For those who don’t already know, the EpiPen treats anaphylaxis, and people who suffer from severe allergies have to carry it with themselves constantly. Yes, it’s vital and it saves lives. However, the producer Mylan raised the price little by little until it reached the current level of US$600 per pack, while the cost of production is around US$15, gouging the financial cost to its customers.
Of course, such a decision has generated polemics and a certain indignation worldwide, but it has also directed more much-needed attention to the world of medicine, revealing an unexpected truth behind this business. For instance, if you take a closer look, it’s pretty evident that all meds have prices way higher than their costs of production. But let’s take a look at things from the beginning.
The production of meds follows a similar path every time. The first step consists of the discovery of a new compound (natural or chemical) that could affect a medical condition. After this comes the research phase, where the biological and chemical properties of the substance are explored, and the possible drug is tested on animals. If the tests give positive results, the research moves on to healthy human volunteers and finally, on to humans affected by the medical condition which the meds aim to treat.
Clearly, despite a similar developmental process, each drug is made with its own compound and understandably, will have its own price once launched on the market. However, even when it comes to setting prices, there’s a similarity that unites all the meds: the huge gap between the final price and the cost of production.
EpiPen is only the most recent, obvious case of what’s a reality in the pharmaceutical business. From simple pain relief pills to specialty drugs, the cost of production is always way lower than the actual price. What generates this gap?
There is no single answer to this question. The gap is instead generated by myriad factors.
Surely, one relevant reason why meds are that expensive is the total freedom that companies have to set the prices without any kind of direct control by governments, in the US or elsewhere. Usually, drugmakers set the profit margin based only on the competition with other rivaling brands in the market.
To further that, there is usually not enough competition to lower prices. Often, each company has its own proprietary drugs which cannot be produced by rival drugmakers. This means that producers are free to choose the price they charge as customers will only be able to buy that drug from them. That is, until they discover the generic version, if there is one.
Besides, companies apply for a patent for producing a certain drug. Of course, the company that holds the patent for a certain med will only have the monopoly on it for a maximum of 20 years before it expires. All this opens the possibility of setting insane prices and raising them at any time.
Furthermore, companies naturally have expenses, and in this field, the biggest cost comes from the research which has also gotten more expensive over time. Usually, it takes companies about a decade from the discovery of a new compound to the launch of the drug on the market. During these 10 years, the company keeps on spending and investing and so, once the drug gets released, the drugmaker has a big debt to pay off.
Unfortunately, not everything turns out as it should. So, sometimes these years (and especially the money) spent researching just get wasted. Hence, companies have also to pay off a debt for something that will never arrive on the market.
However, despite companies addressing the reasons for such an exorbitant price, the truth is that those sitting at the top have incomes a lot higher than most of those who require these meds, which turns all the reasons into thick-skinned excuses. Also, with those prices, the companies’ generated revenue should be way more than enough to reimburse the finances poured into making drugs, and so it’s probably time to control this market a little more too.
By Marta Ciaraglia