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The Price of Price Controls: Innovation Likely to Suffer in Drug Pricing Debate | IPWatchDog

The Cost of Cheap
The reason drugs are cheaper in other countries is because those other countries have price controls. If pharmaceutical companies want to sell into those countries, they have to charge those low prices. And if the required low price is set above the marginal cost to produce the drug, then the pharmaceutical company makes money on the sale because the research and development and cost of regulatory approvals are already paid. Therefore, when the pharmaceutical company sells for a low price, they are not recouping a fair portion of R&D and regulatory costs, and instead just making a profit when those innovation costs are not considered. This means the American consumer is left to pay for the innovation costs (i.e., the research, development and regulatory process to ensure the drug is safe) because there are no price controls in the United States. So, U.S. citizens are now and have been subsidizing cheap drugs for the world.

Will Congress do anything productive and appropriate to stop U.S. citizens from subsidizing cheap drugs for the world? That seems doubtful because a solution that will not kill the golden goose that is biopharma innovation will be extremely difficult, will take real determination, and won’t be easy to explain on a bumper-sticker or in a campaign slogan. Instead, what Congress seems to be contemplating is introducing price controls like other countries. And while price controls that prevent a drug company from selling a particular drug for more than a certain amount might make that particular drug cheaper, it will destroy innovation in the industry.

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The Price of Price Controls: Innovation Likely to Suffer in Drug Pricing Debate.