Facts About High Drug Prices
Greedy drug companies are overcharging California taxpayers
The Drug Price Relief Act of 2016
“A ballot initiative that will require the State of California to pay no more for prescription drugs than is paid for the same medication by the U.S. Department of Veterans Affairs, which negotiates drug prices with the pharmaceutical companies.”
FACT: Pharmaceutical price increases are largely driven by profits, advertising and executive pay—and not by research and development (R&D) costs, as the drug companies claim
- A 2012 report in the British Medical Journal found that pharmaceutical companies spent 19 times more on marketing than on basic research.
- Nine of the largest pharmaceutical companies in the world spend more on marketing than on R&D.
- Three-quarters of the most innovative drugs actually started out with funding from the National Institutes of Health (NIH), which spends $30 billion in taxpayer money each year, and not from pharmaceutical companies’ profits.
- In early 2015, Forbes magazine published a cover story entitled “This Giant Drug Firm Won’t Invent Medicines.” In the article, drug company Activis’s CEO bragged that his firm wouldn’t even pretend to invent new medicines: “The idea that to play in the big leagues you have to do drug discovery is a really a fallacy.”
FACT: Pharmaceutical companies have some of the highest profit margins of any industry— even more than the oil and gas industry, and on par with investment bankers.
- According to the World Health Organization (WHO), the pharmaceutical industry’s profit margins are about 30% annually.
- October 2015 earnings reports showed that profits at many drug companies have increased astronomically over the past year, with some reporting jumps between 77% and 200% – fueled not by greater sales, but by higher drug prices.
FACT: In spite of record-high drug company profits being based largely on research paid for by the taxpayers, now the pharmaceutical companies are trying to avoid U.S. taxes through mergers and by moving their “headquarters” overseas.
- Viagra-maker Pfizer Inc. and Allergan, which manufactures Botox, recently announced that they would merge in a so-called “inversion” deal, allowing Pfizer to profit even further from a lower corporate tax rate by claiming they are operating out of Allergan’s home country of Ireland.
FACT: Drug makers spend far more on advertising and marketing than they do on developing new medications.
- The drug companies spent $4.5 billion marketing prescription drugs to U.S. consumers in 2014 alone.
- The United States and New Zealand are the only industrialized countries in the world that allow unrestricted direct-to-consumer advertising of prescription drugs.
- Pharmaceutical companies also made $6.5 billion in direct payments to doctors in the last year in order to influence their prescription decisions – and more than 80% of U.S. physicians accepted these payments, in the form of gifts, lunches, travel, lecture fees and promotional appearances.
FACT: Not only do drug companies spend more on advertising than on R&D, but the federal government has found much of their advertising to be misleading – or outright fraudulent.
- Since 2009, the U.S. government has fined six of the largest pharmaceutical companies a total of more than $11 billion for drug advertising that made false or misleading claims, promoted unapproved uses for drugs, and other dishonest practices, including Medicare fraud.
- Several of the biggest names in the industry that have been hit with fines under the False Claims Act (FCA), Food, Drug & Cosmetics Act (FDCA), or other laws, include:
- 2013: Johnson & Johnson, $2.2 billion (off-label promotion, kickbacks)
- 2012: GlaxoSmithKline, $3 billion, including $1 billion in criminal penalties (off-label promotion, kickbacks, false claims, underpaying Medicaid rebates)
- 2012: Abbot Laboratories, $1.6 billion (off-label promotion)
- 2012: Amgen, $762 million (off-label promotion, kickbacks)
- 2010: GlaxoSmithKline, $750 million (poor manufacturing processes)
- 2010: Allergan, $600 million (off-label promotion)
- 2010: AstraZeneca, $520 million (off-label promotion, kickbacks)
- 2010: Novartis, $423 million (off-label promotion, kickbacks)
FACT: Exorbitant pay for drug company executives is among the highest in any sector or industry.
- Senior executive pay at pharmaceutical companies is significantly higher than in all other healthcare sectors, including hospitals, healthcare IT, insurance companies and medical-device manufacturing.
- The 20 highest-paid biopharma CEOs brought home an average of $23.7 million in 2014—a total of nearly half a billion dollars and over 50% more than they made in just 2012.
- Gilead Sciences’ CEO John Martin made nearly $180 million in 2013 alone, prompting a shareholder revolt. (For context, the compensation for just this one executive amounts to between 23% and 54% of what the Center for Economic and Policy Research estimates California could save per year by negotiating drug prices.)