SUMMARY: Democratic lawmakers are weighing whether to include drug pricing measures that could extract tens of billions of dollars from the industry. “Something is coming. We’re just not sure when,” said one drug industry lobbying source. The industry should have seen this coming a long time ago as the excuse that they need high prices to fund R&D isn’t true anymore.
The drug industry has had a large target on its back for a long time. The media, rather than focus on the real driver of high healthcare costs, loves to point the finger at big pharma. The problem has been highlighted by the excessive salaries of drug company CEOs who earn tens of millions of dollars in salary.
PhRMA has always used the excuse that the industry needs the money to develop new drugs but that explanation hasn’t held up well to scrutiny. The Department of Health and Human Services estimates that Americans spent more than $460 billion on drugs—16.7 percent of total health-care spending—in 2016, the last year for which there are definitive data. On average, citizens of other rich countries spend 56 percent of what Americans spend on the exact same drug.
After accounting for the costs of all research—about $80 billion a year—drug companies had $40 billion more from the top 20 drugs, all of which went straight to profits, not research. More excess profit comes from the next 100 or 200 brand-name drugs. Drug companies tend to say they are unique in needing to spend a higher proportion of their capital on research than almost any other industry. But of all the companies in the world, the one that invests the most in research and development is not a drug company. It’s Amazon
Drug companies took an average of 7.3 years to win FDA approval, at a median cost of $648 million. Only two drugs had research costs of over $1 billion according to Jama.
Pharmaceutical companies often claim that the research costs of unsuccessful drugs also have to be taken into account. After all, 90 percent of all drugs that enter human testing fail. But most of these failures occur early and at relatively low costs. About 40 percent of drugs fail in preliminary Phase I studies, which assess a drug’s safety in humans and typically cost just $25 million a drug. Of the drugs that clear this first phase of testing, about 70 percent fail during Phase II studies, which assess whether a drug does what it is supposed to do. The research costs of these studies are still relatively low compared with overall R&D costs—on average, under $60 million a study.
Pharmaceutical companies, economist William Lazonick, and his colleagues’ show have increasingly focused on manipulating their stock prices over the last few decades in order to line the pockets of executives, hedge-fund managers, and bankers. The researchers reveal that some of the biggest drug companies often take on debt to distribute well in excess of 100 percent of profits to shareholders in the form of stock buybacks and cash dividends.
This was a long time coming and every drug company CEO should have prepared their company for this legislation. Forget the data that says that poor eating habits cost the United States about $300 per person, or $50 billion, a year and accounted for 18% of heart disease, stroke and type 2 diabetes costs, pharma is an easy target.
Prescription drugs in the United States rank as the most expensive by a long shot with the average cost of medications in the US exceeding the global median price by some 300 percent and have become a hotbed issue to reduce costs.
Legislators want to cut costs, and the drug industry is the target. However, one change that needs to be implemented is that new drugs should get patent protection when they are approved by the FDA, not when they’re in development. This would lessen the blow, but one thing is certain the drug industry will have to manage revenue a lot better. I guess that layoffs are coming if this passes instead of streamlining bloated organizational processes that add little value to patients.