This isn’t surprising at all, as someone who works in the field, but these so-called “me-too” drugs which are reportedly better than their forebears is driving costs.
A “me-too” drug is a drug that has its origins in another drug. Probably the most famous example of this is Prilosec (“The Purple Pill”) and Nexium (“Today’s Purple Pill”). Prilosec’s active ingredient is omeprazole. Nexium’s active ingredient is called esomeprazole.
What’s the difference? Well, Nexium is the left-handed version of omeprazole. In chemistry, S stands for sinister, which means the molecular conformation has a left-handed orientation. (D would be right handed.) So this S-omeprazole is one half of the mixture that comprises it’s predecessor. By specifically picking only the S conformation, the drug is made more potent. This sounds great, but its efficacy is only marginally better than Prilosec — which has a generic version, and costs about a third less than Nexium.
Is this slight increase in efficacy worth 1/3 more? Well, AstraZeneca’s own research suggests that they are not. Nexium was created because AZ’s patent on Prilosec was finally running out, and they wanted to continue to making money from one of their flagship drugs so they released a new version that costs more and performed only partially better. This is the classic definition of a “me-too” drug. Often the research is sort of doctored to make the new drug seem much better than the old. In the case of Nexium, the literature put out by AstraZeneca compared 20mg of Prilosec to 40mg of Nexium. Of course Nexium performed better.
I spoke with an acquaintence who happened to be a drug rep for AstraZeneca, and one of his drugs had been Nexium. He told me that AstraZeneca had compared 40mg of Nexium to Prilosec, and the difference was so negligible that they simply suppressed it, and opted to publish the lobsided 20mg-40mg comparison. He also admitted that Nexium was only released because the patent on Prilosec was expiring.
Some other “me-too” drugs come readily to mind:
- Claritin (loratidine) and Clarinex (desloratidine)
- Celexa (citalopram) and Lexapro (escitalopram)
- Nexium (esomeprazole) and Prilosec (omeprazole)
Generally, these me-too drugs are released as a means to beat patent expiry, as I explained above. In the case of Claritin, not only was the patent expiring, but it went over-the-counter. Almost no insurance companies will pay for Clarinex because it’s so similar and doesn’t demonstrably work better.
Some of these “me-too” drugs are better in most cases without doctoring research findings. Lexapro, for instance, is more potent because only the S enantiomer has any effect in the body, so Forrest opted to remove the D component entirely — citalopram vs. escitalopram. The result is a drug with a lesser side effect profile, and a greater success rate. Nonetheless, it is also a “me-too” drug, and is more expensive than Celexa (for which a generic is now available).
Given everything I’ve said above, it should come as no surprise that these more expensive “me-too” drugs cost the medical industry money. Coupled with an effective marketing campaign — drug reps and direct-to-consumer advertising — patients clamor for the newer drugs, and doctors write for them. If I were a big pharmaceutical company, I’d probably do exactly what AstraZeneca and others have done, simply because it’s good for the bottom line, despite the fact that it contributes to the rising cost of health care in the United States.
After creating a new “Economics” post category yesterday, this is my second post on the subject in as many days. In any case, I was reading up on Hurricane Katrina and her aftermath, and I came across this article on price gouging, which I like from a theoretical standpoint. While I largely agree with Mr. Brown’s arguments, I do believe that they are oversimplified — “ceteris paribus” does not apply.
In essence, Brown asserts that price gouging is not unethical because it stems naturally from supply and demand. He uses ice as an example:
But suppose the store owner is operating in an unhampered market. Realizing that many more people than usual will now demand ice, and also realizing that with supply lines temporarily severed it will be difficult or impossible to bring in new supplies of ice for at least several days, he resorts to the expedient of raising the price to, say, $15.39 a bag.
Now customers will act more economically with respect to the available supply. Now, the person who has $60 in his wallet, and who had been willing to pay $17 to buy four bags of ice, may be willing to pay for only one or two bags of ice (because he needs the balance of his ready cash for other immediate needs). Some of the persons seeking ice may decide that they have a large enough reserve of canned food in their homes that they don’t need to worry about preserving the one pound of ground beef in their freezer. They may forgo the purchase of ice altogether, even if they can “afford” it in the sense that they have twenty-dollar bills in their wallets. Meanwhile, the stragglers who in the first scenario lacked any opportunity to purchase ice will now be able to.
Mr. Brown goes on to argue that rationing is not an effective method of controlling distribution for the simple reason that some people may legitimately need more ice, and be willing to pay whatever it takes to get the ice they need. But this argument depends on all other things being equal, and Mr. Brown is making a dangerous assumption: that everyone is on equal economic footing, which is obviously not the case in the real world.
In New Orleans, 28% of the population is below the poverty line. This means that people who legitimately may need a large amount of ice simply won’t be able to afford it, because in absolute terms, they literally don’t have the money to purchase it. (Obviously using ice in the case of the situation in NoLa is superfluous since they can’t even get drinking water.)
Mr. Brown’s theory is nice, but it doesn’t work everywhere, which leaves us back where we started: how do you control distribution of goods in a severely depressed market without resorting to ineffective price controls and rationing? As implied earlier, price controls don’t work because suppressing the price of goods can create an artificial demand and lead to things like hoarding, which creates further shortages. (The NYC rent controls are another example of artificially controlling prices creates more problems then it solves.)
