Drug prices in the United States are extraordinarily high by global standards. It is not uncommon for the same pharmaceutical product to cost two to ten times more in the U.S. than in other developed countries. For example, insulin, essential for diabetes treatment, sells for five to ten times the price in the United States compared to Canada and European countries. This situation poses serious problems for many Americans, leading to household financial strain from medical expenses and situations where people cannot afford necessary medications. Why have drug prices in the U.S. escalated to such levels? This article analyzes the complex structural factors behind this phenomenon.
International Drug Price Disparities: The Case of Novo Nordisk’s Obesity Medications
The disparity in drug prices between the United States and other countries is particularly evident in the obesity treatment medication market. The international price differences for obesity treatment drug Wegovy (semaglutide 2.4mg) and diabetes treatment drug Ozempic (semaglutide 1.0mg), developed by Danish pharmaceutical company Novo Nordisk, have become emblematic examples of America’s drug pricing problem.
Price Comparisons Between the U.S. and Other Countries
According to 2024 data, a one-month supply of Ozempic costs approximately $969 (about ¥150,000) in the United States, while it is sold significantly cheaper in other countries:
| Country | Price (USD) | Ratio to U.S. Price |
|---|---|---|
| United States | $969 | 1.0× (baseline) |
| Canada | $155 | 1/6× |
| Denmark | $122 | 1/8× |
| France | $71 | 1/14× |
| Germany | $59 | 1/16× |
Similar disparities are observed for the more expensive obesity treatment drug Wegovy:
| Country | Price (USD) | Ratio to U.S. Price |
|---|---|---|
| United States | $1,349 | 1.0× (baseline) |
| Canada | $265 | 1/5× |
| Denmark | $186 | 1/7× |
| Germany | $137 | 1/10× |
| United Kingdom | $82 | 1/16× |
These price disparities are reflected in Novo Nordisk’s revenue structure. According to an investigation by the U.S. Senate Committee on Health, Education, Labor, and Pensions (HELP Committee), 72% of the company’s approximately $50 billion in sales from these products is generated from the U.S. market. In other words, the United States, representing less than 5% of the world’s population, supports the majority of global profits from these medications.
Disconnect from Manufacturing Costs
Research indicates that the actual manufacturing cost of Ozempic is less than $5 per month, highlighting a stark disparity from its U.S. selling price. In response to such high pricing, Congressional investigations were conducted, and in January 2025, Ozempic and Wegovy were selected as subjects for Medicare drug price negotiations under the Inflation Reduction Act.
This situation highlights problems with the U.S. pharmaceutical pricing system and raises questions about pharmaceutical companies’ justification of “recovering research and development costs.” At the same time, it poses a social problem where access to effective treatment for obesity, a modern health challenge, is limited by price.
1. Political Factors and Lobbying Activities
The pharmaceutical industry is one of the most politically influential industries in the United States. Industry organizations such as PhRMA (Pharmaceutical Research and Manufacturers of America) spend hundreds of millions of dollars annually on lobbying activities.
This political influence has contributed to maintaining policies that limit drug price regulation and government price negotiations. For example, the Medicare “non-interference clause” mentioned earlier is widely recognized as having been introduced and maintained as a result of the industry’s powerful lobbying efforts.
2. The “Fog of Fear” Strategy and Pharmaceutical Company Revenue Structures
A strategy exists in the pharmaceutical industry called the “Fog of Fear.” This is a tactic that dampens reform momentum by emphasizing threats such as “reduced R&D investment,” “innovation stagnation,” and “delayed access to new drugs” in response to price regulation and transparency improvement initiatives.
In reality, many global pharmaceutical companies are heavily dependent on the U.S. market in their revenue structures. The U.S. market, where identical pharmaceuticals are sold at two to ten times the prices in other developed countries, has become the largest profit source for global pharmaceutical companies. Approximately 40-45% of global pharmaceutical sales are generated from the U.S. market, and some argue that this “U.S. premium” supports research and development activities worldwide.
However, analysis of actual corporate finances reveals that many major pharmaceutical companies spend more on marketing and shareholder returns than on research and development, suggesting that high U.S. drug prices are not necessarily proportionally returned to pure research and development activities.
3. Market-Based Pricing Systems
The most fundamental factor behind high U.S. drug prices lies in a pricing system that differs from other developed countries. While governments in many developed countries actively engage in pharmaceutical price negotiation or regulation, pharmaceutical companies in the United States can essentially set prices freely.
