Do Drug Companies Need High Prices to Pay for Research, or Is That Just an Excuse?
Health Care

Do Drug Companies Need High Prices to Pay for Research, or Is That Just an Excuse?


Critics of the pharmaceutical industry have long complained that drugmakers use high research and development costs as an excuse for their sky-high prices. A new study from a coalition of health care industry organizations attempts back up that claim using data from Security and Exchange Commission filings for the 10 largest U.S.-based pharmaceutical companies.

According to the study by the Campaign for Sustainable Rx Pricing, which represents more than two dozen major health insurers, hospitals and pharmacy middlemen, the 10 largest U.S. drugmakers spent an average of 22% of their revenues on research and development in 2017. By comparison, advertising, corporate overhead and profits accounted for 46% of revenues, more than twice as much as R&D (see the chart below).

The coalition says this proves that high research costs are not the source of high drug prices. “For the top ten U.S. companies, nearly 80% of every Big Pharma dollar goes to something other than R&D,” the group said in a statement. “Big Pharma likes to hide behind R&D as an excuse for price-gouging American patients and exploiting monopolies, but the math just doesn’t add up.”

Surprisingly, the coalition’s analysis comes close to the pharmaceutical industry’s own estimate that 20% of its revenue goes to R&D. But Holly Campbell, a spokesperson for PhRMA, the drugmakers’ trade group, pushed back against the new study’s conclusion, saying that the drug industry invests more in R&D as a percentage of sales than any other manufacturing industry in the U.S.

STAT ’s Nicholas Florko wrote Tuesday that the dispute over R&D costs reflects a larger uncertainty about how life-saving drugs should be treated in the U.S. health care system. “The two very different talking points — despite the largely very similar figures,” Florko wrote, “highlight the deep discord over what drugs and drug development are worth, and who should bear those costs.”