“Although the results of this latest survey are clear I am not sure if the respondents are truly aware of the implications of these results. In free market economies cartels are generally illegal.”
The following is the Wikipedia definition:
A cartel is a formal agreement among competing firms. It is a formal organization where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members’profits by reducing competition.
“I very much doubt the Pharma industry would do anything illegal, such as running a cartel in the United States. However, the current trend of MS DMT pricing in the US is clearly illogical; it is not predictable or based on free-market principles. Every time a new DMT is launched in the US the prices of all the other drugs go up. Why? Common sense suggests the market should become price sensitive and the prices should fall. Is this another example of the Red Queen Effect? I am not an economist so I have no idea why the US is market is behaving so irrationally. May be some of you may have the answer? Whatever the explanation it is unsustainable and it is only a matter of time before regulators and politicians get involved. When markets stop working they need to be regulated. Ask the bankers!”
Other posts on this blog that relate to this survey:
25 Sep 2012
I was at a meeting yesterday with some American colleagues and nearly fell off my chair when I heard that teriflunomide has been priced at $45,000 per year for American MSers. Even more astounding was the news that …
07 Oct 2012
The Red Queen Effect, is a term taken from the Red Queen’s race in Lewis Carroll’s Through the Looking-Glass. The Red Queen said, “It takes all the running you can do, to keep in the same place.” The marketing departments …
13 Jun 2012
The Red Queen Effect, is a term taken from the Red Queen’s race in Lewis Carroll’s Through the Looking-Glass. The Red Queen said, “It takes all the running you can do, to keep in the same place.” The marketing departments …
26 Sep 2012
This reminds me of the red queen! Each company feels it has to keep up with the next. The problem is they seem to behaving like Lemmings! Let’s hope the goose that lays the golden eggs doesn’t die from an obstructive …
27 Nov 2011
The Red Queen Effect, is a term taken from the Red Queen’s race in Lewis Carroll’s Through the Looking-Glass. The Red Queen said, “It takes all the running you can do, to keep in the same place.” The marketing departments …
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This is something that has worried me for some time. Considering that the US usually takes a hard line on anti-competitive practices I am surprised that no investigation into the pricing of drugs for the MS market has been undertaken.The champion of free markets Adam Smith had something to say about this.“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.It has taken a long time to get Pharma interested in the MS field but now they are the perception is growing that it is seen as a cash cow, particularly as MS exists in rich western countries.This market needs to be better regulated.We know Pharma read this blog and I for one would be grateful for any feedback on this subject as the reputation of the industry as a whole could not be lower, particularly after the Ben Goldacre Bad Pharma revelations.
You should look into Game Theory if you are interested in these matters.The addition of a new player to a game (say a new DMD) will diminish the marginal profit of the existing player. As such, rational players raise the stakes to maintain the same game outcome (i.e. higher prices to maintain revenue stream in a shrinking market share).Real market principles should dictate that one of the players would undercut the others (if A lowers their pricing levels, B and C will have to do so to maintain their fair share).The herd behaviour economic (i.e. cartel) occurs when all the players are in agreement that no single player will under-cut the game (otherwise they all fall in a loose-loose scenario, like in technology).As such, a cartel (or pricing agreement) is certainly present – otherwise no player would risk loosing his game by pricing herself out of market.Is this legal? not in Europe. But unlike dumping, cartels are difficult to prove as all player can adopt a "common-sense" defence strategy (i.e. we thought that all rational player would behave this way, so we did the same – without talking to each other)The game can only be broken by a heavy weight like the NHS: negotiate with each player separately rather than with a herd and exclude/penalise non-compliant players from the UK market.But pharma knows that this very difficult for the NHS to implement because of the social pressures associated with a degenerative disease.MS is cow with golden eggs.
Very instructive Tony and entirely agree.
The first company to reduce DMT prices is likely to gain a lot of market share, and perhaps earn higher profits in the short term. In the long therm this will force a reaction and the others will have to lower their prices too, so market share will even out again.Ultimately they will all have lower profits and that's a lose-lose situation.So they don't need a formal cartel. None of them wants to be responsible for lowering profits all around. IMO a company will risk a drastic price reduction only if they are confident their product is much better than the competition. In that case they know they will be able to hold on to the extra market share even after the others reduce prices too.
