Tuesday, August 17, 2010

Why are some pharmaceuticals so expensive?

Brian Palmer tries to answer his question without ever writing the term patent protection. I find this amazing and I can’t wait for Dean Baker to address this piece. Mr. Palmer uses as an example the drug Avastin which costs $8000 for a month’s supply and writes:

Manufacturing costs play a role in pricing decisions, although a small one. Avastin belongs to a category of drugs called biologics, which are large molecules that usually have to be manufactured by DNA manipulation. Biologics cost more to make than traditional drugs, which usually are generated through cheaper chemical reactions. Still, manufacturing costs normally don't exceed a few percentage points of sales revenue.

The cost of manufacturing pharmaceuticals is often a small percentage of sales which is why they can be so profitable for their makers even though an extensive amount of money is often spent on promoting patented drugs. Mr. Palmer also dredges out this excuse:

You hear a lot about how expensive it is to bring a drug to market.

Credit, however, goes to Mr. Palmer for at least emphasizing the lack of competition for certain drugs. It is true that this sector incurs substantial R&D expenses and the risk that the R&D may generate several dry holes. But do we really need a patent system in order to discover new treatments?


FuzzyFace said...

But do we really need a patent system in order to discover new treatments?

I think so. Imagine if you spend $10 million on research to create a drug, and your competitor can simply analyze and duplicate your creation and sell it; he's now making the some profit you are, without your $10 million expenditure. Why would you ever bother doing R&D again?

paul said...

One of the interesting things about the "cost of bringing drugs to market" argument is that in general, the biggest study costs are for the derivative drugs that have minimal effect on patient welfare, because you need many more patients enrolled and lots more statistical work to find the evidence of benefit.