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Pharma Pricing

November 16, 2015 | A version of this story appeared in Volume 93, Issue 45

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The editorial by Lisa Jarvis (C&EN, Sept. 28, page 3) discusses the complications in establishing a “fair” price for any particular drug. There are a few other unmentioned complications.

The industry now outsources much of the production of drug components and active pharmaceutical ingredients. In fact, the compounding and pilling operations may all be done overseas. The final quality control and packaging may also all be done offshore.

Domestic sales are counted as revenue, yet much of the actual revenue is transferred to an overseas affiliate. In practice, the income from domestic sales is used to purchase drugs or components from an overseas affiliate, and the price that the drug company pays is artificially set to retain a portion for domestic operations and is set as high as possible to reduce the tax burden. Funds retained overseas can be used to fund more factories, process development, and even research. All of this is legal because of a generous tax code.

Jarvis does not explain why the same drug might be available in Canada at a considerable discount to the cost in the U.S. Medicare is forbidden by legislation from negotiating drug prices.

None of these common practices gives me much confidence in the future of what was once a proud industry and a great employer of chemists.

George Baum
Kent Lakes, N.Y.

Oct. 26, page 2: A letter from G. David Mendenhall included inaccurate statements about a fatal tert-butyllithium fire at the University of California, Los Angeles. Whether Sheharbano (Sheri) Sangji was ever given an appropriate written procedure for the experiment is unknown. Also, according to a fire department report, Sangji did not try to extinguish the fire with hexanes; rather, the hexanes spilled and also ignited.


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