Why Does an $84,000 Drug in the U.S. Cost Less Than $1,000 in India

In my last two articles, I discussed the recent surge in prescription drug costs, the reasons for the surge, and possible solutions. In this article, I’ll discuss why drugs frequently cost so much more in the U.S. than they do in other countries, why this disparity may be justified, and where we go from here.?

These are a few examples of popular prescription drugs (and one device) that cost significantly more in the U.S. than in other countries:

• Sovaldi (a breakthrough treatment for hepatitis C) cost $84,000 for a 12-week course when it was initially launched in the U.S. In contrast, the same treatment is available in other countries, such as India, for less than $1,000.?
• Humira (used for treating autoimmune diseases like rheumatoid arthritis and Crohn’s disease) is one of the highest-grossing drugs globally. In the U.S., the average annual cost of Humira can exceed $77,000, while in countries like Canada and the UK, the same medication is usually available for $25,000-$30,000 annually.?
• Epipen (a life-saving device for treating severe allergic reactions) can cost as much as $600 for a two-pack in the U.S., while the same product is often available for less than $100 in other countries.?
• Insulin (essential for managing diabetes) can cost upwards of $400 for a monthly supply in the U.S., while monthly supplies in other countries usually cost $30-$50. The monthly cost was recently capped at $35 for Medicare beneficiaries (through the Inflation Reduction Act), but this cap does not apply to individuals with private insurance or without insurance, and insulin costs are not always reduced for Medicaid recipients.?
• Cymbalta (an antidepressant and nerve pain medication) can cost more than $300 a month in the U.S., while the same medication is available for about $30 in Germany and other developed countries.
• Ozempic / Wegovy (and other GLP-I drugs that are primarily indicated for diabetes and weight loss) generally cost $900-$1,200 per month in the U.S. while costing $200-$400 per month in countries like Canada and the UK.?

Reasons for the Disparity

There are many reasons for the disparity between prescription drug prices in the U.S. and those in many other countries. These are the main ones:?

1. Lack of Government Price Regulation: Unlike many other countries that negotiate drug prices with manufacturers directly or impose price ceilings, the U.S. largely allows pharmaceutical companies to set prices based on what the market will bear.?
2. Market Exclusivity and Patent Protections: Pharmaceutical companies often benefit from extensive patent protections that grant exclusive rights to manufacture and sell a drug for a certain period, usually 20 years. During this period, companies can set high prices without competition from generics or biosimilars. This exclusivity can be extended through various means, including minor modifications to the drug’s formula or delivery method, allowing companies to maintain high prices even after the initial patent expires.
3. High Research and Development Costs: The pharmaceutical industry often cites the high costs associated with research and development (R&D) as a justification for their pricing strategies. While it is true that developing new drugs can be a long and expensive process, critics argue that the actual costs are often overstated. Furthermore, many companies invest heavily in marketing and advertising, which can drive up prices without corresponding increases in R&D.
4. Complex Pricing Structures: The pricing of drugs in the U.S. is often opaque and convoluted, involving multiple stakeholders, including pharmacy benefit managers (PBMs), insurers, and wholesalers. This complexity can lead to inflated prices that do not reflect the actual costs of developing, manufacturing, distributing and marketing the drug. The negotiation between stakeholders often results in higher list prices, with discounts and rebates that may not benefit the end consumer.
5. Consumer Willingness to Pay: The U.S. healthcare system operates on a model where consumers often have insurance that covers a significant portion of their drug costs, thus masking the actual cost of drugs and leading to a lack of price sensitivity. This allows pharmaceutical companies to set higher list prices, knowing that many patients will not feel their full impact.
6. Lobbying and Political Influence: The pharmaceutical industry wields significant political influence in the U.S. through lobbying efforts and campaign contributions. This influence can shape legislation that favors drug manufacturers, such as preventing the importation of cheaper drugs from other countries or limiting government negotiations on drug prices. As a result, policies that could lead to lower prices are often stalled or blocked.
7. Global Pricing Strategies: Pharmaceutical companies often implement differential pricing strategies based on the buying power of different countries. In wealthier countries like the U.S., pharmaceutical companies charge higher prices to maximize profits, while they may offer the same drugs at reduced prices in lower-income countries and/or countries where they must negotiate with single government payers.
8. Limited Competition: In many therapeutic categories, there are few competitors, allowing existing manufacturers to maintain high prices without fear of losing market share. Even when generics and biosimilars become available, the transition can be slow due to regulatory hurdles and the complex nature of drug development. In addition, branded drug manufacturers may exploit loopholes in U.S. patent laws that allow them to extend patent protection or engage in "pay-for-delay" agreements, where they pay generic manufacturers to delay the entry of less expensive alternatives into the market.

