Marginal Revolution has an interesting post today, "The Demand for R&D is Increasing". In it they discuss the potential market for cancer drugs in China, which they estimate is 8X larger than the U.S. Based on this potential market size, the Chinese government is funding pharmaceutical research for the first time.
- Clayton Christensen was correct when he stated that the market size is determined by the number of unserved customers.
- China, India, Russia or any other large country should offer incentives to move pharmaceutical research to their country, assuming development costs would be a fraction of the cost in the U.S. (The post estimates that development cost in China is 10 percent of the cost in the U.S.). Such an approach would likely lower healthcare costs for the government, encourage a pharma industrial cluster in the country and raise research standards in local universities, to name a few benefits.
- Pharmaceutical prices in the U.S. are outrageously high given the number of worldwide patients for any given drug at an "affordable" price. Given the tiny marginal cost to produce an additional pharmaceutical unit, liability cost cannot explain the high prices given that R&D costs are spread over large unit volumes.