Big pharma has no way of justifying sky-high prices on prescription drugs, study explains

LONDON — Are prescription drugs really worth the price pharmaceutical companies place on them? A new study argues that the answer is absolutely not. In fact, researchers say there’s no justification for sky-high drug prices considering that most industry spending isn’t on research and development (R&D) for these medications. The London-based team adds it’s the job of the government to encourage the industry to make medications more affordable for the public.

“Given the amount spent on non-research and development activities and that most new drugs add little or no therapeutic value, in theory the biopharmaceutical industry could generate more medically valuable innovation with its existing resources,” says Aris Angelis, an assistant professor of Health Economics in the Department of Health Services Research and Policy at the London School of Hygiene and Tropical Medicine (LSHTM), in a media release. “This is unlikely to happen, however, without government intervention or regulation along the lifecycle of new medicines.”

Angelis and the team highlight that from 1999 to 2018, the world’s 15 largest pharmaceutical companies spent more on selling, general, and administrative activities like marketing rather than on R&D. Publicly available reports show that these companies had a total revenue of $7.7 trillion, and spent $2.2 trillion on selling, general, and administrative costs — with only $1.4 trillion spent on R&D. Further, most new medicines developed during this time offered no or minimal clinical benefit compared to existing treatments, according to the study. The team says that if these companies decided to shift around their spending, they could make drugs more cost-effective.

Patients are paying at both ends of drug production

This isn’t the first time pharmaceutical companies have been under fire for their pricing practices. However, they often argue that high prices are necessary in order to pay for R&D on new medicines. While Angelis and the team agree that there are several financial components and risks to weigh when coming out with new medicines, the types of spending by drug companies makes it a little harder to take their claim at face value.

Another limitation to this argument is that it ignores the considerable public investments in drug discovery and development. Researchers believe society may be paying twice as much for new drugs. The first payment comes through subsidized research. The second is through high sales prices. So, the researchers all agree that it’s up to governments, policy makers, drug regulators, health technology assessment organizations, and customers to reconsider how pharmaceutical innovations are incentivized to make new medications. The team adds that new policies and regulations should support these public health efforts.

“The world needs a truly value based health-industrial ecosystem for incentivizing and rewarding improvements in health outcomes and population health throughout the lifecycle of new medicines,” the team concludes.

The findings are published in The BMJ.

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About the Author

Shyla Cadogan, RD

Shyla Cadogan is a DMV-Based acute care Registered Dietitian. She holds specialized interests in integrative nutrition and communicating nutrition concepts in a nuanced, approachable way.

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