The Myth of Research & Development: Exposing the Pharmaceutical Industry
The pharmaceutical industry has argued that high U.S. retail prices are necessary to fund research and development. But every independent study on the pharmaceutical industry shows that profits are a higher priority for drug manufacturers than research and development.
- The top ten pharmaceutical firms put one-and-a-half times as much money into profits as into research and development in 1998.
- The prescription drug industry was ranked the most profitable industry in 1998 by Fortune Magazine, and the industry's huge profits exist after R&D costs are paid. The 1998 profit rate for the pharmaceutical industry was 38% return on equity, more than twice the average for all Fortune 500 industries which is 18%.
- While senior citizens generally live on fixed incomes that are adjusted to keep up with the rate of inflation, the cost of the most frequently purchased prescription medications has risen at approximately two times the rate of inflation over the past five years and more than four times the rate of inflation in the last year.
- U.S. taxpayers play an important role in funding pharmaceutical R&D. Drug companies in the U.S. received a whopping $27.4 billion in income tax credits including the research and experimentation credit, from 1990 to 1996. Yet, instead of directing the benefit to consumers through lower prices or to taxpayers, the federal government lets private companies price gouge and profiteer from drugs developed with government funds.
- Promotion and advertising, not R&D, is the pharmaceutical industry's fastest growing category of expenditure. 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. This is three times faster than the 14% PhRMA (the Pharmaceutical Research and Manufacturers of America) projected for growth in R&D spending. In fact, 30% of the money consumers pay for prescription drugs goes to advertising!
- A 1999 report by Merrill Lynch found that a Medicare drug benefit with steep medication price discounts would have a minimal effect on the industry's bottom line. During 2000, the toughest proposal at the federal level which was the Prescription Drug Fairness for seniors Act, which Merrill Lynch assumed would provide a 40% price break for all Medicare beneficiaries, would have reduced pharmaceutical industry sales revenue by just 3.3% because the volume would have increased offsetting most of the impact of lower prices.
Drug companies are keeping their profits high by charging their highest prices to seniors and people with disabilities who can't do without their products. It's price gouging and it's wrong!
- Pharmaceutical companies are allowed to continue this practice because Congress and our state have done little about it. In fact from 1995 to 1999, there was a 57% increase in campaign contributions to political candidates by the pharmaceutical industry. During the 1999-2000 election cycle, it is estimated that the pharmaceutical industry spent $230 million which included $35 million in campaign ads and $175 million in lobbying expenses.
Another reason why we need Campaign Finance Reform!