High Drug Prices Have No Correlation To Money Spent In R&D, UCSD Study Finds

By Debbie L. Sklar, Times of San Diego

September 26, 2022

The amount of money spent on research and development for new pharmaceutical drugs doesn’t correlate with high prices for the medications, according to a study published Monday and including the work of UC San Diego researchers.

An international team of researchers evaluated whether high R&D costs explain high drug prices in the United States, but they found no link between the two.

“There is a presumption that high R&D costs justify high drug prices,” said first author Olivier Wouters, assistant professor at the London School of Economics and Political Sciences. “If that were true, then we’d see a positive association between the two measures.”

In the paper, published Monday in JAMA Network Open, Wouters and researchers at Skaggs School of Pharmacy and Pharmaceutical Sciences at UC San Diego found no such association for 60 new drugs approved by the Food and Drug Administration from 2009 to 2018. The study authors acknowledged that the analysis was limited by a small sample size.

The authors also assessed whether the therapeutic value of a product was associated with its price, but found no association there either. Instead, perhaps unsurprisingly, the price was more related to the profit margin.

“Our findings provide evidence that drug companies do not set prices based on how much they spent on R&D or how good a drug is,” said Inmaculada Hernandez, associate professor at the Skaggs School. “Instead, they charge what the market will bear.”

The pharmaceutical industry spent $83 billion on R&D in 2019, according to the Congressional Budget Office. The researchers said companies are estimated to spend somewhere between $1 billion and $3 billion on average to bring a single new product to market. In 2019, the U.S. drug market generated more than $490 billion in revenue, accounting for almost half of the global pharmaceutical market, according to the database company, Statista.

Americans spend more on prescription drugs per capita than citizens in any other country. In 2019, that worked out to more than $1,200 per person, researchers said. A 2021 Rand Corporation study found U.S. drug prices were 2.56 times higher than those in 32 comparable countries.

“If this argument is used to justify high prices and oppose measures to curb prescription drug costs, drug companies should supply further data to support their claims that high drug prices are needed to recover R&D investments,” Hernandez said.

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