Monday, June 26, 2006

Moral Imperative or Madonna?

I had a law professor once (I didn’t like him at all[1], but that’s not relevant, really) who was fond of asking, “If you could feed the entire world by pushing a button, at no cost, would you?”

His point was in response to the arguments for copyright law, and used as an analogy. His next point was that, because digital music copying had gotten to the zero-marginal-cost point, and therefore, artists (or whoever held the copyright) shouldn’t be able to recover money for that.

I argued then (and still do) that the analogy failed. Essentially, if you could feed the world’s hungry at zero cost, you’d have a moral imperative to do so. No such moral imperative exists to bring Madonna or The Backstreet Boys to everyone.

What got me to wondering about this moral imperative was a throwaway in an article about Johnson and Johnson buying Pfizer consumer health division. The line said that Pfizer wanted to focus on the prescription drug division. Why?

“The company said it wanted to divest the unit so that it could focus on prescription drugs, its most profitable business line.”

Prescription drugs are the most profitable unit? I thought part of the argument for the high prices of prescription drugs was that while their marginal cost was so low, the cost of research and development was high, and needed to be amortized over the life of the production run.

But that’s not the whole story, is it? Clearly, Pfizer is making lots of money on their prescription drugs. Presumably, that profit incorporates the large cost of research and development. Presumably, even for the failed drugs, the ones that don’t generate revenue. Obviously, those need to be factored in, as the incentive for continuously researching and promoting is the possibility of making money on them, even if they might fail.

But should Pfizer’s most profitable division be the very that likely has the strongest moral imperative attached? Shouldn’t Pfizer, factoring in all the costs of research and development, and taking into account even future research projects, have the moral imperative to then pump any other profits generated by those drugs into reducing their costs? To make life-saving drugs available to anyone who needs them.

Make as much profit as the market will allow on the little blue ones. But then, if someone who can’t afford to control their own hypertension or cholesterol, lower the cost so that they can still prolong their lives with Norvasc or Lipitor, at a cost they can afford.

[1] One reason: He limited our papers to 1,000 words, based on the reasoning that “anything important that needs to be said can be said in 1,000 words,” while assigning as a reading his own article that was 3,500 words long (not including footnotes), among other things he’d written, which were longer.

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