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The Quest: $84,000 Miracle Cure Costs Less Than $150 to Make

The views expressed are those of the author and are not necessarily those of Scientific American.

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Credit: CDC/Debora Cartagena

What are the likely manufacturing costs for sofosbuvir (Brand name: Sovaldi), the newly approved miracle drug that cures hepatitis C at a cost of $84,000 for the full 12-week course of treatment? Anywhere from $68 to $136 for the full course, according to an analysis that was published in Clinical Infectious Disease (CID) in January—which was about a month after Gilead announced how much it was planning to charge for the drug.

No wonder the pharmaceutical company has just broken the record for “sales of a drug in its first full quarter on the market,” according to Andrew Pollack of the New York Times.  Indeed, Pollack calculated that the $2.3 billion first quarter sofosbuvir sales also broke the record for the first full year of any drug. (For the record, the previous record was $1.56 billion for another hepatitis C drug, telaprevir, brand name: Incivek.)

Trying to determine manufacturing costs is becoming something of a habit for me whenever a new drug is launched. I found the CID article after a quick search on the website. I typed “sofosbuvir” into the search box and “cost.”

(It’s good practice to use a medication’s generic name rather than its brand name when doing any drug-related search on a medical database because that’s how most scientists will refer to it and therefore that’s what will give you the most information.)

The search returned 10 articles, including one (published in Drug Healthcare and Patient Safety) that pointed out an $84,000 price tag seems reasonable when compared with the $270,000 costs of living with chronic liver disease for 10 years or $577,100, which was “the estimated US average of billed charges per liver transplant in 2011.”

The CID article, by contrast, took a page from the successful price reduction of HIV drugs in the poorest parts of the world—where volume pricing allows manufacturers to make some money in areas where neither the population nor the health system could ever afford to pay full fare. Co-infection with hepatitis C affects between 5 percent and 15 percent of the 33 million HIV-positive individuals around the world—leading to more severe health problems, according to the World Health Organization.

The authors assumed a minimum of 1 million patients per year and a 40% margin for formulation to conclude that sofosbuvir probably costs $68 to $136 to manufacture for a 12-week supply and that large-scale manufacture would be feasible with minimum target prices of $100 to $250 per treatment course in the next fifteen years.

Previous posts in The Quest series:

How To Get A Medical Librarian to Do Your Search for Free

Practical Advice for Online Searches




About the Author: Christine Gorman is the editor in charge of health and medicine features for SCIENTIFIC AMERICAN. Follow on Twitter @cgorman.

The views expressed are those of the author and are not necessarily those of Scientific American.

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  1. 1. fowlkestj 2:49 pm 04/23/2014

    Does this study calculate in costs from the bench through clinical trial costs in addition to manufacturing and distributing the drug or are only the latter used in their calculations?

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  2. 2. bearvarine 3:02 pm 04/23/2014

    So is the $9 billion+ dollars in annual profit Gilead expects to book on the backs of the American public worth it, given that it was the profit motive that drove them to develop the medication in the first place? Reluctantly, I would have to say yes, but with many many caveats. There are so many things wrong with this picture. Firstly, the government is conspicuously absent from pharmaceutical research for the public good. Why? Because the Big Pharma lobby has asked Senators and Congressmen to dry up funding for grants that would help develop drugs that could not be patented? The fact that $84,000 is an amount of money someone (i.e. insurance companies) can afford to pay for treatment of a disease is also a problem – because I cannot afford $500 – $1000 a month insurance premiums that result from it. Finally, low-cost alternative medications are rarely researched or developed because there is no profit in that. The medical industrial complex in the US is so broken that it may never be fixed. Big Pharma will bankrupt the country just as quickly as the Big Military-Industrial Complex has been doing for decades. Sooner or later the government’s credit card is going to be declined. Watch out after that.

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  3. 3. Anchovy_Rancher 3:06 pm 04/23/2014

    I hope the bar these doctors go to start charging them $100.00 for a beer.

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  4. 4. Christine Gorman 3:12 pm 04/23/2014

    Bearvarine: you raise a good point. But already some insurance companies are balking about the price. A few days ago, Reuters had a piece saying that “UnitedHealth Group Inc, the largest U.S. health insurer, said it spent more than $100 million to cover a pricey new hepatitis C drug from Gilead Sciences Inc in its first three months on the market, an amount that was “multiple” times what it had expected.”

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  5. 5. tuned 3:57 pm 04/23/2014

    Abstain sure is cheaper and less miserable.

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  6. 6. larkalt 4:16 pm 04/23/2014

    No, it’s just the manufacturing cost. The drug company has to recover the cost of the many drugs it tried that didn’t make it to market, plus the cost of developing this drug.

