The Truth Behind Big Pharma's Spending

The price of name-brand drugs in the United States has been a hot topic of conversation for many years. However, the problem is now much worse than it has ever been before. The prices that some companies are charging for their drugs are now so expensive that even people with a decent income will have trouble affording them if they ever need to buy them in the future. This issue received a massive amount of media attention during the scandal involving Turing Pharmaceuticals in September of 2015. This is when the company decided to raise the price of Daraprim from $13.50 to $750 for a single pill. This particular drug helps to combat infections from parasites that frequently occur in people who are suffering from AIDS. Needless to say, there was widespread outrage over the price increase. The company took a beating from the media.

Presidential candidates Donald Trump, Bernie Sanders and Hillary Clinton all publicly voiced their displeasure regarding the actions of Turing. In fact, a tweet sent out by Clinton referred to Turing’s actions as “price gouging” and she was credited with causing the Nasdaq biotechnology index to fall by nearly five percent. It is not surprising that Martin Shkreli, the Chief Executive Officer of Turing, began taking a large amount of heat from the national media. He quickly became the poster child for everything that is currently wrong with the pharmaceutical industry. However, price gouging has existed as a Big Pharma standard practice for many years. The enormous greed of pharmaceutical companies has created added attention to these price increases.

The United States does not have any regulations when it comes to the prices that pharmaceutical companies can charge for drugs that they currently hold a patent on. They have a monopoly on any particular drug they have patented. Therefore, they can legally charge any price they want. In 2015, the cost of prescription drugs that were under patent increased by 16 percent. These patented drugs now cost twice as much as they did only five years ago. However, generic drugs experienced a 20 percent drop during the past year.

Big Pharma has defended itself for making outrageous increases in the price of their drugs by claiming that they are necessitated by the cost of research and development. This has been their primary defense ever since the industry started to take heat because of their frequent price gauging. However, a closer look at the expenditures of some major pharmaceutical companies shows that this is simply not the case. For example, 19 companies in the pharmaceutical industry used 97 percent of their net income for the purpose of buying back shares and paying dividends. Buybacks are a technique that Big Pharma uses to increase the value of company shares. CEOs throughout this industry make a large percentage of their income through buybacks. Amgen, Merck, Pfizer and Johnson & Johnson were among the 19 companies that were involved in using the vast majority of their net income for buybacks and dividends instead of research and development.

None of the previously mentioned pharmaceutical companies can match Gilead when it comes to price gouging and lining its CEO’s pockets at the same time. From 2006 to 2015, Gilead spent the unimaginable sum of $27 billion specifically to buy back shares. This sum is roughly 60 percent more than the company’s entire research and development expenditures during that same period of time. Meanwhile, Gilead CEO John Martin took home $193 million in 2014 alone. Unfortunately, the fact that the prices of patented drugs are not regulated in the United States means this problem will only continue to get worse.

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