Despite taxpayer subsidies, prescription drug prices are nonetheless increasing at an alarming rate. In 2019, price increases from drug manufacturers affected more than 3,400 drugs. For example, Allergan, a major pharmaceutical manufacturer, raised prices on 51 drugs, just more than half its portfolio. Some medications that Allergan manufactures saw a 9.5 percent jump in cost, while others saw a 4.9 percent increase in cost. Teva Pharmaceutical Industries Ltd., the largest generic drug manufacturer in the world, increased its drug prices by more than 9 percent These sharp increases in price occur as companies continue to report millions of dollars in revenue. In 2018, Allergan reported $15.8 million in revenue, while Teva Pharmaceuticals reported $18.8 million in revenue.

Pharmaceutical companies’ profit margins receive significant bumps when they launch new drugs, specifically specialty drugs, used to treat life-threatening conditions. These drugs often cost more than most Americans can afford. Pharmaceutical companies have stated that the prices are high because the drugs are difficult to manufacture. In 2013, for example, industry giant Gilead Sciences launched Sovaldi, a hepatitis C drug, at $1,000 per pill, or $84,000 per treatment, which could last 12 to 24 weeks. After an 18-month investigation into the company’s pricing, the Senate Finance Committee concluded that Gilead had pursued a marketing and pricing strategy designed to “maximize revenue with little concern for access or affordability.”

Drug companies also benefit from patents, which give them monopoly power for their on-patent products. These patents ensure that prices remain high by reducing competition. Drug patents last for 20 years after the filing date. Pharmaceutical companies have also employed tactics such as evergreening and thicketing to prolong a drug’s exclusivity. When evergreening, pharmaceutical companies make certain modifications to a drug such as changing its³⁵ chemical composition slightly or making an external change as minor as adding a stripe to a pill³⁶ in order to preserve their patents. A 2018 study in the Journal of Law and the Biosciences found that 78 percent³⁷ of new drug patents awarded in the past decade went to drugs that already existed. Seventy percent  of the nearly 100 bestselling drugs extended their exclusivity protections at least once, and 50 percent extended their patents more than once. The second tactic—thicketing—involves flooding the U.S. Patent and Trademark Office and the courts with excessive patents and applications to make it difficult for competing firms to secure patents. These tactics help preserve pharmaceutical companies’ monopolies and ensure that drug prices remain uncompetitive and thus less affordable for everyday Americans.

While consumers continue to pay the price of this market manipulation, a Government Accountability Office (GAO) report on the pharmaceutical industry found that these unfair practices are significantly enriching manufacturers. As the report stated, “Among the largest 25 companies, annual average profit margin fluctuated between 15 and 20 percent. The GAO contextualizes these profits by comparing the pharmaceutical industry’s profits with those of its counterparts, stating that “the annual average profit margin across non-drug companies among the largest 500 globally fluctuated between 4 and 9 percent.

n 2018 alone, the CEOs of major pharmaceutical companies Allergan, Johnson & Johnson, and Pfizer Inc. made a total of $90 million. Meanwhile, according to a CBS News report, Americans spent $535 billion on prescription drugs in 2018—an increase of 50 percent since 2010. As pharmaceutical industry profits increase⁴³, everyday Americans—whose tax dollars play a critical role in funding the research and development of these medications—are not receiving anything close to a fair return on their investment.