Data and other countries disprove ‘incentives.’

2. Comparing Pharmaceutical Prices in the United States and Other Countries

Facing criticism over exorbitant prices and monopolistic pricing practices, pharmaceutical companies claim that high average returns are necessary to incentivize pharmaceutical R&D, given its high-risk nature.139 Yet, with pharmaceutical companies ranking among the most profitable,140 pharmaceutical prices have sparked controversy throughout the years.141

According to a study based on data from 2013 to 2016, the United States has a higher per capita spending on health care than any other country.142 The study found that pharmaceutical spending per capita in the United States was $1,443, where the mean for all countries under investigation was $749.143 Prices in the United States for four common drugs ranked higher than all of the other countries analyzed in the study, with the prices of three of these drugs more than doubling the next highest price on the list.144

A 2018 study by the U.S. Department of Health and Human Services had similar results.145 The study compared the prices for twenty-seven physician administered non-retail drugs covered by the Medicare Part B program with prices in sixteen other countries.146 The researchers found that Medicare paid almost twice as much as it would have paid for the same or equivalent drugs as it would in any other country included in the study.147

3. Understanding Cost of Pharmaceutical R&D in the United States

A frequently cited 2003 study estimated the average out-of-pocket cost (i.e., the actual cash spending) of R&D for each FDA-approved new drug at $403 million, and the capitalized cost at $802 million (in 2000 dollars).148 While the industry asserts the numbers represent a good measure of its R&D costs, the study has been widely criticized.149

One significant issue with the study is that it does not rely on public and market-wide data but relies on undisclosed data from only ten pharmaceutical companies.150 Critics also question the participating companies’ calculation of R&D costs.151 Some commentators criticize the lack of clarification as to what expenditures are included within the scope of R&D costs,152 while others argue that the final number is inflated due to the inclusion of marketing expenditures, which is not traditionally accepted as an item under R&D costs.153

Another important factor is that the study does not differentiate between successful and failed drugs 154 and divides the total amount of R&D costs only by the number of drugs that successfully obtain marketing approval from the FDA.155 The study was criticized for its limited focus on new molecular entities (i.e., drugs that contain an active substance not previously approved for marketing), as opposed to improvement drugs, which are less costly to develop.156

A critique of the study underlines that both R&D time and investments vary substantially from one drug to another, and the cost of research is “unknown and highly variable.”157 The critique indicates a significantly lower amount of $43.4 million as a more realistic R&D cost per new drug.158