illustration of pills shaped into a dollar sign ($)

Drug companies frequently justify the high cost of medications by citing the extraordinary expenses associated with research and development. The pharmaceutical industry often states that it costs somewhere between $2 and $3 billion dollars to bring a new drug to market.

The pharmaceutical industry in its own words:

“The average R&D cost required to bring a new FDA-approved medicine to patients is estimated to be $2.6 billion over the past decade (in 2013 dollars), including the cost of the many potential medicines that do not make it through the FDA approval.”

PhRMA goes on to state that its member companies invest 20% of revenue into R&D.

How Costly are Clinical Trials?

Clinical trials necessary for FDA approval are cited as a major contributor to the high cost of medications. A new study published in JAMA Internal Medicine (Sept. 24, 2018) challenges the idea that pivotal efficacy trials account for a substantial portion of R&D costs.

The investigators analyzed data from 138 trials conducted on 59 new drugs. The median cost was $19 million. The range went from $5 million to $347 million.

The most expensive trials were those in which thousands of patients were needed to establish a statistical difference between the active medication and a placebo or comparison drug. Medications that are highly effective do not require nearly as many subjects or as much money to demonstrate their worth.

Can Clinical Trials Justify the High Cost of Medications?

According to the study senior author, G. Caleb Alexander, MD, MS, associate professor of epidemiology and medicine at the Bloomberg School:

“The cost of generating this fundamental scientific information is surprisingly low given the total cost of drug development and the high price tags on many drugs.”

If one takes the median cost of $19 million to perform a pivotal clinical trial, that would represent one percent of the total necessary to bring a drug to market (if one accepts the $2.6 billion figure).

Does it Really Cost $2.6 Billion PerDrug?

The pharmaceutical industry relies on an analysis by the Tufts Center for the Study of Drug Development to arrive at the $2.6 billion estimate. Dr. Aaron Carroll is Associate Dean for Research Mentoring at Indiana University. In addition, Dr. Carroll is the director of the Center for Pediatric and Adolescent Comparative Effectiveness Research. Writing in the New York Times (Nov. 18, 2014), Dr.Carroll points out:

“The Tufts Center is funded, to a large extent, by the pharmaceutical industry. It is in the pharmaceutical industry’s best interests to have the public believe that it is very expensive to develop a drug. This belief helps drug companies justify the high prices they often charge.”

Dr. Carroll points out something we have long been concerned about. Drug companies justify the $2.6 billion R&D figure by adding in what they call time or opportunity costs. About $1.2 billion of the $2.6 billion belongs in this category. Dr. Carroll describes it this way:

“In other words, they estimate that drug companies could have made more money if they used their research investment for things other than drug development. While this is a perfectly sound economic argument, it often rings false to many. It’s true that a drug company might have been able to make more money by increasing spending in the short term on marketing, or by investing in land, but if at some point it doesn’t invest in research and development, it won’t be a drug company anymore.”

People Are Mad As Hell About the High Cost of Medications:

Our readers share their thoughts:

Sandra is a health professional in Waller County, Texas:

“As a retired pharmacist, I figured out decades ago that drug prices have nothing to do with the actual cost to the manufacturer. Everyone who pays taxes and/or medical insurance is paying for these unjustified high prices. We in the USA subsidize the drug costs of the rest of the world because, as far as I know, we are the only country that does not allow government providers to negotiate lower prices.

“Insurance companies can do so, but they keep the savings as a profit for themselves. When insurance companies negotiate a lower price with a manufacturer, it does not change what the pharmacies are charged by the wholesaler. It was common for the pharmacy to earn only two to five dollars over the cost of drugs costing $100 or more. The fee may have increased slightly, but not much I am sure.

“I take a generic drug that about five years ago cost me less than $15 for a three month supply. Then, several years ago, the next refill had jumped to more than $100 for the same quantity by the same manufacturer and has slowly increased since. I called other pharmacies and found that the two manufacturers had both made a similar price increase. Other comparable drugs cost even more.

“The most egregious thing to me is when our government pays for all, or almost all, of the costs to research & develop a drug, then turns it over to a drug manufacturer with no effort nor requirement to have them charge a moderate price for it. I don’t remember the drug, but just this a year a new drug developed by our government came to market, gave it to a French drug manufacturer, which then set a price in the thousands of dollars for a course of treatment.”

Frank in West Virgina is ticked off:

“Part of the problem is the obscene level of salaries the drug companies pay their top people. The CEO of Mylan Labs, received $19 million two years ago. No one is worth that kind of money! Add that overhead to the amount of money to what is spent on advertising and it’s no wonder these folks can claim they have to charge more.”

According to Healthcare Global, some other CEOs did even better:

  • Alex Gorsky is CEO of Johnson & Johnson. In 2016 he “took home $21.2 million.”
  • Jeffrey Leiden is CEO of Vertex Pharmaceuticals. In 2016 he “took home $21.8 million.”
  • Leonard Schleifer is CEO of Regeneron Pharmaceutical. In 2016 he “took home $47,462,526.”

Robin in Portland, OR offers this closing comment:

“I’ve been calling my Senators and Representative about the rising cost of insulin for years. I feel like the person answering the call could care less.

“The pharmaceutical companies are one of the biggest lobby groups next to defense industries. Even though production costs have not changed radically, the cost to the consumer/insurance co. has TRIPLED over the last decade. Type 1 diabetics like myself have no other options. It’s either insulin or death.

