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That would have been the title of a nifty little lawsuit. On one side, the giant German pharmaceutical company who enjoys United States patent protection on Cipro, the anthrax medication it developed. Opposing the company would be the United States, led by HHS Secretary Tommy Thompson, who threatened, cajoled and beat up the company.



The federal government has not attacked a private company in such a vicious way since the Microsoft/DOJ debacle. Thompson used rhetoric and resorted to threats to force Bayer to the negotiating table. "Bayer is going to either meet our price, which is less than $1, or else we're going to go to Congress and ask for some support to go in and do some other business," Thompson said on CNN.



Bayer had previously charged more than $5 per tablet for treatment and had already cut the government's price to less than $2. By variously invoking the threat of patent dissolution (which the government had successfully done earlier in the month) and the loss of revenue from a drug that cost Bayer millions to research and produce, Thompson played hardball at a time when no such tactics were needed. The federal government is already spending billions on anti-terrorism measures. Vilifying Bayer was unnecessary, as was negotiating price in the press.



Wolves have been circling Bayer, AG since it pulled two drugs earlier this year. The company’s stock is trading near its 52 week low. Margins in the pharmaceutical business are notoriously out of whack with many other industries. Thus, Bayer reports a 46% gross margin, but only a 10% operating margin. Even as revenues grow, however, the company has stated that its intellectual properties should not be challenged and is seeking remedies in Canada. The United States contract allows Bayer to keep its patent in return for the lower cost. Secretary Thompson has made no apologies for his tactics, claiming he is a “tough negotiator from Wisconsin” and ignoring the fact that his interference in the marketplace sets a dangerous precedent.



Even after the government negotiated its $100 million contract with Bayer to supply 95 million Cipro doses, HHS and Center for Disease Control staff were seeking an alternative. According to Sunday’s Washington Post, the government now claims that a generic antibiotic, doxycycline, is just as effective in treating anthrax. Meanwhile, the government used the oldest trick in the book – national security – to justify its interference. Yet clearly both agencies knew that doxycycline was potentially the drug of choice.



Why then, one is tempted to ask, did Bayer undergo the pressure from the U.S. government earlier this week? Discuss the issue at EAForums.com

There’s a similar thread at http://www.eaforums.com/showthread.php?threadid=5470

Gotta admit that I’m amazed that this story hasn’t gotten more coverage here. I wonder if it’s been bigger news in Germany.

I've barely heard about it save here at EA -- I think there was a 15 second piece on CNN Headline News once...

Reminds me of a line from Broadcast News

'...if the networks don't cover it, then it must not be news...'

Jourbert said: Bayer had previously charged more than $5 per tablet for treatment and had already cut the government's price to less than $2.
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I'm just wondering whether there might be something missing in your statement which would make the US' position more reasonable.

Perhaps, "Bayer had previously charged more than $5 per tablet for treatment to Americans!"

It's no big secret that every pharmaceutical company in the United States is charging Americans several times more than they charge Europeans, Mexicans, and residents of other countries. Why? Because they can get away with it!

Isn't it a disgrace that senior citizens without prescription insurance have to send away to Mexico to get medicine they can afford? It's either that or die.

Not much or a choice, hmmm?

The real scandal is that the government may force Bayer to charge what they charge other countries for Cipro, but that Bayer and other pharmaceutical companies will continue to cheat the American public on every other medication available.

(Yes, my brother takes an MS medication, Avonex, that costs several thousand dollars a month. His insurance covers it, thank goodness, but I wonder what it's really worth on the global market.)

I worked for a healthcare company once that charged more for products used by cardiologists and neurologists than other specialists. There was nothing different about the products per se, that is, they were not used to treat patients. The cardio product sold for $40 more.

Why?

Because that is what occurs in a free market. I don't begrudge Bayer charging more for a product in a wealthy market. Before we personalize the issue, I'll say that I take 4 different meds and that my insurer has begged my employer to have me use the generic mail order service. I'm glad your brother's insurance is covering his meds. I consider my insurance to be a major component of my compensation.

