Books Pharmaceuticals

Why do pharmaceuticals cost so little to manufacture but cost so much?

A typical answer is that the cost of R&D is very high. However, an interesting book by–C├ęsar Hidalgo titled Why Information Grows–offers a more conceptual rationale.

Medicinal pills embody little information, as their active compound is usually a small and relative simple molecule. Yet medicinal pills can be extremely useful and valuable. Why? To understand the value of a pill we need to understand both the context in which this information is used. Implicit in a pill we have the practical uses of the knowledge, imagination and knowhow of its creators. The creators of the pill were able to identify the biological impact of that small chemical compound and while the knowledge of how they achieved this is not embodied in the pill, its practical uses are present implicitly in the context in which the pill is used. Also, the makers of the pill had to figure out how to synthesize it, implying that the pill, while simple at the end, was the output of a process rich in the use and processing of knowledge, knowhow, and information. A pill is valuable because of this context, which involves the knowledge, knowhow and information embodied in the environment in which the pill is used and produced, rather than the pill itself.

The book–which I am still reading–is interesting throughout and describes how information complexity can help explain physical, economic and social phenomenon.


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