Quote (Black XistenZ @ Jul 31 2019 06:51pm)
why? say a drug had created $25m in R&D cost, plus another $10m to set up the production. it costs $6 to produce one dose, and a law written by president Ghot limits their profit per dose to 16% of its production cost, i.e. to 1 dollar per dose. if it's not a super high volume drug, the company will really struggle to make back the upfront cost.
so what will they do the next time when they're in the research stage and discover a potential drug which could be effective, but would be cheap to produce? they would be inclined to scrap the development of this drug since the percentage-over-cost cap increases the risk of not making the upfront cost back from this drug, yielding a net loss, and it greatly reduces the expected profit over the drug's lifespan even if things go well.
president Black_XistenZ's proposal is to say "if your profit margin (profit divided by revenue) exceeds the threshold of X% in a year by Y percentage points, then you are forced to lower your drug prices by that much in the following year". (a mechanism can be added to take into account the delay between research investment and the revenue this investment generates a couple of years later.)
hence, every pharma company would be allowed to operate with a profit margin of X%, no matter which drugs they produce or how they allocate their R&D resources, but if they get greedy and go beyond X%, an automatism kicks in which keeps the healthcare costs from drugs and the profit margins of big pharma in a healthy balance. my proposal would leave all relevant business decisions to the companies, would not stifle innovation, would still leave the pharma market attractive, but rein in the worst excesses this market would produce if left unchecked.
The government subsidizes orphan drugs when they’re beneficial but not cost effective for companies to produce