While it is true in many cases that the cost of the ingredients in a
pharmaceutical is drastically less than its retail selling price, such
a view ignores the most important costs that pharmaceutical companies
must bear in order to stay in business. In order to legally sell a
product in the United States, a pharmaceutical company must prove both
the safety and efficacy of the drug to the Food and Drug
Administration. These criteria impose the considerable challenge of
finding compounds that are effective in addressing the causes and/or
symptoms of a particular condition and then establishing that they are
safe for use in human beings. Many compounds must be screened in
order to identify one that is suitable for use in a drug. The
article, "Why Drugs Cost So Much" indicates that only one discovered
compound in 10,000 becomes an approved drug. The amount a
pharmaceutical company must spend to get a drug approved can easily
exceed $800 million, and many compounds will receive significant
amounts of spending that establishes that they cannot be approved. As
a result, in order to stay in business, a pharmaceutical company must
not only recoup the development cost of an approved drug, but must
also generate sufficient profits to cover expenditures on compounds
that did not result in an approved product.
Three other marketplace factors also contribute to the high cost of
pharmaceuticals. First, companies feel obligated to market their
products because of a desire to make sure all of the patients who
could be helped by the drug are aware of it so that they sell as much
as possible. Second, because it is less risky to develop drugs that
are similar to an existing drug, marketing is needed to drive demand
for a drug which may otherwise be little different from an existing
product. Third, most patients do not pay the actual retail price of
their medication, thereby making them largely price insensitive.
While drug costs show up in health insurance premiums, patients do not
feel they have any direct control over their health insurance
premiums, so they have little incentive to focus on drug cost and
value.
Another factor, which is especially significant with many
biotechnology products, is the expense of manufacturing the product.
Exotic methods such as using recombinant DNA techniques to program
Chinese hamster ovary cells to produce complex proteins can be very
expensive. Furthermore, the FDA must approve manufacturing processes
and facilities, thereby creating additional compliance costs.
To address the high cost of drugs, several steps can be taken,
although trade-offs exist. First, the FDA could return to merely
requiring evidence of safety without requiring evidence of efficacy,
thereby presumably decreasing the cost of research. However, this
could result in less effective drugs coming to market. Second,
consumers can be encouraged to be more cost-conscious by being more
exposed to the actual price of the drugs. However, unless there is a
corresponding decrease in health insurance premiums, consumers'
medical expenses would increase. Third, insurance companies can use
their formularies to encourage manufacturers to produce novel and/or
more effective drugs instead of covering "me, too" products that offer
only marginal benefits at best and may be considerably more expensive
than older, generic medicines. The downside to this approach is that
insurance companies are effectively dictating an important element of
care to patients who have fewer financial resources.
While identifying any opportunities to reduce pharmaceutical prices is
very important and would benefit society as a whole, recognizing that
pharmaceutical companies face enormous risks and expenditures in order
to develop medications is also critical. To the extent that
marketplace factors can be corrected to give pharmaceutical companies
proper incentives to develop novel, effective compounds and to avoid
wasteful marketing spending, that should be done. Simply seeking to
base a drug's price on the cost of its raw materials, however, would
be extremely shortsighted and devastating to future drug development.
Sincerely,
Wonko
Sources:
"Why Drugs Cost So Much" by Omudhome Ogbru, MedicineNet, Inc.
(February 9, 2002) http://www.medicinenet.com/script/main/art.asp?articlekey=18892
"Financing Drug Research: What Are the Issues?" byDean Baker, Center
for Economic and Policy Research (September 21, 2004)
http://www.cepr.net/publications/patents_what_are_the_issues.htm
"Cost of developing new medicines swelled to $802 million, research
study reports" by Gardiner Harris, The Wall Street Journal (December
3, 2001) http://www.globalaging.org/health/world/costnewmedicines.htm
"Drug Price Controls Will Hurt Consumers" by James W. Meehan Jr.,
Bangor Daily News (April 17, 2001)
http://www.independent.org/newsroom/article.asp?id=278
"FDA Strangling Consumer Help" by Wyn Snow, SupplementQuality.com
(November 6, 2003) http://www.supplementquality.com/news/skyrocketing_drug_costs.html
"Health Economics: A Tool for Shaping Health Policy" BY MICHAEL
MARENTETTE, CAROL RANCOURT, AND BRIGITTE DESJARDINS, Science
(September 8, 2000) http://nextwave.sciencemag.org/cgi/content/full/2000/09/07/3
Search terms: drug "cost of research" |
