The US Pharmaceutical Industry: From Costs to Online Pharmacies and FDA

The American health care system cannot exist without the pharmaceutical industry. Even if it exists, it cannot perform on a proper level until it is thoroughly reformed. This huge and extremely profitable industry has occupied a dominant position in the life of Americans. This system uses enormous capital. As a result, its influence ensures a favorable state policy. With doctors’ tacit consent fostered by the pharmaceutical companies, this branch assigned the leading role in managing the treatment, clinical research and medical education in the USA.

Like most other commercial corporations, pharmaceutical companies are driven primarily by the financial interests of their investors and executives. This incentive is useful in distributing ordinary market goods. As prescription drugs are not ordinary goods as the pharmaceutical market is not like other markets. Failure in understanding this obvious circumstance gives rise to most of the serious problems associated with the pharmaceutical industry. All of these factors do affect the quality of medical care provided.Pharmaceutical Business in the USA

How does the US pharmaceutical industry perform?

For a better understanding of the pharmaceutical industry functioning, it is necessary to understand key concepts, such as new drugs’ discovery and their development. Drug discovery is the process by which potential drugs are opened or planned the discovery. In the past, most drugs appeared in the process of separating the active ingredients from traditional medications or as a result of accidental discoveries. Modern biotechnology focuses on the study of metabolic processes occurring during a particular disease or pathogenic conditions. Scientists use knowledge from molecular biology and biochemistry. Most of the early stages of new drugs’ discovery are traditionally carried out by universities and research organizations.

Drug development begins after its main components are identified. The object of development is the search for a suitable formula and dose, as well as drug safety. Such studies typically include in vitro and in vivo research, as well as clinical trials. Since the main stages of the development of new drugs require significant amounts of investment, this process is carried out by large pharmaceutical companies only.

Large multinational corporations often carry out vertical integration, working simultaneously in different segments from the search and new drugs’ development to their production, quality control, marketing, sales and distribution. Smaller companies often focus on specific aspects of the pharmaceutical industry, such as the development of individual medicinal ingredients or medicinal formulas.

The process of finding and developing new drugs is extremely capital-intensive. Only a small part out of all the medicinal ingredients studied goes through the stage of approval by state authorities and receives permission for use. The statistics show only 25 new drugs are approved for global market annually.

Such permission can be obtained only after a huge investment is made in preclinical development and clinical trials, as well as in the current drug safety monitoring. Part of the drugs cannot undergo this procedure. As a result, a company cannot get a refund of the money spent. If we take into account the costs of developing such drugs, the cost of developing one successful drug (including its marketing and distribution costs) can reach $2 billion. Such estimates are relative since they do not take into account regulatory costs, government subsidies, tax benefits and federal research grants. Therefore, the real costs of launching new drugs on the market can be significantly higher.

In the US, there are special rules for rare diseases, which cover less than 200 thousand people in the country. Since the cost of research and development of drugs against such diseases is extremely high and financially unprofitable to carry them out, the United States, in this case, stimulates pharmaceutical companies through tax breaks, subsidies and the provision of exclusive market access to such drugs for a certain limited time (usually 7 years), regardless of whether such drugs are protected by patents or not.

TOP 20 global pharmaceutical companies

Rank Company Name Location Turnover, $bln R&D turnover, $bln The volume of employment,(thousands of people)
1 Novartis Switzerland 53,3 7,1 138
2 Pfizer the USA 48,4 7,6 122,2
3 Bayer Germany 44,2 1,8 106,2
4 GlaxoSmithKline Great Britain 42,8 6,4 106
5 Johnson & Johnson the USA 37,0 5,3 102,7
6 Sanofi-Aventis France 35,6 5,5 100,7
7 Hoffmann-La Roche Switzerland 33,5 5,3 100,3
8 AstraZeneca Great Britain 26,5 3,9 50,0
9 Merck & Co the USA 22,6 3,9 74,3
10 Abbott Laboratories the USA 22,5 2,3 66,8
11 Wyeth the USA 20,3 3,1 66,7
12 Bristol-Myers Squibb the USA 17,9 3,1 60,0
13 Eli Lilly and Company the USA 15,7 3,1 50,0
14 Amgen the USA 14,3 3,4 48,0
15 Boehringer Ingelheim Germany 13,3 2,0 43,0
16 Schering-Plough the USA 10,6 2,2 43,0
17 Baxter International the USA 10,4 0,6 38,4
18 Takeda Pharmaceutical Co. Japan 10,3 1,6 15,0
19 Genentech the USA 9,2 1,8 33,5
20 Procter & Gamble the USA 8,9 unknown 29,3

