Research and development makes medicines expensive ? but is necessary

July 31, 2012

Free Market Foundation

While some denounce pharmaceutical companies’ profits as obscene and earned at the expense of the sick, economists point out that the physical ingredients of the medicine are its cheapest ingredients. The ingredient that costs millions of dollars is the knowledge gained from years of expensive research and development and trial and error. However, politicians often ignore this bit of common knowledge.

Responding to calls by congressional liberals in the wake of the anthrax scare, the American administration threatened to override the patent for Cipro unless the manufacturer supplied it at a lower rate.

The administration also gave in at a recent international conference at Qatar where countries gained the right to set aside international patent agreements whenever they choose to declare a public health “emergency.”

This will inevitably give them a free ride on costly American R&D, since U.S. companies produce a wholly disproportionate share of all new lifesaving drugs.

Ultimately more people will suffer, because fewer companies will be able or willing to pay the high cost of R & D, and development of drugs will be slower.

Until recently, the U.S. has been one of the few countries resisting political pressure to impose price controls on pharmaceutical drugs or water down the patent laws that allow the original discoverer of drugs to have a monopoly for a fixed number of years.

Source: Thomas Sowell, When Buying Medicine, We Pay For Development, Dallas Morning News, December 5, 2001.

For more on Drug R&D http://www.ncpa.org/iss/hea/

FMF Policy Bulletin\11 December 2001