Why the Pharmaceutical Industry’s "R&D Scare Card" Does Not Justify
High and Rapidly Increasing U.S. Drug Prices
January 26, 2000
Introduction
Major U.S. drug companies and their trade association, the Pharmaceutical Research and Manufacturers of America (PhRMA), have launched an all-out propaganda campaign to scare policy makers and the public into believing that if anything is done to restrain high and rapidly increasing U.S. prescription drug prices, research and development (R&D) to find new treatments for serious and life-threatening diseases will suffer.
The $30+ million "Flo" advertising campaign and countless op-eds, studies, interviews and other communications by the industry and its hired-gun think tanks and consultants succeeded in stopping Congress and the President in 1999 from negotiating and passing an affordable outpatient Medicare prescription drug benefit. As the recent exposure of parts of PhRMA’s secret playbook for the first months of 2000 reveals, we can expect much more of the same this year.
PhRMA’s R&D Scare Card argument is a "Big Lie" campaign: proponents seek to convince through fear and repetition, not logic or evidence. Those seeking the truth are at a particular disadvantage because of the almost complete lack of transparency that surrounds the subject of pharmaceutical research. The only players who know what is actually spent on R&D and what proportion of those expenditures are divided between marketing research vs. research into "me-too" drugs vs. research into drugs of major therapeutic significance are the drug companies - and they do not make this information public. Instead, through PhRMA and other hired flacks, they churn out self-serving and misleading propaganda designed to protect their ability to charge whatever they determine the market will bear.
This primer brings together some known facts that rebut the drug industry’s R&D scare campaign. They lead to the following conclusions:
- PhRMA’s figures on R&D expenditures by U.S. drug companies are inflated and misleading. A significant and perhaps growing share of what PhRMA labels R&D is not spent "to develop and discover new medicines" [as their website would have it], but instead goes into "me-too" drugs with little or no therapeutic gain or into marketing research. Only about 30% is spent on the discovery of new medicines, and more than 50% of drug approvals are for "me-too" drugs offering little or no therapeutic gain.
- High U.S. drug prices and the profits they produce are not needed to entice investors into a risky business because this is not a risky business. For decades, the U.S. pharmaceutical industry has ranked at or near the top of the profit column compared to most other industries. Between the 1970s, 1980s, and 1990s, drug industry median rates of return on revenue and equity increased by double digits while they stagnated, increased modestly, or even declined for most other industries. Where’s the risk?
- Profits, not R&D, is the top priority for major U.S. drug companies. The top ten firms reaped an average of 1.5 times more in profits than they invested in R&D in 1998. The significant price reductions necessary to make a Medicare drug benefit affordable for taxpayers and beneficiaries would still leave this richest industry with healthier than average profit margins and more than enough to fund true research and development.
- A June 1999 report by Merrill Lynch found that a Medicare drug benefit with steep drug price discounts would have a minimal effect on the industry’s bottom line. The toughest proposal on the table in Washington - the Prescription Drug Fairness for Seniors Act, which Merrill Lynch assumed would provide a 40% price break for all Medicare beneficiaries - would reduce drug industry sales revenue by just 3.3% because volume increases would offset most of the impact of lower prices.
- Promotion and advertising, not R&D, is the pharmaceutical industry’s fastest growing expenditure category. Direct-to-Consumer advertising is projected to total $2 billion for 1999. It increased by 43% for the first half of the year compared to the same period in 1998 - three times faster than the 14% by which PhRMA projected U.S. firms’ R&D spending would grow.
- U.S. taxpayers play an important role in funding pharmaceutical R&D. U.S. drug companies received a whopping $27.4 billion in income tax credits, including the research and experimentation credit, from 1990 to 1996. Taxpayer dollars have funded the basic research, as well as much of the preclinical and clinical research, for many of the cancer and all of the important AIDS drugs on the market. Yet instead of directing the benefit to consumers through lower prices or to taxpayers through fair royalties, the federal government lets private companies price gouge and profiteer from drugs developed with government funds.
