Big Pharma doesn’t drive drug innovation—public research and start-ups do—funds go to lobbying, marketing, and litigation

Last year, the three largest US-listed pharmaceutical companies by revenues, Pfizer, Johnson & Johnson, and Merck, spent a combined $39.6 billion on R&D. That is, admittedly, a lot of money. But less than Medicare is currently paying on just ten drugs — a vast pool of potential savings that could simply be handed over to the National Institutes of Health (NIH) to finance R&D directly. Moreover, those same companies funneled almost as much money to Wall Street, through dividends and share buybacks, to the tune of $35.7 billion. And they also found $40.1 billion to spend — just in cash — on acquisitions of other, already-existing drug companies. That’s not even getting into the bloated marketing budgets spent on convincing both doctors and patients to buy their products. If the companies’ books are any indication, spending money on R&D for new drugs is not exactly the top priority for Big Pharma.

The truth is, the biggest pharmaceutical companies aren’t really drug development companies at all: they’re marketing, lobbying, and litigation firms with patent portfolios. While Big Pharma holds vast portfolios of existing patents for prescription drugs, the innovation pipeline for new drugs actually has very little to do with Big Pharma. In reality, public sources — especially the NIH — fund the basic research that makes scientific breakthroughs. Then small, boutique biotech and pharmaceutical firms take that publicly generated knowledge and do the final stages of research, like running clinical trials, that get the drugs to market. The share of small companies in the supply of new drugs is huge, and it’s still growing. Fully two-thirds of new drugs now come from these small companies, up from one-third twenty years ago. It is not the research labs of Pfizer that are developing new drugs.