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  7. 7. ButchBoyd 4:18 pm 04/23/2014

    The marginal cost to produce may be minimal, but the cost to get to market is enormous. Years of research, years of testing, years of application and revue plus more add to the cost. I can’t condone gynormous list prices, but all the costs must be considered when setting the market price. Hubert Boyd

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  8. 8. Christine Gorman 5:11 pm 04/23/2014

    tuned: hepatitis C is primarily transmitted through contact with blood, not sex.

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  9. 9. mthomson1 5:24 pm 04/23/2014

    Pricing is a fascinating subject (I’m trying to be objective, as we all get riled up about what seems, and sometimes are, outrageous prices just because the market will bear them). For sure it’s not just based on manufacturing costs, especially, as pointed out by others, when you consider development costs, of this drug and of all the abandoned efforts.

    Would love to see the pricing model!

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  10. 10. Christine Gorman 5:30 pm 04/23/2014

    Re R and D costs: Published reports suggest Gilead has a quarterly R and D expense of nearly $600 million.

    That’s for two dozen or so drugs in the pipeline

    The larger question, however, is whether the current model for financing drug research and development is sustainable in the long run. Voices within government and industry note that R+D productivity has stagnated over recent years.

    And new models for R+D innovation are being discussed

    Link to this
  11. 11. bearvarine 7:19 pm 04/23/2014

    Speaking of new models for R&D, perhaps we need to look to the software industry, where the “open source” movement has upended the business models of large software-for-sale companies such as Oracle, Microsoft, IBM, AT&T and many others.

    How do we create a GNU project for the pharmaceutical industry?

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  12. 12. z34aa 7:45 pm 04/23/2014

    Don’t worry, R&D costs won’t be a problem, at least not for companies like Valeant who buy up other drug companies and then slash their research budges to the bone. You can make all kinds of profit if you don’t have to invest in new medicines, and high profits are what it’s all about, gotta keep those shareholders happy.

    Of course, without new drugs in the pipeline there isn’t that much future for the company, but hey, what does it matter? As long as the money is flowing in the here-and-now it’s all good. Besides, when things start to go pear shaped you can always just sell your stock and invest somewhere else.

    Man, I really wish people had the ability to look past their next big payout and consider what will happen on down the road.

    I think it’s time to stop praying for world peace and instead pray for mankind to gain some perspective.

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  13. 13. 8:42 pm 04/23/2014

    Don’t forget for every drug that eventually reaches the market, several thousand have been eliminated on the way and it takes 8-10 years to go through all the toxicology, safety and dosing trials. At any stage a drug can be eliminated.

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  14. 14. curiouswavefunction 10:55 pm 04/23/2014

    Yes, manufacturing costs are usually a fraction of drug costs; that’s been pretty much always true. As someone pointed out above, drug pricing is very complex and the price is basically decided by what insurance companies and the government can bear; it’s a weird system badly in need of rational thinking and reform but it doesn’t just simply arise from greed or CEO bonuses. It’s also important to note that while one can make very legitimate cases against profits, CEO bonuses etc. profits actually don’t contribute as much to a drug’s price as one would think. As a hypothetical example, consider this: pharmaceutical profit margins are typically about 20%. So in a hypothetical world, even if you mandated that Gilead make no profit at all from Sovaldi, Sovaldi’s cost would still be about $50,000, so it’s not as simple as just profit margins.

    As for #2′s point, no, the government is not conspicuously absent from pharmaceutical research, and the pharmaceutical lobby has little impact on how much funding university professors get; if only it were that simple. My PhD advisor developed a drug that made its way to Gilead and is today one of the world’s most prescribed anti-HIV drugs. The university got $500 million for it and they put it to good use, fueling basic science research and supporting graduate students. In addition professors can and do patent their research and make royalties off of it, but most professors would rather do basic science than applied drug discovery.

    Some commentators have also rightly pointed that for every drug that makes it to market, thousands fail; the cost of taking a drug to the market can easily run into billions, and unless that R&D cost is recovered pharmaceutical companies will have to shut down. Again, one can make a case for how much profit a company should or should not make, but it is imperative to recover R&D cost if new drugs are to be discovered. It’s worth noting that Kalydeco (cystic fibrosis) and Sovaldi are real breakthroughs, providing treatment where none or very poor treatment existed before.

    The basic reason why the costs are so high is that the science of drug discovery is enormously hard, and when it comes to discovering brand new drugs we are still groping in the dark. When we discover drugs we are basically fighting a war of attrition, and we would be ashamed of the process had we known better. Contrary to popular perceptions, pharma does not always work on “me-too” drugs because those are all it cares about, it’s because it’s really hard to discovery a drug with a brand new mechanism of action.

