Is society still paying twice for new medicines?

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We’ve heard it before: high drug prices are not justified by industry spending on research and development (R&D). That is also the conclusion of an analysis by Aris Angelis et al. in The BMJ.

The researchers took a critical look at the fifteen largest biopharmaceutical companies and found that between 1999 and 2018 they spent more money on administration and marketing than on R&D.

For example, publicly available financial reports from 1999 to 2018 show that these companies had total revenues of $7.7 trillion. During the same time period, they spent $2.2 trillion on costs associated with sales, general and administrative activities and $1.4 trillion on R&D. Moreover, according to Angelis et al., the fact that high drug prices are necessary to offset R&D expenditure ignores the significant public investment in drug discovery and development. It leads to the well-known argument that society pays twice for new drugs, first in the form of government-funded research and then through high product prices. Angelis et al also show that many biopharmaceutical companies spend significant amounts of money buying back their own shares and paying dividends – money that they believe should be better spent on research and development.

Old-fashioned reproach

‘It would indeed be better if these companies invest that money in R&D’, says pharmaceutical physician Dr. Henk Jan Out, but otherwise he reads an old, outdated story. ‘All large companies, including pharmaceutical companies, have a lot of overhead. Costs of getting medicines to the market after they are registered, arranging distribution, getting the side effects administration in order, paying marketers and sales people needed to get the medicines to doctors. So that is not all needlessly spent money. To be honest, I think the expenditure on R&D is still quite high. Moreover, Angelis et al.’s analysis focuses on large companies; relatively small companies spend considerably more on R&D than on the maintenance of products that are already on the market.’

Paying twice is also an old accusation, he thinks. ‘It is a myth that there is so much public money in the development of medicines. Of course, discoveries have been made in the academy about disease mechanisms, targets, receptors and proteins, after which the industry is looking for the molecules that act on them. But that in itself is not a piece of cake, rather an extremely complex process. Remember: 94 percent of all substances that are tested on humans for the first time – usually after a development phase of about six years – do not make it to the finish line!’ Out wants to add something to that: ‘The idea is actually that the price of a drug is completely determined by the R&D costs. Sure, that costs a lot – the median is about 2.8 billion euros per cancer drug – but those costs are mainly determined by the value that such a drug has for the patient and society. And it is a temporary situation: if the drug becomes generic, the prices will drop dramatically.’


Angelis et al.’s most important reproach to the industry is perhaps that most new medicines have little or no added clinical value. For example, in the 1970s and 1980s, about one in six new drugs approved by the FDA produced significant therapeutic benefits. Now, analyzes of drug evaluation reports show that in the 2010s most new drugs offer little or no added clinical value. Out puts this conclusion into perspective: ‘For every product that you want to market, you have to submit to a complicated registration process and the regulator has to decide on admission.’ Rhetorically: ‘If the professional group thinks that it has no clinical added value, then why don’t you just prescribe it?’

Incidentally, Angelis et al see a shift from blockbuster drugs, which usually target, or rather used to be, chronic diseases and are sold in large quantities worldwide, to what they call “nichebuster” drugs, expensive drugs targeting rare diseases or limited indications for which high prices can be charged. Publicly available FDA data shows that the share of approved drugs developed for rare diseases increased from 25 percent in 2001-2005 to 48 percent in 2016-2020. By 2021, orphan drugs accounted for 52 percent of all approvals.

Patent systems

Angelis et al advocate national patent systems that not only register a drug because it is chemically ‘new’, but also take into account the therapeutic added value. Companies should also be required to conduct comparative clinical studies. But, says Out, we have been doing this for some time, especially in Europe: ‘It is often ethically impossible to sell simply to test against a placebo. It is also in the economic interest of companies: after all, you can then show the added value compared to current care. I suspect the authors here are mainly alluding to the latest oncology trials. The trend in that area is to arrive at tailor-made medication, which makes randomized trials difficult, because here too you get into difficult ethical waters: if a drug seems to work in a number of patients in uncontrolled studies, then you can you can’t just form a control group in a larger follow-up study that doesn’t give you that drug. The evidentiary value of these so-called ‘single arm trials’ is certainly less than the more common randomized trials, but it is often the only way to properly investigate a drug, and it can – as we now know – still provide a well-considered assessment of its effectiveness. enable.’

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