Pills and Profits: How drug companies make a killing out of public research

October 2017

UK taxpayers and patients worldwide are being denied the medicines they need, despite the public sector playing a pivotal role in the discovery of new medicines. The UK government is the second largest funder country, after the US, for research and development (R&D) in diseases that predominantly affect poor countries. Across all areas of health R&D, the UK government spent £2.3 billion on health R&D in 2015 alone. Globally, it is estimated that the public pays for two-thirds of all upfront drug R&D costs, with around a third of new medicines originating in public research institutions. On top of this, many medicines developed by pharmaceutical companies are often built upon a large body of scientific work undertaken and paid for by the tax payer.

This report illustrates that even when the UK government has funded a substantial proportion of the R&D for innovative medicines, there is no guarantee of an equitable public return on this public investment. That is to say, no guarantee that patients in the UK and beyond will be able to access the medicine at an affordable price, and be able to make use of the data, knowledge, and technologies generated in the research process.

In many cases, the UK taxpayer effectively pays twice for medicines: first through investing in R&D, and then by paying high prices for the resulting medicine once ownership has been transferred to a private company. The NHS spent more than £1bn last year alone on medicines developed with significant reliance on UK public research funding, while two of the five most expensive medicines for the NHS were developed in large part with UK publicly funded research.

The commercialisation of these discoveries by pharmaceutical companies has generated huge private profits from public funds. This situation is enabled by a global system of intellectual property rights that provide time-limited monopolies to companies, allowing them to charge high prices for products with relatively low production costs.

Pharmaceutical companies claim that these high prices are needed to provide a commercial incentive for them to undertake further R&D for new medicines. But when the public purse is funding a large proportion of this R&D, the justification for monopoly pricing is hard to sustain. Moreover, pharmaceutical companies consistently spend more on sales and marketing than on R&D for new medicines. Many companies also spend disproportionately more on shareholder dividends and buying back their own shares to artificially boost their share price than they spend on R&D.

The high prices of new medicines are unsustainable for an already underfunded NHS, and put these treatments completely beyond the reach of patients in developing countries.

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