Medicare (public health insurance for seniors) was legally prohibited from negotiating drug prices until the passage of the Inflation Reduction Act (IRA) in 2022. This “non-interference clause” explicitly stipulated that “the Secretary of Health and Human Services shall not interfere in negotiations between pharmaceutical manufacturers and pharmacies and prescription drug plan sponsors.” This system has resulted in the following outcomes:
Pharmaceutical companies can set “the highest price the market will bear.” During patent protection periods, they maintain a virtually monopolistic position. Complex pricing structures are formed through individual negotiations with insurance companies and Pharmacy Benefit Managers (PBMs).
As a result, international price disparities exist even for identical pharmaceuticals. For example, according to a RAND Corporation study, the average U.S. insulin price is $98.70 per unit, which is 5-10 times higher than developed countries such as Canada ($12.00), the United Kingdom ($7.52), and France ($9.08). The disparity is particularly pronounced for rapid-acting insulin, with an average U.S. price of $119.36 compared to $8.19 in other OECD countries.
Recent Regulatory Changes
The Inflation Reduction Act of 2022 marked a historic shift in U.S. drug pricing policy by granting Medicare the authority to negotiate prices for certain high-cost drugs. The first round of negotiations concluded in August 2024, with Medicare securing price reductions for ten drugs, including blood thinners, diabetes medications, and cancer treatments. These negotiated prices took effect on January 1, 2026.
The second cohort of drugs subject to negotiation was announced in February 2025, expanding to include 15 additional high-expenditure Medicare drugs, including Ozempic and Wegovy as mentioned above. This represents a significant policy evolution from the previous non-interference approach, though the program remains limited in scope compared to price regulation systems in other developed countries.
4. Research and Development Costs and Patent Systems
The pharmaceutical industry is one that requires massive investment in new drug development. Research confirms that between 2009 and 2018, U.S. pharmaceutical companies spent an average of approximately $1 billion to bring a single new drug to market. Additionally, only a few percent of candidate compounds that begin development actually receive approval as pharmaceuticals.
The U.S. patent system provides 20 years of patent protection for new drugs to encourage such high-risk investment. However, since patent applications are typically filed during the early stages of clinical trials, the actual market exclusivity period is approximately 12-14 years. During this period, pharmaceutical companies can set prices without competition, and they tend to set high prices to recover research and development costs and secure funding for future research.
Furthermore, pharmaceutical companies use a strategy called “evergreening,” where they obtain new patents for drugs with minor improvements, effectively extending the exclusivity period. Through this strategy, they can make minor modifications to existing drugs, obtain new patents, and substantially extend the 20-year protection period.
5. Regulatory Environment and Approval Processes
The new drug approval process by the U.S. Food and Drug Administration (FDA) is rigorous, requiring detailed clinical trial data to ensure safety and efficacy. While this stringent regulation enhances pharmaceutical safety, it also increases the time and cost to approval.
Additionally, various barriers exist regarding generic drug market entry:
Patent litigation causing entry delays. “Pay-for-delay” settlements between brand-name drug manufacturers and generic manufacturers. Complex approval requirements for biosimilars (biologic follow-on products).
In the “pay-for-delay” method, brand drug manufacturers pay generic manufacturers in exchange for delaying market entry. Since 2005, 142 brand drugs have been reported to have delayed competition through this method.
These factors tend to prolong pharmaceutical monopolies in the United States and restrict price competition. For biological drugs, regulatory and practical barriers regarding biosimilar approval and market penetration are even more complex, limiting opportunities for cost reduction.
6. Marketing and Advertising Expenses
The United States is the only developed country that extensively permits Direct-to-Consumer Advertising (DTCA) of prescription drugs. Pharmaceutical companies market medications directly to consumers through television commercials, magazine advertisements, and other media.
According to a 2022 survey, U.S. pharmaceutical companies spent approximately $6.5 billion on television advertising alone. This is not an insignificant amount and is believed to ultimately be added to drug prices. However, from a global perspective, pharmaceutical industry research and development (R&D) investment reached approximately $276 billion in 2021, about three times the sales and marketing expenditure (approximately $96 billion). U.S.-based companies in particular reinvest 34% of revenue in R&D, a higher proportion than European companies (22%) or Asian/Pacific companies (20%).
