I think we all ahould be thanking Govenor Rod Blagojevich of Illinois for taking a bold step AGAINST the powerful drug companies. He is circumventing the roadblocks that were set up by the Federal Government which were clearly lobbied for by private industry(pharmacueticals). This way folks can have access to safe and lower drug prices.
I'm sure we'll all be real pleased 5 years from now when "big drug companies" have quit doing any research and development because it isn't worth it anymore. At least we'll have cheap Viagra!!!
Oh please, they only need to make a reasonable profit. Enough of the blatant fear-mongering.
Why should you get to decide what's "reasonable"?
At any rate, if the drug companies happen to disagree with what you set as "reasonable", they will reduce R&D expenditures. If their investors disagree, they will sell the stock, depriving the companies of capital and making it more expensive to get new capital.
The real issue isn't really about deciding what is a reasonable profit though, because this issue is global. This is a tricky issue from the U.S. perspective. On the one hand, U.S. consumers are subsidizing low-priced drugs to poor countries -- basically the companies sell the same medicines for far less money in poor countries than they do here. Also, the drug companies sell for lower prices in countries like Canada that have the government serving as buyer.
One solution the U.S. could easily decide to enact - and that would screw Canada as well as the poor countries - is to enact a "most favored nation" law requiring the drug companies to sell the drugs here for the best price at which they are offered abroad. Given the economics and relative market sizes, the drug companies would find it much more profitable to reduce their quantities of drugs offered by foregoing a lot of the marginal sales in poor countries and Canada to maintain the U.S. market. Due to political considerations the drug companies wouldn't cut other countries off, so the net effect would be raised prices for other countries and lower prices here.
However, that solution would not appeal to many of us, who don't want to see people in poor countries cut off from medicines.
Basically, this is a classic rock and a hard place. Drug companies research hundreds of compounds for every compound that is promising enough to enter into FDA trials -- many of those fail FDA trials. And research and regulatory trials are hugely expensive and time consuming. The drug companies have to recoup their money from all of the failed compounds and drugs as well as turn some profit from their effective drugs, and they need to do it usually in about 5 years (usually they have already used up 15 or so years of their patents going through the regulatory approval process). R&D and regulatory compliance are easily the most expensive aspect of drug production.
Given that, it is logical that if the U.S., which is far and away the biggest $$ market for most medicines, were to enact price caps, then the drug companies would cut back on their most expensive area. This wouldn't affect drugs in the pipeline, but, as Doogie said, would affect the development of medicines years later -- there would be fewer new drugs, and research would advance at a slower pace. There is a reason that U.S. companies drive biotech right now, and it's because we don't cap profits in the U.S. market.
However, why should the U.S. consumers and insurance companies subsidize drug development for the rest of the world? Drug companies discriminatorily price in different markets because the marginal cost of sale for the further units of medicine is small (as I said, most of the cost of a drug is R&D and regulatory compliance). Therefore, it makes sense for them to maximize their units sold, even if they can't get the premium price they get in the U.S. This allows them to offer low-cost drugs to poor countries, because they know they will recoup costs from the U.S. They can agree to a lower cost of medicine with the Canadian government for the same reason (although, obviously, they make more from Canada than from Columbia, for example).
Therefore, the problem: Do we prefer our current position, in which we maximize research and drug R&D, and subsidize drug access in poorer countries, while allowing drug companies to charge U.S. consumers premium prices, or do we enforce more price competition for U.S. consumers, which could cut off or greatly diminish the access of poorer countries to medicines, slow the development of new drugs, or some combination of both those non-desired effects?
vroom: Don't you know blatant fear-mongering is a specialty among the people doogie follows.
Would you invest millions researching drugs that may never pan out if you knew you could only sell the very few drugs that do work for what smelly hippies considered to be a "reasonable" profit?
Thats why they often steal others research, exploit university studies and then map out the path that such research would need to pass through, blindly patent it. If it turns out to be a dead end? theyve lost a couple of thousand on patents, if its correct? they make billions. The drug companies dont allways play fair.... besides, there is allways a market for new products, etc. regardless of what anyone says, R&D costs alot, but its worth it... Even with the restrictions. Drugs are just like any other product. Developement through to sales.
Most money lost on R&D is on substances already patented. The real huge moneylosers are the drugs that look hugely promising, are put through trials and develop, but fail at Phase II or Phase III in their FDA trials.