The wildly outrageous costs of pharmaceutical drug production

Drug companies – “Big Pharma,” as they are called – are targets in America. Especially with Mylan’s recent EpiPen pricing issue and earlier when Turing’s odious CEO Martin Shkreli raised the price of Daraprim by more than 55 times, from $13.50 per pill to $750 per, and his smug reaction to criticism over that questionable move. There are bad guys in all areas of life, of course, and pharmaceutical companies are no exception. Perhaps these two examples are evidence of bad players at work.

Without getting into the minutiae of either of these situations – and certainly not defending either Mylan or Turing – here is some badly needed and eye-opening information about the business of producing pharmaceuticals.

Making drugs is a business, and like other manufacturers drug producers find something people need or want and produce it. Life-saving drugs, or drugs that improve our health are valuable and needed. Drug companies spend billions of dollars over many years to develop useful, needed pharmaceutical products, improve them so that they will meet or surpass the FDA’s strict standards, and once approved market them.

In June of this year, the American Action Forum released research addressing the process of producing new drugs. The process “is extraordinarily expensive and time consuming,” the article stated. “A Tufts University study found that the average cost to bring just one drug to the market is about $2.6 billion. It takes an average of 15 years from the time a drug developer first begins testing a new formula until it is approved by the FDA. Only 1 in 1,000 drug formulas will ever enter pre-clinical testing, and of those, roughly 8 percent will ultimately receive FDA approval.”

Let’s say PharmX creates 100,000 drug formulas, but only one in a thousand, or 100 of them, gets to pre-clinical testing and only eight will receive FDA approval. PharmX will have invested on average $2.6 billion in each one of the eight. The company has to sell enough of each of those eight drugs to pay for its development, and to have enough left over to finance new research and development, and some profit.

Like other inventors, drug companies patent their products, or receive an exclusivity period. A patent is issued for 20 years from the date of filing, and drug makers usually file early in the development stage to prevent other companies from moving in on their idea. If it takes an average of 15 years to get a drug through approval and to market, the pharmaceutical company has on average only five years to sell enough of the drug to recoup the $2.6 billion in development, approval and marketing costs. At the end of the patent period and/or the exclusivity period, another drug maker might make a generic form of the drug, and sell it for a lot less.

So, when you do the math for a drug with development costs of $2.6 billion, you find that if PharmX charges a dollar a dose, it will have to sell 2.6 billion doses in five years just to break even. If PharmX charges $100 a dose, it will have to sell 26 million doses in five years, just to break even. John LaMattina, senior partner at PureTech venture capital, noted that drug development “is a high-risk, expensive, and long-term endeavor.” Classic understatement.

Another aspect of this issue is when drugs made by US companies cost more at home than they do in other countries, such as Canada. It doesn’t seem right that Canadians can buy American drugs cheaper than Americans can. But what is the drug company supposed to do when the Canadian government, or another government, wants to buy millions of dollars of its product at lower than market price when it is trying to recoup billions in costs? There are likely other drugs made by other companies that treat the same disease that these governments could buy instead, so should the drug company pass up that opportunity, leave the millions of dollars on the table, and perhaps suffer financially as a result, while a competitor sells millions of dollars of its product to these countries at a below-market price?

Another obstacle to manufacturers’ ability to recoup the cost of bringing a new drug to market is that regulations imposed by other countries, perhaps to protect one of their own companies, makes the potential market for sales smaller.

And, despite the rigorous development and testing process required to gain the FDA’s approval that the drug is safe for public use, the required warnings about potential side effects and such that go on product sheets, and the fact that drugs are prescribed by patient’s doctors, drug manufacturers still get sued by patients.

Doing business in the U.S. is a real challenge, with often burdensome and unreasonable regulations and other hurdles that must be negotiated that make producing needed and wanted products and services difficult and expensive.

The more expensive drug production is, the greater the need for high prices. While we would all like lower prices for drugs and healthcare in general, we also want to continue to have companies developing new and better drugs and medical devices.

It’s been a troubling time recently for President Barack Obama

Policy problems, legal challenges, failures to make progress on important international issues, being abandoned by Congressional Democrats on an important legislative measure, President Barack Obama’s recent problems mount daily, it seems.

