"If only we could find a patient willing to pay $800 million for that first dose," said Judy Lewent at one point (she is executive vice president and chief financial officer of Merck & Co.), "we could sell the rest to everyone at cost. Imagine, though, what that would do to that one patient's insurance premiums!"
Just so. But of course there is a potential insurer willing to pay that hypothetical $800 million fixed cost for a successful treatment -- not just for one such disease but for many. (The $800 million figure comes from a Tufts University study of medical R&D.) That could-be insurer might be a government, charged with looking after the health care of its citizens.
Warsh points out that government typically provides "push" funding for research, including "grants to researchers, tax credits for companies, support for government labs." A reward or prize for developing a particular drug would instead be "pull" funding.
Warsh also links to an industry-bashing article by Marcia Angell. She writes,
unlike other businesses, drug companies are dependent on the public for a host of special favors—including the rights to NIH-funded research, long periods of market monopoly, and multiple tax breaks that almost guarantee a profit. Because of these special favors and the importance of its products to public health, as well as the fact that the government is a major purchaser of its products, the pharmaceutical industry should be regarded much as a public utility.
By that argument, almost every industry ought to be a regarded as a public utility. The computer industry benefits from government research, as does the energy industry and agriculture. The entertainment industry gets "long periods of market monopoly" for its intellectual property. Most industries receive tax breaks.
For Discussion. When I think of a government-run utility, I think of Amtrak or the postal service. Would we be satisfied with a pharmaceutical industry of that caliber? Are there examples that are more positive?