Charles Hopper calls himself a drug killer, because he advises pharmaceutical firms on when to halt the production of uneconomical new medicines:
A study by Joseph DiMasi, an economist at the Tufts Center for the Study of Drug Development in Boston, found that the cost of getting one new drug approved was $802 million in 2000 U.S. dollars, or $1.02 billion in 2008 dollars. Most new drugs cost much less, but his figure adds in the expense of each successful drug’s prorated share of failures.The worse news is that this number is certainly higher now than when DiMasi published his study. Since Merck withdrew FDA-approved Vioxx from the market because it might increase its users’ risk of heart attack, the Food and Drug Administration has been slower and more conservative, rejecting many new medicines.
His concern is that America’s health care system might someday look like mainland Europe’s, where a newly approved drug makes no money until the government health system agrees to pay for it, perhaps a year later — perhaps never:
Things are even worse in the U.K., where the National Institute for Health and Clinical Experience (NICE) evaluates new drugs on their economic value. [...] In effect, NICE is a gatekeeper that prevents the struggling national health system from paying for new, expensive medicines. As a result, diseases like prostate cancer are treated with outmoded technologies — and significantly less aggressively — than in the U.S.
The crux of the issue is that drugs cost a ludicrous amount to develop, but they cost very little to manufacture, and this has some peculiar economic consequences:
Because governments in countries with socialized medicine tend to be the sole bargaining agent in dealing with drug companies, these governments often set prices that are low by U.S. standards. This comes about because these governments have monopsony power — that is, monopoly power on the buyer’s side — and they use this power to get good deals. These governments are, in effect, saying that if they can’t buy it cheaply, their citizens can’t get it.”Drugs are not too expensive in the U.S.; they’re artificially cheap elsewhere. It’s also not much of an exaggeration to say that new drugs are developed for, and as a result of, the American market because of its pricing flexibility.
Every person benefits when drug companies have an incentive to invest in the public good of pharmaceutical research and development. But each individual government looks out for its narrow interests — for one, to negotiate a low drug price for its own citizens and let people in other countries pay the high prices that generate the return on research and development investments.
Each government, in other words, has an incentive to be a free rider. And that’s what many of them are doing today. [...] But if Americans try to get a free ride, there might not be a ride at all. There will certainly be fewer new drugs on the market.