When rationalizing their lofty price tags, one of the most common reasons pharma companies cite is that a high price is needed to make good on the money invested in research and development. According to a study, the amount of money spent on research and development (R&D) for new pharmaceutical drugs doesn’t correlate with high prices for the medications.
In a study, researchers looked at the 60 drugs approved by the US Food and Drug Administration (FDA) between 2009 and 2018, for which there was publicly available information about both R&D spending and pricing.
In 2020, they published another paper in JAMA that dug into how much it actually costs to bring a new medicine to market, something experts have been trying to work out for decades.
After accounting for the costs of all research—about $80 billion a year—drug companies had $40 billion more from the top 20 drugs alone, all of which went straight to profits, not research. More excess profit comes from the following 100 or 200 brand-name drugs.
An example is the hepatitis C drug Sovaldi, which was put on the market in 2013 for a steep $84,000 per 12-week course. In 2015, an 18-month-long US government investigation that reviewed some 20,000 pages of internal company documents revealed that Gilead, the company that owned the drug, had set the high price as a way “to ensure its drugs had the greatest share of the market, for the highest price, for the longest period”—in essence, that it was prioritizing profit. In response, Gilead said it “stand[s] behind the pricing of our therapies because of the benefit they bring to patients and the significant value they represent to payers, providers, and our entire healthcare system by reducing the long-term costs associated with managing chronic [hepatitis C virus].”
In November 2017, a study published in JAMA Internal Medicine examined the costs of developing ten cancer drugs approved by the FDA from 2006 to 2015 and provided a solid contrast to the Tufts study from a year before. Its authors, Memorial Sloan Kettering and the Oregon Health and Science University used annual financial disclosures from the Securities and Exchange Commission for companies that had only one cancer drug approved but had, on average, three or four other drugs in development. They found that 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. Adding in the cost of capital at 7 percent increased the median research and development cost to $757 million—less than a third of the Tufts estimate.
In the United Kingdom, for example, the National Institute for Health and Care Excellence (NICE) lands on the value of a new medicine by working out how much it costs to give a patient an extra year of “quality life” compared to the current treatments on offer. … Countries like France and Germany negotiate with pharmaceutical companies to land on a price determined by the clinical benefits a drug provides compared to others on the market.
As for holding pharma companies to account, it shouldn’t fall to academics to do this, says Tahir Amin, founder and executive director of the Initiative for Medicines, Access & Knowledge (I-MAK), a nonprofit that addresses inequities in how medicines are developed and distributed.
This paper could be a game changer, but it’s just another weapon in the arsenal of those with power to refute excuses made by pharmaceutical companies.