Year: 2016
The Good News on the FDA and ANDAs
Yesterday, I pointed out that generic drug prices are falling. So what accounts for the small number of large price increases in the generic drug market? It’s a combination of market shenanigans, supply shocks, and FDA delay.
The markets where price increases have been large tend to be relatively small. Daraprim, for example, is only prescribed some 8-12 thousand times per year in the United States. The small size of these markets is no accident. Keep in mind that whatever one may think of Shkreli, he did show a kind of entrepreneurial genius in scouring the universe of drugs in the United States to select one where monopoly power could be so effectively exploited. Shkreli found a market where 1) the total size of the market was low so there wasn’t much competition but 2) the drug treated a serious illness and 3) there wasn’t a good substitute so the value of the drug to the small number of patients was very high.
In addition, Shkreli knew that he had at least a 3-4 year window of opportunity to exploit monopoly power. To compete with Daraprim a competitor would have to submit an Abbreviated New Drug Applications (ANDA) to the FDA. Despite the name, Abbreviated, it costs at least five million dollars to go through the process and right now there is a backlog of nearly 3,000 ANDAs at the FDA’s Office of Generic Drugs. In recent years, it has taken 3- 4 years to get a generic drug approved. The cost is too high and the delay too long.
(I am focusing on the standard route to market entry and ignoring the possibility of importation or compounding which I discussed earlier. I’m also ignoring that Daraprim is unusual in that it was approved in 1953 before the current FDA system of safety and efficacy trials, and the FDA is being absurdly cagey about whether they would allow a simple ANDA for Daraprim. I may write about that in a future post– see here for a related case.)
So what’s the good news? In 2012 Congress passed the Generic Drug User Fee Act (GDUFA). Modeled after the very succesful PDUFA, the act earmarks fees paid by generic drug manufacturers to the FDA’s Office of Generic Drugs. As a result of those fees, the FDA has hired more reviewers and they are rapidly reducing the backlog. That’s the first piece of good news.
A second piece of good news is that FDA delay isn’t the only cause of the backlog. Another cause of the ANDA backlog was an unexpected increase in the number of ANDAs. I would have been much more worried if the number of ANDAs had decreased. Despite new user fees and some increase in regulation the increase in submissions is evidence that the US generic market is competitive, vibrant, and profitable.
The generic drug market in the United States has been very successful. We are constantly told, for example, that US pharmaceutical prices are the highest in the world and that is true for patented drugs but generic drug prices in the US are among the lowest in the developed world and most prescriptions are of generics.
We can address the price hiccups in the generic market by opening up to more world suppliers, speeding up the ANDA process and keeping costs of entry low. Overall, however, we shouldn’t let the price hiccups detract attention from the fact that the generic drug market is competitive, vibrant and thriving and we want to keep it that way.
China fact of the day
WeChat had more mobile transactions over just Chinese New Year than PayPal had during 2015…
According to WeChat, owned by digital media business Tencent, 420 million people sent each other lucky money via the app’s payment service on the eve of Chinese New Year. According to WeChat, it has seen a total of 8.08 billion red envelopes sent so far for Chinese New Year, eight times more than last year.
To put this into context, according to PayPal it made 4.9 billion transactions in 2015 (half of the number of transactions made on WeChat just for Chinese New Year) and only 28 per cent were made on a mobile device.
Here is the article, hat tip goes to Erik Brynjolfsson. Do not underestimate the potential for Chinese innovation in information technology!
What I’ve been reading
1. Jonathan Bate, Ted Hughes: The Unauthorised Life. Fun, lots of sex for a serious book, and it makes you appreciate the diversity of human beings.
2. Ted Gioia, How to Listen to Jazz. Delivers what the title promises, in short, readable form; this book is good for either the jazz lover or the beginner. I am a big fan of pretty much anything Ted Gioia does, and this book has not broken the streak. By the way, here is Gioia on Ortega y Gasset and his continuing relevance.
