Puzzled by drug prices

Probably not that simple. My understanding is that CMS is in scramble mode because of this cap. Insurors, predictably, planned to make up for the lost revenue by increasing premiums proportionately. This being an election year, the Biden administration came up with some enormous lump sum to make up the difference to the insurors. Of course that money doesn't cost anything, right? 🙂

Gross earnings aren't very meaningful when there's no cost basis. It always gets the natives riled up to hear about greedy _____ making BILLIONS in profit.

You need to look at the net earnings margin so you can see how earnings compared to revenue on a percentage basis.

I looked up an analysis of net earnings margin in % for all sectors and found that drug manufacturing (general) came in at 14%, which was the 15th highest among sectors in the economy. The highest was Financial Data and Stock Exchanges at 29.6%. Given the risk, regulation and R&D involved that doesn't seem unreasonable to me.

In the US if your income is below four times the poverty level most of the major companies will give you expensive newer drugs for free, as you mentioned. Many of the insurance drug plans will give you a major discount under the same conditions especially if over 65 under Medicare.

The problem is that many people live paycheck to paycheck and paying the co-pays is more than lot of people can afford.

That chart is not gross earnings, that chart is their 2023 net income.

I don't think the pharma companies are especially more evil than any other big multinationals (low bar, I know), but bigcorps will always try to get away with as much as they can, and the politicians we elect let them get away with a lot.

Given that most of their sales worldwide are covered by taxpayers, it would be more cost-efficient for governments to fund all the R&D themselves (they already fund much of it through universities), and then make the results available patent-free to generic manufacturers. They'd easily make back the money (and more) in lower drug costs for Medicare, the UK NHS, and all the other taxpayer-funded health programmes around the world (and also in savings on international medical aid for poorer countries).

Will it happen? I doubt it.

(ok, I try to avoid politics here, so end of rant 🙂 )

You're right, I misstated that. But the point is the difference between that and margin. 14% sounds a lot different from XX Billion $s.

Yes, it does! When I was a kid and worked for Burger King, I remember the District Manager coming into our store and reaming out the manager because they hadn't met the 20% net profit bottom line for two months—they missed it by 1%, lol. It's everywhere!

For anyone that may be interested, I purchase my Zytiga (Abiraterone) from Mark Cuban Cost Plus Drugs. After checking costs thru my insurance company and realizing the astronomical cost, my oncologist at Mayo Clinic Phoenix referred me to the Mark Cuban company. You pay out-of-pocket, but costs have ranged around $125 per month. Last month I was pleasantly surprised when the cost had come down and was only $92. The service is done online and the medication is shipped directly to your home. Would recommend this service to anyone looking for alternatives. All you need is your doctor to send a prescription to Mark Cuban Cost Plus Drugs.

Different sectors work with different profit margins -- there's no standard. For example, the big Canadian grocery chains get by with a post-tax net income of 2–4% of gross sales because they're high-volume businesses. I have no idea what the baseline would be for pharma.

Here in Belgium the retail price is 170Euro (190USD) for Orgovyx but free for everyone (insurance is universal). I think these prices are negotiated at the European level so they have a bit of leverage.

The drug companies do need to recoup their investment though (including for any failed drugs along the way) so it looks like the US market is covering a lot of this cost and other markets get the lower rates (which is not fair I know).

On the other hand we don't have drugs available until later than the US: Orgovyx was only available in Nov 2023 in Belgium.

So if you need lifesaving drugs and can pay or have good insurance, the US model has positive points.