Thursday, September 29, 2011

The Dilema For Drug Companies: Big Pharmacutical Can't Win

Drug companies have been the villain amongst the media, politicians, and the consumer for decades.  They are even the villain for those whose lives depend on them. I have been blessed for most of my life in not having to take medication, aside from asthma inhalers, nor has my family been dependent on continued use of prescription medication.  For those who have, and have possibly paid the very high and draining prices for prescription medication, there is really nothing past this sentence that will convince you that perhaps the drug companies are not all evil.   Let me begin by saying that drug companies are for profit businesses.  All of the greatest innovations and products, from healthcare to agriculture, from consumer products to travel, have come from the risk and investment of for profit companies.  Prior to America, the ability for a for profit company to exist was very limited in that most commerce was tied in some way to the government.  For all of man’s time on the earth, we have never seen the explosion of innovation as we have when we removed government from the equation and allowed individuals to take risks, be creative, make a lot of money, and fail.  If the development of prescription medication were left to the benevolence of the federal government, we would not have the medications we have now.   Let me explain why.
Developing a new drug is about as risky of an endeavor as an company can undertake.  The end product alone, a pill or solution that is to be ingested by the body, is so full of risk to the company that the liability costs alone should make it prohibitive.  Imagine having to design something that can be safely taken by more than 6 billion people, none of whom are made exactly alike.  It would be like design a passenger seat in a car without knowing the exact dimension of the car’s body, but expecting it to fit all of the cars, and if it doesn’t, then the car owner can sue the seat maker.  Let me make another car analogy.  If a drug company were like a car company, they could make decent money by delivering the basics of the car, four wheels, seats, body, engine, steering wheel, transmission.  Because these components are widely adopted, the cost involved in developing, testing, and manufacturing these components can be spread across the whole consumer market.  But now suppose there is a need for .5 % of the driving community to need seat warmers.   For automakers, that additional cost is added to the price of the cars that will have those seat warmers added.  While it is a small component, the cost to develop, test, and manufacture those seat warmers is not .5% of the cost to do the other items. 
Drug companies have it much worse than auto manufactures.  The cost to create a drug that might be used by half of the world’s population, but still be compatible with all of it is going to be possibly less than the cost of a drug that will only be used by .5% of the population.  So you can buy a bottle of 50 tylenol for 2 bucks, but the cost to purchase the life-saving drug for that rare form of cancer is going to be exponentially more expensive.  And to make matters worse, there is a real expectation that these “rotten” companies should be spending all of their time and money on discovering new drugs for things that will only ever be used by a limited number of consumers.  So, let’s look at the no-win scenarios they face for pricing their products
1.       The drug company spreads the cost of that new drug across all of its products, making the ones used by most people more expensive.  This means that standard drugs might be priced out of the range of more and more consumers.
2.       The drug company only applies the cost of the new drug development to the new drug itself.  This means that those that might need the new drug can’t afford it, but the other drugs are not affected.
3.       The drug company stops developing new drugs.
Which of these options do you want.  We already know that governments didn’t do this work and if they did, they obviously wouldn’t invest in new drugs because of the start up cost and risk.  Maybe we should look at how our government drives the high cost of these drugs first. 

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