The prevailing number of pharmaceutical companies from this top 20 rank is established and located in the United States of America. This country takes the leading place in the pharmaceutical industry.

Why are drug prices so high?

The research shows that the pharmaceutical industry of the USA justifies the costs and huge profits. The representatives make statements about the very high research and development costs required to release a new drug to the market. Most often, the staggering figure is $1.32 billion for the drug. According to data from independent review groups, 85% of new drugs are useless or have no advantages over existing ones. There is an opinion that the costs are overestimated to justify high prices and state protection from free market competition and large tax breaks.

Exaggerated estimates help to avoid high tax burdens. Finally, if we restrict the pharmaceutical industry, tragedy and national disaster will occur. Just imagine: a breakthrough in cancer treatment may happen soon, but we will not achieve it as some companies had to cut its development budget.

Watch the video conversation explaining why the prices for drugs so high:

Online pharmacy as one of the subtypes of the US pharmaceutical industry

Due to the high cost of prescription and non-prescription drugs, many Americans have faced a difficult choice between satisfying their need for medications and paying for basic necessities of life such as renting a room or buying products for proper nutrition. Often, because of the high rates of medications, many people neglect their use, which puts them at risk or at least reduces the overall effectiveness of other medications.

The latest research conducted by the Commonwealth Fund reported the following alarming statistics:

  • in 2012, about 50 million Americans, aged 19 to 64, did not take prescribed drugs because of its high rate;
  • in 2014, statistics showed 35 million people who refused taking medicine for the same reason;
  • in 2015, the number of Americans missing their medications decreased by another 12%.

What influenced such a positive trend?

It is assumed that the reason for such changes was several factors such as the creation of the Obamacare program, whose main task is to reform the health care system and protect patients, namely the introduction of a duty for US citizens to purchase health insurance if they are not insured (this provides subsidies to the poor citizens ). It is also devoted to improving the conditions of medical insurance of citizens who already have a policy. The second positive trend is online pharmacies in America which help people get the drugs they need.

Another factor is the role of international online pharmacies like PlanetDrugsDirect, Global Care RX, LandaCorp which appeared not so long ago and offer free access to medications of different drug categories.

Recently reports appeared that almost 65% of Americans rely on Canadian online pharmacies to buy the medications they need at a lower price. These are people who theoretically would not have access to the prescribed medication if they were unable to order medicines from these online traders.

Who controls the drugs’ release process in the USA?

The US Food and Drug Administration (FDA) is considered to be the master for state control of the quality of food, drugs, and medical products.

The FDA is one of the oldest and most reliable consumer protection services in America. Employees of this administration control the production, import, transportation, storage and sale of goods, the total cost of which is approximately $1 trillion annually. Of every dollar spent by residents of the country, 25 cents accounted for the goods, the quality of which the FDA controls. The maintenance of this organization costs each taxpayer $3 annually.

The FDA is invisibly present in the everyday life of every American and is responsible for the safety of food, cosmetics, drugs and medical equipment, as well as certain types of household appliances. In addition, the Office’s competence includes control of animal feed and drugs used in veterinary medicine. The FDA also ensures that all products are properly labeled containing information that guarantees their proper use.

The activities of the FDA are regulated by legislative acts, primarily the Federal Food, Drug and Cosmetic Act. This facility has approximately 9,000 employees, including 1,100 researchers and inspectors, who control almost 95,000 businesses and institutions in 157 US cities.

Posted in: Health Care