3. Albert Camus, The Stranger. Worth a reread, especially if you grew up with something other than the Matthew Ward translation. Surprisingly current in its orientation and interests.
4. L. Jon Wertheim and Sam Sommers, This is Your Brain on Sports: The Science of Underdogs, the Value of Rivalry, and What We Can Learn from the T-Shirt Cannon. I enjoyed this book and found it reasonably analytical. There is a “home court” advantage even during hockey fights, and having sex before a big game doesn’t seem to diminish performance.
5. Joshua Gans, The Disruption Dilemma. A very good introduction to the game theory and institutions of “disruptive innovation,” the book also dispels many myths about that concept.
6. Nathaniel Hawthorne, The Blithedale Romance. I’m surprised this novel doesn’t attract more ongoing attention, even if some of the final plot choices seem a bit strange or forced. It is a brilliant critique of utopianism, socialism, Romanticism, and also philanthropy. I kept on thinking Arnold Kling should read it. In any case it is a marvelous story, a good read, and chock full of social science. You’ll find one controversial reading of the story here (jstor), a panoply of speculative hypotheses here (pdf).
China markets in everything
Nor has it yet dissuaded a Chinese company from producing Trump brand diapers.
By the way, here is a 2000 passage about Trump:
Oddly enough for a man who all but lives in the media, Trump has no public relations to speak of. In a day when even petty tycoons protect themselves with platoons of spokespeople and media people, he relies only on his longtime assistant Norma Foederer and returns most reporters’ calls personally, making him one of the most accessible businessmen anywhere. How ironic a man of his statue and money has to prove himself to the world everyday. Donald Trump is a very goal-driven person and I believe will always resurface no matter how his investments turn out. Trump summed his future in these few words, “Anyone who thinks my story is anywhere near over is sadly mistaken.”
Monday assorted links
1. An economist’s rational road to Christianity? (from Eric Falkenstein)
2. Pirates no longer have much interest in stealing oil. And Bernanke on oil and stock prices.
3. Clay Shirky’s observations on how social media have changed politics.
4. Anatole Kaletsky on why Brexit won’t happen. I tend to agree, but you can build the opposing case if you read Shirky on America and switch over the context.
5. When did American military planners start believing they could hold back a Soviet attack?
6. An excellent Gavyn Davies piece on the split within the Keynesian camp. And some reasons why it is hard to recover past output.
The Good News on Generic Drugs
Who could resist the story of Martin Shkreli and Turing Pharmaceuticals? Shkreli is like a villain straight from central casting; having made millions, perhaps fraudulently, as a hedge manager, he turned to pharmaceuticals where, as CEO of Turing, he bought up the marketing rights to Daraprim (pyrimethamine), a drug used by pregnant women and AIDS patients (natch), and jacked up the price from $13.50 a pill to $750 a pill. Not content with monopolizing pharmaceuticals, Shkreli also aimed to monopolize hip hop music. Shkreli on his own was a great story but add some big price increases for a handful of other generic drugs and Shrekli became an irresistible lead to a story about seemingly widespread increases in generic drug prices.
If we dig deeper, however, the big news about generic drugs is good news. Generic drug prices are falling. Three recent studies of generic drug prices all point in the same direction. Express Scripts, a large prescription drug manager, found that:
From January 2008 through December 2014, a market basket of the most commonly used generic medications decreased in price by 62.9%.
In an excellent overview the Department of Health and Human Services concluded that:
…drug acquisition costs fell for a majority of generic Medicaid prescriptions measured by both volume and total generic expenditures.
Finally the AARP studied the prices of generic drugs used by older Americans and found that:
Between January 2006 and December 2013, retail prices for 103 chronic-use generic drugs that have been on the market since the beginning of the study decreased cumulatively over 8 years by an average of 22.7 percent.
— The cumulative general inflation rate in the U.S. economy rose 18.4 percent during the same 8-year period.
