High Drug Prices in the US Underwrite the Lion’s Share of Global Pharma Profits and Research – Paul Brennan

While it may not be ‘politically correct’ to discuss, the majority of the world’s drug developments and innovation are underwritten by high drug prices in the United States. The U.S. is the global leader in pharmaceutical sector research and development (R&D). U.S. pharma R&D has grown from $2 billion in 1980 to over $64.3 billion by 2019 according to PhRMA.  

The pricing and reimbursement system in the U.S. pays for innovation and it results in pharmaceutical piggybacking in the rest of world. If it works in the U.S., you know it can work anywhere. Unlike other countries, the U.S. does not authorize drug price regulation to control pharmaceutical spending so as not to depress the flow of capital to support the development of new pharmaceutical drugs, referred to as new molecular entities. By not regulating pharmaceutical prices, a disproportionate share of the new drugs which go through the U.S. Food and Drug Administration’s (FDA) approval are developed in the U.S. and are developed first and foremost for the U.S. market.

Schaeffer Center for Health Policy & Economics’ research indicates that U.S. consumers spend roughly three times as much on drugs as their European counterparts, and 90 percent more as a share of income. Calculations using publicly available aggregate data suggest that the United States market accounts for 64 to 78 percent of worldwide pharmaceutical profits.”

Pharma Profits Drive Global Innovation

Pharmaceutical profits earned in the U.S. drive drug innovation, which benefits people all around the world from both less developed and developing nations. Less developed nations are greatly benefiting from the innovations from the pharma behemoths. As reported in Biospace, “GlaxoSmithKline, Novartis, Johnson & Johnson, Merck KGaA, Takeda Pharmaceutical and Sanofi, in that order, account for 63 percent of the priority research and development (R&D) being undertaken. That R&D is focused on five diseases that are of particular importance in the developing world. Half of the R&D activity is aimed at developing therapeutics that target malaria, HIV/AIDS, tuberculosis, Chagas disease and leishmaniasis, a parasitic disease that causes skin sores.”

Developing nations are benefiting from the pharmaceutical advances made in the U.S. as well. A Reuters study states, “U.S. prices for the world’s 20 top-selling medicines are, on average, three times higher than in Britain.” Researchers from the University of Liverpool learned that U.S. prices were always higher than in any European market. They found that U.S. prices were six times higher than in Brazil and 16 times higher than the average in in India, the lowest-price country.

Back in 2018, the Trump Administration issued a American Patients First blueprint plan to lower prescription drug prices and out-of-pocket costs. It recommended the negotiation and enforcement of trade deals to prevent other countries from taking unfair advantage of U.S. researchers.

While reducing drug prices in the U.S. is not popular with the pharma industry as a whole, it is also a priority of President Biden. Instead of Trump’s ‘favored nation’ recommendation, which sought to align drug prices in Medicare with lower prices abroad, Biden is recommending ways to reduce drug prices in the U.S. One proposal is to create a review board to evaluate and recommend sensible prices based on the average price elsewhere, permitting the importation of FDA-certified prescription drugs from abroad, and connecting generic prices to inflation. 

However, patients should be aware that both the Trump initiatives and the Biden initiatives will have consequences. Price controls in the U.S. will have a significant impact in profits, market growth, and the ability for companies to make a return on orphan indications. The net result will be a reduction in investment in the industry, and then fewer R&D dollars spent at both biotech and pharma companies. It was the support from investors in early-stage technologies and the promise of attractive market prices in the U.S. that allowed Moderna and BioNTech to develop the mRNA technology and for Tekmira to develop the lipid nanoparticle technology that has been so important to succeeding in the fight against COVID-19. If the U.S. were to cut prices too sharply, this innovation would be at risk.

The reality is that when most biotech companies look to justify the cost of developing their drugs, they perform an analysis to see if the market in the U.S. alone can support the development expenses. If it can’t, the project won’t move forward. If it can, any profit that is made from other markets, such as China, Japan and Europe, are considered an added benefit. Ensuring that other countries pay fair market value for medicines may even encourage additional research spending by U.S. drug makers which could lead to the development of more new drugs, compelling manufacturers to vie for market share by lowering their prices.

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