I came across the news item that a representative from Ohio (Sherrod Brown, D-13th) has sent a letter to President Bush contesting the White House's recent report on pharmaceutical costs. (A press release of his addressing the same topic is supposed to be available from this list, but all of Representative Brown's links are broken.) Looking at his record, it appears that he's been using my industry as a trampoline for some years now.
There's one part of his complaint that I wanted to address. The over-800-million-dollars-to-develop-a-drug estimate that the Tufts center arrived at is a constant target. (I hate to tell people that it's quite possibly a low estimate.) Rep. Brown specifically complains about the way that this figure includes the opportunity costs associated with the risk of drug development, and he's not the only one. Why, critics ask, should the amount a drug company would have made by investing its research money be included as a cost?
Well, because that's what it is. Most drug development projects don't work, and all the money spent on them goes down the hole. If you're going to risk your cash on one, you need to figure out what you would get if you parked your money in some more reliable investments instead, and you need to realize up front that this is what you're forgoing.
"But I don't do my expenses like that!" goes the cry. Don't you, though? If you have some extra cash around, should you put it in a savings account, the stock market, pay down some principal on your mortgage, or put it all on your lucky number at a roulette table? Depends on the rate of return for each one, and the risk. (This would be a good time to mention that the odds of hitting your roulette number are almost identical to the odds of getting a clinical candidate to market for a central nervous system indication.)
Those first three options don't involve muchrisk , but the last one sure does - and if you decide to go for it, you should realize what it's really costing you: the use of the excess interest on your money, interest which you would have been able to earn. The same consideration applies to the other choices, which is why paying down your mortgage is the equivalent of earning that percentage interest on the cash. An appreciation of opportunity costs would do a lot of people good.
But I have a more direct demonstration, one that I'm prepared to offer to Representative Brown: give me a thousand dollars, Congressman, and in ten years I'll give you a thousand back. If you don't think that this deal is costing you money, I'd love to hear you explain why not - after you've written the check, naturally. How about it?