Why Are Drugs So Expensive? It’s Not What You Think

Prescription Drug Concept

Costly research and development aren’t necessarily why drugs are so expensive. A recent study by multinational researchers found no correlation between high drug prices and research and development (R&D) costs, or a drug’s therapeutic value. This contradicts the pharmaceutical industry’s justification of high prices as a means to recover R&D investments.

Pharmaceutical companies argue that high drug prices are required to recuperate the expenses of research and development, but researchers discovered no relationship between the two.

A study published in JAMA Network Open reveals no correlation between high research and development (R&D) costs and high drug prices in the US. The study analyzed 60 new drugs approved by the FDA from 2009 to 2018, and found no association between pharmaceutical corporations’ R&D spending and the prices set for their new drugs. It also discovered no link between a drug’s therapeutic value and its price. The findings contradict the pharmaceutical industry’s argument that high drug prices are necessary to recover R&D investments, a defense commonly used to oppose legislative proposals aimed at reducing drug prices.

A multinational team of scientists examined whether high R&D (research and development) expenditures account for high drug prices in the United States in the first known study of its kind.

“There is a presumption that high R&D costs justify high drug prices. If that were true, then we’d see a positive association between the two measures,” said first author Olivier Wouters, Ph.D., assistant professor at the London School of Economics and Political Sciences.

Inmaculada Hernandez

Inmaculada Hernandez, PharmD, PhD, is an associate professor at Skaggs School of Pharmacy and Pharmaceutical Sciences at UC San Diego and senior author of a study that found high drug prices are not associated with the costs of research and development. Credit: UC San Diego Health Sciences

But in a paper recently published in the journal JAMA Network Open, Wouters and colleagues from the University of California San Diego’s Skaggs School of Pharmacy and Pharmaceutical Sciences discovered no such association for 60 new drugs approved by the US Food and Drug Administration from 2009 to 2018.

The researchers compared information on drug pricing and R&D expenditures. They discovered no connection between pharmaceutical corporations’ R&D spending and the prices they charge for new drugs. The therapeutic value of a product was also evaluated by the researchers, but they discovered no link between therapeutic value and price.

“Our findings provide evidence that drug companies do not set prices based on how much they spent on R&D or how good a drug is. Instead, they charge what the market will bear,” said senior author Inmaculada Hernandez, PharmD, Ph.D., associate professor at Skaggs School of Pharmacy and Pharmaceutical Sciences.

The Congressional Budget Office estimates that the pharmaceutical sector spent $83 billion on research and development in 2019. It is estimated that companies spend between $1 billion and $3 billion on average to bring a single new product to market. According to the database company Statista, the U.S. pharmaceutical industry earned more than $490 billion in sales in 2019, making up close to half of the worldwide pharmaceutical market.

Americans spend more on prescription drugs per capita than citizens in any other country. In 2019, that worked out to more than $1,200 per person. A 2021 Rand Corporation study found U.S. drug prices were 2.56 times higher than those in 32 comparable countries. A Kaiser Family Foundation Health Tracking Poll published earlier this year found that eight in 10 adults said the cost of prescribed medications was unreasonable.

Legislators in Congress have in recent years introduced numerous proposals intended to apply downward pressure on drug prices. Pharmaceutical companies and trade groups have opposed these reforms, arguing that high drug prices are needed to recover R&D investments.

“If this argument is to be used to justify high prices and oppose measures to curb prescription drug costs, drug companies should supply further data to support their claims that high drug prices are needed to recover R&D investments,” said Hernandez.

Reference: “Association of Research and Development Investments With Treatment Costs for New Drugs Approved From 2009 to 2018” by Olivier J. Wouters, Ph.D., Lucas A. Berenbrok, PharmD, MS, Meiqi He, MS, Yihan Li, BS and Inmaculada Hernandez, PharmD, Ph.D., 26 September 2022, JAMA Network Open.
DOI: 10.1001/jamanetworkopen.2022.18623

The study authors acknowledged that the analysis was limited by the small sample size.

2 Comments on "Why Are Drugs So Expensive? It’s Not What You Think"

  1. Because the Pharma industry is just a business? Cancer is a business, Hiv too. I guess they made covid a business too!

  2. As far as research is concerned, how much is funded by taxpayers through research grants? Maybe that figure needs to be calculated in. The federal government spends a lot of money on basic research that never seems to be acknowledged.

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