NP Bush Economics after 9/11

[Terrance]

Paul Mackin wrote:
> 
> On the question of Bayer. If $4 a pill is justified to recoup the cost of
> developing Cipro then $1 a pill is justified also. Under conditions of wide
> spread use of the product as much (and probably much more) profit will
> surely accrue.
> Hope that's not coocoo economics.
> 
>         P.

Well it might be. It depends on any number of things, most of these
things can be represented with numbers. Although these are often not
very "good" numbers. 
The difficulty is in determining the cost of the pills to Bayer.  Bayer
doesn't calculate the cost simply by adding up how much it spends to 
mix up the medicine,  market/service it (not much marketing required at
the moment) and  delivers it. 



It has to factor in the research and development and the FDA/Law and
patent expenses and so on and on, projected life (when the generics will
erode profits and so on...) so on.... 

Bottom line:

If getting the drug to consumers costs Bayer $1.01 and they are selling
it for $1.00, they are losing money. In fact, the more they sell, the
more they lose.
Pennies add up.   

On the other hand, if the drug costs Bayer $1.00 and they sell it for
$1.01 they will make a profit on it. Not much, only a penny, but pennies
add up. 

The risk for Bayer is that lowering the price and therefor its profit
margin for what is essentially a panic in the market (demand),  when and
if the demand for the drug returns to normal, it won't be worth
producing at all.