    I have been writing a series of posts on why drug discovery is hard (since I don’t want to spam with links, you can Google “curious wavefunction why drug discovery is hard”). The business aspects of it notwithstanding, the fact remains that we just suck at the science of drug discovery, mainly because we still understand so little about human biology and because we always lack information about what a drug is doing in the body. And that situation is not going to change for the better anytime soon.

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  15. 15. Jerzy v. 3.0. 4:50 am 04/24/2014

    “How do we create a GNU project for the pharmaceutical industry?”

    If you figure a way to make free clinical trials which are also safe.

    If hospitals can run clinical trials in exchange for the share of income from the drug, or if some direct patient-to-drug-candidate initiative becomes feasible… however I don’t see anything realistic here.

    Somebody rightly pointed that the government should fund clinical research more, naturally in exchange for benefits. Pharma giants are big because they need financial stability to survive all the failed drug candidates. The government is even more prepared to go there.

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  16. 16. SAULT18 11:26 am 04/24/2014

    Here’s Gilead Sciences Inc. recent financial info:

    Revenue of nearly $5B last quarter, which has basically DOUBLED over the course of a year. Net profit margin for last quarter was 44% as well. They’re raking in the dough and they know that they have a huge captive market of Hep C patients, so they are charging whatever they can get away with.

    Keep in mind that these companies spend hundreds of millions of dollars for all the prescription drug advertising you see all over the place too. If these companies weren’t trying to make people their own drug pushers on their doctors, profits would be even higher.

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  17. 17. Dalmatian90 11:55 am 04/24/2014

    “Price is not related to cost.”

    That was a sign I saw years ago hanging in the accounting office of an American manufacturing company. That company did a lot of leading edge product development work, knowing that mass market production would take place in lower cost countries by companies they taught how to do make the new products.

    The key meaning in that sign? Value matters.

    If $84,000 saves $270,000 that’s a good thing and the only thing the financiers of healthcare have to complain about is they have to spend in three months what the actuaries used to count on spending in three years.

    That does mess up cash flow and other legitimate business concerns. It also messes up the business decisions hospitals and clinics treating Hep-C have made, because their revenues will collapse in that market segment.

    Are there lots of things wrong with American healthcare, including that $27,000/year figure already probably being well above what it should be? Sure. And I am sympathetic with many of the posters above.

    But we should not instinctively vilify or express indignation when one party makes a very, very good profit but in doing so is saving all of us far more money.

    They’re not making that money by underhanded dealing, like when Standard Oil had so much market share they demanded the railroads give Standard a kickback on what their *competitors* shipped. They’re making money in the best possible way, by saving other people a lot more money by introducing an innovation that fundamentally changed the market.

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  18. 18. curiouswavefunction 11:56 am 04/24/2014

    #16: How do you propose drug companies recover the high cost of R&D? You cited a $5B revenue for Gilead which sounds high, but that’s about the same amount of money that it takes to develop a new drug.

    A lot of people again simply don’t appreciate how hard it is to discover a new drug because of our poor understanding of human biology and how wasteful the process consequently is. I am as much in favor of making new medicines cheaply available to poor people as anyone else, but simply comparing the manufacturing cost of a drug to its price and ignoring the high R&D costs, the high barriers set by the FDA and other factors is quite misleading; sadly, the headline which Scientific American picked to highlight this post on Facebook (in which they cited *profit margins* of “one gazillion percent” is even more grossly wrong and sensationalistic). The average profit margins for pharmaceutical companies are still about 20%, less than those for internet companies for instance. You can legitimately argue high drug costs but it’s important to get your definitions right.

    In addition it’s worth noting again that this generation of hepatitis C drugs is a real breakthrough and a dramatic advance over previous treatment – PEgylated interferon and ribavirin which have debilitating side effects. So it’s still better than what we had before, and one that we have been seeking for decades. For once we actually have a drug that’s not, for instance, the fifth statin on the market, so it’s worth appreciating its novelty.

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  19. 19. SmoothPower 12:20 pm 04/24/2014

    The Lamborghini Veneno retails at a cool $4.5 million. Certainly, it costs a fraction of this to slap one together. Melt one down and sell the scrap and you’ll get $300 or so. Similarly, production costs are a mere fraction of the $84K price tag of sofosbuvir.
    Who says that I am entitled to obtain a Veneno, or sofosbuvir for that matter, just because they exist?
    To me, it reminds me of the Charlie Brown comic strip where everything has to cost a nickel.
    Reduce exclusivity by limiting the length of patent protection globally. What would happen if it were removed entirely?

