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Estimates of how much it costs to invent and test a new medicine have been weaponized in the debate about how much drugs should cost once they’re on the market. The pharmaceutical industry, citing a $2.8 billion figure from a group at Tufts University, argues that prices need to be high enough to justify huge financial risks. But critics, sometimes citing figures as low as $43 million, argue that the higher figure is just an excuse for price gouging.

A team of researchers tried to settle this debate with an analysis of publicly available data and they came up with their own figure that seems to split the difference: $1.3 billion. The research appeared Tuesday in the Journal of the American Medical Association.

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  • Truth be told, there is (almost) no such thing as a “drug cost.” It is more properly “an enterprise cost.”. The successful one(s) have to cover the failures and the overall support framework.
    Think of it as a farm(or pharm…) the cash crops have to support the fallow field, the failed yields and everything else it takes to ” Run the pharm.” This is not an answer – just “an observation.”

    • Fair point. The question is how many combines, harvesters, silos and GPS controlled machines (translated – corporate jets, vanity buildings, limos ….) the farm needs to operate at a profit. Does the farmer take workers out to night clubs and the Caribbean if they do a good job?

      The cost of successfully and profitability operating a Pharma company is more than the cost of R&D, Clinical Development, Regulatory and Production. The question is how much more.

      A good farmer understands where investment provides a return while permitting pricing that is competitive.

      Having grown up on a farm and having spent three decades in Big Pharma I can appreciate the analogy. The difference is that farmers cannot unilaterally set the price of their product or in concert with other farmers, even if it’s not formally price-fixing. Set it too high and you will have competition not only locally but also internationally.

      It is what it is, but it’s hard to defend once you take a deeper look into the business and where the money is being spent.

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