Academic Literature

R&D Costs Do Not Explain Elevated U.S. Drug Prices

Drug prices in other high income countries for the 20 top selling drugs globally make up less than half of U.S. net drug prices.
Originally published on 03/07/2017 in Health Affairs Blog

That pharmaceutical companies charge much more for their drugs in the United States than they do in other Western countries has contributed to public and political distrust of their pricing practices.

When these higher US prices (which are sometimes cited as being two to five times the prices in Europe) are challenged, the pharmaceutical industry often explains that the higher prices they charge in the US provide them with the funds they need to conduct their high-risk research.

This claim—that premiums earned from charging US patients and taxpayers more for medications than other Western countries funds companies’ research—is empirically testable. We used pharmaceutical companies' reported R&D expenses in public filings, and  numerous other sources report a mix of information on their drugs’ prices and sales volumes in the US and Canada, Denmark, Ireland, and the United Kingdom. These data allowed us to quantify both the premium companies earn and the amount they spend on research. We then assessed the relation between the two.

The results show, on average, list prices in the other developed countries are only 43% of U.S. net drug prices. To put that in perspective, in 2015, the U.S. net prices were $112B higher than the other countries’ list prices, while the companies spent only $77B of that amount on global R&D.

Read the full article on the Health Affairs Blog.

Share

Research & Insights

We conduct non-partisan, independent research, and make our work accessible and informative to policymakers and the general audience alike. Browse our featured research or explore our work by article type.

The Conflict Between QALYs and Well-Funded Patient Advocacy Groups
The goal of a QALY is to figure out how much any given drug is worth to a society so that we, as a society, have a benchmark to evaluate the price of pharmaceutical products.
Relentless Health Value 12/10/2020
Remdesivir Less Expensive for "Government Programs"? Not So Fast.
Two options are proposed if Gilead wishes to offer the discounts to the full array of government programs.
Drug Pricing Lab 07/01/2020
Blueprints for Indication-Specific Pricing
Several approaches that rewire existing reimbursement conventions as alternatives to facilitate ISP are proposed.
Drug Pricing Lab 05/19/2020
Pharmaceutical Products and Their Value
Steep increases in prices and spending on prescription drugs in the United States have triggered public outrage and questions about their value.
Value in Health 03/29/2020
Drop in Cancer Deaths Reflect Failures of Our Society. Really.
Despite declining cancer death rates, the nation still presents societal failures to improve the state of our population's health.
The Boston Globe 02/21/2020
Dissecting PhRMA's Opposition to H.R. 3 Lower Drug Costs Now…
Dr. Peter Bach responds to PhRMA's stance of opposition to H.R. 3 Lower Drug Costs Now Act of 2019.
STAT News 10/11/2019
Time to Throw in the Towel on Biosimilars
Peter Bach and Mark Trusheim of MIT Sloan School of Management underscore the drawbacks of Washington's preferred solution to introduce competition for biologics, the biosimilar model.
The Wall Street Journal 08/21/2019
Mortgaging New Treatments Kicks the Can on High Drug Prices
The launch price for one-time gene therapy Zolgensma presents various implications.
Morning Consult 07/09/2019
A $475,000 price tag for a new cancer drug: crazy…
Drug Pricing Lab op-ed in STAT News discusses indication-specific pricing of Kymriah.
STAT News 08/31/2017
US Drug Prices And R&D, Take 2: A Reply To…
To answer Health Affairs responses, Peter Bach and Nancy Yu point back to the research, emphasizing the original intent of the conservative R&D cost assumptions.
Health Affairs Blog 07/27/2017
Prevalence of Off-Label Use and Spending Among Patent-Protected Chemotherapies
The prevalence of off-label anticancer drug use is not well characterized.
JCO 02/19/2013
Fact Checking the NYT Fact Check on the Trump Proposal
The Drug Pricing Lab takes issue with The New York Times "Fact Check" on the recent Trump Administration proposal to pilot alternative reimbursement for Part B drugs.
Drug Pricing Lab

Featured News

See All News
Health Affairs Blog 08/01/2017

With Conservative Assumptions, U.S. Drug Prices Still In Excess of R&D Costs

To answer Health Affairs responses, Peter Bach and Nancy Yu point back to the research, emphasizing the original intent of the conservative R&D cost assumptions.
Read Article
Newsletter

Stay up to date on our work and news