Price Gouging in the Pharmaceutical Industry

Authored by Ankitha Kasavaraju, Policy Analysis & Management '26

Art by Frieda Nemon, Biological Sciences '25

It is no surprise that healthcare has turned into a business. This is especially true for the pharmaceutical industry that supplies patients with life-saving medication they need. Despite having the lives of individuals in their hands, the pharmaceutical industry continues to put profits above human life. While Biden’s Inflation Reduction Act seems to inspire some humanity in the field, it is important to see what institutional practices have allowed drug companies to reach this point and what can now be done to refrain from making these practices continue.

It should first be noted that drug discovery is a lengthy, expensive process. On average, it takes around ten years and around $985 million to bring a drug to the market [1, 2]. While the enormous cost of developing drugs would seemingly deter companies from investing in new medication, the patent system allows companies to recoup their costs and sell with a higher margin. As of now, the drug patents last for 20 years, giving companies the intellectual property protection to avoid competitors in the market that would bring costs down [3]. While this fairly allows companies the protection they need to recoup their investment, they can continue to extend their patents for long periods of time after the initial 20 years in a process termed ‘evergreening.’ Through ‘evergreening,’ companies are allowed to uphold their patent by creating a ‘new’ compound. In reality however, the new drug is a slightly tweaked version of their original compound [4]. Lack of competitors to reduce costs for patients enables price hikes, causing some of the ridiculous costs seen on our pharmacy bills.

Through ‘evergreening,’ even common treatments like insulin have higher costs than what is seen in other countries such as Canada. In 2018, the average American spent five times more than the average Canadian on insulin, and undergone a 10% increase in insulin costs compared to an only .01% increase of insulin in Canada [5].

However, there does seem to be some hope,Biden’s Inflation Reduction act being the catalyst. After stating the $35 cap for Medicare beneficiaries on their insulin costs, and the penalties to companies that raise prices faster than the rate of inflation, there seems to be some change in the industry. Recently, Insulin manufacturing leaders such as Eli Lily have stated that they are reducing the costs of their products by around 70% [6]. Their product Humalog, for example, has been cut from $275 to $66, a remarkable reduction, but one still extraordinarily high compared to when it was first released. Estimates even indicate that a vial of insulin costs less than $7 to produce, demonstrating continued price gouging of large companies like Eli Lilly, Sanofi, and Novo Nordisk, the leading insulin producers [7].

The argument over patent legislation and about who should be negotiating prices have sparked numerous debates about the future of healthcare. Many argue that weakening patent protections or allowing the U.S. to negotiate drug prices would stall innovation and depreciate the health of future generations, while others argue that this may influence investors in other ways. Mayo Clinic oncologist, Dr. Vincent Rajkumar, for instance, points that innovation may lead to a state where compounds with high potential, such as drugs with less side effects that extend human lifespans, would receive more attention, compared to incrementally beneficial drugs [8]. Despite conflicts about the best strategy to reduce the powers of big pharma, that human life should be put first and foremost, a concept that pharmaceutical companies have seemed to have lost touch with. Biden’s new legislation and Eli Lily’s subsequent announcements, however, point in a better direction, one where existence is not at the expense of corporate greed.

Works Cited

1. PhRMA. (2015). Pharmaceutical research and Manufacturers of America. PhRMA. Retrieved March 4, 2023, from http://phrma-docs.phrma.org/sites/default/files/pdf/rd_brochure_022307.pdf

2. Wouters, O. J., McKee, M., & Luyten, J. (2020, March 3). Estimated research and development investment needed to bring a new medicine to market, 2009-2018. JAMA. Retrieved March 3, 2023, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054832/

3. Center for Drug Evaluation and Research. (2020). Frequently asked questions on patents and exclusivity. U.S. Food and Drug Administration. Retrieved March 3, 2023, from https://www.fda.gov/drugs/development-approval-process-drugs/frequently-asked-questions-patents-and-exclusivity#:~:text=Patent%20terms%20are%20set%20by,the%20duration%20of%20a%20patent.&text=3

4. Collier, R. (2013, June 11). Drug patents: The evergreening problem. CMAJ : Canadian Medical Association journal = journal de l'Association medicale canadienne. Retrieved March 3, 2023, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3680578/

5. Schneider, T., Gomes, T., Hayes, K. N., Suda, K. J., & Tadrous, M. (2022, February 9). Comparisons of insulin spending and price between Canada and the United States. Mayo Clinic Proceedings. Retrieved March 3, 2023, from https://www.mayoclinicproceedings.org/article/S0025-6196(21)00883-1/fulltext

6. Luciano, L., & Novak, A. (2023, March 2). Eli Lilly is cutting insulin prices by 70% and capping customers' costs. but for some the changes come too late. CBS News. Retrieved March 3, 2023, from https://www.cbsnews.com/news/insulin-price-reduction-eli-lilly-for-some-changes-come-too-late-rationing/

7. Robbins, R. (2023, March 1). Eli Lilly says it will cut the price of insulin. The New York Times. Retrieved March 3, 2023, from https://www.nytimes.com/2023/03/01/business/insulin-price-cap-eli-lilly.html

8. Allen, A. (2022, August 15). Big pharma went all in to kill drug pricing negotiations. Kaiser Health News. Retrieved March 3, 2023, from https://khn.org/news/article/big-pharma-oppose-drug-pricing-negotiations-history/