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  20. 20. Christine Gorman 12:53 pm 04/24/2014

    SmoothPower: Seriously, you’re going to compare curing hepatitis C to drive a Lamborghini? The sports car is a luxury product that no needs to live. The pharmaceutical medication, on the other hand, is a very different story.

    Talking about Gilead’s need to recoup R+D costs still misses a very important point. R+D costs have risen to financially unsustainable levels. It’s not vilification to point this out. And folks in the industry are quite aware of the problem themselves. Even Gilead has participated in discussions about “delinking R+D costs” — the new buzz phrase.

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  21. 21. curiouswavefunction 1:45 pm 04/24/2014

    I wrote a response:

    Also, I think that article about delinking costs makes sense, although it’s still not going to make clinical trials cheaper. But it seems like a step in the right direction.

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  22. 22. Christine Gorman 4:24 pm 04/24/2014

    Hi Ash (a.k.a. curiouswavefunction): Glad you like the delinking reference. My objective with this post was to get the conversation rolling. And to get it beyond the standard response “But we have to recoup R+D.”

    R+D costs are much too high. Where’s the competition between companies over who can discover drugs for less money (e.g. providing greater value). That kind of robust competition is not really happening any more. Instead, you have a kind of rentier economy–which in the end might well take the free enterprise system down with it.

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  23. 23. CPO_Ryback 9:31 pm 04/24/2014

    Ms. Writer,

    If this pharm had FAILED — would you have helped pick up the lives of the MD/PhDs who risked much?

    Of course not. Like most people, you want all the upside — for free or one penny.

    Well, news-flash, madam: MD/PhDs don’t work for free. This is hard work, 1000% harder than writing “critques.” Fear of failure is intense.

    Fellow inventors — with thinking like this B.S., don’t stick out your necks. Find a nice, easy government job and have a life. Ignorance is epidemic today — don’t waste your lives, battling penny-pickers.

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  24. 24. Christine Gorman 11:52 am 04/25/2014

    Put a cork in it, CPO_Ryback. Ash and the other commenters and I were having a civil conversation about a complex topic before you came barging in with your lame personal attacks.

    At least have the common courtesy to post under your real name, as we do, instead of hiding behind the name of a Steven Seagal character from 20 years ago, Chief Petty Officer Ryback.

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  25. 25. Christine Gorman 12:00 pm 04/25/2014

    Here’s a link to our community guidelines:

    I’ve also cut-and-pasted them below:

    We encourage discussions about stories and posts on our site. The comments section can provide an opportunity for readers to ask questions about an article answered or offer an opposing viewpoint supported by peer-reviewed science.

    The comments section should not devolve into name-calling, ideological bickering, off-topic rants or anti-scientific claims. With that in mind, some community guidelines are below. If we find that commenters violate the letter or the spirit of these guidelines, we reserve the right to delete comments and/or ban users from the site.

    Be friendly, or at least civil.
    It’s easy to come across as rude, mean or sarcastic online, but do not allow that tone here. When commenting or replying, please remember that sentient people with biographies, vulnerabilities and emotions read our site. Racist, sexist, homophobic, discriminatory, vulgar, profane, name-calling, ad hominem, baiting and generally offensive comments will not be tolerated.
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    Do not link to content that does not abide by these guidelines or that is irrelevant to the discussion.

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  26. 26. CPO_Ryback 4:22 pm 04/25/2014

    Madam, congratulations on your obvious inability to dispute the reality to getting MD/PhDs to work for nothing.
    There is no reason for anyone to invent anything, in a country filled with Michael Moores who refuse to pay for hard, difficult work.
    Be sure to find a good cave to live in. You will need it.

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  27. 27. SJCrum 4:52 pm 04/28/2014

    For a brief description of the cause of Hepatitis, it is obviously caused by virus, so one type of simple prevention is to not consume anything that has virus in it. This might appear to be a bit overly-simple, but all cancers are caused by the same exact thing. And, for cancer, the prevention is enormously easy. That situation is accomplished by not smoking tobacco, which has virus flocking to the tobacco leaves during the growing process, and even after the drying process, their are still living virus in the tobacco, and which can easily be inhaled.
    As for a second major type of product form cancer that is from eating raw broccoli, and because virus flock to the growing heat of that produce as well. And, they are still live virus during all of their preparation for sale also.
    As for broccoli, it is easily thought of as a truly healthy type of item to eat. And, it is, but it needs to never be raw, and instead, either frozen or cooked to kill virus.
    As for Hepatitis, it is caused by the same two items.
    As for a treatment, that is accomplished by not eating any more virus, and also by eating a good food and vitamins that help the body’s defense system do its work. A constant flood of virus causes an overpowering of that vital system.
    By the way, all reoccurrences of cancer, for one, occur even after years of being free of cancer because of continually eating more virus.