That's what Adam Smith would propose but it seems that this business model has been forgotten by Pharma (and many other areas of business).The pricing model seems to be what the market will bear rather than any attempt to undercut on price to increase market share. The strategy seems to be to be on marketing blitzes to influence prescribers rather than any price reduction. If a drug is at least as effective as it's competitors then a lower price should dramatically increase market share that this doesn't happen suggests at least some sort of informal cartel.A salient point to remember is that marketing budgets tend to come in at least twice the R&D budgets.The market is broken and must be regulated.
I'm not an economist but here are 2 guesses:-In the US market the payers are the insurance companies and thay may not object to increased prices. They will just increase premiums. -The price as stated on the box may not mean anything. Chances are nobody ever pays that price as real prices are negotiated with each payer. An increased price give them more leeway and prevents their product from seeming inferior
Interesting thoughts.But one needs transparency for fairness as we are dealing with a life-essential commodity (like water, wheat…)Bread pricing is transparent and linked to purchasing power. Everyone should be able to afford it.Last, fairness (or the public perception of fairness) is a real issue with the current practice.Check this experiment:http://www.youtube.com/watch?v=aAFQ5kUHPkY
V interesting video, though I didn't understand the relevance to drug pricing. Not sure if it's unrealistic to expect transparency in drug prices. For example, we don't even know how much the NHS is paying for fingolimod.Here's a March 2011 piece about drug price increases and rebates in the US (for drugs in general, not MS drugs in particular)http://online.wsj.com/article/SB10001424052748704629104576190621185676798.htmlEXTRACTS:- Even as government and private health plans push to restrain spending on medicines, the prices of brand name prescriptions are climbing rapidly, reaching the steepest rate of the decade last year.- Health plans usually negotiate rebates—often a percentage off the list price that drug makers pay when a payer covers the cost of a prescription—to lower their costs. Payers are able to negotiate such concessions because they could otherwise refuse to cover a drug, or encourage use of a competitor.- And these rebates have been on the rise. Rebates for private plans averaged 14.3% of a brand-name drug prescription in 2009, up from 8.4% in 2002, according to investment research firm Sector & Sovereign Research.- By hiking prices, drug makers are "looking to maintain and keep their profit up," says Eileen Wood, vice president of pharmacy and health-quality programs at CDPHP, a health plan in New York State. Ms. Wood and other payers say patients and their employers ultimately bear the higher cost."The price increases get rolled back into premiums" and also increase out-of-pocket costs like co-pays, said Helen Sherman, chief pharmacy officer at the pharmacy-benefits manager for Regence BlueCross BlueShield, a major insurer in the Northwest.- Drug companies call the increases misleading, because they don't account for the rebates they give. J&J says that, in fact, drug pricing had a slightly negative impact on revenue last year when rebates and discounts are considered, though the company wouldn't quantify how the givebacks compared with the price increases for Concerta or other specific drugs.- But Richard Evans, a former Roche Holding pricing official who tracks the issue at Sector & Sovereign Research, says drug-price increases overall have outpaced rebate growth. Drug prices went up an average $58.96 per prescription between 2002 and 2009, while the rebates for private health plans increased $12.57, according to his analysis.
Goodness knows how access to DMTs should be a human right, especially considering the data produced thus far suggests these drugs are slightly effective in less than half the people taking them.It's a huge cost for a range of products that are hugely expensive to tax payers and don't seliver good enough results.The only Government will subsidise better funding for MS drugs is if they deliver better results such as remyelination and a degree of recovery of lost function. That kind of result will provide open chequebooks.
Whilst it may be true that the first generation of DMTs such as beta interferon or copaxone were only modestly effective, the new generation, Tysabri, gilenya and alemtuzumab are much more effective in reducing relapses. As to drugs that promote remyelination or repair of function, these will be different drugs to the DMTs, though data from the alemtuzumab indicate there is some restoration of function if treatment is initiated early enough.You need to temper your pessimism!
There are the risks to those new generation drugs. PML especially. Side effects too. Pessimism is in fact warranted when you have MS.Agree agree agree about the concerns about Pharma seeing MS as a cash cow.