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Commentary

Of Pills and Profits: In Defense of Big Pharma
Peter Huber, Commentary, 7-1-06

Huber, a senior fellow at the Manhattan Institute, offers a thoughtful and nuanced examination of the acrimony swirling around global pharmaceutical pricing, and explains why, by any accounting, “expensive” new drugs will continue to be the workhorses of modern healthcare—and how differential pricing can help sustain the industry and improve global health.

Getting drug policy right depends mainly on getting that difference straight—the difference, that is, between ministering to the sick and making medicines—and grasping its implications from the start. Big Pharma‘s critics do not even try.

Pricing is indeed the key. Whether the first pill typically costs $100 million or $1 billion to develop, replicating it costs less—a thousand times less, or perhaps a million times less. This slope—precipice, really—is far steeper than most of the other hills and valleys of economic life. It complicates things immeasurably. It also largely explains the gulf between the industry‘s perception of reality and that of the critics.

The market price of a drug always drops sharply when the patent expires and competitors roll out generics. While Pfizer was still charging $10 to $30 per capsule in the United States for Fluconazole, which treats meningitis, knock-offs were being sold in India and Thailand for about thirty cents apiece. The precipice is especially steep for vaccines—because they begin with self-replicating pathogens and are manufactured in such large quantities—and for the custom-designed proteins in today‘s leading-edge drugs, which biotech companies mass-produce by cultivating genetically modified hamster ovaries and bacteria. The heights vary, but cliff-like economies rule throughout the industry. …

The best solution, if you can pull it off, is to charge both more and less at the same time.



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