He told the graduating class at the U.S. Coast Guard Academy: “And this brings me to the challenge I want to focus on today – one where our Coast Guardsmen are already on the front lines, and that, perhaps more than any other, will shape your entire careers – and that’s the urgent need to combat and adapt to climate change.” Not the importance of guarding the shoreline and responding to emergencies and other events there. No, the threat he chose to include in his address was climate change, that much-debated theory that is losing credibility even faster than Mr. Obama is accumulating problems.

Last August, Mr. Obama said his administration was still devising a way to fight ISIS, and last week at the G7 conference in Germany he said, “We don't yet have a complete strategy because it requires commitments on the part of the Iraqis." After ten months with little or no progress on an Iraq policy, one may legitimately wonder whether Mr. Obama is really serious about, or prepared to adequately address this problem. Remember he called ISIS the “JV team.” And more recently the Pentagon claimed that ISIS “is no longer the dominant force in roughly 25 to 30 percent of the populated areas of Iraqi territory where it once had complete freedom of movement.” However, that statement has been shown to be “misleading and incomplete,” according to Raymond Ibrahim, writing in Human Events.

The Affordable Care Act, affectionately known as Obamacare, did succeed in bringing down the rate of uninsured Americans to the lowest levels so far, but continues to show major weaknesses that challenge its positive accomplishment.

Among those weaknesses, as reported in the Washington Free Beacon, are that many Americans still cannot afford health coverage and are delaying medical treatment; that despite Mr. Obama’s promises that “if you like your plan you can keep your plan,” more than five million people in 35 states have lost their health insurance plans; and that Obamacare will add up to $1 trillion in new taxes. Further, the law strengthens government control over healthcare, thus weakening the control of doctors over their practices and of patients over their healthcare, and the law also is reducing choices for patients.

And now a legal challenge before the U.S. Supreme Court may deal a serious blow to the Affordable Care Act. The Court is expected to announce its decision later this month in the King v. Burwell lawsuit, challenging the legality of the government to give tax credits to health insurers in more than thirty states that use the federal health insurance exchange. Should the Court rule for King, Obamacare policies in those states would become unaffordable, and would relieve more than 11 million people of the individual mandate.

Mr. Obama, perhaps having been tipped off by a Court insider that the Justices likely will rule against the administration, has taken to criticizing and chastising the Court for considering a lawsuit against the Obamacare. Some have interpreted his comments as trying to intimidate the Court.

"Ultimately, I’m confident that the Supreme Court will not take what would be an unprecedented, extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress,” he said at the G7 meeting. “And I’d just remind conservative commentators that for years what we’ve heard is, the biggest problem on the bench was judicial activism or a lack of judicial restraint — that an unelected group of people would somehow overturn a duly constituted and passed law. Well, this is a good example. And I’m pretty confident that this Court will recognize that and not take that step."

Perhaps the president needs a refresher course in American government. The Judicial Branch, led by the Supreme Court, is a co-equal branch of our government with the Executive and the Legislative Branches; none of them is subservient to either of the other two. This separation of powers is expressly designed to prevent any single branch from becoming dictatorial, which likely is Mr. Obama’s reason for complaint.

Judicial review, which is to rule on the constitutionality of legislative and executive acts, is a legitimate function of the Supreme Court, and judicial activism is lawmaking by the courts, which is not a legitimate function. Judicial activism is a primary tool of the political left, seeking to change the constitutional order of things.

Not content merely to take over the health care system, drag his feet on the Iraq and Iran situations, and intimidate the Supreme Court, Mr. Obama now proposes to inject the federal government into influencing or controlling who lives where in the United States, with a plan to diversify neighborhoods.

To be administered through the Department of Housing and Urban Development, critics say it will force municipalities to change their zoning policies, while supporters say it is an effort “to create opportunity for all.”

Whichever it is, it is not the job of the President of the United States.

Do Social Security and Medicare show that Obamacare can be successful?

