Since it’s election season, it’s pretty much guaranteed that the price of medical drugs will come up. While I’m on vacation, this post from the archives is pretty interesting. Keep in mind, the person making this claim is a former CEO of Pfizer, so he might know what he’s talking about…
This is a headline from the June 1st, 2005 edition of ScripNews (subscription only; so I’m a little behind in my reading-what scientist isn’t?). Here’s the punchline for lazy stupids that don’t like to read: the head of Pfizer has admitted that the cost of making a drug has nothing to do with how much drug companies charge for that drug.
Holy florfenicol sulfonamide, Batman! For years, defenders of Big Pharma (as well as Big Pharma itself) have claimed that they have to jack up drug prices to recoup research and development costs. But that ain’t so, says Pfizer CEO Dr. Hank McKinnell:
“It’s a fallacy to suggest that our industry, or any industry, prices a product to recapture the R&D budget spent in development,” he says. “Business doesn’t work like that.”
R&D is a sunk cost and can never be “recovered”, no matter what the industry decides with regard to the pricing of its products, he argues. Thus, a company sets its prices not on some historic cost (which is basically irrelevant), but on future possibilities and value to customers.
To drug companies, what Jonas Salk described as “patenting the sun”, is just a product:
In explaining his thesis, he compares the pricing of medicines to the pricing of a car or consumer product, where sustaining investors’ confidence in the risks and rewards of the industry is paramount. “A number of factors go into the mix,” he notes. “These include cost of business, competition, patent status, anticipated volume, and, most important, our estimation of the income generated by sales of the product. It is the anticipated income stream, rather than repayment of sunk costs, that is the primary determinant of price.”
The real problem, McKinnell argues, is that the business:
has not produced many important medicines in the past four or five years. “If the industry were innovating at the rate it was 25 years ago, I don’t think there would be as many complaints about costs.” Dr. McKinnell cites the example of Pfizer launching its impotence product, Viagra…, in 1996 at a cost of $8-9 per pill to patients without insurance. The product was so novel that price was not foremost in the picture, because “the only thing people saw was value.”
I realize we have a war going on, but this is pretty damn big. I haven’t heard this admission reported anywhere (outside of Scripnews). We’ve always been told that the U.S. consumer has to pay high prices for medicines because of high R&D costs. McKinnell puts the lie to that argument. For a lot of people, the price of drugs is a life or death matter. Doesn’t this statement qualify as important news? The mainstream media apparently doesn’t just suck at covering evolution…