Replies to post #181796 on Biotech Values

[zipjet]

If the company is developing the drug through approval, I agree.

But RTRX isn't developing anything. They're just rent seeking on the backs of patients.

Good distinction. It is certainly different. To that extent I agree.

I would argue two directions on this. First, there is value-add beyond approval (in many ways beyond what I will suggest). Second, Profits and Capital Allocation - our system allows pricing freedom and relies on market functions to operate on pricing (generics and competing products) and capital allocation producing profits that are a key driver of capital allocation promoting drug development in next-stage growth.

Value-add:

VPHM bought their c-diff drug (Vancocin) from Lilly. They raised pricing dramatically and spent years defending the validity of their drug to the FDA and delayed generics. Of course, some will find that another abuse. But then the FDA did not think so or they could have quickly approved the generics.

GILD essentially bought Sovaldi then priced it at an extraordinary level compared to COGS. So RTRX raising prices is not as unusual as a casual observer might think.

In the case of RTRX. The former supplier of Thiola was not even able to maintain a stable supply of drug at the old pricing leaving patients unable to get the drug at all. So providing a steady supply will be an improvement that warrants some price change. They also intend to market the drug, and reformulate it to get better compliance and ease for the patients. Again some value-add.

Profits and Capital Allocation:

In our system of capitalism, "profits" (current, future, and hoped-for-profits) are the key driver of capital allocation. Thus, "profits" generate the entire funding of the company (industry) directly when the profit takes place and indirectly by supporting the raising of equity and debt funding. It is this broader funding that allows the US to drive all new drug development. Even foreign companies that thrive in drug development largely do so on the back of the US version of capitalism and drug regime.

In the case of VPHM, they were able to use the profits from Vancocin to buy Cinryze and do other drug development.

RTRX's intent is to develop many drugs for under served orphan indications. "Profits" from Thiola will drive that. Will they succeed? Will it ultimately be a good allocation of capital? Time will tell.

But those who attack the US approach, may want to think further and ask whether we and the rest of the world would be better off if we adopted some different form of price controls. Other countries have modeled those approaches for us.

The amusing thing to me is that many of the people (scientists) who benefit the most from this state of affairs, are oblivious to their benefactor.

:-)

[GrthzGd]

I don't think you meant that RTRX is "rent seeking," which refers to a company devoting resources to influencing politicians to bend the law to favor its products over those of its competitors. An example of quasi-rent seeking might be Teva's devoting resources to making spurious patent filings to extend the patent protections for Copaxone instead of developing or buying newer and better drugs. There are probably many other examples that we don't see, such as perhaps, companies' paying high priced lobbyists to insert language into bills to further the reimbursement for particular drugs through Medicare.