Patented drugs are increasing in price so to evaluate the benefit of price decreases for generics it’s important to know that between 80 to 90 percent of all prescriptions in the United States are for generic drugs.
Tomorrow: The Good News on the FDA and ANDAs.
Why is there a lesbian wage premium?
Marieka Klawitter of the University of Washington looked at 29 studies on wages and sexual orientation last year.* On average, they found a 9% earnings premium for lesbians over heterosexual women, compared with a penalty of 11% for gay men relative to straight men. This discrepancy has been borne out by research on America, Britain, Canada, Germany and the Netherlands. Even after adjusting for the fact that lesbians are on average more educated than straight women, and less likely to have children, the gap persists.
Note the evidence suggests lesbians are not more competitive than non-lesbian women, and lesbians receive no wage premium in the public sector. Here are some possible hypotheses:
…they work more hours per day and weeks per year than straight women, on average (see chart). Over time this could translate into more experience and better chances of promotion. There is a clue in a paper from Nasser Daneshvary, C. Jeffrey Waddoups and Bradley Wimmer of the University of Nevada, which finds that lesbians who have previously been married to men receive a smaller premium than those who have not.
Finally, it could be that in same-sex couples women do not feel obliged to do as much childcare or housework, giving them more freedom to fulfil their potential in the workplace. Lesbian couples tend to work more equal hours, even when they have children, and several studies find that same-sex households share chores more evenly than heterosexual ones.
That is all from The Economist.
Africa risk of the day
…seems entirely manageable. Here is The Economist:
Flying on a passenger jet in Africa is now about as safe as it would have been to board a European or American one about two decades ago. And the best African airlines are almost as safe as their global counterparts, says the International Air Transport Association (IATA).
Propeller planes still lag somewhat behind…
Sunday assorted links
1. Do markets think central banks still can move markets?
2. Annie Lowrey calls for revitalizing welfare as we knew it.
3. Divorce laws and the economic behavior of married couples. And do women receive less for their eBay sales than do men?
4. Excellent Tom Wainwright piece on how economists would approach the problem of addictive drugs. His forthcoming book Narconomics looks very good, I put in my pre-order.
5. A college degree is especially useful for appreciating Ben Carson.
New Hampshire fact of the day
There are several ways of thinking about economic distress. One is inequality. Utah is the most equal state, then Alaska, Wyoming and New Hampshire. In terms of median family income, Maryland is the richest state, then New Hampshire. So the Granite State is in a sweet spot, both very rich and relatively equal. But its drug deaths exceed the national average.
That is from Scott Sumner. And this:
In contrast, the 5 states with the lowest rate of drug deaths are all in the northern plains area. (Note that the 4 most equal states and the 5 lowest drug deaths states are mostly white, but their drug death rates are vastly different.) Interestingly after the 5 plains states you have Virginia, followed by four very unequal states, with lots of poverty; Texas, New York, Mississippi and Georgia rounding out the top 10 for fewest drug deaths.
Economics isn’t everything, nor is inequality.
Given that Trump is winning, which other views should we update?
I asked this question to Nate Silver, but didn’t myself have a chance to address it. Since most of us have been surprised by the rise of Trump, presumably other, broader views must be updated too. But which ones? I see a few options, which are not for the most part mutually exclusive:
1. Social media are more powerful than we had thought, and more powerful in politics in particular.
2. Republican voters are less conservative, less “Tea Party,” and less libertarian than many people had thought. And the “periphery Republicans” are stronger and more numerous and more easily excited than we had thought.
3. Republican primary voters are more racist than we had thought.
4. Backlash against immigration and immigrants sets in more quickly, when middle class wages are stagnant, than we had thought. And true cosmopolitans are hard to find.
5. The value of commanding and dominating media attention, in a year with no clear front-runner Republican candidate, is higher than we had thought.
