June 27, 2025

Public Citizen Comment to USTR re: “Foreign Nations Freeloading on American-Financed Innovation”

Pursuant to Executive Order 14297, “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” the Office of the U.S. Trade Representative requested comments “regarding any act, policy, or practice that may be unreasonable or discriminatory or that may impair United States national security and that has the effect of forcing American patients to pay for a disproportionate amount of global pharmaceutical research and development, including by suppressing the price of pharmaceutical products below fair market value in foreign countries.”

Drug spending in the U.S. has increased astronomically over the last 20 years. In 2023, the U.S. spent nearly $450 billion on retail prescription drugs—an increase of over 150% compared to 2003.^[1] Treatment rationing due to high prices is a daily reality throughout the world. In the U.S., three-in-ten people report not taking their medicines as prescribed at some point in the past year due to cost.^[2] Other countries have also seen prescription drug spending and prices rise.^[3] If, as some observers have proposed,^[4] other countries increased spending on brandname pharmaceuticals to meet U.S. levels, including by raising prices, this could result in other countries spending on average 16% of total health expenditure on prescription drugs—7% more than the proportion of health expenditure that the U.S. spends on prescription drugs.^[5]

Considering the burden that high drug prices impose on patients and payers, it is important to understand the drivers of high drug prices in the U.S. to ensure that any proposed solution delivers concrete relief to Americans—over 80% of whom view profits made by pharmaceutical companies as a major factor contributing to the price of prescription drugs.^[6]

Drivers of high drug prices

High price patented drugs account for the vast majority of prescription drug spending in the U.S. (87% in 2023), despite these accounting for less than 10% of all prescriptions.^[7] Patents and other government-granted exclusivities insulate products from competition, undergirding manufacturers’ ability to set high prices. Additionally, pharmaceutical prices are influenced by a buyer’s willingness to pay and pricing regulations in a market.^[8] Unlike other countries with mechanisms to moderate prices of patented drugs, the U.S. leaves monopoly-protected prices largely unchecked, resulting in comparatively high prices.^[9] In other words, pharmaceutical companies charge higher prices in the U.S. because they can, not to offset lower prices abroad.

In the absence of measures to mitigate prices at market entry, drug corporations have steeply increased their launch prices in the U.S. In 2024, the median launch price for a new drug was over $370,000, double what it had been four years earlier.^[10] Similarly, because the U.S. does not restrict manufacturers’ ability to increase prices post-launch, the U.S. sees regular price hikes^[11]—between 2022 and 2023, among drugs with price increases, changes in list prices averaged out to an additional $590 per product, driven by increases in already expensive medicines.^[12]

There is currently no relationship between drug prices in the U.S. and those in other countries. There is no reason to believe that raising prices abroad will lead to lower prices in the U.S.

The U.S. Department of Commerce’s International Trade Administration (ITA) came to the same conclusion. In a 2004 study on drug pricing, ITA found that deregulating prices overseas would not be expected to reduce prices in the U.S.^[13]ITA explains its finding as follows:

“Given the current structure of the U.S. market for both innovative medicines and for generic pharmaceuticals, deregulating prices overseas is unlikely to reduce prices in the United States in the short term. The rationale for this conclusion is relatively straightforward and lies in the basic characteristics of the industry. […] once a new drug is launched on the market, the nature of pharmaceutical markets and economic theory suggest that prices in one market will behave relatively independent of prices in other markets, absent the more fundamental changes in the competitive forces operating in those markets.”

ITA goes on to note that manufacturers have significant pricing power due to patents and that they “segment and price discriminate among markets so as to charge profit-maximizing prices in each market.” The Congressional Budget Office (CBO) and others similarly find that, given market segmentation and pharmaceutical company profit-maximization strategies, prices in one market are not impacted by prices in other markets.^[14]

Pharmaceutical industry arguments further support the conclusion that companies will maintain their existing profit-maximizing approach. When drugmakers advocate for deregulation of pricing, they assert that this will increase revenue, which they argue allows for greater R&D investment.^[15] The industry generally does not assert that deregulating prices in certain markets will lead to lower drug prices in other markets. Moreover, the pharmaceutical industry frequently characterizes U.S. prices as representing “fair market value,” underscoring that the industry will seek to maintain high U.S. prices. Importantly, because prices are set under monopoly conditions, prices in the U.S. do not represent “fair market value” but again reflect companies’ unregulated power to set prices as high as the market will bear.

