I wanted to pass along a couple of recent articles that address drug pricing and research costs. It's a subject that attracts nonsense like a cloud of gnats; every so often you have to shoo them off. Here's a fine post from Alex Tabarrok at Marginal Revolution:
In 2003, Joseph DiMasi, Ronald Hansen, and Henry Grabowski published an important paper in the highly-regarded Journal of Health Economics that estimated that the average cost of developing a new drug was around $805 million dollars. Hal Pawluk at Blog Critics repeats some nonsense from Public Citizen to claim that high research costs for pharmaceuticals are a myth and that this paper in particular is part of a conspiracy of pharmaceutical companies to raise prices. Frankly, the comments of the critics are laughable but not everyone sees the joke so I will explain. . .
And his explanation is a good one, right on target. I can speak from experience that this is exactly the way that costs are calculated in the industry, and quite rightly. Check it out and see what you think.
I can also strongly recommend this column
from the Wall Street Journal
's Holman Jenkins. It's a broadside against the dime-store populism that's turning up in Presdential campaign speeches. Here's a sample:
If this column sounds like one four years ago, that's because Democrats are running against their usual list of "enemy" industries. The party's standard trope is that you're being denied things you need and deserve because enemies are keeping them from you, cheap drugs being today's case in point.
Let's make sense of the industry once more for a Democratic presidential cadre now reaching a high pitch of populist dudgeon. There's a reason analysts, investors and pharmaceutical reps talk about a "pipeline." In one end goes a bunch of money, and out comes a dribble of products years later. The metaphor is also useful in understanding drug pricing. Whatever comes out the end, whether it's nose drops or a chemotherapy drug, is priced at whatever level will allow its maximum contribution to recouping all the money that went into the front end of the pipe.
Just so. It's one of those darn businesses, which, As Is Well Known, are invariably run as a conspiracy against the little guy. (The huge population that actually works for these operations are, by definition, not little guys, it seems. Not after they issue you your Monopoly-man top hat along with your employee ID card.)