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The history is more tragic than that that light-hearted story lets on. Quoting from Wikipedia:

> Albert Alexander was a constable in the police force of the County of Oxford, England.[1] In December 1940, Constable Alexander was accidentally scratched by a rose thorn in his mouth. By the end of the month the scratch was badly infected with both Staphylococcus and Streptococcus and Constable Alexander was hospitalised in the Radcliffe Infirmary. Despite efforts of various treatments, Alexander's head was covered with abscesses and one of his eyes had been removed. ...

> On 12 February 1941, Constable Alexander was given an intravenous infusion of 160 mg (200 units) of penicillin. Within 24 hours, Alexander's temperature had dropped, his appetite had returned and the infection had begun to heal. However, due to the instability of penicillin and the war time restrictions placed on Florey's laboratory, only a small quantity of penicillin had been extracted and, although Florey and colleagues extracted any remaining penicillin from Alexander's urine, by the fifth day they had run out.[1]

> Constable Alexander died on 15 March 1941.[2]

> Florey and his team decided only to work on sick children who did not need such large amounts of penicillin, until their methods of production improved.[4]

We don't realise, in this day of antibiotics, how close to death people could be in the old days. Dead from a thorn-scratch to the mouth!
Yep. I recently got stung by a bee, and a day later, my finger had swollen up, then the next day my hand started to swell. I knew it wasn't an allergic reaction because of the speed, but went to the doc and got antibiotics. I do wonder how it would have played out were they not available, the swelling had become pretty uncomfortable, and seemed to be spreading pretty persistently!
Calvin Coolidge, Jr., 16 year old son of President Coolidge, died from an infected blister developed while playing tennis on the White House courts without socks, in 1924:

http://www.snopes.com/horrors/poison/coolidge.asp

(the debunked myth is that it was the dye in his socks that killed him).

Another version:

http://deadpresidents.tumblr.com/post/18573063027/blister

Was it just that the penicillin salts they were using at the time had low bioavailability? That is, do we now have ways of administering penicillin or other antibiotics such that less of the drug is expelled unused, or do we simply produce a high enough volume of antibiotic drugs that it doesn’t matter?
Prior art:

The Korak tribe in Siberia used to drink the urine of other tribe members who'd eaten the hallucinogenic Amanita muscaria mushroom. Apparently the active principle was retained in the urine.

Why not still do this to save costs? Also, the aforementioned environmental effect.
Because it wouldn't save costs. Manufacturing most drugs is trivial nowadays.

That's why theres so much money being spent on patents and patent enforcement. Once they know the active components, a generics producer in India can make the drug for mere cents.

Interesting question for legally-minded HN'ers: Would isolating the drug from urine bypass the patent? I.e. if the patent holder already got their royalty when the initial batch was sold in the factory, would the royalty have to be paid again when the urine extract is sold?
I suspect that the first sale doctrine would apply, in the same way that I do not need to pay a royalty to resale my patent encumbered phone.

FDA approval might be tricky though.

You probably wouldn't get in trouble for using it for yourself but trying to commercialize it would likely land you in hot er...water.