- It is absurd to posit, as PhRMA’s propaganda does, a national link between U.S. drug prices and U.S. research and development spending. The pharmaceutical industry is a global industry dominated by large multinational companies. Since the 1980s, U.S. pharmaceutical companies have merged with and or acquired significant stakes in European firms, and vice versa. All drug companies, regardless of where their national headquarters is located, charge higher prices in the U.S. market. Pharmaceutical firms in the countries of Western Europe, all of which have governments which negotiate with drug companies to obtain fair drug prices for their citizens, conducted more R&D than U.S. firms in 1996. More new chemical entities were discovered in Western Europe in the last reported period (1990-1994) than in the U.S.
Brand-name prescription drug companies rely on R&D to make money: it is the source of new patents, new products, and future profits. Twice in recent history the industry has played the R&D scare card and been proven false. When the 1984 Waxman-Hatch Act was under consideration, PhRMA, although strongly in favor of the patent extension provisions of the bill, warned that the bill’s provisions easing generic competition would hurt R&D. But according to PhRMA, in the 15 years after the Act passed brand-name company R&D quadrupled. Again when Congress was considering imposing price restraints on Medicaid drug prices in 1990, the industry threatened that they would have a chilling effect on research and development. But in the five years after Congress acted, R&D expenditures increased by 75%. Common sense suggests that these firms are not going to commit business suicide by curtailing R&D.
PhRMA’s Figures on U.S. Pharmaceutical R&D Expenditures Are Inflated and Misleading
The Pharmaceutical Research and Manufacturers of America’s (PhRMA) web home page proudly trumpets that its member companies spent a worldwide total of $21 billion in 1998 "to develop and discover new medicines." [www.phrma.org home page] The implication is that these expenditures are to find and develop new treatments for serious and life-threatening diseases. Neither PhRMA nor individual drug companies publicly disclose exactly what is included in their claimed R&D expenditure total. However, evidence suggests that a significant amount does not reflect the cost of developing and discovering new treatments for serious and life-threatening conditions, but instead goes into "me-too" drugs and into marketing research.
A High Percentage of New Drugs Approved Are "Me-Too" Drugs
Until 1992, the Food and Drug Administration classified every new drug approved according to its significance for human health. The ranking system:
1A = Important therapeutic gain: a breakthrough drug
1B = Modest therapeutic gain: e.g., change in formulation so that the drug can be taken once instead of three or four times a day
1C = Little or no therapeutic gain: "me-too" or "copycat" drug - for all practical purposes, duplicate of products already available
1AA = AIDS and related conditions
OD = Orphan DrugMore than Half of New Drugs Approved from 1982-1991
Were "Me-Too" Drugs
FDA Category Number Percent 1A - Important Therapeutic Gain 41 16% 1B - Modest Therapeutic Gain 80 31% 1C - Little or No Therapeutic Gain 137 53% Total New Drugs Approved 1982-91 258 100% Source: Donald Drake and Marian Uhlman, Making Medicine, Making Money (1993), p. 72
As seen above, more than one-half (53%) of the newly discovered drugs had "little or no therapeutic gain" compared to drugs already on the market.
The pharmaceutical industry hated this system, because it provided objective information - not drug company advertising or pitches from sales representatives - to the public and medical practitioners about the true value of a majority of their products. In response to industry pressure, the Bush Administration eliminated these rankings in 1992.
Although our ability to track the exact proportion of "me-too" drugs ceased with the demise of this ranking system, more recent evidence still confirms that a relatively small proportion of the drug industry’s claimed R&D expenditures are directed at the discovery of new treatments for serious and life-threatening illnesses:
- "Based on industry standards, less than 30% (29.1%) of R&D expenditures is typically allocated to research which leads to the discovery of new medicines." [Cathy Spence (editor), The Pharmaceutical R&D Compendium: CMR International/Scrip’s Complete Guide to Trends in R&D, 1997, p. 31 as cited in Stephen W. Schondelmeyer, Patent Extension of Pipeline Drugs: Impact on U.S. Health Care Expenditures, July 28, 1999, p. 10.]