The loyal defenders of President Barack Obama and the Affordable Care Act (ACA) keep pointing to Social Security and Medicare as examples of successful government programs whenever someone points out that government doesn’t do anything very well. The nearly perfect record of dismal performance in federal programs is a key reason that critics doubt that the massively flawed rollout of health insurance reform lovingly referred to as “Obamacare” will eventually turn into a success.

Liberal commentator Juan Williams proudly notes how “popular” both Social Security and Medicare are, citing them as having received 70 percent support among those asked whether they like the programs or not. But just because lots of people like a given federal program doesn’t mean it is a beneficial or successful program.

It is certainly true that Social Security and Medicare are very popular and proponents vigorously oppose balancing the budgets of the two programs by reducing benefits. But, again, by the “popularity” standard, programs that create dependency like welfare, food stamps, and free cell phones are successes, too.

However, reality paints a far different, and much less rosy picture of Social Security and Medicare.

These programs are not giveaways funded by taxpayers, they are funded primarily by payroll taxes on employers and the employees who benefit from them. Even so, because of mismanagement and a failure to adapt to changes in demographics, both programs are broken and broke, running annual deficits.

This is the typical sort of success we find in “successful” government programs, and we have to wonder if there isn’t a better solution to most problems the government thinks it can solve. And the answer is, “yes, there is.” The private sector can do it better, as evidenced by multitudes of successes over our 230-plus-year history.

What too often happens is that when government sees the private sector not completely solving a problem, it thinks it can do better, and a new federal program is born. But the ultimate result is that the federal government does no better at trying to solve the problem than the private sector, and often does much worse.

In contrast to the self-funding process involving the beneficiaries of Social Security and Medicare, other programs give handouts to both those who need help and to those who really don’t need it, and these recipients pay little or nothing in taxes to support the giveaways.

These programs are rife with waste, fraud, and abuse, because government does not manage them efficiently. You can make a very good argument that government is inherently unable to manage these expansive programs competently.

Giving people money is one of the first priorities of politicians; it’s how they buy popularity, which translates to votes.

But as examples go, Social Security and Medicare, while intended to be self-sustaining without support from general tax revenue, are not examples of good government programs because they have been mismanaged and neglected.

Social Security began running a deficit in 2010, will run a deficit near $75 billion this year and the projected deficit will reach $344 billion in 2035 if something isn’t done. Social Security is beginning to fail in its ability to take care of seniors because government has failed to properly operate the program.

A panel determines Medicare reimbursements, a panel that meets in secret and relies heavily on the recommendations of the American Medical Association. Many doctors already do not treat Medicare patients because the low reimbursements don’t cover costs. Medicare providers have to balance low Medicare payments by shifting lost dollars to insured patients.

So that’s a brief glimpse into Juan Williams’ idea of successful government programs. Is this what the ACA also promises, or will it somehow be different?

Even if we believe the ACA is a good idea, even if it had been competently designed and implemented, and even if we overlook the disgraceful manner in which it was created and jammed through Congress before being read by the Democrats who enacted it, it is still a government program that supposes it will be more effective at running 18 percent of the nation’s economy, and one of the most important personal concerns Americans have, than the private sector.

And now $716 billion will be taken out of Medicare to fund Obamacare, meaning reimbursements and senior care will suffer, or the deficit will increase.

Obamacare attempts to do by force what Republicans attempted to do by choice through initiatives focused on the problem areas of the then-current system, and Democrats opposed and defeated those efforts.

Despite Supreme Court Chief Justice John Roberts’ phantasmagoric redefining the fines imposed by Obamacare as taxes, the U.S. Constitution did not intend for, and does not authorize government to commandeer one-sixth of the economy.

Those who think government is the answer to everything need to remember that the only reason there is a government of the United States of America is because the people – remember “of the people, by the people, and for the people?” – created it by assigning government limited powers in certain specific areas.

It is perverse in the extreme for the people now to be controlled by that which they voluntarily created.

Random thoughts on the passing scene

Some of those who think the American health care system needed to be trashed and reformed in the image of the Canadian system might be interested in the opinion of Bacchus Barua, a senior economist with Canada's Fraser Institute.