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  28. 28. larkalt 8:25 pm 04/28/2014

    “My objective with this post was to get the conversation rolling.”
    But your post simply discussed the manufacturing costs, a very small part of the overall costs. Of course people will react as if you’re overlooking the other costs, or claiming the other costs should be much lower.
    You didn’t discuss ideas about how the drug companies could come up with new drugs at lower cost.
    Only in the comments section did you mention an idea about a solution – that somehow, drug companies aren’t competing enough and there’s a lot of waste in the development process for drugs, so their costs could be reduced if they were competing with each other.
    It isn’t a solution, just an idea about a solution. How would you change things so drug companies compete more? Perhaps there’s waste in the development process, but you seem to think drug prices should be a LOT less, maybe a tenth or a hundredth of what they are. It’s doubtful there’s THAT much waste.
    And what’s your evidence for the claim that drug companies don’t compete enough? Or for the claim that drug development could be so much cheaper?

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  29. 29. Flatspin 2:19 pm 04/29/2014

    The people who keep mentioning R&D costs, are using information based on a study done by three economists in 2003. The study stated that drug companies spend about $1 billion or so to bring a new drug to market. This has been constantly brought up by proponents to justify drug company pricing policies. This study was funded by drug companies, and has since been derided as inherently flawed and biased. The study did not take into account tax breaks which greatly reduce R&D costs, grossly overestimated the amount percent of revenue used for basic R&D, used a medical inflation rate that was twice the norm, etc. etc. A more recent study done in 2011 (Light and Warburton) came up with a median price of $55 million for each new drug brought to market. And this took into account failed drug research (IIRC). People keep talking about profit margins, and CEO/Executive compensation (Which btw, is considered an operating cost, not part of the profit margin. So it adds to drug prices in addition to the profit these companies make), but another study in 2008 showed that US drug companies spent twice as much on marketing as they did on research. Which also adds to the price of the drugs they sell. (and is outlawed in many countries).

    Link to this
  30. 30. Christine Gorman 3:53 pm 04/29/2014

    Evidence for inefficiency in R+D of new drugs

    “While disease complexity is a major driver spurring
    greater collaboration, equally important is the
    need to more fully identify and address root
    causes of R&D inefficiency. A recently completed
    Tufts CSDD study, for example, found that the
    pharmaceutical industry spends $4 billion to
    $6 billion each year on procedures, in connection
    with active Phase II and III trials regulated
    by the U.S. Food and Drug Administration
    (FDA), that generate extraneous clinical trial
    data. In a world shaped by increased patent
    expirations, diminished cash flow, and fewer
    promising breakthrough products in company
    pipelines, the industry recognizes that it cannot
    afford the cost of generating extraneous data.”

    “This is crazy [re $5 billion price tag for developing new medicine]. For sure it’s not sustainable,” says Susan Desmond-Hellmann, the chancellor at UCSF and former head of development at industry legend Genentech, where she led the testing of cancer drugs like Herceptin and Avastin. “Increasingly, while no one knows quite what to do instead, any businessperson would look at this and say, ‘You can’t make a business off this. This is not a good investment.’ I say that knowing that this has been the engine of wonderful things.”

    “contrary to common perception, the new-drug output is not depressed, but may simply reflect the limitations of the current R&D model”

    Other review:

    New Models for R+D:
    + outsourcing early work to smaller, more nimble companies
    + government-funding focused on technology transfer initiatives
    + prize competitions

    As reported in

    Link to this
  31. 31. hkraznodar 5:58 pm 05/6/2014

    I would like to point out that improvements in molecule modelling are allowing many of the less likely drug candidates to be eliminated. This saves a great deal in clinical trial costs. As chemistry and information technology continue to advance it is highly likely that much better molecule modelling will become widely available at much lower prices. By cutting out an ever increasing percentage of false starts, we allow pharma companies to focus on what will actually work. Improved understanding of cell function and gut biota will also improve the success versus cost ratio.

    It also wouldn’t hurt if polluters were held directly accountable for the harm they do.

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  32. 32. curiouswavefunction 2:58 pm 05/7/2014

    #29: That figure by Light and Warburton is laughable and has been roundly criticized; if $55 million were all it took to discover a breakthrough new drug we would probably be living in some kind of a “post-disease age”.

    Link to this

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