Why People Don't Trust Drug Makers

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When former hedge-fund manager and current Turing Pharmaceuticals chief executive Martin Shkreli hiked the price of his generic anti-parasitic drug pyrimethamine from $13.50 to $750 per pill, he invited understandable national outrage. He also prompted presidential candidate Hillary Clinton to call for price controls on a wide variety of medicines.

The subtext here is clear: Americans think price-gouging on prescription medicines is rampant. This isn’t surprising, since the pharmaceutical industry has done a poor job of explaining why drugs cost what they do. More than three-quarters of Americans support mandatory limits on the price of certain drugs. And 86 percent want drug firms to disclose how, exactly, they set prices.

The best way for drug firms to quell this outrage is to give Americans what they’re asking for: more information. Specifically, the industry needs to shed light on the huge sums they spend on research, their rising research-and-development failure rates and the refusal of insurers and pharmacy-benefit managers to pass on manufacturer discounts to patients.

Of course, drug pricing is a complicated matter. Which is why the industry should focus on a few basic points when making its case.

First, the cost of research. Since 2000, drugs firms have spent over half a trillion dollars developing new medicines. And research costs for the last year alone totaled more than $51 billion. That’s up from $15.2 billion in 1995.
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