If you believe the pharma industry’s story that it spends generously on R&D . . .

. . . then this article might fascinate you, and give you an understanding of the market forces in play that actually eliminate the incentives for drug companies to innovate new drugs for serious diseases.  On the surface, the logic of the myth makes sense: pharma’s must charge high prices for drugs to afford to invest heavily in R&D.  Yet, with profits as high as 25%, that’s money that sounds to the layperson’s ears like the very money available to the drug companies to spend on R&D.  Not exactly.  That’s money leftover after the pharmas have already invested in R&D.  In other words, those profits could theoretically — at some point in the future — be funding used to invest in new drugs; or, it could also just be invested in whatever financial instruments bring in the most profitable returns, or just entirely turned over to shareholders.  And, as the authors of this rivetting article (Harvard Medical School professors and former editors of the New England Journal of Medicine) point out (it’s one of the most interesting reads I’ve found in years), most of the cost of drug research is, in fact, covered by us, the American tax payer.  This article is a little old, yes, but the issue is still current, and my blog is new and I need to fill it up with things from the files.  Download as PDF, print, and read before bed. Originally published in The New Republic, December 22, 2002. America’s Drug Problem


2 responses to “If you believe the pharma industry’s story that it spends generously on R&D . . .

  1. As I understand it, management of a company have a legal fiduciary responsibility to the shareholders. The 25% profit is an indication of their success in fulfilling that responsibility. This highlights problems in considering “health care” to be the equivalent of automobiles with respect to marketing.

  2. christopherwerler

    Said perfectly RBS (Royal Bank of Scotland?): The problem lies in the assumption that businesses can handle everything more efficiently than any other form of organization. This is, of course, false, but those who have the most to gain from the assumption, perpetuate it, and laugh all the way to the bank. I’m all for business where it serves us best. Pharma — as a business industry — may not serve anyone best except shareholders. This article demonstrates why. It reads like a thriller.

    Thanks for being the first person to post a comment on my new blog, Rick!

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