Drug companies earn back R&D costs in short term and in developed countries

The US government, backed by the pharmaceutical industry, wants to convince Americans that they’re paying more for drugs because they’re contributing more than their fair share of the costs of research and development. Not so, argue two researchers who have looked at the evidence.

An article in the BMJ documents how drug companies earn back all their research and development (R&D) expenses each year in the research-oriented countries. This means that HIV/AIDS drugs and others can be priced to developing countries at manufacturing cost plus profits. Such prices are typically 5-10% of wholesale prices in the West. Another implication of the article is that the international patent protections that raise prices and extended high prices in countries that sign a U.S. Free Trade Agreement are unwarranted, because the rationale is (again) that pharmaceutical companies do not earn back their R&D costs at European prices and therefore must force higher prices through FTAs like the Central American FTA.

A forthcoming analysis will show that most of the funds worldwide for research to discover new drugs come from the public, not from industry. This has significant implications for policies on patents and setting priorities for research.” writes Donald Light,


Light DW, Lexchin J. Foreign free riders and the high price of US medicines. BMJ 2005;331:958-960 (22 October 2005)

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