There are several reasons.
💊While government subsidizes some of R&D it is not the major portion of the costs to develop new drugs and get them to market; it’s expensive. It can take ten years to develop a new drug.
💊 The average time from FDA application to approval of drugs is 12 years, and the estimated average cost of taking a new drug from concept to market exceeds $1 billion.
💊 A new drug receives a patent for twenty years, but that starts with the invention of the drug not when sales begin which can take eight years more so the protection period is closer to twelve years … once there is a generic available brand sales drop by 80% or so.
💊 The patent protection referenced above causes drug companies to manipulate and tweak a drug to extend the patent period.
💊 While 84% of all drugs taken in the US are generic, some states limit substitution or require patient approval first (and there may be no cost sharing incentive to do so). Other states require substitution unless the physician states dispense as written. On the other hand, physicians have little incentive to prescribe a generic.
💊 Americans have a unhealthy demand for prescription drugs which supports the vast marketing/advertising that drug companies undertake which in turn drives more demand.
💊 For most Americans the out-of-pocket cost for a prescription is only a fraction of the true cost and thus limits the cost concern.
💊 Many foreign governments limit drug prices and limit the drugs available to patients. This puts greater pressure on prices in the US. Think of it as Medicare and Medicaid paying a fraction of the normal fee for a physician visit while the private sector makes up the difference.
💊 The supply chain for medication is complex and involves many players from manufacturer to pharmacy and thus makes it impossible to know the true fair price for a given drug. Everyone pays something different.
💊 Pharmaceutical profit margins vary widely, from less than zero to more than 40 percent, depending on the size of the company and whether it’s a powerhouse like Pfizer or Novartis or a startup still in the research and development phase. The average net profit margin for drug companies, including pharmaceuticals and biotech, was about 12.5 percent to 14 percent according to a January 2018 study by New York University’s Stern School of Business. But many companies have margins far greater than that. Gilead Sciences and Amgen are among the most profitable drug makers, with net margins of about 35 to 45 percent. Source: https://yourbusiness.azcentral.com/average-profit-margin-pharmaceuticals-20671.html
Compare that to the S&P 500 companies. As you can see the average for drug companies is not significantly out of line.
🍔🍟🍕🥓🥞🍪🧁🍺🥃🍩🧂🧀And then there is this from a pharmacist:
Americans, at least those I’ve dealt with, feel there is or should be a pill to cure everything and that keeping ” in shape ” was not necessary. When they find out differently it is the fault of the system or the greedy pharmaceutical industry . It exasperates me when a 350 lbs patient with diabetes bitches about the lack of a drug or the cost of it to control it without having to change their lifestyle when 30 minutes of exercise per day will do it. It’s part of our culture, always someone else’s fault.