“In other countries the cost is a fraction as much. Pharmaceutical companies raise prices to keep their investors happy and their CEO’s rich.”

We welcome your thoughts in the comment section below.

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  1. thai

    We can’t thank you enough, People’s Pharmacy (Joe and Terry), for getting this info out to the public. Now, can you spread the truth to our legislators and others in decision-making positions, to help U.S. patients get a break? Thanks so much!

  2. JMH

    Do drug companies get federal grants for research and development?
    If so, shouldn’t this factor into the cost of the drugs?

  3. Phyllis

    I agree w/Robin from Portland. The amount of dollars spent on lobbying and political donations certainly affects the price of drugs. How can it not? I am a type 1 diabetic, in other words insulin dependent to stay alive. which leaves me vulnerable to whatever the pharma industry decides to charge. I do have ins. but it only covers some of the cost.

    Bunny, WA

  4. H
    North Carolina

    If pharmaceutical companies would stop advertising their drugs on TV, the resulting cost savings could make medications affordable. The US is one of the very few countries where this advertising is allowed. All other countries don’t allow it for reasons that speak for themselves.

  5. Nancy
    Wilmington DE

    If the drug companies would stop the idiotic advertising on television they would save a lot of money they could pass on to the consumer. It puts physicians in a bad spot when the patient comes to them and demands a medication based only on a slanted advertisement.

  6. Gene

    This article is probably the best reason in the country to change the people elected to Congress (House and Senate) to be people who will NOT TAKE MONEY FROM LOBBYISTS OR PHARMACEUTICAL COMPANIES! That is the ONLY way to get major changes in the prescription prices we are charged! It requires many NATIONAL legal changes that will NEVER CHANGE under our present aging, millionaire National legislators!

  7. Retired RN

    The drug companies are the robber barons of this century. If our elected officials cared about the people they represent instead of caring about money, they would pass legislation to control prescription drug costs. Many bills that go through Congress are written by the lobbyists. Imagine drug legislation written by the drug companies; who would it benefit most? Prescription drugs are life & death matters for the patient. This is not an issue to be left to the greed of “market forces”. Get rid of the advertising, put in cost controls, let physicians practice medicine NOT insurance companies, and last, value life over profit.

  8. Tom
    Edmonds, WA

    Get the profit out of medicine. To do that you have to get the money out of politics – fat chance of that!

  9. Jean

    Big Pharma funds both sides of the political aisle. And, because medicine is covered in whole or in part by third parties (workplace insurance or government), most people do not directly bare the expense.

  10. David

    The high cost of drugs is underwritten almost entirely by the people who need the drug in the United States. The drug companies sell these new drugs to foreign countries at a mere fractions of what they charge the American consumer. The drug companies need to average out the cost of these drugs so that everyone needing the drug pays their share and not have the brunt of these costs fall on the United States. You can purchase these new drugs in Canada, Europe, Asia, Africa and the Middle East for pennies compared to what the citizens of the United States pay. This just is not fair for the American consumer!!!!!

  11. Gary

    Another way drug companies increase their profits is by taking 2 established drugs whose patents have expired, combine them into one “convenient” dosage unit. They now have a patented new drug product and avoid generic competitors.

  12. Donald

    We need to find a way to keep the Pharms out of politics and our politician’s pockets. Every politician needs to list every dollar they receive from Pacs or corporations and who they represent. This will not happen because our politicians know it cost a lot of money to get elected or reelected.

  13. Diana C
    Chattaroy, WA

    Why does the U.S.A have to advertise their drugs on our T.V Stations continuously? Canada does not do this and that may be one reason why we pay so much for them. Lobbyists may play a part in the costs of drugs as I can just see their salaries being added to the costs.

    Our medical communities do not help as they are constantly being bombarded by Pharma. sales people who give out scores of samples that they hand out to patients without cautions as to their use. Until our government realizes that taking millions of dollars from “Big Pharma” so that drugs can be sold for continuing higher prices is something we as consumers can respond to if given the chance. Most other countries have done this but not the U.S.A.

  14. paul

    They say it is not legal for medicare to negotiate drug prices, well then change the law. congress can do it if they want, they just don’t want to. being in the pocket of the drug companies is the reason I guess. Big lobbyists & money for their re-election.

  15. Patricia

    It’s the same for medicine for our pets. I recently paid over $100 for my cat’s annual feline leukemia and fvrcp shots.

  16. Mark

    RE; High cost of Medication.

    Canada offers many medication suppliers. They have been doing business for years. They purchase drugs from the very same manufacturers located all over the world. The cost difference will amaze you!

  17. Judy
    Elon, NC

    I went to CVS to have a prescription my dermatologist wrote filled for Clindamycin PH 1% solution filled. I was told by the pharmacy attendant that it would be $60. I said, “Wait a minute. I have a coupon from Good Rx (app on my phone) that says I can get it for $39.95.”

    The attendant looked at the coupon, did some tinkering on her computer, then said to me, “We can do it for $14.53.” WOW! What a big difference! What is wrong with this picture? How does the unsuspecting consumer get charged $60, not knowing that one can dicker with the pharmacy for a lower price?!

    This is not right. Prices should be consistent, and much, much lower than we are being forced to pay. This is such a rip off!! I am glad I knew to question the price.

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