"Healthcare in Canada is anything but free," he states, noting that the average family of four pays more than $11,000 a year in taxes for hospital and physician care. However, he explains in an article for The American "surely such expenditure is justified if Canadians receive a stellar healthcare system in return for their tax dollars. Unfortunately, that simply isn't the case."

Specifically, he lists some problems with his country’s system:

** Canada has fewer physicians, hospital beds, and diagnostic imaging scanners, and performs fewer medical interventions than its American and European counterparts.

** Canada has one of the lowest physician-to-population ratios in the developed world.

** A recent survey found that Canadians must wait an average of about 4 1/2 months for medically necessary elective procedures after referral from a general practitioner.

** The wait for diagnostic imaging technologies like MRIs is over two months on average.

** Patients in Canada are likely to wait two months or more to see a specialist, six days or more to see a doctor when sick or needing care, and four hours or more in the emergency room.

** Due to the lengthy waits, about 40,000 Canadians leave the country for treatment elsewhere each year [like the U.S.].

** Public drug plans covered only about a quarter of the new drugs approved for sale in Canada between 2004 and 2010.

He concludes: "These realities serve to dismiss the mythical notion that a Canadian-style healthcare system" is highly desirable.

We are headed in that direction.

*****

During the mortgage banking crisis the federal government pressured large banks like JPMorgan Chase to take over the bad mortgage loans sold by failing banks Washington Mutual and Bear Stearns. Now the government is fining JPMorgan $13 billion for helping the feds deal with the crisis. Can you say “shakedown?”

*****

Planned Parenthood involves itself with topics other than planning parenthood on its Facebook page, discussing topics like why some types of sexual activity are painful, transgender issues, and promoting Obamacare. Not exactly family planning.

An article on the Internet site bighealthreport.com reports that on Planned Parenthood’s Facebook page for teens it answers the question: “Is promiscuity a bad thing?” and that the organization defended doing so with the statement, “there’s nothing bad or unhealthy about having a big number of sexual partners.”

Isn’t this the mentality that has led to 40 percent of our babies being born out of wedlock, and males with multiple children from multiple “baby mamas?”

This “advice,” such as it is, increases the likelihood of HPV and cervical cancer among females, in addition to STDs. “Even the Guttmacher Institute, the former research arm of Planned Parenthood, considered ‘a person to be at direct risk for STDs if he or she had had two or more partners during the 12 months preceding the interview’ during one of their research studies,” Big Health Report said.

The article notes “a person with low self-esteem has been shown to engage in sexual relations earlier, and engage in riskier, unprotected sex with multiple partners.” Does that sound like “nothing bad or unhealthy” to you?

Seriously? This is what we get for $542 million in federal subsidies?

*****

The “government shut down” really amounted to about 17 percent of the government being “shut down,” and that is somewhat like going to a mall that has 100 stores and finding only 83 that are open for business. So, while things were uncomfortable for some folks, it bore no resemblance whatsoever to the government actually shutting down.

Of course, if the mall management blocked off stores that otherwise would be open, things would be more uncomfortable. No sensible businessperson would do that, but a petty, politics-dominated administration would, and did.

*****

The emotional push to raise the minimum wage to $15 dollars an hour for those working the least skilled jobs in the fast food industry puts the spotlight on a fundamental misunderstanding of basic economics.

Advocates think the wage ought to be based upon concerns totally unrelated to the job and the business the job is a part of. “I flip burgers at Burger King, and can’t support my family on what I make, so raise the minimum wage,” is the mentality behind this ill-advised movement. In their mind, if a PhD. in English, mathematics, biochemistry, or any other field somehow ended up ringing up Happy Meals at MacDonald’s, the wage ought to be based upon his/her training, or some arbitrary “living wage” concept.

A job is worth whatever the employer says it is worth. Anyone who doesn’t like the wage is free to not take the job, or to look for a better one. If the employer can’t find people to work at the selected wage, he or she will have to raise it. Anyone who tries to find a better job, but can’t, needs to pipe down and do the job the employer allowed them to have until they can find a better one.

Obamacare has been successful only in its ability to create chaos

Many people who have influence with President Barack Obama have gotten relief from the terrors of the Affordable Care Act we now know as Obamacare, but the great majority of the American people are still expected to follow the dictates of the healthcare “reform” law next month. 

