Comments on: I read blogs

By: Megan McArdle

Megan McArdle — Tue, 29 Jan 2008 12:56:25 +0000

You’re thinking of it as a budget problem, I think; I think of it as an investment problem. Drug research is very, very risky; depending on how you count, between one-in-a-thousand and one-in-ten-thousand drug candidates make it all the way through trials. Who would take that kind of insane risk with their capital if the payoff were a government contract for cost+10%?

By: Tom

Tom — Mon, 28 Jan 2008 22:15:13 +0000

I understand the proposed mechanism, but no research? Really? Despite the fact that this is the most profitable industry in America, one that does more than a half-trillion dollars in sales worldwide every year, there’s no fat to be trimmed, a discontinuity would occur and absolutely no R&D would be performed? I just don’t buy it.
There would surely be less, but it seems like that might be the smart way for us to spend our money at the moment given the field’s current lack of productivity.

By: Megan McArdle

Megan McArdle — Mon, 28 Jan 2008 22:04:52 +0000

Don’t think of the market as “# of drugs sold”; think of it as “size of total cash flow available to drug producers”. Assuming demand for drugs is relatively inelastic (as the high prices indicate it is), shrinking the payments will probably not much affect the amount of drugs people consume, so the market suddenly becomes dramatically less profitable. At the level at which Europe pays for drugs, it’s not clear to me that you could fund any research operation at all.