Debunking The Pharmaceutical Research ‘Free Rider’ Myth
This claim that
“everyone gets a free ride off us,” pushed so vigorously by pharmaceutical companies to the US public and policy makers, is simply not true. The claim has been made so often for so long that many hold it as an economic fact, even though no solid evidence is presented to back it up.
In fact, other countries such as Canada and the United Kingdom are keen to attract pharmaceutical research and development investments. Prices in these nations are set to enable companies to recover all research and development, manufacturing, marketing, and overhead costs, and to make a reasonable profit. UK prices, among the lowest in Europe, have long been set to pay for all these costs plus a profit.
Government and industry reports in Europe and Canada undercut
the myth of foreign free riders. As Europeans and Canadians will tell you, the prices charged on new patented drugs are very high, about 30--50 times manufacturing costs. One reason why Americans pay even more is that our political leaders are richly rewarded by an army of more than 1,000 lobbyists to not set up an independent agency to determine fair prices that reflect the added clinical value for patients: Drug companies champion what they call a “free market,” but they want to disarm the purchasing side of the market before bargaining even starts. We have all witnessed the
market pricing spirals that result in burdens for businesses and taxpayers.
The Myth Of Silos
The free-rider myth is based on the claim that Canadian revenues at Canadian prices fall short of paying for Canadian research and development, German revenues at German prices fall short of paying for German research and development, and British revenues at UK prices fall short of paying for British research and development expenses. But such market silos are a myth. In fact, if a better new drug is discovered in one country, it is sold in every other country. The myth of foreign free riders misrepresents how research costs, prices, and revenues are related in an international pharmaceutical market.
Economic Blackmail
When pharmaceutical companies threaten that they will cut back on research if Americans pay European or Canadian prices, it’s a kind of economic blackmail: Pay our excess US prices, or your families will suffer from cutbacks on research for new cures. President Donald Trump and his team should call this bluff, because no research-based industry will cut back on the source of their own future revenues. The drug industry could much more easily cut back on marketing costs, which are
two to three times greater than reported research costs before taxpayers’ subsidies.
The $76 billion in research and development that pharmaceutical companies claim overlooks the ways that US employers and taxpayers pay for at least 44 percent of total corporate research and development through tax subsidies and credits.