Drug Industry’s Claimed R&D Expenditures Also Include Marketing Research
Because drug companies refuse to provide a breakdown of their claimed R&D expenditures, it is not possible to identify exactly what proportion is market research - designed to launch the advertising and doctor promotion campaigns that are the hallmark of the introduction of new drugs. However, evidence suggests that a considerable - and growing - part of what the industry calls R&D is not devoted to "finding and developing new medicines," but goes instead into marketing research:
- "IMS CEO Victoria Fash said IMS works with some pharmaceutical clients on marketing research two years in advance of a drug launch...that premarket research is resulting in earlier peak sales of drugs, Fash said. ‘A new trend is emerging in the industry,’ she said. In the past, drug sales hit their peak close to their patent expiration dates, which in some cases was six to eight years after launch. But now, sales are peaking in the first year in certain instances." ["IMS - Drug Sales - Drugs Hitting Peak Sales Sooner," Dow Jones Newswires, 6-7-99]
- "..[T]he ongoing [Senate] Aging Committee investigation has found that many of the dollars that drug manufacturers claim are spent on research of new pharmaceutical products are actually spent on marketing research...These so-called ‘research’ activities help the companies collect the data they need to design their lavish marketing and promotional campaigns...Some drug manufacturers disguise postmarketing studies as research studies, and use these studies to promote unapproved uses of their drugs to physicians." ["The Drug Manufacturing Industry: A Prescription for Profits," Staff Report of the Special Committee on Aging, United States Senate, September 1991, p. 5]
Where’s the Risk? The Pharmaceutical Industry Consistently
Ranks Tops in ProfitsPhRMA and major drug companies attempt to justify high U.S. prescription drug prices by characterizing their business as a high risk enterprise which must therefore be rewarded with concomitantly high returns. But where’s the risk? Company reports to the Securities and Exchange Commission and Fortune magazine’s annual surveys of comparative industry rankings show that:
- The pharmaceutical industry ranked #1 in profits on all three Fortune 500 indexes - return on revenue, assets, and equity - in 1998. Since 1982, the industry has topped Fortune’s rankings for return on revenue, and has been at or near the top for return on equity. [Stephen Schondelmeyer, Patent Extension of Pipeline Drugs: Impact on U.S. Health Care Expenditures, July 28, 1999, Table 12; Alan Sager and Deborah Socolar, Affordable Medications for Americans: Problems, Causes, Solutions, July 27, 1999, pp. 11-13.]
- The pharmaceutical industry’s median return on revenue, averaged for each decade, grew by more than one-fourth between the 1970s and the 1980s and by almost one-third again between that decade and the 1990s. Its median return on equity increased by 21.2% from the 1970s to the 1980s and again by 32.5% in the 1990s. By contrast, median returns for all industries grew modestly, stagnated, or even declined over the same period.
- The pace has accelerated even more dramatically in the late 1990s as the prescription drug industry’s profit as a percentage of return on equity hit a staggering 39.4% in 1998 compared to 13.4% for the Fortune 500; the drug industry’s median return on revenue was four times higher than the Fortune 500 in 1998, 18.5% compared to 4.4%. [Schondelmeyer, Table 12]
Average of the Median Return on Revenue and Equity
Pharmaceuticals Compared to Fortune 500 All Industries, 1970s - 1990s
Decade Median
Profit* as % of Return on Revenue
All IndustriesMedian
Profit* as % of Return on Revenue Pharmaceuticals
Median
Profit* as % of Return on Equity
All IndustriesMedian
Profit* as % of Return on Equity Pharmaceuticals
1970s 4.4%
8.9%
12.4%
16.5%
1980s 4.4%
11.2%
13.3%
20.0%
1990s 4.0%
14.7%
12.4%
26.5%
* Averaged for each decade.
