to forgo a paycheck.

Dr. Sliskovic has already repainted the family kitchen and living room. Now he is festooning the house and yard with holiday lights. Worried about their financial future, his wife, Cindy, took a second part-time job at the barn where they keep their horses. The irony that the drug her husband helped discover will bring in nearly $13 billion for Pfizer this year hasn't been lost on her. As a staff scientist, Dr. Sliskovic earned no bonus or royalties for his work on Lipitor.

He was one of 2,100 workers of the research facility to get the axe. The WSJ suggests that there simply may not be new discoveries to be made. One investigative journalist begs to differ. (It's tough to excerpt these meaty articles, but they're highly recommended reading.)

[T]he pharmaceutical and biotechnology industries have been showered significant government support in the form of direct public investment, tax credits, reduced regulatory burdens and a laissez-faire government attitude toward the industry charging exorbitantly high prices in the largest market in the world, and the government’s auditors recognized something beyond the industry’s traditional lament – “R&D is growing more costly; it now costs (fill in the blank: first it was $500 million; then $800 million; now $1.2 billion) to develop a new drug” – was called for. It has become painfully apparent that throwing more money at the industry in the form of higher prices isn’t going to solve it lackluster performance in coming up with new and innovative therapeutics.

In today's installment: The financial incentives formed by the stock market force R&D decision-makers to focus most of their attention on developing blockbuster drugs for proven mass markets. Minor aches and pains, allergies, depression, cholesterol management, acid indigestion – the rewards for a successful new entry in one of these categories, whether or not it represents a significant new advance over previous therapies, are measured in the billions of dollars in sales.

However, the cost of developing new drugs in these categories is high and major contributor to growing R&D costs since showing superiority to placebo for these products often requires clinical trials that enroll thousands if not tens of thousands of patients. Why? Since the drug itself has marginal utility, consumers, regulators and the companies themselves require larger trials to allay concerns that the new, unproven product may be less safe than readily available, proven alternatives. The additional expense of the larger trials inevitably inflates research costs and deflects scientific talent from investigating fields where the risk of failure is far greater.

Should I even bother to point out that the champions of the free market are the ones who are rigging the game-- and doing so in favor of companies who are actively subverting their own stated goals? Probably not.