Pharmaceutical
A drug costs $1.2 billion to develop. Five to nine fail for every success. A pill that costs $18 to make is priced at $18,000 because that pricing has to cover every drug that never made it out of the lab.
Pharmaceutical companies spend $1.2 billion, developing a drug over 10 years. Approval happens in year 10. Companies have seven years of exclusive protection before generics enter. Pricing is unforgiving. A drug costing $18 annually to manufacture might be priced at 18,000. The margin looks enormous, but covers distribution, marketing, sales, legal, and sunk costs of failed drugs. For every successful drug, five to nine fail. Companies spending $1.2 billion on winners actually spend six to nine billion total across the portfolio. Successful drugs must generate returns covering all the failures. This creates pricing power. Competitors can't match approved drugs. Pharmaceutical companies price as high as insurance will bear.
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