Thursday, August 12, 2004

The costs of research and development do not justify the costs of prescription drugs.

Why you’re right:

1. A larger portion of pharmaceutical industry revenues go to profits than to R&D. In 2002, 17% of revenues for all Fortune 500 drug companies were channeled into profit, while only 14.1% of revenues were committed to R&D. 7 out of the 9 profitable drug companies in the Fortune 500 allocated more revenue to profit than to R&D. (Public Citizen)

2. Taxpayers subsidize R&D. A 2001 report by the National Institutes of Health found that its own grants had funded more than of the testing and trials that lead to the creation of new drugs. NIH further found that taxpayer-funded scientists and foreign universities had conducted 85% of the published studies leading to the development of five top-selling drugs. (Associated Press)

3. The pharmaceutical industry is consistently more profitable than others. Drug companies in the Fortune 500 consistently earn profit margins at least three times higher than those of Fortune 500 firms taken as a whole. (Kaiser Family Foundation)

Why they’re wrong:

Drug industry lobbyists and the politicians who support them claim that high drug prices are necessary to stimulate investment in new and potentially lifesaving drugs. But the profit motive does not direct the industry to create the most medically necessary or innovative drugs; it only pushes them to create the most profitable drugs. Often, it is more profitable to market a disorder—like erectile dysfunction, social anxiety disorder, or depression—along with a cure than it is to save lives. Current Medicare policy specifically bars the government from negotiating drug prices. This policy, along with nonimportation laws, actually insulates the industry from market forces, keeping prices artificially high. There is no reason to believe that the companies would cease to innovate if market forces or policy forced them to reduce prices, pushing their profits to levels in line with other Fortune 500 firms. (LA Times)