Source: Computed from Schondelmeyer, Table 12.
Profits, not R&D, Is the Top Priority for Major U.S. Drug Companies
While PhRMA’s propaganda campaign goes to great lengths to portray R&D as the top priority for the pharmaceutical industry, company reports to their shareholders and the Securities and Exchange Commission tell a different story. Profits, not R&D, is this industry’s top priority. As the table below shows, the top ten U.S. pharmaceutical companies ranked by sales made profits [net income] a much higher priority than R&D. Only one of the ten spent more on R&D than profits in 1998. The median for the ratio of net income to R&D for the top ten was 1.5.
Leading Pharmaceutical Companies Place Profits above R&D
Company
Net Income as a Percent of Net Sales
R&D as a Percent of Net Sales
Ratio of Net Income to R&D
Bristol-Myers Squibb 17.2%
8.5%
2.0
Abbott 18.7%
9.8%
1.9
Merck 19.5%
10.6%
1.8
Schering-Plough 21.7%
12.5%
1.7
Am. Home Products 18.4%
12.2%
1.5
Pfizer* 24.7%
16.8%
1.5
Warner-Lambert 12.3%
8.6%
1.4
Johnson & Johnson47 13.0%
10.3%
1.3
Eli Lilly 22.7%
18.8%
1.2
Pharmacia&Upjohn 10.2%
17.7%
.6
*Includes Alliance revenue.
Source: Fortune Magazine's top ten pharmaceutical companies ranked by sales, in this chart in declining order by ratio of net income to R&D. Company figures from 1998 Annual Reports, Table of Consolidated Statement of Earnings.The bottom line is clear: drug companies do not have to curtail R&D to absorb the price restraints necessary to make a Medicare benefit affordable and still remain the richest industry in the U.S.
Merrill Lynch Finds the Prescription Drug Fairness for Seniors Act
Would Cut Drug Company Revenues by Only 3.3%In a June 23, 1999 report, Merrill Lynch debunked the notion that a Medicare prescription drug benefit would seriously damage the pharmaceutical industry’s profitability [A Medicare Drug Benefit: May Not Be So Bad]. Merrill Lynch’s analysis concludes that the toughest proposal on the table in Washington, the Prescription Drug Fairness for Seniors Act (H.R. 664/S. 731), which provides a 40% discount on drug costs for all 39 million Medicare beneficiaries, would cut just 3.3% from total pharmaceutical industry revenues because volume increases would offset much of the lost revenue due to the lower prices. According to Merrill Lynch:
- Volume is more important than price in driving pharmaceutical company sales growth. Between 1994 and 1998, the impact of volume on sales growth outpaced price by better than a 4 to 1 ratio. [Page 4]
- Medicare beneficiaries who either lack or have inadequate drug coverage under-utilize prescription drugs because they cannot afford them. With a 40% price discount, the one-third of beneficiaries who lack any drug coverage would increase their consumption by 45%, and the two-thirds with some coverage would see a 10% increase in drug purchases. [Page 4]
- This increased utilization reduces the lost revenue that would otherwise result from a 40% price discount for Medicare beneficiaries by almost one-half. Without adjusting for volume increases, a 40% price discount for Medicare beneficiaries would reduce total pharmaceutical industry revenues by 5.9%. But after adjusting for increased utilization, the net drop in sales is just 3.3%. [Page 5]
The following table illustrates the potential impact of a 3.3% reduction in sales on the top ten drug companies [the actual impact of the Prescription Drug Fairness for Seniors Act on individual companies would vary by factors such as the percentage of total sales earned in the U.S. and the proportion of products used by Medicare beneficiaries].
