Research and Development Cost Not True Reason Drugs are Expensive
Published: 2022-09-26 - Updated: 2022-10-05
Author: University of California, San Diego | Contact: ucsd.edu
Peer-Reviewed Publication: Yes | DOI: https://jamanetwork.com/article.aspx?doi=10.1001/jamanetworkopen.2022.18623
Additional References: Library of Pharmaceutical Information Publications
Synopsis: Researchers find no proof for pharmaceutical companies claim of needing to charge high drug prices to recover costs of research and development. Our findings provide evidence that drug companies do not set prices based on how much they spend on R&D or how good a drug is. Instead, they charge what the market will bear. 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. 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.
- Research and Development (R&D)
Research and development (R&D or R+D), known in Europe as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments to develop new services or products and improve existing ones. Research and development constitute the first stage of developing potential new services or the production process.
High R&D isn’t necessarily why drugs are so expensive. Pharmaceutical companies claim they need to charge high drug prices to recover the costs of research and development, but researchers found no link between the two. In the first known study of its type, an international team of researchers evaluated whether high research and development (R&D) costs explain high drug prices in the United States.
"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.
But in a paper published September 26, 2022, in JAMA Network Open, Wouters, in collaboration with colleagues at Skaggs School of Pharmacy and Pharmaceutical Sciences at the University of California San Diego, found no such association for 60 new drugs approved by the U.S. Food and Drug Administration from 2009 to 2018.
The researchers compared data on R&D costs with drug prices. They found no relationship between what pharmaceutical companies spend on R&D and what they charge for new medicines. The authors also assessed whether a product's therapeutic value was associated with its price but found no association there either.
"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 pharmaceutical industry spent $83 billion on R&D in 2019, according to the Congressional Budget Office. Companies are estimated to spend between $1 billion and $3 billion on average to bring a single new product to market. In 2019, the U.S. drug market generated more than $490 billion in revenue, accounting for almost half of the global pharmaceutical market, according to the database company, Statista.
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 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.
The study authors acknowledged that a small sample size limited the analysis. Co-authors include Lucas A. Berenbrok and Yihan Li, University of Pittsburgh School of Pharmacy, and Meiqi He, UC San Diego.
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