Pharmaceutical companies justify their prices based on an argument about the need for innovation and research, but research only accounts for about 17% of cost in drug manufacturing in America. A study on this matter was conducted by Peter Bach, a researcher at Memorial Sloan Kettering, on the 20 top-selling drugs in America.

Through their extensive research, "they found that the cumulative revenue from the price difference on just these 20 drugs more than covers all the drug research and development costs conducted by the 15 drug companies that make those drugs — and then some." Their numbers indicate that the revenue after the cost of research — totaling $80 billion a year — was an additional $40 billion which drug companies kept for profit. That's $40 billion in profit in one year from just the top 20 drugs sold in America.

However, there's evidence that leads researchers to believe pharmaceutical companies are inflating the amount they spend on research and development (convenient, since that's the number they use to justify their exorbitant prices).

A study from the Boston University School of Public Health found that pharmaceutical companies were actually overstating the amount they spend on research and development. While many companies boasted spending 18-20% of revenue on research and development, Socolar and Sager (the researchers on the study) found that the real number is closer to 11%.

To add insult to injury, Socolar and Sager found that overall, pharmaceutical companies were spending as much as three times that amount on marketing. They were literally spending three times their R&D costs just to market the drugs so they could turn a profit. By that logic, American consumers aren't paying for innovation … they're paying for marketing.

Given this information, it's relatively safe to say that hiking up drug prices under the guise of “innovation” doesn't justify the cost to consumers. Instead, when you look closely, the profit margin is grossly higher than the cost of research and development. And those profits seem to be pocketed by pharmaceutical and insurance companies.

Pharmaceutical CEOs are making tens of millions of dollars each year, literally. In the meantime, the companies themselves are bringing in tens of billions. If it were a matter of paying for research and development, why are CEOs taking home so much money and if their drugs are so innovative, why do they have to spend three times their R&D costs to convince doctors and patients to buy them?