In addition to the inherently anti-competitive nature of pricing for patent-protected products that enables excessive prices, drugmakers also employ tactics to further impede competition, keeping drug costs high. A Federal Trade Commission study found that one tactic to stifle generic competition (called “pay-for-delay” deals) costs Americans $3.5 billion annually.^[16] Another analysis showed that patent abuses among the first ten drugs selected for Medicare drug price negotiation will have cost Medicare between $4.9 and $5.4 billion by the time negotiated prices take effect by virtue of inappropriately delaying price-lowering competition.^[17] President Trump identifies the need to combat anti-competitive practices in his executive orders on drug pricing.^[18] Once a brand name drug’s patent-based monopoly ends, robust generic competition can reduce prices by as much as 70–80%, resulting in substantial cost savings.^[19]

R&D spending does not justify excessive prices

A drug’s R&D cost bears no relationship to its ultimate price. According to the CBO, “when drug companies set the prices of a new drug, they do so to maximize future revenues … the costs already incurred in developing that drug—do not influence its price.”^[20]

A congressional investigation into the pricing of Gilead Sciences’ hepatitis C drug Sovaldi (sofosbuvir) and its successor Harvoni (sofosbuvir/ledipasvir) found that Gilead’s pricing decisions were based on profit maximization strategies, not R&D costs or affordability concerns.^[21] Gilead acquired sofosbuvir when it purchased the drug’s original developer, Pharmasset. Pharmasset performed the majority of the R&D for the drug and projected a sales price of $36,000 per treatment regimen in the U.S., with the price not expected to exceed $50,000.^[22] After acquiring Pharmasset, Gilead set the ultimate price at $84,000 per treatment regimen. The company then went on to price Sovaldi’s successor at $94,500 per regimen. The investigation concluded that “[a] key consideration in Gilead’s decision-making process to determine the ultimate price of Sovaldi was setting the price such that it would not only maximize revenue, but also prepare the market for Harvoni and its even higher price.”

Pharmaceutical companies often claim exorbitant prices are needed to sustain or recoup R&D investments, but this is not borne out by evidence. Research finds that R&D investments are much lower than pharmaceutical companies suggest. According to a recent study, the median direct R&D cost for a new drug is $150 million^[23]—over 17 times less than common costs cited by industry.^[24] Even after adjusting for failures and other costs, the same study finds that R&D costs are over 3.5 times less than industry numbers.

Additionally, pharmaceutical companies continue to charge high prices regardless of returns compared to R&D spending. For example, the manufacturers of popular GLP-1 drugs used to treat diabetes and obesity continue to set U.S. prices far above those in other countries despite earning well in excess of even the most generous estimates of R&D costs. In fact, both Eli Lilly (which manufactures tirzepatide—marketed as Mounjaro and Zepbound for type 2 diabetes and obesity, respectively) and Novo Nordisk (which manufactures semaglutide—marketed as Ozempic and Wegovy for diabetes and obesity, respectively) earned more from sales of their GLP-1 products than they spent on R&D across their entire portfolio in 2024.^[25]

The vast majority of company revenues are not spent on R&D. Research finds that top drug companies receive 163% of their global R&D costs from just the excess revenue generated in the U.S., underscoring that these companies earn well beyond their R&D spending and cannot reasonably justify high U.S. prices with R&D outlays.^[26] The pharmaceutical industry frequently prioritizes enriching shareholders over investing in R&D, further showing that U.S. prices are not simply contributing to global R&D or innovation. Top pharmaceutical corporations often spend more elevating stock prices through buybacks and paying dividends to shareholders than they spend investing in R&D.^[27]

Moreover, paying higher drug prices is an inefficient, and in many cases ineffective, way to pay for innovation. Pharmaceutical companies’ R&D investments are not necessarily innovative—the majority of new drugs that come to market are minor variations on existing medicines and offer no significant clinical benefit over previously available options.^[28] Companies also often fail to prioritize investments in disease areas seen as less profitable, despite public need.^[29] Where private companies fail to invest, public funding drives innovation forward. In the U.S., the National Institutes of Health (NIH) plays a critical role in basic research and drug development. Research finds that the NIH contributed to research associated with every new drug approved from 2010-2019 and that 19% of drugs containing a new molecular entity approved by the U.S. Food and Drug Administration over a 10-year period had origins in publicly supported R&D and 6% originated in companies spun off from a publicly supported research program.^[30] Despite these contributions that undergird innovation and de-risk private sector investments, the lack of pricing regulations and safeguards leave drugmakers free to nonetheless charge the U.S. the highest prices in the world.

Recommendations to address the root causes of high drug prices and fund global R&D

Historically, the U.S. has used trade policy and trade agreements to press for policies that lengthen pharmaceutical monopolies abroad and enable higher drug prices.^[31] At no point has this resulted in lower prices in the U.S. To address the drug affordability crisis in America, the U.S. must rein in prices at home.

The U.S. government should advance policies to address anticompetitive practices that keep drug prices high, including by targeting patent thickets, pay-for-delay patent settlements, and filing spurious citizen petitions.