The administration’s announcement July 2 delaying the employer mandate was the first in a series of goodies provided to favored constituencies. And, about 20 percent of waivers went to gourmet restaurants, nightclubs, and fancy hotels in Rep. Nancy Pelosi’s (D-Cal.) district. 

But as maddening as this discrimination is to us common folk, exempting Members of Congress and their staffs is far worse. 

Under heavy pressure from Democrat leaders, Mr. Obama agreed to ignore the terms of the law that he pushed so hard for and now requires taxpayers to subsidize coverage for representatives, senators, and their employees to lessen the financial burden of Obamacare.

What a hardship these taxpayer-supported elected officials and employees suffer: The Office of Personnel Management reported that as of September 2012, the average salary for a full-time, permanent, non-seasonal government position was $78,467, and rank and file members of Congress make $174,000. The average American in the private sector makes less than $50,000.

It is possible for others to receive subsidies, too, and the key is income level. But, typical of this law’s rampant failures, there is no mandate to verify eligibility for a subsidy, virtually guaranteeing extensive fraud, and an additional expense burden on taxpayers. 

Only about 36 percent of Americans have a positive opinion of the law, and now even Mr. Obama’s strong union supporters are calling for repeal or major repair of this debacle because it is decimating the 40-hour workweek that is the backbone of unionized labor.

Throughout the debate over Obamacare, a major claim was that it would cover the 30 million people that at the time did not have some sort of health insurance, ignoring the fact that a significant number chose not to have insurance. However, the Congressional Budget Office says that over the next decade there will never be a point where the number of Americans who remain uninsured will drop below 30 million. In other words, the main reason for ramming Obamacare down the throats of 270 million people who were happy with their health insurance is a falsehood.

Other of the President’s promises also have been broken:

Promise: “If you like your health care plan, you’ll be able to keep your health care plan, period."

Truth: As many as 30 percent of employers will stop providing their existing health care coverage, while many are reducing employee hours below the 30-hour/week full-time level, or are trimming total employees to fewer than 50 to escape the crushing costs imposed by Obamacare.

Promise: “I will not sign a plan that adds one dime to our deficits — either now or in the future."

Truth: We now know that health care “reform” will cost a trillion dollars.

Promise: “I will protect Medicare.”

Truth: Obamacare ends Medicare as we know it by imposing, among other things, severe reimbursement cuts that threaten access to care for seniors.

Promise: “I will sign a universal health care bill into law by the end of my first term as president that will cover every American and cut the cost of a typical family’s premium by up to $2,500 a year.”

Truth: There are at least 12 ways that Obamacare will increase premiums instead of reducing health care costs.

Promise: “Under my plan, no family making less than $250,000 a year will see any form of tax increase.”

Truth: Obamacare includes tons of new taxes and tax hikes. One that began this year is the 2.3 percent excise tax on manufacturers and importers of certain medical devices that will raise $20 billion by 2019.

It’s not that Barack Obama deliberately misleads; it’s just that so much of what he says isn’t true.

Few people now defend Obamacare besides the Congressional Democrats who participated in the dishonorable process of throwing it together, voting for a 2,700-page bill they had never read, and which had zero bi-partisan support.

Many believe that Barack Obama never really cared what was in the Affordable Care Act or if it ever makes it to implementation, and in fact wants it to fail miserably. And that’s because once it becomes law, replaces the prior system, and causes mass chaos, the stage would be set to move to a single payer, government healthcare system as the only way to fix the resulting mess.

In his worldview, socialistic/communistic systems are the solution to all the country’s problems, and that is how he wants to “fundamentally transform the United States of America.”

The best thing for the country is to repeal Obamacare and begin again to make the several relatively minor adjustments to the current system that should have been done several years ago. Short of that, delay implementation for everyone until the numerous problems can be addressed and repaired.

Neither is likely to happen, of course, because too many people can’t admit they made a mistake, or they truly want government controlled health care.

Foolish big-government policies continue to impede economic recovery

Economic news continues to be slightly positive, with May's numbers a mixture of good and bad.

