SECOND OPINION: BIG PHARMA’S EGREGIOUS PRICING PRACTICES AND ANTI-COMPETITIVE TACTICS ARE THE ROOT CAUSE OF HIGH DRUG PRICES

Breaking Down the Facts on Drug Prices, Innovation, Patent Abuse, Drug Company Profits and More from PhRMA’s Recent Comment Letter

In a recent comment letter submitted to the U.S. Department of Health and Human Services (HHS), U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC), the Pharmaceutical Research and Manufacturers of America (PhRMA) sought to evade accountability for brand name drug companies’ egregious pricing practices and anti-competitive tactics by reiterating false arguments about innovation and reupping a debunked blame game targeting others.

The truth is, brand name drug companies set prices on the products they market and Big Pharma’s egregious pricing practices, including repeated price hikes on existing drugs and increasingly out-of-control launch prices on new medicines, are the root cause of high prices.

• Big Pharma’s Price Hikes Continue to Outpace Inflation. According to a recent report from The IQVIA Institute for Human Data Science, the list prices set by brand name drug companies on the products they market increased 4.9 percent in 2023 – above the average inflation rate of 1 percent for the year.
• Drug Company Launch Prices Exceed $150,000. The same report from IQVIA found Big Pharma’s prices for new treatments have also continued to rise, as the median annual cost for new prescription drugs launched in 2023 “exceeded $150,000” annually. Meanwhile, average annual treatment costs for “oncology and rare diseases [are] both approaching $300,000 per patient.”

Peel back more of the false rhetoric, and get the facts, on PhRMA’s recent comment letter here:

PhRMA Letter Myth: “PhRMA represents the country’s leading innovative biopharmaceutical research companies, which are devoted to discovering and developing medicines that enable patients to live longer, healthier, and more productive lives. The biopharmaceutical sector is one of the most research-intensive industries in the United States.”

Dose of Reality: Big Pharma invests more boldly in profits, advertising and developing new and more effective strategies to exploit loopholes to extend monopoly pricing on blockbuster products than in true innovation.

• There Has Been A “Whopping” 200 Percent Increase In The Number Of “Secondary” Patent Filings Pursued By Drug Makers Since 2000. According to coverage from STAT News of an August 2023 analysis in JAMA, “there has been a whopping 200 percent increase in patents filed by companies that made few substantive changes to their drugs.” According to STAT News, the analysis published in JAMA found that from 2000 to 2015, “The ratio of continuation patents increased from 0.6 for drugs that were approved in 2000 to 1.8 for drugs approved in 2015,” or a 200 percent increase. Meanwhile, “the ratio of the number of original patents for each FDA approval increased by just 15 percent.”
• The Ratio Of The Number Of Patents For Each Drug In The FDA’s Orange Book Increased By 68 Percent In 15 Years.According to coverage from STAT News of the same August 2023 JAMA analysis, the ratio of the number of patents for each drug listed in the FDA’s Orange Book “increased from 1.9 for those approved in 2000 to 3.2 for those approved in 2015.” This amounts to a 68 percent increase in the number of patents on each drug, underscoring Big Pharma’s increasing focus on pursuing patents to protect profits and block competition.

In addition, contrary to Big Pharma’s claim that out-of-control prices support investments in R&D, the facts show that brand name drug companies invest more boldly in advertising, profits and overhead than innovation and R&D.

• $56 Billion: A 2021 report from the House Oversight Committee found that over a recent five-year period, the top 14 drug companies spent almost $577 billion on stock buybacks and dividends – $56 billion more than on research and development during that same time span.

Big Pharma also benefits from U.S. taxpayers carrying a substantial share of the load for R&D research spending:

• “The U.S. Taxpayer Has Funded Research For Every Single One Of The 210 New Drugs That The FDA Approved Between 2010-16,” noted economist Mariana Mazzucato in a 2018 column for The Washington Post. “Yet the companies that have access to this research are increasingly viewing pharmaceuticals in the same way that banks view their financial product — opportunities for short-term returns.”