The administration should also work with Congress to strengthen and expand existing law already estimated to result in $98.5 billion in savings through 2031.^[32] Previously proposed legislation provides a blueprint to expand Medicare drug price negotiations and inflation rebates to provide yet billions more in savings. It does so by establishing an international reference price ceiling for negotiated prices, providing access to negotiated prices to patients with commercial insurance, and including commercial sales in inflation rebate calculations, among other measures.^[33]

Instead of funding innovation through the inefficient and indirect means of exclusivities and high prices, policymakers should consider other mechanisms—such as grants and prizes—to incentivize private sector investment and help deliver products at affordable prices.^[34] Just last year, a congressional appropriations bill with bipartisan support proposed a National Academies of Sciences, Engineering, and Medicine study on the feasibility of alternative mechanisms for stimulating R&D investment.^[35]

Given the critical contributions of public funding to drug research and development, the U.S. and other countries should prioritize these investments. To that end, a global R&D convention could encourage coordination across countries and help broaden contributions to global innovation, including expected percentages of GDP, through greater direct R&D investment.^[36]

References

^[1] https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical

^[2] https://www.kff.org/health-costs/poll-finding/public-opinion-on-prescription-drugs-and-their-prices/

^[3] https://www.euronews.com/health/2024/10/16/surging-drug-costs-straining-european-national-budgets-health-insurers-warn; https://www.healthsystemtracker.org/chart-collection/how-do-prescription-drug-costs-in-the-united-states-compare-to-other-countries/

^[4] https://www.fiercepharma.com/pharma/nato-medicines-pfizer-ceo-calls-higher-drug-spending-outside-us-amid-trumps-mfn

^[5] U.S. level of spending is based on prescription drug expenditure as a percentage of GDP. Comparator country estimate is based on 2021 OECD data on prescription drug spending across 19 countries.

^[6] https://www.kff.org/health-costs/poll-finding/public-opinion-on-prescription-drugs-and-their-prices/

^[7] https://www.healthaffairs.org/doi/10.1377/hlthaff.2024.01375

^[8] https://www.cbo.gov/publication/58793 (“Manufacturers maximize their global revenue by charging different prices in different market segments, depending on the demand characteristics of those segments. Those demand characteristics reflect differences both in buyers’ willingness to pay and in the regulations affecting prices in various markets.”).

^[9] https://jamanetwork.com/journals/jama/article-abstract/2545691

^[10] https://www.reuters.com/business/healthcare-pharmaceuticals/prices-new-us-drugs-doubled-4-years-focus-rare-disease-grows-2025-05-22/

^[11] https://www.npr.org/sections/shots-health-news/2025/01/14/nx-s1-5250174/drug-prices-rise-drugmakers

^[12] https://aspe.hhs.gov/sites/default/files/documents/e24f630a33f0a0585337c65745904487/aspe-drug-price-tracking-brief.pdf

^[13] https://web.archive.org/web/20190414170009/https://2016.trade.gov/td/health/DrugPricingStudy.pdf, at 33–4.

^[14] https://www.cbo.gov/system/files/2024-10/58793-rx-drug-prices.pdf (“Manufacturers maximize their global revenue by charging different prices in different market segments, depending on the demand characteristics of those segments. … Differences in drug prices paid in different countries in part reflect that market segmentation, as do differences in prices paid by various purchasers within the United States.”).

^[15] See, e.g., PhRMA, https://phrma.org/resources/phrma-special-301-submission-2025 (“Ending damaging pricing policies in these markets and others could add billions of dollars to research and development for new medicines and lower overall health care costs in the United States and around the world.”) (Arguing that the pharmaceutical industry will take the increased revenue generated from increased prices and invest those revenues in R&D that will lead to new drugs. They argue that this will ultimately lead to a lower burden on health systems, reducing overall health costs.).

^[16] https://www.ftc.gov/news-events/topics/competition-enforcement/pay-delay

^[17] https://www.citizen.org/article/using-the-inflation-reduction-act-to-rein-in-patenting-evergreening-abuses/

^[18] https://www.whitehouse.gov/presidential-actions/2025/05/delivering-most-favored-nation-prescription-drug-pricing-to-american-patients/; https://www.whitehouse.gov/presidential-actions/2025/04/lowering-drug-prices-by-once-again-putting-americans-first/

^[19] https://aspe.hhs.gov/sites/default/files/documents/510e964dc7b7f00763a7f8a1dbc5ae7b/aspe-ib-generic-drugs-competition.pdf; https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/generic-competition-and-drug-prices

^[20] https://www.cbo.gov/publication/57126

^[21] https://www.finance.senate.gov/ranking-members-news/wyden-grassley-sovaldi-investigation-finds-revenue-driven-pricing-strategy-behind-84-000-hepatitis-drug

^[22] https://www.finance.senate.gov/imo/media/doc/1%20The%20Price%20of%20Sovaldi%20and%20Its%20Impact%20on%20the%20U.S.%20Health%20Care%20System%20(Full%20Report).pdf, at 17–20.

^[23] https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2828689

^[24] https://www.phrma.org/policy-issues/research-development

^[25] https://www.sec.gov/ix?doc=/Archives/edgar/data/353278/000162828025003920/nvo-20241231_d2.htm#fact-identifier-477; https://www.sec.gov/ix?doc=/Archives/edgar/data/0000059478/000005947825000067/lly-20241231.htm#fact-identifier-320

^[26] https://www.healthaffairs.org/content/forefront/r-d-costs-pharmaceutical-companies-do-not-explain-elevated-us-drug-prices

^[27] https://www.citizen.org/article/profits-over-patients/