Here's the piece of the picture that everyone's missing from this particular example - an $11b acquisition [1]. Gilead bought Pharmasset for $11b. It no longer

Here's the piece of the picture that everyone's missing from this particular example - an $11b acquisition [1]. Gilead bought Pharmasset for $11b. It no longer matters what it cost Pharmasset to research/test/approve/produce the medicine anymore. Certainly all of that was factored into the acquisition price but since Gilead's total cost ended up being $11b, that is what they need to recoup at the least. There are 3.2 million hep C patients in the US [2] but most don't feel ill or even know they have hep C. If every single person buys the drug, Gilead must still sell it for at least $11b / 3.2m = $3500/person! But if only 5% buy the drug, they need to sell it for $69,000 just to break event on the acquisition without even taking any other costs into account. This is just rough calculation to highlight that a sky high acquisition price resulted in a company demanding an equally high price per dose. Gilead paid the high price to acquire Pharmasset because they thought they could sell the drug for at such a high price per dose. If Gilead is proven right (and their stock price from $18 in 2011 to $100 in 2015 seems to reflect that indeed), then this just encourages more and more drug companies to be bought at astronomical prices. And the worst part of this is that the very government that gave this company the right to operate a monopoly via a patent is now asking them why they're charging so much [3]. None of this happened because of some singular evil cabal. It happened due to misaligned incentives. Government grants pay researchers, who develop medicines at paid-for-by-public-funds university labs, which sell the patents back to the researchers at fire-sale prices, who then go on to create biotech startups, which productize the research, and then sell to Fortune 100 pharmas, who can then demand almost any amount of money, which CMS will have to pay because USPTO said nobody else can sell this drug, FDA agreed that the drug works, and ACA ensures that the patients cannot be denied any drugs that work at any cost. [1] http://en.wikipedia.org/wiki/Pharmasset http://en.wikipedia.org/wiki/Pharmasset [2] http://www.hhs.gov/opa/reproductive-health/stis/hepatitis-c/ http://www.hhs.gov/opa/reproductive-health/stis/hepatitis-c/ [3] http://www.finance.senate.gov/imo/media/doc/Wyden-Grassley%20Document%20Request%20to%20Gilead%207-11-141.pdf http://www.finance.senate.gov/imo/media/doc/Wyden-Grassley%2...