These requirements, which are designed to ensure drug quality and consistency, apply equally to both human and animal drugs. Differences in production costs are also unlikely to be the cause of the high price differentials because production costs are only a small part of the final cost of a prescription drug. Thus, even large differences in drug production costs would be unlikely to result in the differences in drug prices observed in this study. B. Research and Development Costs Drug manufacturers frequently point to the costs of research and development as a justification for high prices. However, differences in research and development costs do not appear to explain the differences in cost between identical human and animal drugs.
Research is a fixed or sunk cost.
Manufacturers do not set their prices based on recovery of these costs. Instead, they set their prices as high as possible in order to maximize revenue and profit. Relative to the size of the markets, drug manufacturers appear to spend approximately as much on research and development of animal drugs as they do on research and development of human drugs. Bringing an animal health product to market is a complex process. Only one in 20,000 discovered chemicals ever makes it from the laboratory to the farm.