Tuesday, June 26, 2007

Big Pharma

There is much talk about the need to replicate Europe's pharmaceutical purchasing program. European countries' health systems bargain pharmaceutical companies prices down and pass the savings on to its consumers. The reasoning goes if Europe can do it why can't we in the U.S. do it, after all these are the same drugs. Some would go further and claim that the Pharmaceutical companies are gouging American consumers. But in fact it is not the Pharmaceutical companies that are gouging American consumers but rather European countries are free-riding on American R&D spending.

A new drug is estimated to cost somewhere between $400 million and $1 billion to bring to market. For every drug that actually obtains FDA approval dozens do not. In order to recoup the Pharmaceuticals investment they charge high prices. This comes as no surprise. Pharmaceuticals can afford to sell drugs to European countries more cheaply than it does to U.S. consumers because it need only sell the drug at the marginal cost of production. Essentially, within the global marketplace the U.S. consumer is paying for cost to develop the first pill and other developed countries are paying for the cost of production of all subsuquent pills.

So why shouldn't we bargain down the prices of drugs? Well, the answer is obvious, because fewer of those first pills will be made. We have become remarkably cavalier about the gains that we derive from pharmaceuticals. Think of HIV/AIDS. 20 years ago it is was regarded as a death sentence. Now, while hardly cured or pleasant, HIV/AIDS has become a manageable disease. To this those on the left will respond that not every drug is some treatment for HIV/AIDS but rather viagra or cialis. Well, for the most part such a response is an error of youth. I think will all thank god for Viagra as we poke about with our walkers chasing after our equally aging paramours in our retirement homes in some godforsaken swamp in Florida.

The question we should first ask, is why is it that other Countries can in fact bargain down prices for such things as pharmaceuticals? Maybe I am mistaken in my assumption that countries can't employ bargaining leverage for such consumer goods as electronics or cars. But on a proactive note, we should explore how to reduce other countries' bargaining leverage on pharmaceuticals so that the price of development can be blended across borders just as your computer is. It makes sense for the U.S. to subsidize African nations purchase of drugs, not Switzerland's. Paradoxically I think the solution here lies with drug reimportation.

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