>FWIW, the average cost to develop a new drug actually is well over a billion dollars, meaning that a lot more units would have to be sold and/or the price set a lot higher for the effort to be worth it. The interest alone on this sort of expense would be well into the hundreds of millions of $ and growing at $140M annually before the first dose is sold. If the company sells 1M units annually they'd need to charge $150 just to cover the interest and around $500 per unit to reduce the deficit in a reasonable period. Any less and they would have been better off to put their billion dollars in the bank and develop nothing.
>
>I agree with you that it is easy to look at that $500 price and scream about the apparent 4900% profit, but that's what is needed to make it worthwhile.

Another view on costs...
http://pubs.acs.org/cen/coverstory/8004/8004pharmaceuticals.html

...Two aspects of the Tufts number are particularly controversial: its inclusion of the cost of failures and its inclusion of opportunity cost--the amount of money that could be earned by a comparable alternative investment, which amounted to $399 million in the Tufts study.

"The opportunity cost is a theoretical cost, not a real cost," says Larry Sasich, spokesman for Public Citizen, Ralph Nader's watchdog group. Public Citizen claims that the Tufts figure exaggerates R&D costs not only by including the cost of capital and failed drugs but also by overstating the actual after-tax outlay for development costs and by excluding drugs that receive government support. "The pharmaceutical industry gets an awful lot of tax breaks, like credits for research," Sasich says.

Public Citizen believes that a more accurate figure would include only out-of-pocket expenses and would account for the fact that many drugs receive financial backing from the government sometime during their path to commercialization. The group says the drug industry's main trade group, Pharmaceutical Research & Manufacturers of America (PhRMA), is misleading policymakers and the public to scare them into accepting prices that result in excessive profits.

Public Citizen conducted its own study in which it came up with a cost of less than $240 million to develop a drug. Pharmaceutical companies "foster and nurture the belief that the industry spends a lot on R&D," Sasich says. Companies price drugs according to what the market will bear, not what they spent on R&D, he claims.