NCPA - National Center for Policy Analysis

Drug Company Profits Aren't Exorbitant

July 12, 2001

In a Washington Post op-ed, Marcia Angell, former editor of the New England Journal of Medicine, and Arnold Relman claim that drug companies' profits are exorbitant and are built on research from small biotech firms and the National Institutes of Health (NIH). However, the evidence shows otherwise, say other experts.

  • Although small biotech companies develop many new drugs, these companies would be unable to turn their research into a viable product without financial, scientific and marketing support from major pharmaceutical companies.
  • Angell and Relman minimize pharmaceutical companies' research by saying that much of it is spent on copycat products; however, variations of a drug are important -- as well as different drugs for the same purpose -- because of differences in patients' reaction to, and the varying effectiveness of, a particular formulation.
  • Furthermore, Frederick Goodwin, who ran an NIH lab, says he routinely collaborated with drug companies to get access to their unparalleled expertise in medicinal chemistry and drug synthesis.
  • And Duke University economist Henry Grabowski found that only 10 percent of drugs bring a profit; thus the drug companies' return on investment is only 9 percent.

Angell and Relman also claim that drug costs will soon eclipse doctors' payments as the second largest health expense (after hospital bills). However, government projects medication costs at 14.6 percent of health care spending in 2010, while estimated physician costs for the same year will be 20.5 percent.

Source: Frederick Goodwin and Robert Goldberg (senior fellow, National Center for Policy Analysis), "New Drugs: The Right Remedy," Washington Post, July 7, 2001.


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