Revenue generated from drug production in
the United States has more than doubled in the past 10 years. In 2016 alone,
the U.S. brought in more than $328.6 billion in prescription drugs sold in
retail outlets. The major key to this high revenue is repetitive price increases.
Drug companies have an unusual ability to function relatively unregulated and to raise drug prices beyond inflation rates. This allows the drug companies to increase their revenues continually, even if the demand for one or more drugs is not high. The result has been a huge outpacing of demand in the United States. For example, from 2010 to 2015, the growth of prescription drug revenue for 30 top-selling drugs averaged 61%, which was three times higher than the increase in prescriptions for those drugs. By 2024, worldwide sales of prescription drugs are predicted to reach $1.18 trillion.
The news media in the U.S. has put a great
focus on pharmaceutical companies that have released new drugs with sky-high prices. There has also
been increased focus on previously released drugs under new ownership that have
undergone abruptly increased prices. Drug companies do this to generate higher revenue.
In relation to pricing, pharmaceutical
companies concern themselves with a variety of factors.
Uniqueness
The uniqueness of the drug must be considered. If the market is heavily saturated with drugs to treat a certain condition, new drugs for the same condition will likely be priced lower.
Competition
Drug companies must consider the popularity and success of the drug’s competition, and they must determine if new drugs have added benefits over competing drugs. Additional benefits lead to higher prices.
Effectiveness
Drugs that can cut down on expensive
surgeries, hospital trips, and doctor visits are often priced higher because of
the savings they offer customers. Drug companies also issue higher prices to
drugs that can extend or even save lives.
Ultimately, the main objective of
pharmaceutical companies when pricing drugs is to generate the most
revenue. This often means facing competition, which serves to drive prices
lower.
R&D
The research
and development (R&D)
surrounding each drug is another important issue in regard to pricing. The
amount of time, effort, and money that a pharmaceutical company invests in the
R&D for each drug must be weighed when the drug is priced. This often leads
to higher prices to ensure that the revenue generated will exceed the
expenditures behind the drug's development.
For Covid vaccine development, the Trump
administration provided USD105 billion to Moderna (and others). Pfizer secured
USD455 million from a German government grant and nearly USD6 billion in U.S.
and EU purchase orders. AstraZeneca (AZ) received more than £84 million from
the U.K. government, and more than USD2 billion from U.S. and EU on purchase
orders.
The vaccines bulk pricing range between USD15.25 to
USD19.50 per dose, a profit yield of 60%-80% for Pfizer and 20% for AZ.
Drug prices are unhooked from reality of
cost of production. For example, Gilead Sciences Ltd (U.S.) sells a drug to
control Hepatitis C at USD1,000 per dose in the U.S. which can be obtained for
USD14 a pill in India. Same drug, same specifications. Try Zocor or Lipitor and
compare that with Storvas – a generic drug. Retail price for Storvas is one-fourth
of the branded drugs. So, for the same benefits, one is paying 4x for a brand
which you can’t wear or show-off to others!
Big Pharma should waive their patents for
the Covid drugs and allow generic drug companies in India and South Africa to
manufacture them. After all, taxpayers paid for the R&D, not Big Pharma!
But what are the drug companies good at? Marketing! About
USD30 billion was spent (in the U.S.) in 2016 on marketing/advertisements. So,
where are the regulators? Are they part of Big Pharma?
Source:
https://www.fiercepharma.com
Reference:
How
pharmaceutical companies price their drugs,
Julia Hawley, 8 August 2020
(https://www.investopedia.com)
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