Okay, back to the issue at hand, which is price elastacity. The goal for the selling company is to develop products that are inelastic or more immune from demand shifts due to price changes. This can be done through artificial barriers such as patent protection or natural barriers such as product superiority. But a corporation's goal (and the responsibility of its officers) is to maximize profitability. Our law is quite explicit on this point. Maximum profit.

Socialized medicine is practiced in a number of countries. There's a whole week's worth of Soapbox debate surrounding that issue, but suffice it to say that waits are long, costs can be just as high through taxation and a free market is suppressed.

When Bayer is forced to lay off employees, discontinue product lines and take other drastic measures to achieve their primary purpose - maximum profitability - will anyone say, "Well, yes, but they gave us a price break."

I suspect the stock will be hammered, lines of credit tightened and general chaos will ensue at the company for some time. My point remains that the United States government cannot walk a balance between marketplace intervention and a free market economy without diminishing the effectiveness of both.

I don't think that Bayer is selling its medications at a loss to countries with socialized medicine systems.

By the very act of "maximizing profits" in America, they are bringing us closer and closer to socialized medicine.

When I was a little girl, my grandparents lived with us. The family doctor lived down the block. When my grandpa got sick, the doctor would come down to our home in the middle of the night. His bill? $7!

That was about five years before Medicare came into being....

Unemployment is at 5.4%.....do you know how many people that represents in terms of America's uninsured? The last time the United States tried to pass a universal health insurance law was in a time of great prosperity, when only 40 million or so people (a trifling number to most conservatives, I guess...) were without insurance.

I would bet that that 40 million is now at least 60 million.

As unemployment rises, and people are suffering, who will they vote for---Democrats, who support universal health care, or Republicans?

Bayer may win the battle, but lose the war.

I don't mean to imply that Bayer is selling at a loss. They're selling at a less than optimal profit. If margins fall, so do stock prices, credit ratings and other barometers of financial health. What happens then? Bayer lays off employees.

That's the problem with government intervention. You either go all the way or you stay out of a free market.

I don't know all the ins and outs of this situation. I don't work in the pharm industry, but in the device industry. I've done tons of medical clinicals and FDA registrations, product launches, etc - but none were on drugs. So with that disclaimer - here's my .02 --

There are huge costs involved in the testing, submission and manufacturing standards required to sell drugs in the united states. The testing (clinicals) can take years, of heavily monitored studies, with follow-up, then lengthy and detailed submissions sent to the FDA, plus significant qualifications have to be met to manufacture drugs, packaging and labelling restrictions, and more - for the US. While this is true for some other countries as well, the sheer burden of selling in the US is enormous for a pharmaceutical manufacturer. Compare that to Mexico, for example, where you can sell a BCP (oral contraceptive) in a plain box with minimal labelling and no protective outerwrap, no prescription required, no fancy registrations, etc. - and take three (or ten) years off the time to market - and the cost difference is clear.

Are there reasons for our FDA registration, manufacturing restrictions, packaging requirements, prescription controls, etc? Sure! Are all of them valid? Yes in most cases, and no, depending on the level and specific medication you are talking about. I know that I feel safer here with the requirements, but it does place an incredible time and financial burden on the company, who has the right to recoup and profit from their lengthy investment. Remember that not all drugs make it to market, so the profit-leaders (cash-cows) make up for some of the dogs and failed products costs. The FDA has been better about fast-tracking certain high-potential medicines to market clearance, but this is of course based upon the successful and clearly-presented clinical results.

Anyway - I would say that strong-arming a company into a pricing discount is unfair - considering the costs of getting that product to market, obtaining registration, and getting all of the patents, etc.

But that's just me - and that isn't to say that I wouldn't freak out if there were an anthrax scare here and Cipro were not available.