How Much Can Pharma Lose?

How Much Can Pharma Lose?

Whenever policymakers consider approaches to reduce drug spending, the pharmaceutical industry sings a familiar refrain— any reduction in drug manufacturer revenues will cause investment to wither, depriving manufacturers of the resources needed to research and develop future treatments. The empirical validity of this argument has not, to our knowledge, been analyzed. In this analysis, we consider the historical level of returns on invested capital in the pharmaceutical industry and compare it to other industries; we then consider how much lower pharmaceutical industry revenues could be while maintaining returns at or above other industries. We find that large pharmaceutical manufacturers could endure significant revenue reductions, including the reductions considered in recent legislative proposals,1 while maintaining current research investments and still achieve the highest returns of any market sector.

Sean Dickson and Jeromie Ballreich

Westhealth Policy Center

December 2019

I didn't find this helpful.This was helpful. Please let us know if you found this article helpful.