By: Dana Goldman and Darius Lakdawalla
U.S. consumers spend roughly three times as much on drugs as their European counterparts, and 90 percent more as a share of income. Calculations using publicly available aggregate data suggest that the United States market accounts for 64 to 78 percent of worldwide pharmaceutical profits. These profits drive drug innovation that ultimately benefits patients around the globe. While American subsidies to innovation provide much-needed philanthropy to poor countries, patients in richer countries outside the United States would benefit longer-term if they financed a greater share of drug discovery. Using a previously published economic-demographic microsimulation, we estimate that if European prices were 20 percent higher, the resulting increased innovation would generate $10 trillion in welfare gains for Americans, and $7.5 trillion for Europeans over the next 50 years. Encouraging other wealthy countries to shoulder more of the burden of drug discovery — including higher prices for innovative treatments — would ultimately benefit patients in the United States and the rest of the world.