That’s the title of a improbable editorial by Olivença et al. (2024). Many individuals suppose that pharmaceutical costs are “too excessive” or “too low” after they take a look at pharmaceutical costs. However the query is, too excessive or too low relative to what? What are our objectives with pharmaceutical costs? The editorial clearly articulates the issue as a market design drawback. I’ve heard one of many co-authors (Dr. Lou Garrison) make this level a number of occasions at conferences, nevertheless it’s useful to see it in writing.

It’s noteworthy that the exclusivity available on the market for medicines solely issues the manufacturing of a selected product. It’s doable that rivals with competing therapies enter the market and that after the exclusivity available on the market an identical generic copies enter the market.

The worth of this monopoly energy is restricted by market competitors and time. This results in a market framework that promotes medical innovation by providing probably massive however unsure returns on dangerous investments, whereas utilizing competitors to manage costs within the later phases of the product life cycle.

The article begins with an argument towards setting drug costs solely on the idea of analysis and growth (R&D) prices:

[Cost plus pricing]…not solely fails to acknowledge the dangers of those investments and the irrelevance of the price of a selected product on this market design, but additionally the difficulties in figuring out related failed merchandise and measuring their prices. Furthermore, this attitude would fail to convey the true worth of latest medication to sufferers and society, and thus stifle innovation by not sending worth indicators to traders within the extremely dangerous area of drug growth.

The article is towards pricing as advocated by Bernie Sanders amongst others:

Apparently, Senator Bernie Sanders not too long ago requested Novo Nordisk in regards to the R&D prices of semaglutide, an weight problems remedy. It’s crucial that we talk that utilizing R&D prices to find out value is flawed and that we must always as an alternative give attention to estimating the total worth a drug supplies to sufferers, their households, and society. The “blockbuster mannequin”… which depends on the revenues from profitable medication to cowl the prices of the various failed ones, is usually misunderstood or ignored in discussions of drug pricing and regulation. In fact, firms can nonetheless make a revenue on a “marginal” product if the revenues cowl the marginal prices of R&D and the prices of producing and distribution; however an organization wants a number of merchandise that common multiples of the common R&D prices to cowl the failures.

The picture beneath summarizes the blockbuster mannequin.

A really attention-grabbing and clearly worded editorial. Learn the total piece right here.