We keep hearing about how high prices for drugs are because of high research costs, but that's a lie.

The truth is that the taxpayer-subsidized pharmaceutical companies simply charge as much as they can. The Wall Street Journal had a story on this last week:

When Celgene Corp. got its first drug approved, it priced a 50-milligram capsule at $6. Today, it sells the same white capsule for nearly five times the original price, or $29.

Little has changed to affect the cost of making the drug since it was first sold in 1998 as a treatment for leprosy and severe weight loss, or wasting, caused by AIDS. But today, it is primarily prescribed for cancer.

Celgene's drug is thalidomide, which earned world-wide notoriety in the 1960s for causing birth defects. The story of its reincarnation as an AIDS and cancer treatment shows how the political environment and drug companies' perception of what the market will bear drive decisions on drug prices in the U.S.

"For patients, the side effect of taking this drug is penury," says Raymond Comenzo, a hematologist at Memorial Sloan-Kettering Cancer Center in New York City.

Thalidomide is inexpensive to make. Fundacao Ezequiel Dias, a government laboratory in Brazil, sells 100-milligram capsules to the Brazilian government health system for seven cents. The pills are given to leprosy and cancer patients free of charge. [How Drug's Rebirth as Treatment For Cancer Fueled Price Rises WSJ 11/15/04]

Let the "free" market deal with it you say?

Wake up.

Hearing: "Free" seems to have the same effect on many as hearing: "You are getting sleepy, very sleepy ..." and they start dogmatically repeating that "the free market will take care of everything" in spite of clear evidence to the contrary.

Aside from the fact that the market never has and never will "take care of everything," the pharmaceutical industry does not operate in a free market. They operate in a monopolistic market environment.

In the case of thalidomide, this was effected with the help of the Patent Office:

The company [Celgene] devised a system for dispensing the drug that requires, among other things, regular pregnancy tests for patients of childbearing age. Since thalidomide had been around for decades and the composition couldn't be patented, Celgene would eventually patent this system of controlling distribution.

In theory a generic-drug company could sell thalidomide in the U.S., since the patent on the drug's composition expired long ago. However, it would need to get the FDA's approval for a distribution system to keep the drug out of the hands of pregnant women. Such a system would be difficult to devise without violating Celgene's five patents on its own system. [How Drug's Rebirth as Treatment For Cancer Fueled Price Rises WSJ 11/15/04]