What is it about drug pricing that makes people act like, well, they’re on drugs? The latest economics laugh riot came to my attention via a screed from Senator Bernie Sanders regarding the prices of the weight-loss drugs Wegovy and Ozempic. It said, in part, “Novo Nordisk’s prices are especially outrageous given a recent report from researchers at Yale University that found both of these drugs can be profitably manufactured for less than $5 a month.”

This seemed to suggest that the prices ought to be $5 a month because that is what it cost to manufacture, and this was somehow supported by peer-reviewed research by a team of Ivy League researchers.

So, I tracked down this “research” and it turns out this really was reviewed by peers – by which I mean that authors and reviewers alike are so profoundly ignorant that they would all benefit from reading Principles of Economics by 19th century thought leader Alfred Marshall. Until Marshall, Adam Smith’s diamond-water paradox tied thinkers in knots. Why were diamonds so expensive and water so cheap when the latter was essential for life and the former merely a luxury? The answer was that you needed both supply and demand to determine prices, and the supply of water was cheap and plentiful, while diamonds were scarce and costly to market.

But aren’t drugs cheap if they cost only $5 to manufacture? No, because that ignores the fact that it costs $2.6 billion to develop a drug and that only 12 percent of those drugs that enter clinical trials ever get approved by the Food and Drug Administration. Also, it takes 10 to 15 years to develop a drug. For a drug manufacturer to remain afloat, prices of successful drugs must cover the development costs, the costs of failures, and value of tying up that much money for a decade or so. Throw in the costs of the manufacturing facilities, safety requirements, and distribution costs and there is no way that the price can be $5.

In effect, the error is to price GLP-1 agonists like they are water, when in fact they are therapeutic diamonds for which there is a very strong demand.

The JAMA Network should apologize to the public for publishing such a flawed study. The authors should retract the study and promise never to write on the topic of drug pricing again.