
-Bob Ehrlich
Bernie Sanders, the fast rising socialist/populist candidate for President, does not particularly like drug companies. He thinks they make outrageous profits and is for introducing legislation to cap prices. He will propose Medicare negotiate prices, something prohibited under the prescription drug act. He will also require disclosure of costs of developing drugs, and require transparency on what the drug costs in other countries. Finally his bill would permit importation of drugs from Canada.
These proposals have been made before, many times over. The same argument continues to be made that drug companies sell drugs for more in the U.S. than other developed countries. The typical Democrat response is to propose price controls and cite outrageous prices knowing the issue is political red meat to their constituents.
Do drug companies make outrageous profits? I compared the net profits at drug companies to other industries based on data summarized by the NYU Stern School of Business. Drug companies make about 16% net margin. That is a healthy profit but not that different from soft drinks at 13%, entertainment 13%, computers 14%, banks 19%, railroads 18%. Good profits yes, outrageous no. Career politicians who have no business knowledge consistently fail to understand that drug prices cannot be interpreted in a vacuum without looking at costs. Costs are more than the marginal production cost of stamping out a pill.
The argument that Medicare should negotiate better prices based on foreign price comparisons is in effect government price controls. Price controls in other countries do mean lower prices for the Europeans and Canadians. If price controls were instituted here profits would decline, and research would be geared to me-too drugs. Senator Sanders, a proud socialist, is not concerned with the cost of drug development and thinks he knows the acceptable level of profits for drug companies.
The importation of drugs from Canada will cause drug companies to quickly limit what is supplied to Canada. Drug companies will supply their higher priced markets first and will not allow re-importation to destroy their U.S. pricing. In the short run Canadian consumers will not be able to get their drugs because of increased demand here for cheaper Canadian drugs.
While it sounds easy to make prices lower here through government edict, one must be aware of unintended consequences. Bernie Sanders will get lots of applause talking about greedy corporations, but he is being naïve if he thinks he can have new drug innovation with price controls. We will end up with companies focused on high return R&D for minor me-too improvements only in large disease categories.
We need drug companies to take big risks to find cures for the next Ebola, bird flu, or resistant bacteria. While we like to think there is always a brilliant government scientist ready to find a cure but the reality is different. It is private sector drug research that finds our cures and that is expensive. High risk research deserves high rewards, even outrageous rewards Senator Sanders.





Health beliefs are predisposing characteristics that are not easily changed.
Developing Specific Targeted Strategies
Taking an inclusive stance toward LGBT consumers can influence non-LGBTs, especially Millennials. Most of us are aware of the fact that Millennials are the most diverse consumer segment we’ve ever seen. And Millennial culture includes respect for and appreciation of diversity, including LGBT. According to Pew, 70% of Millennials support LGBT marriage equality – the highest of any generation. Brands today are taking note of this cultural value and using it as a way to gain sales and share among Millennials. This works particularly well for established brands that are trying to shed an image of being “dated” or not relevant to today’s consumer. Two brands using this approach are Coca Cola, who ran an ad during the Olympics that was a celebration of diversity, including LGBT, and Honey Maid’s This is Wholesome campaign featuring tattooed, interracial, and gay parents in their modern take on the American family. Healthcare could benefit from this more modern image, courtesy of a supportive take on LGBTs.
Narrow Impact: Fee-for-Value
Broad Impact: Patient & Lifestyle Autonomy