While I like to think I poked a hole or two in Mr. Brown’s thesis, I don’t have a suitable universal solution to offer in its place — probably because there isn’t one. I guess it’s simply a matter of choosing the lesser of two evils, but even that seems like a difficult proposition.
Personally, I’ve not gotten the chain email that’s going around, but it seems to be quite widespread. I was reading the Freakonomics blog (an excellent read, by the way), and I came across the rebuttal of the chain email stating that if we all didn’t buy gas for a day, we’d ruin the oil cartel.
I remember reading a similar email years ago, and for some reason, I always wondered idly if it were true. Not having thought about it much, I sort of forgot about it. But with all the insanity in the US surrounding the rising gas prices, it has resurfaced, more popular than ever. Officially, today was to be the day that no one bought gas. I’m sure that this didn’t happen for myriad reasons, the main one being that despite the size and saturation of Internet access in American households, the Internet is still fairly new, and newspapers and television still reach a wider audience. Even massive websites, like Slashdot, only reach an average of ~2000 people per million, or 0.2% of the population. So even if a place like Slashdot had posted it, it still wouldn’t have made that big of an impact. Of course part of the slashdot effect is that many other, smaller websites pick up whatever is posted, further disseminating it to the masses. Supposing that doubled the number of viewers, that would still only be 0.4% of the population.
I think you can see where I’m going with this. Chain emails are futile for getting anything changed, and so is posting on websites that have niche audiences… even those sites that would be considered huge in absolute number of visitors. It is virtually impossible to reach the majority of the American public because they all have different interests and tune into different things.
Alas, I’m rambling. Back to gas prices and bringing down the oil cartel. If you read the post on Freakonomics, Levitt systematically disassembles the email piece by piece, calling into question the figures bandied about, among other things. I largely agree with him, except with one minor nitpick.
If nobody buys gas today, but everybody drives the same amount, then it just means that we either had to buy more gas in anticipation of not buying any on September 1, or that we will buy more a few days later. So even if you believed this would take a $4.6 billion dollar bite out of the oil companies that day, consumers would hand it right back over. If this was “No Starbucks coffee day” it might have some chance of mattering, because people buy and drink Starbucks coffee the same day, so a foregone cup of coffee today may never be consumed. But this is not true of gasoline, especially if no one is being asked to reduce gas consumption. All you will get is longer lines at the pump the day after.
Even supposing the impossible were to happen — everyone opting to not buy gas on September 1 — I don’t necessarily think that the days before and following the chosen date would necessarily completely make up for people not buying gas on that day because people will associated not buying gas with not driving, despite assertions to the contrary. That’s my only minor nitpick, and I would go so far as to extend Levitt’s paragraph quoted above a little bit further. For simplicity’s sake, assuming that roughly the same amount of gas is sold every single day, seven days a week, only 1/7th of the gas-buying population would have filled up today anyway. So at most that would have been a 14% impact to the bottom line for the week. In the big scheme of things, this little blip on the radar isn’t a whole lot when the year as taken as an aggregate, further illuminating how silly the idea of bringing down the oil cartel by not buying gas for a day truly is. Of course, everyone knows that the real solution to the gas problem is greater efficiency, driving less, and finding alternative fuel sources.
Why are gas prices rising, then? That’s the question I’d like to see answered. I have a few thoughts on why, but I know I don’t have the whole story. Nonetheless, I’ll share my thoughts with you.
With Hurricane Katrina tearing NoLa to shreds (donate!), I’ve been watching the news more than I normally do, and the hurricane coverage is typically followed by the next biggest story: soaring gas prices. Indeed, prices jumped about a quarter literally overnight here in New England. Interviewed on the news are lots of understandably angry residents. Some of the comments are… interesting to say the least. One man complained that the president and the government should do something. Another person complained that the government should lower the prices, as if they somehow magically controlled the pricing. I felt a great deal of dismay after watching these interviews, because it was depressing to see how ignorant a large section of the population really is. (As a side note, they also interviewed a Canadian, and he had the most balanced view of anyone they interviewed, noting that we Americans actually have it pretty good. Does that say something about most Americans, or was he just an astute Canadian? That question I leave for you to ponder.)
With respect to the government, about the only thing they can do is decrease its oil reserve to temporarily increase the domestic oil supply. Naturally, the laws of supply and demand determine the prices of nearly everything, and increasing the available stock will decrease the price at the pump. Now, just about everyone knows that OPEC controls the majority of the world’s oil supply, and that they have been known to artificially decrease the supply (by pumping less oil) to increase the price of a barrel of crude. This time, though, they probably aren’t doing this. Instead, it seems as though China might be to blame. As China modernizes, their demand for oil increases, and it seems as though OPEC might be having a hard time keeping up with the demands of both the East and the West. As a result, prices are rising because this time, the scarcity is real, leading to an increase in price at the pump.
I know that this is only one piece to a very complicated puzzle, but I think that it is something that citizens should bear in mind the next time they start to complain about the price of gas (or anything else): it’s about supply and demand — artificial or real is irrelevent because the net result is the same. Without getting into very complex shades of political gray — Halliburton, the war in Iraq, taxes on oil — the government does not control everything, and as such, they should not be held responsible for every little problem that causes Americans as a collective, to gripe. There’s nearly always another side to story, and the mainstream media should do their best to educate rather than sensationalize. (Yes I crack myself up sometimes.)