With the recent success of the blockbuster drug Sovaldi© (Gilead Sciences, Inc.), the manufacturer’s stock price has quintupled in the last four years. This supports the views of some that pharmaceutical prices in America should be subject to greater government scrutiny and controls like other industrialized countries.
High profits within the pharmaceutical industry are nothing new. “Historically [before the recent recession], the drug industry in America has been the top performing [sector] in terms of return on revenues (average 18.6%) and return on assets (average 17.7%) compared to 4.9% and 3.9% respectively for median companies in the Fortune 500 industries.”
The extremely high costs of drug research and development (R&D) are often cited as the principal rationale for allowing an above average return and minimizing government price controls. However, studies have shown that “[as t]o the question of whether pharmaceutical drugs costs are justified by R&D, the answer is no. Pharmaceutical firms do indeed invest money in R&D, as do other production and service firms, but this investment does not account for their large ongoing profit, which ranges from 2.5 to 37 times the non-pharmaceutical industry average over time.”
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