Japan Finally Got Inflation. Nobody Is Happy About It.
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After 25 years of deflation, the public is mad about price rises.
2 months ago
A blog about patent law, innovation, competition, trade, the pharmaceutical industry, or whatever else catches my attention
But it does seem to me that including the cost of capital is appropriate. If the return to a pharma company cannot cover the cost of capital, then it won't raise the capital, and the research won't get done. To my mind, the reason we want to know drug costs is to know whether the need to promote the research justifies the high price. If that is right, then surely the costs that are essential to the research being undertaken must be included. The authors say "Calculating the cost of capital is a widely accepted exercise to determine whether a project
should be undertaken; but as a claim on public money or citizens’ cash, it is unreasonable." The authors seem to agree that if the cost of capital is not covered, the project will not be undertaken. I don't understand why they say incuding these costs is unreasonable. So far as I can see, they do not offer any argument at all on p. 8, where the point is discussed at greatest length - it looks to me like an unsupported assertion.
In other industries, huge investments to develop new products, like a new chip from Intel,
do not lead firms to make the argument for government-protected prices by claiming that
‘You owe us for all our R&D costs, plus what we would have made had we not undertaken
the project in the first place’.
So the drug companies' $1.32 billion estimate was off, according to Light and Warburton, by only $977 million. Let's call it a rounding error.
It costs, on average, $1.3-billion (U.S.) in research and development to bring a new drug to market. That level of investment in R&D by Big Pharma justifies the high cost of prescription drugs.
Those statements are repeated so often that they have come to be accepted as fact.
But are they fact or fiction?
So, what do you get when you crunch all those numbers?
According to Dr. Light and Dr. Warburton, the net median R&D cost of developing a prescription drugs varies from $13-million to $204-million, depending on the kind of drug.
Over all, they estimate R&D costs $59.4-million for each new drug.
That is a far cry from $802-million or $1.3-billion.
In other industries, huge investments to develop new products, like a new chip from Intel,do not lead firms to make the argument for government-protected prices by claiming that‘You owe us for all our R&D costs, plus what we would have made had we not undertaken the project in the first place’.
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The corporate risk of R&D for companies like Pfizer or GlaxoSmithKline are thus lower than for companies like Intel that have only a few innovations on which
sales rely.