More often than not you hear Pharma defend high prescription drug prices as necessary to cover the high costs associated with pharmaceutical research and development. Over the course of 7-10 years or longer they may spend $1.0 billion or more to get a product to market. While the time and costs of drug development may be real, the rightfully skeptical healthcare market and patients have never really accepted this rationale for high prescription prices, often pointing to the more visible high cost of marketing and sales. And now, this high cost of R & D rationale has become even less believable.
What makes this rationale even less believable today then ever before? The fact that pharmaceutical companies can afford to spend tens of billions of dollars on mergers and acquisitions while dismantling the acquired companies, laying off thousands of employees (including research scientists), and at the same time, reducing the R & D investment the two merged companies might have otherwise spent.
The other area that challenges the credibility of the bogus high pricing rationale is the affordability pharmaceutical companies have to pay hundreds of millions of dollars or even billions of dollars in fines and settlements for alleged and sometimes proven wrongdoing.
Unfortunately, the billions of dollars spent on mega-mergers and litigation settlements don’t go towards producing any innovative new products. Pfizer spent $68 billion (equal to the total annual amount of industry spending on R & D) to acquire Wyeth and Merck spent $41 billion to merge with Schering, not to mention the hundreds of millions spent by the two on restructuring, legal, and banking fees. None of this money went to R & D.
Similarly, none of the $2.3 billion in fines and settlement Pfizer recently coughed up nor the hundreds of millions of dollars of settlement paid by other companies for their alleged indiscretions will go to R & D. In fact, Pfizer’s $2.3 billion settlement represents more than 30% of their anticipated $6 billion spend on R& D this year. The $2.3 billion alone would have put any other company in the top 20 of pharmaceutical companies in R & D spending.
So when Pharma says they need high prices to support R & D it is no surprise that the healthcare market and patients recoil with skepticism, frustration, and animosity.