We pay 2X for our medicines

Who is actually paying for the development of new medicines?

The public sector, in other words, , we citizens, are a major contributor to research and development of new drugs. Numerous grants, subsidies and tax credits are offered to manufacturers making up nearly half of the total R&D expenditure. According to The Lancet, 30% of the estimated $240 billion yearly total global investment across all health R&D comes from the public sector. On top of that, an additional 10% comes from other sources including philanthropic contributions.

The share of public funding is even greater in early-stage research where risks of failure are high. It is estimated that more than four-fifths of all funds for basic research to discover new drugs and vaccines come from public sources. Although tax-payers are contributing to a big part to the research and development of new drugs, through tax credits, direct public funding to R&D and other incentives, we still have to pay often unaffordable prices for their medicines. We actually pay for our drugs twice or even three times over (when co-payment & other forms of out-of-pocket expenditure are added).

The substantial contribution of public funds to medical R&D needs to be acknowledged and public return must be guaranteed. To this end, affordability and transparency conditions should be attached to public funding, so that medicines can be accessed at affordable prices, guaranteeing a dividend for the public.

What do pharmaceutical companies invest their money in?

According to recent studies, with figures from 2013, the pharmaceutical industry is one of the most profitable in the world, with profit margins that can be up to 42% for some companies.

Data shows that global pharmaceutical sales reached $1 trillion in 2014 and are expected to reach $ 1.3 trillion by 2018.

What is the pharmaceutical industry doing with these vast amounts of money?

Figures from 2010 show that less than 8% of the global pharmaceutical sales are invested in research and development.
Moreover, 9 out of the 10 largest pharmaceutical companies are spending more marketing the medicines they produce, rather than investing in research and development. In some cases, companies are spending even twice as much on marketing than on R&D. In 2013, Johnson & Johnson, one of the largest American pharmaceutical firms, spent $ 17.5 billion on sales marketing while only $ 8.2 billion on R&D. These figures speak volumes about the fact that high prices of medicines are not directly linked with the necessity of companies to recoup their R&D investments. On the contrary, these prices are driven by the goal of maximising profits.

The cost of developing medicines – a big black box

Few issues in the pharmaceutical sector are more controversial and debated more intensely than the cost of developing a new drug.

The pharmaceutical industry tends to refer to a study conducted by the Tufts Centre for the Study of Drug Development. The Di Masi study reckons the average cost for drugs developed between 1995 and 2007 was $2.6 billion. Besides being the result of an industry-funded research, it does not take into account the significant amounts of public funds that pay for different stages of research & development or any other forms of public incentives.

Even the CEO of GlaxoSmithKline (GSK), one of the world’s biggest pharmaceutical companies, admitted that the $1 billion price tag to develop a new drug was “one of the great myths of the industry”. Other experiences, like the non-profit Drugs for Neglected Diseases Initiative (DNDi), tell us a completely different story. New drugs can be actually developed for as little as $50 million, or up to $186 million if the attrition (failure) rate is taken into account. These figures are nowhere near the industry’s claims.

It is high time citizens knew the real cost of research and development of new medicines. The diachronic shroud of secrecy around the cost of medical R&D leads us to believe that the ever-increasing prices of drugs have very little to do with the cost of R&D.
Pharmaceutical companies must disclose the real cost of medical R&D.

Medicines are increasingly expensive & unaffordable

Access to affordable medicines is no longer a challenge for low and middle income countries alone, but increasingly an issue of serious concern in high-income countries as well. Expensive drugs not only put citizens’ access to health at risk, but also threaten the sustainability of national health budgets.

According to a recent survey, Spanish households now pay 58% more for their medicines than in 2010. 39% of Portuguese consumers could not afford a medicine they needed in 2014. These are striking figures that highlight an alarming problem for Europeans across the continent.
The high price tags for treatments to fight cancer, or HIV/AIDS, or for drugs targeting rare diseases (orphan drugs) are the main barrier between a patient and their treatment in Europe today. Let us look at Sofosbuvir the new medicine against Hepatitis C. It is actually an example of a drug that could potentially save millions of lives but comes with a price that hardly any health care system in the world can afford. The price of a 12-week course of Sofosbuvir, marketed by the American pharmaceutical company Gilead, can be up to $84.000 (that is $1.000 per pill) in the USA. The respective prices in Europe range from € 45.000 in Italy, to € 41.000 in France and € 25.000 in Spain. Due to these exorbitant prices, European governments are forced to put strict eligibility criteria in place in order to limit the number of patients entitled to access the drug. This means practically that patients will only be able to access the treatment when their condition deteriorates.