6. Trump is more skillful at trolling and pulling levers of public opinion than we had thought.
7. Democracy is less stable than we had thought.
8. New Yorkers are more nationally marketable than we had thought.
Perhaps all of these are true, and yet Trump’s leading role still remains a fundamental surprise. Which other hypotheses am I missing? In any case, it is time for some updating…
Addendum: Stephens-Davidowitz has numerous good thoughts, such as:
The Black Swan view of the world makes even more sense. We wrongly think things that are different are impossible.
Charisma matters more than we thought and is hard to pin down
People REALLY HATE politicians more than we thought …
Something that is off-the-charts entertaining is hard to stop. The media has a huge incentive to keep it going.
Among others.
The culture that is German, with reference to Umberto Eco
Or should that be “was Germany”?
Reviewing Mr. Eco’s fourth novel, “Baudolino” (2000), in The New York Times, Richard Bernstein wrote that it “will make you wonder how a storyteller as crafty as Mr. Eco ended up producing a novel so formulaic and cluttered as this one.”
Set amid the religious disputes and wars of the 12th century, “Baudolino” became the best-selling hardcover novel of all time in Germany and a commercial success elsewhere in the world.
That is from his NYT Jonathan Kandell obituary. The Name of the Rose remains my favorite, with Foucault’s Pendulum being the other one I enjoyed very much.
Saturday assorted links
1. “How North Korean’s biggest export is giant sculptures of African despots” (TC: that probably is not literally true).
2. Raghu Rajan and Rodney Ramcharan on the long-lasting effects of financial regulation.
3. Jeremy Bentham’s prison cooking.
4. How one Chinese entrepreneur guarantees milk safety.
5. Town hall meetings markets in everything.
Why have real interest rates fallen so much?
From Lukasz Rachel and Thomas D Smith at the Bank of England (pdf):
Long-term real interest rates across the world have fallen by about 450 basis points over the last 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 basis points of the 450 basis points fall. Our quantitative analysis highlights slowing global growth as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality and to a lesser extent the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and due to an increase in the spread between risk-free and actual interest rates. Moreover, most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run. If true, this will have widespread implications for policymakers — not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound.
I believe this paper is being presented at Brookings, sometime early in March…
Will Wilkinson’s liberaltarian case for Bernie Sanders
A number of you have written in and asked for direct commentary on his recent piece and its sequel companion. And here is Vernon Smith on Bernie.
I agree with Megan McArdle that the argument doesn’t work. I would second all or most of Megan’s points about Bernie’s less positive proclivities, including the bone-crunching marginal tax rates and the foreign policy inexperience, while adding another perspective.
One approach is to ask “which of the current slate of candidates should I prefer?”
A second approach, and the one I would suggest here, is “I have a good idea — in this case liberaltarianism — how long should I wait before attaching that idea to a particular candidate?” I say wait!
A Bernie Sanders presidency, if it somehow did manage to connect up to liberaltarianism, probably would do those ideas more harm than good. In my view he is not up to being an effective President. I don’t have the interest in outlining that case at any length, but suffice to say Paul Krugman — admittedly from a different framework — seems to agree.
I enjoyed Megan’s line: “And I have a sneaking fondness for Sanders, who reminds me of any number of folks from my Upper West Side childhood.”
Did it work out for the neoconservatives to attach themselves to Bush 43? I say no. Did it work out for mainstream liberals to attach themselves to Obama? I say mostly yes. So it can go either way. How did the Varoufakis flirtation work out for the anti-austerity movement? In the comments you can debate whether latching on to Ron Paul was good for libertarian ideas, but I don’t think the answer is an obvious yes, to say the least.
It’s not that I want you to support some other candidate in Bernie’s stead, rather I would challenge the view that a candidate needs to be preferred in each and every election cycle. And as I’ve once argued, analysts, pundits, and others might do better in their commentary, and keep a more analytically detached perspective, if at least some they avoid attaching themselves to any candidate at all. We are programmed to be loyal to individual people, and perhaps causes too. While that is often admirable as a personal trait, it also can skew our judgment of policies and platforms.