Change in 1998 Sales and Profits of Top 10 Drug Companies
Under the Prescription Drug Fairness for Seniors Act (H.R. 664/ S.731)
1998 Sales
1998 Profits
($ millions) Actual
H.R. 664/ S.731
Actual
H.R. 664/ S.731
Merck $26,898
$26,002
$5,248
$5,073
Johnson & Johnson 23,657
22,869
3,059
2,957
Bristol-Myers Squibb 18,284
17,675
3,636
3,515
Pfizer 13,544
13,093
3,351
3,239
American Home Products 13,463
13,014
2,474
2,392
Abbott 12,478
12,062
2,333
2,256
Warner-Lambert 10,214
9,874
1,254
1,212
Eli Lilly 9,237
8,929
2,098
2,028
Schering-Plough 8,077
7,808
1,756
1,698
Pharmacia & Upjohn 6,758
6,533
691
668
Source: 1998 Sales and Profits from 1998 Annual Reports.
Promotion and Advertising, Not R&D, Are the Drug Companies’ Fastest Growing Expenditures
Since Senator Kefauver’s pathbreaking hearings into the business practices of U.S. pharmaceutical companies in the late 1950s, the industry’s investment in marketing to gain and maintain market share has been well documented. Public Citizen’s Health Research Group has exposed the negative impact on consumer and patient health which the industry’s slick and all-but-unregulated marketing practices produce [see www.citizen.org/hrg/publications/drugs then scroll down to "promotion" for a list of publications]. Since the FDA relaxed standards for Direct-to-Consumer (DTC) TV ads in 1997, drug advertising - and its negative consequences - have escalated rapidly.
Promotion and advertising is also a major driver of high drug costs and a major contributor to the diversion of R&D spending into marketing research. The lack of transparency surrounding U.S. pharmaceutical industry R&D expenditures precludes identification of exactly how much of PhRMA’s claimed R&D spending goes into marketing research. But experts in the field estimate it is a considerable share of what is labeled "R&D."
- Scott-Levin, a pharmaceutical marketing information service, reports that the pharmaceutical industry spent a total of $8.3 billion on drug promotion and advertising in the U.S. in 1998. Authoritative reports and trade press articles suggest that both types of drug company marketing - promotion to medical practitioners and direct-to-consumers - will see explosive growth in the next few years.
- IMS Health reported in June 1999 that drug-company sales forces had grown 40% in the last three years to reach 60,000. [Dow Jones Newswire, "Prescription Drug Sales Are Expected to Climb 43% in the U.S. by 2002," 6-8-99] A January 17, 2000 Scott-Levin audit reported 70,000 industry sales representatives [www.scottlevin.com, accessed 1-22-2000]. With about 756,000 physicians in the U.S. in 1999, drug companies are approaching a ratio of one sales person for every ten doctors!
- Direct-to-Consumer (DTC) advertising reached $905 million in the first half of 1999, growing 43% over the same period a year earlier, and is projected to total $2 billion for the entire year. [IMS Health News Release, October 12, 1999; Dow Jones Newswire, 6-8-99]. This is a growth rate three times higher than PhRMA’s projection of how much drug company R&D spending (14.1%) will increase between 1998 and 1999. [www.phrma.org/publications/industry/profile99/chap2.html, accessed 1-20-2000]
- Among the reasons DTC advertising is projected to increase so rapidly is that the pioneers in the field have shown that it pays: The 10 drugs most heavily advertised directly to consumers in 1998 accounted for $9.3 billion, or about 22%, of the total increase in drug spending between 1993 and 1998. [National Institute for Health Care Management, p. iii].
U.S. Taxpayers Play an Important Role in Funding Pharmaceutical R&D
Unacknowledged by PhRMA’s R&D propaganda campaign is the significant role of U.S. tax dollars in funding biomedical, including pharmaceutical, research. Taxpayer-funded R&D is in addition to the hefty tax breaks enjoyed by the U.S. drug industry.
