Confusion About New Drugs

I have been reading up lately on the problems with Medicare and Social Security. A red herring that some people try to throw out as a distractor is some claim that government sponsored/subsidized R&D creates new drugs which the drug companies then "unfairly" use to generate profits. For examples, try this comment:
it funds R&D for billions of dollars worth of life-saving pharmaceuticals each year, then turns them over to the drug companies, who gouge us on them.

I've heard this comment, or similar ones, thrown about lately. This really confuses me, perhaps because the idea that there are labs somewhere funded by the government that spit out drugs ready for market is just ridiculous. The most government funded research does is demonstrate some causal connection between a substance and an effect. The gap between the demonstration of effect and commercially useful drug is pretty broad, and sometimes unbridgable. To imply that drug companies are taking miracle drugs developed at government expense and profiting from all those fat tax dollars is just ludicrous.

Two major hurdles exist between lab and commercial production, and the government does not generally conduct research on either. Hurdle number one is the manufacture of the compound is commercially significant amounts to an acceptable level of quality. This can be a deal breaker for a number of compounds. Generally speaking, any compound that was easy to synthesize was discarded as a possible drug years ago. The newer compounds being tested are, in general, hard to synthesize. This can makes large scale manufacture sometime prohibitively difficult. Things don't scale nicely from bench to production, as anybody whose ever done product R&D can tell you. It may also be that the compound is simply uneconomic for commercial manufacture. As a simple example, if a compound costs more to manufacture than the possible sales price, it won't get made. There are also huge economies of scale with chemical production. If the potential market is very small, the cost per user is generally much greater. The per user cost may be so great as to make the drug commercially nonviable.

The next problem is the safety and efficacy testing demanded by the FDA. The cost of this testing is borne entirely by the company who develops the drug for market. This cost is not trivial. Numerous case studies abound on the amount of money it takes to get a drug through FDA approval. The short answer? More than you can imagine. Again, the government doesn't do this testing. So the expense is borne by industry. As we all know, or should know, for a company to exist in the long term it has to turn a profit. So drug companies have to recoup all the money they spend on those two factors, along with everything else. To insist, against all available evidence, that drug companies gouge the public for government-developed drugs is to display a fundamental misunderstanding of how drugs are developed.

It also doesn't make your pronouncements on anything else more credible when you start spouting nonsense.


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