Why are drug prices high? Cutting through complex roots, I note patents grant drugs time-limited monopolies that are then priced often on what markets/payors can bear to pay, and society values health highly.
Patents have roots in the idea that without incentives intangible assets (ideas, processes, designs, R&D) would be under-produced. The length of patents and copyright, now mostly globally harmonised has an intriguing and semi-arbitrary history.
Note the US did not grant copyright to foreign works for most of the 1800s and then from limited nations from 1891.
In Japan, Texas Instruments applied for 14 semi-conductor patents in 1960, these were not granted for decades allowing Japanese companies to copy the tech and advance their own industry. (The patents threatens to disrupt the development of a domestic semiconductor industry, an area that business and government leaders had decided was strategic to Japan’s long-term economic growth. By refusing to act the bureaucracy allowed the Japanese companies to copy the tech without paying for years). This was one key component (there were others such as low interest loans, accelerated depreciation, and other measures that lowered capital costs, enabled Japanese companies to continue investing heavily despite years of large losses. Also US firms that wanted to make joint ventures in Japan were obliged to transfer technologies as part of the deal)
Drug R&D is expensive and often fails. The cost of this failure is another major reason for the high price of drugs. Most drugs tested in humans never make it to market. Recent data H/T Bernstein / KMR:
Preclinical 17.3 compounds to yield one approved product, a failure rate of 94.2%
Phase 1 compounds: It takes ~11.8 phase 1 molecules to yield one approved product. The implied hit rate is 8.5% (or inversely, a failure rate of 91.5%).
Phase 2 compounds: It takes ~5 phase 2 molecules to yield one approved product. The implied hit rate is 20% (or inversely, a failure rate of 80%).
Phase 3 compounds: It takes 1.4 phase 3 molecules to yield one approved product. The implied hit rate is 71% (or inversely, a failure rate of 29%).
Source: KMR, Bernstein
Another cut suggests:
As shown, for the period 2012-2016:
Phase 1 drugs: 42% advanced to phase 2 (58% stopped)
Phase 2 drugs: 29% advanced to phase 3 (81% stopped)
Phase 3 drugs: 74% advanced to registration (26% stopped)
Registration: 95% of drugs filed for approval got approved (5% didn’t make it past the regulators.)
If you'd like to feel inspired by commencement addresses and life lessons try: Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure. Or Charlie Munger on always inverting; Sheryl Sandberg on grief, resilience and gratitude or investor Ray Dalio on on Principles.
Cross fertilise. Read about the autistic mind here.