Effective Tax Rate for U.S. Drug Companies Much Lower than Other Industries
- A December 1999 Congressional Research Service analysis found that the U.S. pharmaceutical industry, while about three times more profitable on average than other U.S. industries [return on revenue], had an effective tax rate of 16.2% over the period 1993 - 1996, compared to the average rate of 27.3% paid by companies in all other major industries. [12-16-99 News Release by Representative Pete Stark]
- Between 1990 and 1996, the U.S. drug industry received a whopping total of $27.4 billion in U.S. income tax credits. These credits cut the industry’s annual tax bill in these years by about half, ranging from a 47% to a 61% reduction. Five tax provisions produced significant tax savings for drug companies: the foreign tax credit, the possessions tax credit, the research and experimentation tax credit, the orphan drug tax credit, and the expensing of research expenditures. [Calculated from CRS, Federal Taxation of the Drug Industry from 1990 to 1996, December 13, 1999, page 2, Table 1]
Many Important Pharmaceutical Breakthroughs Are Taxpayer-Funded
Unfortunately, the federal government does not provide comprehensive data on the amount of taxpayer funded pharmaceutical research, its role in discovering and developing drugs that are brought to market by private firms, or the relative return it produces for company shareholders vs. U.S. consumers and taxpayers. A variety of sources provide evidence that taxpayer dollars support an important share of the research that has produced major breakthroughs.
- In 1994, Ronald A. Rader, President of the Biotechnology Information Institute in Rockville, Md. authored The Federal Bio-Technology Transfer Directory. According to a 9-8-94 press release on its publication, "Federal Labs and NIH are Number One in Bio-Technology Transfer":
"Federal laboratories, the Public Health Service and its main component, NIH, are:- the U.S. biotechnology and pharmaceutical industries’ leading sources for new technologies, both new products and broadly enabling technologies;
- the leaders in collaborative research and development with the biotechnology and pharmacutical industries, including therapeutics in development and clinical trials;
- the source for many products and technologies in the marketplace."
[Press Release posted on IP Health listserve, 1-5-2000]- April 5, 1998, Alice Dembner and the Boston Globe Spotlight Team reported in "Public Handouts Enrich Drug Makers, Scientists":
"The Globe looked at 50 top-selling drugs approved by the Food and Drug Administration over the past five years: 35 new drugs, which are bestsellers among those the FDA deemed most important or most unique, and 15 ‘orphan’ drugs targeting rare diseases. Thirty-three of the 35 new drugs and 12 of the 15 orphans received money [a total of at least $175 million] from the National Institutes of Health or the FDA to help in discovery, development, or testing." [www.cptech.org/ip/health/econ/rp-faq.html, accessed 1-22-2000]- In February 1996, Dr. Robert Wittes told the National Cancer Advisory Board that of the 77 drugs approved for the treatment of cancer in the United States by the FDA, National Cancer Institute data was important for the approval of about 52 of them. [ibid.]
- Taxpayer funded research was important in the development of all 14 HIV/AIDS drugs approved by the FDA. Federally funded research discovered the agent and linked it to the treatment of AIDS and supported both preclinical and clinical research for AZT and protease inhibitors. ["Notes on Government Role in Development of HIV/AIDS Drugs," www.cptech.org/ip/health/aids/gov-role.html and "Table of Fourteen FDA Approved HIV/AIDS Drugs," www.cptech.org/ip/health/aids/druginformation.html]
Gift of Public Funds
Much of this taxpayer-funded research is practically given away to private industry. The Boston Globe reported that NIH spent at least $1 billion on drug and vaccine development in fiscal 1996, but took in only $27 million in royalties from companies. [Dembner, Alice, "Public Handouts Enrich Drug Makers, Scientists," Boston Globe, April 5, 1998]
As the following table shows, U.S. consumers and healthcare payors are also big losers, as drug companies market essential drugs developed with taxpayer dollars at exorbitant prices and pocket the profits.
