Understanding the Flaws in Biden's Prescription Drug Pricing Claims
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Overview of the State of the Union Address
Watching the annual State of the Union address is not something I particularly enjoy. It's more about performance than genuine political dialogue. Throughout my memory, every president, regardless of party affiliation, has a tendency to exaggerate to fit as many catchphrases as possible into their speech. The grand claims and unrealistic promises often lack substance. The incessant applause during these addresses makes it unbearable; if I wanted to hear that much clapping, I could just play a soundboard for an hour.
Instead of tuning in, I prefer to read the transcript, which takes only about five minutes. Biden's recent address touched on many topics, but one statement caught my attention. It wasn't about the war in Ukraine or other critical current events; rather, it was a mathematical claim that seemed fundamentally flawed. Here’s the relevant quote:
"First — cut the cost of prescription drugs. Just look at insulin. One in ten Americans has diabetes. In Virginia, I met a 13-year-old boy named Joshua Davis. He and his Dad both have Type 1 diabetes, which means they need insulin every day. Insulin costs about $10 a vial to make. But drug companies charge families like Joshua and his Dad up to 30 times more. For Joshua, and for the 200,000 other young people with Type 1 diabetes, let's cap the cost of insulin at $35 a month so everyone can afford it."
— Joe Biden, 2022 State of the Union Address
To hear him elaborate on this argument, you can check out a recent interview with Heather Cox Richardson, where he reiterates similar claims around the 24-minute mark.
The Popularity of Lower Drug Prices
Who wouldn’t support reducing the costs of medications, especially with rising inflation and healthcare expenses? It’s a noble sentiment that appeals to our compassion for those in need. However, this perspective often overlooks the complexities of the pharmaceutical industry.
To illustrate this, let’s apply some basic business principles. Assuming Biden's figure of $10 for manufacturing costs is accurate, he claims that companies charge 30 times more. While it’s true that there are substantial markups, the reasons behind them are multifaceted. Pharmaceutical companies incur significant expenses beyond just the production costs and raw materials.
If the assumption held that companies were profiting 3,000% on a $10 vial, every investor would be flocking to invest in pharmaceuticals. No business sustains profit margins that high.
The Misunderstanding of Drug Development Costs
Biden's assertion that a vial can be produced for $10 reveals a lack of understanding of the extensive processes required to develop a drug. It involves teams of scientists conducting numerous tests over several years to identify viable compounds, followed by engineers designing the necessary manufacturing facilities. After these stages, extensive trials are needed to ensure safety and efficacy, all of which contribute to the overall cost.
The idea that a drug company could sell a vial for $35 is unrealistic, as that price would not even begin to cover the substantial expenses incurred during the research and development phases. If companies were forced to charge such low prices, the result would be a collapse of the pharmaceutical sector, leaving no new drugs for consumers.
If Biden genuinely wished to reduce costs, he might consider lessening the stringent regulations that govern drug approval. However, I do not advocate for eliminating these regulations entirely; the data and safety assessments conducted by agencies like the FDA are vital for public health.
While some pharmaceutical companies engage in unethical practices, they are the exception rather than the norm. Many dedicated professionals contribute significantly to the advancement of medical science.
The Financial Reality of Drug Development
To grasp the financial demands of drug development, one can refer to government reports indicating that it can take upwards of 2 billion dollars in research and development to create a single new drug. Companies often allocate 25% or more of their revenue toward R&D, a figure that surpasses many other industries.
Consider the ramifications if such flawed mathematics were implemented in drug pricing a few years ago. Without sufficient profits, pharmaceutical companies would cease new developments, leading to a stagnation in innovation. The rapid development of COVID-19 vaccines by companies like Moderna and Pfizer was possible because they had the resources needed for R&D.
In Biden's interview with Richardson, he slightly alters his claims, maintaining the $10 figure but stating that companies charge $640, indicating a profit margin exceeding 6,000%. This discrepancy raises questions about the accuracy of his statements.
The inconsistency in Biden's figures regarding the same subject across different discussions undermines confidence in his assertions. It’s disappointing to witness such misunderstandings, especially from someone who appears personable and engaging. We need leaders who grasp fundamental business principles and the intricacies of innovation, rather than career politicians.
Description: In this video, President Biden discusses the high costs associated with prescription drugs and the need for reforms.
Description: Watch live as President Biden addresses the issue of lowering prescription drug prices during his visit to NIH.