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1) The marginal cost to produce something is a fraction of the cost of bringing something to market. Here's an analogy from the car business: Merck buys the blu

1) The marginal cost to produce something is a fraction of the cost of bringing something to market. Here's an analogy from the car business: Merck buys the blueprints for an experimental vehicle that seems promising but may or may not be useful, Merck spends $ to test is rigorously, develop the factories to bring the vehicle to production, acquire necessary signoff from regulatory bodies, distribute the vehicle through its logistics/retail network, support the vehicle, etc. All of these things have costs. 2) Almost no one pays anywhere near list price. In the US: Not the ~20% of people on Medicaid, not the ~20% on Medicare, not the ~50%+ on private insurance, and frankly not the <10% that are uninsured. You pretty much have to be well off, uninsured, and also not use a discount program to be charged list price. Also definitely not the rest of the world. 3) Merck partnered with Ridgeback, who had already licensed it from a non-profit group drug discovery group at Emory University. The terms of that agreement are unknown, but presumably the $ will go towards funding future drug discovery. Finally, assuming Merck does do all this profitably, the return to the US gov't will be massive. Merck has paid an avg of 18.4% income tax over the past 4 years. They also employee 70k+ employees who are paying taxes, etc, etc. If Merck can get the product to market faster (which they'd be highly motivated to do), the benefit to the US people and economy would be far greater than the cost of treatment.

cheeseomlit 5y ago
If we're using the car analogy- According to google the profit margin for a car is something like 5-12%, not sure if that includes R&D or not. That's a far cry from 4000% regardless, even if you bring it down by orders of magnitude to account for things you mentioned. You'd think a healthcare company would have some moral imperative to run a relatively thin margin, and maybe not spend 6.5B a year on advertising and god knows how much on greasing up the government for regulatory capture And yes insurance would cover these costs for most people, but we still end up paying through for it through exorbitant premiums And to your final point, yes corporate profits benefit the government because they get taxed. That doesn't mean corporations should be able to form cartels, corner a market, and then jack up the price on essential goods and services to make that profit
- gotjustchilly 5y ago
  Merck's average net income over the past decade or so is ~15%. Ford's is ~2%. So true, Merck could lower prices across the board by ~15% and then they'd break even. But in that scenario investors would have less inclination to invest in drug development, and we'd have worse drugs and healthcare overall. On the exorbitant premiums. Agreed, but this is essentially a tax on people that have private insurance and/or pay taxes (skewed greatly to the top earners in the population). There is a lot of fat in the healthcare system, all of which is a tax on US taxpayers, but directing the blame at big pharma is missing the forest for the trees. The amount doctors earn is a larger contributing factor to our healthcare costs vs EU for example. On the cartel comment, Pfizer and others have similar oral anti-virals in development. Competition incoming. If we didn't have this for-profit system, it's unclear if we'd have multiple drugs in development.
- qeternity 5y ago
  A better analogy is entertainment: it costs nothing to create another copy of a blockbuster film. But that doesn’t mean it cost nothing to produce to first copy.

cheeseomlit 5y ago

If we're using the car analogy- According to google the profit margin for a car is something like 5-12%, not sure if that includes R&D or not. That's a far cry from 4000% regardless, even if you bring it down by orders of magnitude to account for things you mentioned. You'd think a healthcare company would have some moral imperative to run a relatively thin margin, and maybe not spend 6.5B a year on advertising and god knows how much on greasing up the government for regulatory capture And yes insurance would cover these costs for most people, but we still end up paying through for it through exorbitant premiums And to your final point, yes corporate profits benefit the government because they get taxed. That doesn't mean corporations should be able to form cartels, corner a market, and then jack up the price on essential goods and services to make that profit

gotjustchilly 5y ago
Merck's average net income over the past decade or so is ~15%. Ford's is ~2%. So true, Merck could lower prices across the board by ~15% and then they'd break even. But in that scenario investors would have less inclination to invest in drug development, and we'd have worse drugs and healthcare overall. On the exorbitant premiums. Agreed, but this is essentially a tax on people that have private insurance and/or pay taxes (skewed greatly to the top earners in the population). There is a lot of fat in the healthcare system, all of which is a tax on US taxpayers, but directing the blame at big pharma is missing the forest for the trees. The amount doctors earn is a larger contributing factor to our healthcare costs vs EU for example. On the cartel comment, Pfizer and others have similar oral anti-virals in development. Competition incoming. If we didn't have this for-profit system, it's unclear if we'd have multiple drugs in development.
qeternity 5y ago
A better analogy is entertainment: it costs nothing to create another copy of a blockbuster film. But that doesn’t mean it cost nothing to produce to first copy.