Just during the last few months I became aware from commenters on this board that the same modern insulin that I spent over $200/vial was available in Canada for about $30/vial. When I commented that the Canadian health system must be subsidizing that cost, the Canadian members here pushed back hard and said there was absolutely no subsidy of this insulin. They said that the Canadian health care plan specified the sale price limit to the insulin producers and the producers could choose whether they want to enter the market or not. They concluded that the producers must be able to make a profit at $30/vial or they rationally wouldn't enter the market. That seemed persuasive to me.
Terry, your analysis is spot-on, but incomplete.
Business finance is complex, and like so many things, most people have all sorts of misunderstandings and lack of understanding that leads to harmful conclusions (not saying this is the case with you -- it's a general statement).
The part you left out involves sunk costs. You touch on it above, but don't properly position it w.r.t. present cash flow accounting.
Put simply, the costs of development -- in the billions -- is already spent, hence the term, "sunk cost". In a free market, these costs are amortized (spread out) over the anticipated life of the product. In the case of pharmaceuticals, that's usually the patent exclusivity period, but not always.
So, all that said, it also is true that the cost to actually manufacture something like humalog is exceedingly cheap. A 10ml vial probably costs less than a dollar to manufacture, package, and distribute.
As such, the manufacturer can make a profit on the stuff, in terms of cash flow, at very low prices. However, they can't make the drug profitable overall for the life of the drug without recovering the development costs.
As such, it makes sense to enter into agreements with health care system's like Canada's, the UK, etc., even at these low prices, because it adds to the overall profit picture.
However, if the worldwide pharmaceutical industry did not have the US market -- and population -- to subsidize the development of these treatments, they simply would not be developed.
The only target of my irritation in all this are fellow PWDs outside the US who rail against the industry for high prices, while their costs are miniscule, and fail to appreciate that for most of the advances in our care over the last 30 years, they have their fellow PWDs in the US who are paying through the nose to develop these treatments.
I favor getting US prices more rational by demanding that the rest of the world suck it up and share in the development costs. Then a vial of Humalog will be $70 for all of us, instead of $200 for Americans, and $30 for the rest of the world.