Where Are Drug Company Profits Really Going ?

Where Are Drug Company Profits Really Going ?

Why does drug research cost so much money?  That is the question on the minds of almost everyone, from patients and doctors to the media and the government.  Over the last several decades advances in pharmaceuticals have transformed health care on many different levels.  Today, more health problems than ever before can be prevented, cured, and even managed for years with the help of prescription drugs.  In fact, for some people, the use of prescription pharmaceuticals can even prevent even costlier health care in the long run.

With more than 90% of senior citizens and almost 60% of non-elderly adults needing prescription medications on a regular basis, the pharmaceutical industry is booming.  However, only a modest part of the total health care spend in the United States relies on medications.  Despite this, the cost implications of drug research and health care loom over the wallets of the general public, insurance companies and the government alike.

The drug industry’s profits over the years have become fodder for some of the most heated debates to date.  In fact, the pharmaceutical industry is one, if not the, most profitable industry in the country.  So, why is this industry booming and why does research and development cost so much?  There is no simple answer except stating that several factors have come to influence the increased spending on drugs and drug research.

The primary reason is the complexity of drug discovery and regulatory approval. Drugs often take anywhere from 4 to 20 years to go from cocept, to execution to clinical trials to regulatory approval and market launch. The process is excruciatingly slow and expensive. Only one out of thousands of drug concepts and early trials actually makes it to market. On top of that even those that make it to market have to be recalled at times, resulting in major losers for drug companies. These reasons drive up drug costs.

Also, over the last decade the demand for prescription drugs has increased exponentially compared to the population.  This means that with the development of more medications, the demand for each drug rises.  With more treatments available it only makes sense that this will happen.  This increase in drug options has influenced pharmaceutical companies to compete and develop alternate options for their consumers – the patients.

The cost of drug research is also influenced by the types of prescriptions written.  Because most of the more popular medications are newer, they are also higher priced.  These newer, more expensive drugs often replace older, cheaper solutions.  With the development of these new drugs also comes price hikes in the retail sector.   

The cost of drug research is also affected significantly by advertising and marketing spend. After years of trying to create a drug and get approval to market to customer, pharma companies must go all out to convince customers of the benefits of the drug. Such propaganda often takes years of advertisements in mainstream channels to establish a drug in the market and recoup development costs. Substantial investments are made on marketing to the doctors and patients alike. These marketing schemes will directly affect patient demand and physician usage.  Along with branding of these drugs, patent laws also contribute to the cost.