Readers may know I have perilous little sympathy for Big Pharma. The industry too often wraps itself in the mantle of science, in particular, claiming its needs its high profits and hence high prices to support its research and development efforts. In fact, it spends more on marketing than on R&D (and perilous few industries sell products with fat enough margins to support the cost of frequent sales calls to small businesses, let alone prime time TV ads). And it is a given that it allocates as much overhead as its accountants will tolerate to its reported R&D levels.
A new and interesting line of attack has been opened against Big Pharma’s defense of its high US prices and its ongoing attacks on Europe and other countries that negotiate discounts. US drugmakers have contended that the rest of the world is effectively free-riding on US research, and that its inability to charge higher prices outside the US limits funding of R&D (ahem, have we forgotten the fact that most really big ailments already have treatments of some sort, making it much less likely that anyone will find a new blockbuster drug?).
But a more granular look at drug pricing within the US shows that drugmakers offer enough discounts here to undermine their attacks on non-US health schemes. And the foreign drug regimes at least assure that everyone in the population is on the same footing, while here, the highest prices fall on those either outside health care plans or in ones without favorable drug pricing, so the burden of higher prices falls disproportionately on lower income people.
From the Financial Times:
Claims by the US drugs industry that the US disproportionately funds research and development of new drugs by paying higher prices than Europe for its medicines have been undermined by a new study to be published soon.
Panos Kanavos and Sotiri Vandoros at the London School of Economics argue in their report that a rigorous like-for-like comparison shows that transatlantic differences in patented medicine prices are modest and declining over time.
In a forthcoming article in Health Economics, Policy and Law, the co-authors conclude that “public prices for branded prescription medicines in the US are comparable to those in key European and other OECD countries”.
Their findings are an embarrassment for the industry, and notably PhRMA, its powerful Washington, DC-based trade body. In the past PhRMA has argued that Europe’s ill-conceived public policies, including price controls and sluggish regulatory decision-making, have chilled innovation and raised doubts among private investors who help to underwrite research.
But the study confirms data released recently by several pharmaceutical groups, including AstraZeneca and GlaxoSmithKline. This data – confirmed informally by senior industry executives – suggests profits in the US are only marginally greater than in Europe.
Yves here. There is one area of difference:
His study concludes that Europe remains a relatively attractive market by volume and price, even though budget deficits have forced through aggressive price cuts in several EU states in recent weeks.
But Mr Kanavos demonstrates that manufacturers of branded drugs do not significantly cut prices to compete with lower cost generic rivals once patents expire. Governments typically have to ensure that prescribers switch to generic alternatives to save money.
Yves here. I am waiting for this study with baited breath. I wonder if they also adjusted for the differences in marketing costs.