PhRMA Letter Myth: “For decades, competitive market dynamics have worked successfully to balance innovation, patient access to medicines, and cost containment.” 

Dose of Reality: The reality is, Big Pharma’s egregious abuse of the patent system has distorted the prescription drug marketplace for decades, blocking competition from more affordable options and costing patients and the U.S. healthcare system billions of dollars.

• >$16 Billion In One Year: A January 2023 report from Matrix Global Advisors, “Patent Thickets and Lost Drug Savings,” quantified the one-year cost of lost savings on five brand name drugs around which Big Pharma has built especially egregious patent thickets. The report assesses what the savings would be for these five drugs if “a steady state of competition [existed] where generics and biosimilars have achieved price discounts and uptake currently observed in the market.” Based on these calculations, the estimated one-year cost of patent thickets on each of these brand name drugs was:
• $7.6 billion for Humira
• $3.1 billion for Imbruvica
• $2.5 billion for Eylea
• $1.9 billion for Enbrel
• $1.8 billion for Opdivo

This amounts to a total of more than $16 billion in increased drug spending, in just one year.

PhRMA Letter Myth: “More than half of spending on medicines goes to entities other than the brand biopharmaceutical companies that researched and developed them.”

Dose of Reality: A 2023 study found that for every $100 spent on a brand name prescription drug, $58 go to the brand name manufacturer and another $17 go to production costs — meaning Big Pharma companies that market and manufacture these products retain more than half of the spending on them. In 2023, the top 10 Big Pharma companies brought in over $500 billion in revenue.

PhRMA Letter Myth: “Manufacturer cost-sharing assistance allows patients to fill prescriptions they otherwise may not be able to afford.”

Dose of Reality: In fact, brand name drug companies utilize so-called patient assistance charities to undermine competition in the market and pad their bottom line — by pushing patients toward high-priced brand name drugs.

• Study Finds Patient Assistance Programs Boost Sales of High-Priced Products: A 2022 study published in Health Affairs, conducted by researchers affiliated with Harvard University, Northwestern University and the University of Southern California, Los Angeles, examined drug spending by a subset of Medicare Advantage enrollees from 2010 to 2017, along with data on the enrollees’ conditions and which drugs were covered by charities funded by brand name drug companies.

They found Big Pharma’s share of sales for brand name medicines used to treat specific conditions covered by these charities increased over time. For the 10 costliest treatments, the brand name manufacturer’s share of sales increased from 67 percent in 2010 to 89 percent in 2017, demonstrating that “manufacturers could effectively assist in the purchase of their own medications by contributing to condition-specific charities.”

According to the study’s authors, overall “donations by the leading manufacturer of drugs for each condition were often likely to be profitable.” The authors argue that “the current regulations or enforcement permit donations that violate the spirit of Medicare’s Anti-Kickback Statute.”

• Expert Witness Says Big Pharma’s Patient Assistance Programs “Benefit The Bottom Lines of Drug Manufacturers”: In a 2020 hearing before the U.S. House Committee on Ways & Means Subcommittee on Health, experts and patients highlighted how Big Pharma exploits non-profit charities as a vehicle to boost their bottom line.

Ge Bai, PhD, CPA, Associate Professor of Accounting at Johns Hopkins Carey Business School said:

“These actions lead to market distortions, price increases and the inefficient drug spending, but benefit the bottom lines of the drug manufacturers … These programs are called in appearance ‘assistance programs’ but if we think about the kickback concern, it’s really a mechanism designed to bring money to drug companies.”

For years, Big Pharma has played a leading role in contributing to out-of-control prescription drug prices. Lawmakers should remain focused on bipartisan, market-based solutions that hold Big Pharma accountable.

Read more on how Big Pharma’s patent abuse tactics drive increased costs for consumers and the U.S. health care system HERE.

Read more on how Big Pharma’s innovation arguments don’t hold up to scrutiny HERE.

Learn more about market-based solutions to hold Big Pharma accountable and lower drug prices HERE.