In Of Pills and Profits, Peter W. Huber writes “in defense of Big Pharma” — but first he summarizes the “indictment”:
In sum, Big Pharma ignores the drugs that matter, wastes huge amounts of money corrupting the market, and passes on the cost to patients. Especially to Americans: drug companies “price their drugs much higher here than in other markets,” thereby contributing to today’s “yawning chasm” between rich and poor.The solution? Starve the fever. We should curb “commercial imperatives,” shorten the time span of drug patents and narrow their terms, and sharply limit Big Pharma’s dealings with clinical researchers, doctors, and patients. Opening the industry’s accounts to the public, we should require that drug prices be both “reasonable” and “as uniform as possible for all purchasers.” Big Pharma should be seen as akin to a “public utility,” and regulated accordingly.
So runs the indictment.
The key issue is price:
Pricing is indeed the key. Whether the first pill typically costs $100 million or $1 billion to develop, replicating it costs less — a thousand times less, or perhaps a million times less. This slope — precipice, really — is far steeper than most of the other hills and valleys of economic life. It complicates things immeasurably. It also largely explains the gulf between the industry’s perception of reality and that of the critics.
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Viewed from the pill-in-hand perspective, the precipice supports what the critics demand — vaccines for pennies, not billions, prices pegged to the cost of the last pill, not the first. And that is indeed the economically efficient and socially desirable price to set — after a Hilleman has worked his magic, after you have the first egg, the first pill, securely in hand. But if you peg all prices to last-pill costs, you will not get another $2 trillion or so of private capital searching for another Hilleman — who, by the way, worked his magic at Merck.
The answer is price discrimination — which seems terribly unfair to non-economists.
Read the whole article.