[Nf508]

Interestingly in the case of the the Abiraterone example used in the article, none of the R&D was even done by JNJ. The original work was done at The Institute of Cancer Research, an academic/charity drug discovery institute. JNJ actually only market this drug because of acquisitions rather than R&D efforts. Which is the way that a lot of pharma is going these days, letting smaller biotechs take the high risk of developing a therapeutic and buying them up before FDA/EMA approval.

[RHSeeger]

I don't buy that argument. It's like saying I should sell something I bought at the store for free, because I didn't pay the cost to make it directly (someone else did, and I paid them).

The research had to be done, and JNJ bought the company that did it. The price they had to pay was impacted by the cost of the research.

[pbhjpbhj]

But if the product you're selling in your store was made using charity? Or gifted you by the government? then high prices couldn't be justified by R&D costs.

[RHSeeger]

True, but remember that you're not just paying for the research cost of Drug_X when you price Drug_X. You're also paying for all the research that failed, that didn't produce a useful drug. If you spend 100 million researching 100 drugs, and one of them produces something you can sell, you don't need to make back 1 million when selling that drug. You need to make back 100 million, plus a profit.

[lasereyes136]

This is patently false. Without regulation, all goods are priced by what the market will bear. It might be true that if successful drug doesn't make enough to cover the cost of failed drugs the company will go out of business but that has nothing to do with pricing.

The problem is that without competition drug companies can keep raising the price as long as enough people will buy it at the new price so that they make more money than all of the people buying it at the old price. That is why really old drugs that have been around for a long time have their prices increase. Not because there was some new research but because the lack of alternatives means they can just do it.

[refurb]

If it’s anything like the CF Foundation that helped Vertex develop Kadelyco, the non-profit saw an absolutely massive return by selling the right to the drug.

[rayiner]

That’s an irrelevant distinction. The possibility of an acquisition is what fuels these biotech startups to invest in the first place. It doesn’t make a difference whether J&J is paying researchers or buying the startup that pays the researchers.

As to government funding, mentioned below, the 90/10 rule applies in pharma as much as anything. The last 10% is 90% of the work.

[ergothus]

As others have said, you cant ignore the purchase price of the research, and the buyer has that because they sell high priced drugs

...that said, it makes a good point about how the incentives work. If the govt did Xprize-like rewards for medical goals, it would work similarly: you stop paying for failed research and only pay for success, just like the examples you cite.

All told, I think too many electrons are spilled arguing over the need to pay for R&D (direct or indirect) and not enough answering the title here: "how much?" I would not be surprised to discover a dramatic reduction in prices could occur with minimal impact on results - which doesnt deny the need to pay for R&D. I'd rather people with expertise focus on how much,as well as figuring out how to shift incentives towards completeness over the current incentive for lockdown.

[testpostpls]

I don’t quite understand your point about govt-funded Xprize-like rewards—who is paying for failed research under such a regime? Is a govt-provided IP monopoly not itself an “Xprize-like reward?”

[ergothus]

The concept that has been upheld for the current system in the past is: Companies do R&D, some fails, and some succeeds, and the profits from the successes pay for both the failures and successes.

The poster I was replying to points out that this concept isn't actually what is happening (at least, anymore, for some areas) - instead, smaller companies do R&D - some fail, and the investment is lost; some succeed, and the profit from being BOUGHT rewards the investment. The reward for success is great enough that some investors will gamble on these small companies (while the big companies investors are investing with lower risk, lower rewards).

I pointed out that this is very similar to the XPrize - private investment was done in many companies, but only one (ish) would win. (This is actually a bad analogy, since the XPrize was much more about status - the prize wasn't large enough to truly be significant to a company that could claim it). My (unspoken) point was that the govt could stipulate controls on the resulting product - companies could research with greater confidence of what payout they'd get (on success, of course), but the incentive for price gouging is removed.

The difference between today's IP-monopoly and the XPrize is that the prize was a known amount, and in the part I didn't state, minimal profit would be had past that, compared to today's "you get as much as you can gouge, for as long as you can abuse rent-seeking".

Really I just did a terrible job of explaining my point.