Examples of Industry Profiteering from Drugs Developed with Government Funds
Drug/Used For
Government Role in Development
Drug Company Charges/Profits
Taxol - Breast/other cancers NIH spent 15 years and $32 million developing Taxol. Bristol-Myers Squibb (BMS) granted exclusive marketing rights; charges cancer patients $10,000 - $20,000 annually - more than 20 times what the drug costs to produce - earning BMS over $1 million every day. Levamisole - colon cancer NIH supported study of Levamisole [a drug used to treat worms in farm animals] for use in humans for 12 years leading to Dr. Charles Moertel’s discovery of its effectiveness against colon cancer. Johnson & Johnson raised the price from .06 per pill to $6.00 for use by humans. Dr. Moertel said the drug’s development was "paid for just about in full by the American taxpayer. We gave it to them on a silver platter." Proleukin - kidney cancer NIH conducted or funded nearly $46 million in clinical trials to win FDA approval for Proleukin. Chiron Corporation charges kidney cancer patients up to $20,000 annually for Proleukin. AZT - HIV/AIDS NIH spent years and tens of millions of dollars developing AZT, the first drug approved to treat AIDS. Glaxo-Wellcome was given monopoly rights over the drug. It first charged $10,000 annually (now about $3,000); the companies stock value increased ten-fold after AZT went on the market. Source: "Examples of Drugs Developed with Government Funds," Project on Government Oversight Fact Sheet, February 1, 1999.
PhRMA’s Claim that High U.S. Drug Prices Lead U.S. Firms
Perform a Disproportionate Share of R&D is FalseThe pharmaceutical industry is a global industry dominated by large multinational companies. Since the 1980s, U.S. pharmaceutical companies have merged with and or acquired significant stakes in European firms, and vice versa. All drug companies, regardless of where their national headquarters is located, charge higher prices in the U.S. market. It is absurd to posit, as PhRMA’s propaganda does, a national link between U.S. drug prices and U.S. research and development spending.
Data from the U.S. International Trade Commission (USITC) Research Study Review of Global Competitiveness in the Pharmaceutical Industry [April 1999] shows the absurdity of PhRMA’s claims. According to the ITC, in 1996, the U.S. accounted for 33% of the total world market for prescription drugs; Western Europe, 29%; and Japan, 18%. Yet even when PhRMA’s inflated figures for U.S. drug company R&D are used, R&D spending by firms in Western Europe exceeded that of U.S. drug companies.
1996 Pharmaceutical R&D Spending in U.S., Western Europe, and Japan
Country or Region
Pharmaceutical R&D
[US $]Percent of Total for Three Regions
United States $13.6 billion
39.9%
Western Europe $14.4 billion
42.2%
Japan $ 6.1 billion
17.9%
Total for Three Regions $34.1 billion
100.0%
Source: USITC Study, pages 3-1, 3-7, 3-18 and 3-27
Nor does the U.S. outshine the world in breakthrough research, as measured by the number of new chemical entities (NCEs) developed:
New NCEs Developed by Major Country or Group, 1990 - 1994
Country or Region
Total NCEs Developed
Percent of Total
United States 84
32.4%
Western Europe 94
36.3%
Japan 77
29.7%
All Other Countries 4
1.6%
World Total 259
100.0%
Source: USITC Study, page 2-3
The above tables show that the countries of Western Europe, where prescription drug prices are 25% to 50% less than in the U.S. due to government negotiations with drug companies for fair pharmaceutical prices, are also home to significant pharmaceutical research. It simply does not follow, as PhRMA’s propaganda campaign would have it, that price controls stifle R&D.
- Between 1993 and 1997, U.S. drug firms increased overseas R&D spending at a faster rate than in the U.S. - 56% compared to 47%. [USITC, p. 3-8]
- In fact, as a 1994 GAO report concluded: "[D]rug prices are only one of many factors that influence pharmaceutical R&D. Therefore, pharmaceutical spending control policies can coexist with a strong research-based industry, even though by themselves such policies would decrease R&D spending." [U.S. General Accounting Office, Prescription Drugs: Spending Controls in Four European Countries, May 1994, p. 8.]
For more information contact Maura Kealey at (202) 454-5116 or mkealey@citizen.org