Unemployment ticked up one-tenth, from 7.5 percent to 7.6 percent and, oddly, that isn't as bad as it seems, because 420,000 people who had dropped out of the labor force thought that the environment had improved sufficiently to start looking for work again last month. Had those folks remained on the sidelines, the rate likely would have held at a too-high 7.5 percent. However, 101,000 of those new job-seekers didn't find work, pushing the unemployment rate up.

The influx of new job-seekers, however, moved the labor force participation rate from 63.3, a 34-year low, to 63.4.

New jobs totaled 175,000 last month, a little better than the 155,000 average of the last three months, but most were low-paying jobs that are not likely to increase consumer spending. And that number is well below the number needed monthly to make real progress in lowering the unemployment rate. The Federal Reserve Bank of Atlanta's calculator shows that more than 400,000 new jobs per month will be needed to get the unemployment rate down to the full-employment level of 5.0 percent in a year, and nearly 261,000 new jobs a month to hit 5.0 percent in two years.

Four years after the $1 trillion stimulus package that was supposed to generate a 5.1 percent jobless rate, we are still a long way from that number with unemployment 50 percent higher than that. And as long as consumer confidence remains low and business uncertainty remains high, unemployment will not change much.

Businesses that scaled back workers during the recession continue operating with fewer employees, uncertain of how their costs may increase through higher taxes and costs related to health care reform, and won't hire more workers until those uncertainties are put to rest, or until there is a surge in consumer demand. However, consumers also are nervous about spending in the current economic environment, and are waiting for stability.

Last Thursday's Labor Department numbers showed that non-farm productivity, defined as output per hour of all workers, rose at a 0.7 percent annual rate in January through March, reversing the trend in the last quarter of 2012, as the economy sputtered.

One explanation for the recent pickup is that businesses saw higher demand for products and services over the winter, and that typically leads to higher wages for workers, ultimately improving living standards. However, it might also mean that employers are getting more out of their current workforce and thus have no urgent need to hire, which does not improve the unemployment picture.

On the topic of health care reform, the public has never embraced the Affordable Care Act known as Obamacare, and is even less enamored of it today, according to a new Rasmussen Reports national telephone survey.

Rasmussen found that only 41percent of the 1,000 likely voters that participated now hold at least a somewhat favorable opinion of the health care law, while 54 percent view it unfavorably. A tiny 15 percent view Obamacare very favorably, while 40 percent have a very unfavorable view of the law.

A slightly better rating appears in the new NBC News/Wall Street Journal poll, which shows that 49 percent of Americans say they believe the Affordable Care Act is a bad idea, while just 37 percent say it is a good idea. Like the Rasmussen poll, the NBC/WSJ poll had a substantial number of participants who strongly believe Obamacare is a very bad idea, at 43 percent.

These numbers reflect an increase in unpopularity since July 2012, when 44 percent of NBC/WSJ poll respondents called it a bad idea, while 40 percent called it a good one.

Some of the reasons for this unpopularity are that while the Affordable Care Act promised to lower premiums for families, regulators decided to impose a 3.5 percent surcharge on insurance plans sold through federally run exchanges. There also is a $63 fee for every person covered by employers, and a "premium tax" that will require insurers to pay more than $100 billion over the next decade. The Joint Committee on Taxation expects insurers to simply pass this tax onto individuals and small businesses, boosting premiums another 2.5 percent.

Earlier this year, the Congressional Budget Office said that 7 million people will likely lose their employer coverage thanks to Obamacare — nearly twice its previous estimate. The CBO said that number could be as high as 20 million.

And in December, state insurance commissioners warned Obama administration officials that the law's market regulations would likely cause "rate shocks," particularly for younger, healthier people forced by Obamacare to subsidize premiums for those who are older and sicker.

Combined with the other liberal policies that have caused the recovery to stall for four years, the unpopular federal takeover of health care deepens uncertainty for businesses and raises insurance and health costs for consumers. Then there is Obamacare's planned involvement of the IRS.

A stagnant recovery and pain and suffering are what happens when the narrow ideological dreams of the ruling elite take precedence over addressing the real needs of Americans.