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March 10, 2017

New report challenges drugmakers' view that high US prices fund R&D

Daily Briefing

    Research and development (R&D) costs do not fully explain why drug companies price their products higher in the United States than in other Western countries, according to a report published Tuesday in the Health Affairs Blog.

    According to the report authors, drug prices in the United States can be two-to-five times higher than prices charged for the same products in Europe. When drugmakers "are challenged" on the pricing discrepancy, the companies often cite the need to fund high-risk research for their products, the authors wrote.

    Study details

    The authors wrote that their research "does not address whether prices in European countries or in the U.S. are appropriate." Instead, they sought to evaluate whether drugmakers' claims that they charge higher prices in the United States to help fund high-risk research are valid. To do so, the authors reviewed public R&D filings for the 15 drugmakers that manufactured the 20 top-selling drugs globally for 2015.

    The authors also compared the drugs' prices in the United States with the drugs' prices in:

    • Canada;
    • Denmark;
    • Ireland; and
    • The United Kingdom.


    The authors found that list prices for the 20 drugs in the other developed countries averaged 41 percent of net prices for the drugs in the United States, ranging from 38 percent in the United Kingdom to 52 percent in Denmark.

    The extra revenue drugmakers received from charging higher prices for the drugs in the United States totaled $116 billion, the authors found. Of that, drugmakers used $76 billion, or 66 percent, to fund global R&D.

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    According to the authors, the relationship between the level of drugmakers' global R&D spending and the excess revenues they receive from charging higher prices in the United States varied from company to company, but averaged 163 percent. The authors found that several of the companies included in the review generated more than double their global R&D budgets in 2015 by charging higher prices in the United States, including:

    • Amgen;
    • Biogen;
    • Pfizer; and
    • Teva Pharmaceuticals.

    Further, the authors found that three drugmakers either covered or nearly covered their entire R&D spending by charging higher prices in the United States for their top-selling products:

    • Abbvie, which charged higher prices in the United States for Humira;
    • Biogen, which charged higher prices in the United States Tecfidera; and
    • Teva, which charged higher prices in the United States for Copaxone.


    The authors wrote, "We found that the premiums pharmaceutical companies earn from charging substantially higher prices for their medications in the United States compared to other Western countries generates substantially more than the companies spend globally on their [R&D]." They continued, "This finding counters the claim that the higher prices paid by U.S. patients and taxpayers are necessary to fund [R&D]."

    According to the authors, U.S. residents and businesses would have saved about $40 billion in 2015 if the 15 drugmakers included in the review had priced their drugs in the United States at a level that matched their global R&D expenditures.

    Pharmaceutical Research and Manufacturers of America did not immediately available to a request for comment, according to MarketWatch (Arndt, Modern Healthcare, 3/7; Yu, HealthAffairs Blog, 3/7; Bean, Becker's Hospital Review, 3/7; Court, MarketWatch, 3/8).

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