Overview
Out-of-control drug prices impose a heavy burden on hardworking American families. For years, prescription drugs have constituted the largest segment of total health expenditures in the commercial market.1 Pharmaceutical companies routinely hike their prices every year, often multiple times a year. They justify high drug prices by pointing to the high costs of researching and developing new drugs. In this study, we examine that justification against the revenues that pharmaceutical manufacturers bring in over the course of a prescription drug’s life cycle.
While policymakers have focused their attention on drug prices, less attention has been paid to the return on investment (ROI) realized by pharmaceutical companies over a drug’s lifetime and the proportion of that ROI achieved through patent gaming. This study looks at pharmaceutical companies’ revenues, which combine data for both prices and sales volume for branded drugs.
Key Takeaways
Pharmaceutical companies earned $18.6 billion in total worldwide revenues, on average, for a new drug; they spent around $1.8 billion to develop a new drug.
- Pharmaceutical companies earned $18.6 billion in total worldwide revenues, on average, for a new drug; they spent around $1.8 billion to develop a new drug.
- The U.S. market accounts for more than half (56%) of total drug revenues for a typical branded drug, while it accounts for 4% of the world’s population.
- While biologics accounted for only 27% of drugs, they accounted for 43% of total U.S. drug revenues.
- On average, U.S. revenues for biologic drugs ($17 billion) were twice as high as revenues for traditional non-biologic drugs ($8 billion).