Why Not Regulate Prices?

In addition to the fact that price regulation is fundamentally antithetical to our free-market system, there are at least two other good reasons why we have not thus far taken radical steps to control drug prices in the ways they are controlled in many other countries. The first reason is that our free-market approach has consistently produced many more breakthrough drugs than any other country. This is a result of multiple factors, including the following:

• Research and Development Investment: The U.S. invests heavily in biomedical research, with substantial funding from both government entities (like the National Institutes of Health) and private sector companies.
• Innovative Ecosystem: The U.S. has a robust ecosystem that includes universities, research institutions, and biotech firms, fostering innovation and collaboration in drug development.
• Venture Capital: The availability of venture capital in the U.S. supports startups and biotech companies in the early stages of drug development, enabling them to bring new therapies to market.
• Regulatory Environment: The U.S. Food and Drug Administration (FDA) has established processes that can expedite the approval of breakthrough therapies, encouraging pharmaceutical companies to invest in innovative drugs.
• Intellectual Property Protection: Strong patent laws in the U.S. provide incentives for companies to invest in research and development, helping to ensure they can profit from their innovations.
• Market Size: The large and wealthy U.S. market creates a strong financial incentive for pharmaceutical companies to develop new drugs, as successful drugs can generate significant revenues.

The second reason for not regulating prices is that the pharmaceutical industry is a major part of the U.S. economy, generating more than $700 billion in annual sales ($600 billion more than the pharmaceutical industry in the second-ranked country) and supporting more than 4 million jobs. In addition, prescription drugs are a significant export category, representing 10-15 percent of all U.S. exports while showcasing America’s innovative capabilities in ways that save and improve lives globally.?

Where Do We Go From Here?

The combination of high and rapidly rising drug prices and the obvious disparity between what many drugs cost in the U.S. and what they cost in other countries has made government intervention all but inevitable, and it is already happening.

The Inflation Reduction Act authorized Medicare to negotiate the prices of a limited number of drugs directly with their manufacturers, and it capped annual drug costs for Medicare beneficiaries at $2,000. In addition, the Biden administration recently funneled billions of dollars from a Medicare trust fund under a “demonstration” program to offset Medicare Part D premium increases that otherwise would have occurred in 2025.

And while the Republicans generally favor more market-based solutions—including the importation of drugs from other countries and increased price transparency—reducing drug costs in the U.S. has become one of the few bi-partisan issues.?

Former President (and President-elect) Donald Trump has said, “We are taking on the drug companies, and we are going to lower the prices of prescription drugs. We’re going to make it possible for patients to get the medications they need at a price they can afford.”

In addition, Congress has been investigating the practices of Pharmacy Benefit Managers (PBMs), and the Federal Trade Commission recently filed a lawsuit against the three largest PBMs, as I reported in my most recent article.

Congress also has been investigating how pharmaceutical companies may be manipulating patent laws to extend their market exclusivity and delay the entry of lower-cost generic and biosimilar drugs. This practice often involves strategies such as:

• Evergreening: Making minor modifications to existing drugs (like changing the formulation or delivery method) to obtain new patents and extend exclusivity.
• Patent Thickets: Filing numerous patents on a single drug to create a complex web that makes it difficult for generic manufacturers to navigate.
• Pay-for-Delay Agreements: Settlements where brand-name drug manufacturers pay generic competitors to delay the release of their products.

While each of the cost reduction initiatives mentioned in this section has some merit, the challenge will be to reign in prescription drug costs without removing all of the financial incentives that have helped to make our domestic pharmaceutical industry a world leader and critical part of the U.S. economy. This will be a tough balance to achieve, but it appears that all stakeholders recognize the urgent need for it to occur.?? ?

Respectfully yours,

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