The high prices of pharmaceutical drugs are not justified by the industry’s spending on research and development, international experts argue.
From 1999 to 2018, the world’s 15 largest biopharmaceutical companies spent more on selling, general, and administrative activities – including marketing – than on R&D, and most new medicines developed during this period offered little or no clinical benefit over existing treatments.
While there are large financial risks associated with bringing new medicines into the market, the authors say the addition of sizeable public investments means that society is potentially paying twice for new drugs – first in the form of publicly subsidised research and second through high product prices.
The study, published 16 February 2023 in The BMJ, asserts that by refocusing their spending drug companies could provide more innovative drugs at affordable prices and the authors have called for government action to encourage R&D aligned with public health priorities.
Lead author Dr Aris Angelis, from the Department of Health Services Research and Policy, London School of Hygiene and Tropical Medicine, and the Department of Health Policy at the London School of Economics and Political Science, explained that concerns over the prices of new medicines have been growing over the past decade.
“In the US, estimated net prices of newly launched prescription drugs increased from an average of around $1,400 a year (£1,200; €1,300) in 2008 to over $150,000 a year in 2021, and even old and common drugs have seen inexplicable price increases in recent years,” he said.
“In the US, the list price of some insulin products increased more than twofold from 2007 to 2018, while a US government report identified 1,216 products that had seen prices rise above inflation between July 2021 and July 2022, with an average increase of 31.6%.”
The biopharmaceutical industry has long argued that high prices are needed to sustain R&D for new medicines, and while the authors acknowledge the significant risks involved in bringing new medicines to market, they said analysis of drug company spending relative to products raises questions about this claim.
For example, publicly available financial reports from 1999 to 2018 show that the 15 largest biopharmaceutical companies had total revenues of $7.7tr, and over this period, they spent $2.2tr on costs related to selling, general, and administrative activities and $1.4tr on R&D.
Most of the same companies also spent more buying their own stocks, a practice known as share buybacks, than on R&D during this period, note the authors, which raises questions about commitments to truly valuable and risky biopharmaceutical research.
A drug pricing investigation by the US House Committee on Oversight and Reform showed that, from 2016 to 2020, the 14 largest pharmaceutical companies spent $577bn on share buybacks and dividends—$56bn more than on R&D—at a time when annual executive compensation grew by 14%.
“The justification of high drug prices to offset R&D spending also ignores the sizeable public investments in drug discovery and development,” the authors said.
“This means that society is potentially paying twice for new drugs, first in the form of publicly subsidised research and second through high product prices… What’s more, most new drugs provide little or no added clinical value.”
For instance, in the 1970s and the 1980s, around 1 in 6 (16%) new drugs approved by the FDA offered important therapeutic gains. Yet analyses of drug evaluation reports by health technology assessment bodies in France and Germany in the 2010s suggest that most new drugs offer little or no added clinical value, with only a fraction offering important or major improvements.
Dr Angelis said most products under development during 1997-2016 targeted novel mechanisms of action, but noted there has been a definite shift in focus from blockbuster drugs, typically targeting chronic diseases and sold in high volumes globally, to ‘niche buster’ drugs targeting rare diseases or narrow indications for which high prices can be charged.
Publicly available FDA data shows that the proportion of drugs developed for rare diseases increased from 25% of all approvals in 2001-05 to 48% in 2016-20, and by 2021, orphan drugs accounted for 52% of all newly approved drugs.
A 2022 study from the Belgian Healthcare Knowledge Centre found considerable uncertainty about the benefits of many new cancer drugs in terms of overall survival and quality of life, despite an increase in their prices.
“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,” Dr Angelis explained.
“This is unlikely to happen, however, without government intervention or regulation along the lifecycle of new medicines.”
As such, they argue that governments, policy makers, drug regulators, health technology assessment bodies, and payers “need to re-think the incentives for valuable biopharmaceutical innovation, creating policy and regulatory environments that will meet public health objectives.”
“Many health needs remain unmet by the current pharmaceutical business model, including neglected diseases, antimicrobial resistance, and other emerging infectious diseases,” the authors said.
“In many important markets the current system rewards new products irrespective of comparative advantages or contribution to public health priorities, which in part reflects the fact that regulatory authorities evaluate new drugs based on their individual benefit-risk balance rather than showing added clinical value.”
Moreover, patents are awarded based on chemical novelty and inventiveness of the product, independent of the added therapeutic value.
“The world needs a truly value based health-industrial ecosystem for incentivising and rewarding improvements in health outcomes and population health throughout the lifecycle of new medicines,” they concluded.
“As the WHO Council on the Economics of Health for All has argued, the economic, fiscal, and industrial policies governing the sector must be redesigned to improve health outcomes and ensure that health innovation is for the common good.”