PHARMA: Drug Prices here and there

There's no question that in the US big pharma and its employees colleagues at USTR are on the attack over "low drug prices" in other countries, with the assumption that the US consumer is subsidizing R&D here and therefore allowing foreigners to get the benefit of new drugs without paying their fair share. Late last year I spent some futile time (aided by Derek Lowe who writes the excellent In the Pipeline blog) trying to get at the issue of whether this is true, and whether drug profit margins abroad are so low that they wouldn't support said R&D. Of course the alternative is that drug prices are too high in the US (or at least higher than they need to be to attract investment in pharma R&D). It's a common estimate that pharma companies make about 60-70% of their profits in the US. It's also well known that net margins in the pharma industry are the highest of any major sector at roughly 17%, compared to the next highest, financial services at 14% and way above any other manufacturing industry, including software.

You don't see software companies complaining about their need for government to ensure high prices to promote R&D, although monopolies by technology standards work equally well for one well known company. Pharma companies will argue the they only have limited time to make money, as patent expiration takes away their monopoly position and essentially forces them to start again from scratch, but in any other business, competitors will also come into the market using lower prices as their wedge in. (And to be fair to big Pharma they are by no means alone in looking to regulation or tariffs to protect them--which is why American car companies concentrate on minivans and SUVs, as there's a 25% tax on foreign "light trucks"). Pharma companies also must essentially give away the fruit of their research to generic companies. So the whole issue is very complex.

PHARMA: Drug Prices here and there