Pharma 101: A Primer

August 6, 2019

Pharma 101 (pdf)

The pharmaceutical industry is a behemoth. The global market for pharmaceuticals reached $1.2 trillion in 2018.[1] Just one product—AbbVie’s Humira—had almost the same amount of sales that year as Southwest Airlines.[2] The U.S. accounts for more than 40 percent of the market ($485 billion). Brand-name drugs represent just 10 percent of U.S. prescriptions but nearly 80 percent of spending.[3]

At its core, the brand-name business model is simple. The pharmaceutical industry uses government-funded research to help develop products that are protected by government-granted monopolies to sell to the government and other purchasers for exorbitant profits. To protect the rules tilted in its favor, the industry funnels enormous sums of money into political contributions and lobbying, employing more lobbyists than there are members of Congress.[4] It also uses charitable contributions and patient assistance programs to influence patient groups that might otherwise dissent.[5]

This primer provides an overview of the pharmaceutical industry (see attached PDF). It uses sofosbuvir (Sovaldi), a cure for hepatitis C, as a case-study.[6] In 2014, Gilead set the price of drug at $1000 a pill, or $84,000 for a course of treatment, sparking outrage and ushering in a new era of exorbitant drug prices.

Key Messages

1.      Privatizing Gains from Public Research: How Pharma Develops Drugs (Page 2)

  • Public funding plays a substantial role in the research and development of medicines
  • U.S. taxpayers are compensated by being charged the highest prices in the world

2.      Abusing Monopoly Pricing Power: The Sale of Brand-Name Drugs (Page 3)

  • The central problem is the drug corporation’s ability to set high monopoly launch prices
  • Drug corporations increase prices for existing medicines, typically twice a year
  • Drug corporations protect their ability to price-gouge by extending monopoly privileges

3.      Generic Competition Lowers Prices (Page 6)

  • Low-cost generic medicines have saved the health care system more than $1 trillion
  • Making medicines affordable requires increasing government negotiating power, blocking price spikes, and curbing monopoly abuse
  • We can go further by elevating the public’s role in research and development

[1] IQVIA, The Global Use of Medicine in 2019 and Outlook to 2023. https://tinyurl.com/yxptt9c9

[2] Humira had sales of $19.9 billion, compared to Southwest Airlines’ $22.0 billion. Axios, https://tinyurl.com/yc33ktm8

[3] IQVIA, Global / US Generics and Biosimilars: Trends, Issues and Outlook (2019), https://tinyurl.com/yysqatqy

[4] Open Secrets, Pharmaceutical Industry, https://www.opensecrets.org/lobby/induscode_lobs.php?id=H4300&year=2018

[5] See Public Citizen, Analysis Finds Misleading Claims About Patient Support in Letter Opposing Efforts to Reduce Prescription Drug Prices (finding that half the patient groups signing letter opposing Medicare Part D negotiation received industry financial support), https://tinyurl.com/y3moa9xl

[6] Truvada as PrEP—an HIV prevention drug used by less than 10 percent of those at-risk for HIV—provides another compelling case-study. See Public Citizen, Letter for the Record of House Oversight Committee Hearing on HIV Prevention Medication (2019), https://tinyurl.com/y4oojgyy. See also, PrEP4All, Break the Patent, https://breakthepatent.org/