Thus, while marketing expenses do not exceed R&D costs for the industry as a whole, individual companies may allocate more resources to marketing. In any case, direct-to-consumer advertising unique to the United States is one factor pushing up drug prices.
7. Complex Distribution Systems and the Presence of Intermediaries
The U.S. pharmaceutical distribution system is extremely complex, with many intermediaries involved. In particular, organizations called Pharmacy Benefit Managers (PBMs) stand between insurance companies and pharmacies and have a significant impact on drug prices.
PBMs function as administrators processing prescription drug claims on behalf of “payers” (employers, municipalities, labor unions, health insurance plans, etc.) and fulfill the following roles:
They negotiate prices between insurance companies and pharmaceutical companies. They manage prescription drug coverage (formularies). They operate rebate (refund) systems.
The problem is that this system is extremely opaque. A Texas state report showed that 16 PBMs retained 29% ($227.5 million) of rebates and fees paid by pharmaceutical companies. The fact that only a portion of such rebates is returned to insurance companies or patients undermines drug price transparency and contributes to rising final pharmaceutical costs.
Additionally, consolidation has progressed in the industry, with reported situations of close relationships between major PBMs and major insurance companies or pharmacy chains.
Recent PBM Reform Initiatives
In response to growing concerns about PBM practices, regulatory scrutiny has intensified. In 2024, the Federal Trade Commission (FTC) filed a lawsuit against the three largest PBMs—CVS Caremark, Express Scripts, and OptumRx—alleging that their business practices artificially inflated insulin prices. This enforcement action represents the federal government’s most aggressive stance against PBM market concentration to date.
Additionally, several states have enacted legislation to increase PBM transparency and regulate their practices. These reforms include requirements for disclosure of rebate retention, restrictions on spread pricing (where PBMs charge payers more than they reimburse pharmacies), and prohibitions on certain anticompetitive practices.
8. Balancing Innovation Promotion and Profits
Advocates of the current U.S. system argue that high drug prices are the driving force behind innovation. Indeed, many of the world’s new drugs are developed in the United States, and the U.S. pharmaceutical and biotech industry leads globally.
However, critics point out that high drug prices do not necessarily translate directly to innovation. Much groundbreaking research is supported by government funding (such as the National Institutes of Health, NIH), and critics argue that a significant portion of pharmaceutical companies’ R&D spending is directed toward marketing and M&A (mergers and acquisitions).
Conclusion
High drug prices in the United States are not the result of a single factor but rather a complex interplay of market structure, regulatory environment, political factors, and other elements. While balancing access to pharmaceuticals with promoting innovation is not easy, the challenge is to build a more sustainable pharmaceutical pricing system through improved system transparency and appropriate government involvement.
The current situation, where the U.S. market occupies an overwhelming position in global pharmaceutical company revenue structures, ironically also has aspects where patients in other countries benefit. Many developed countries, including Japan, have functioning government price controls, but some point out that the high revenues in the U.S. market exist in the background making this possible. However, this structural imbalance is unsustainable in the long term, and mechanisms for more equitable research and development cost sharing should be explored internationally.
By learning from the experiences of the United States and other developed countries, it is important to seek a balanced approach that promotes pharmaceutical research and development while reducing patients’ economic burden. Beyond the “Fog of Fear,” evidence-based calm discussion and policy formation are required.
Looking Forward: Recent Policy Developments (2024-2026)
The landscape of U.S. drug pricing policy has undergone significant changes in the past two years. The implementation of the Inflation Reduction Act’s Medicare negotiation provisions represents the most substantial reform in decades. The initial success of the first round of negotiations, which achieved average price reductions of 38-79% for the ten selected drugs, has demonstrated the potential impact of government price negotiation.
Furthermore, increased scrutiny of PBM practices and the FTC’s enforcement actions signal a new era of regulatory oversight. State-level reforms continue to proliferate, creating a patchwork of varying requirements that pharmaceutical companies and PBMs must navigate.
However, challenges remain. The scope of Medicare negotiation is limited to a small number of drugs, leaving the vast majority of pharmaceuticals outside direct price controls. The complex interplay between innovation incentives, access to care, and cost containment continues to generate intense policy debate.
International pressure is also mounting for a more equitable distribution of pharmaceutical R&D costs. As other countries maintain effective price controls while benefiting from innovations largely funded by U.S. consumers, questions about the sustainability and fairness of this arrangement persist.
The path forward requires careful calibration: maintaining robust incentives for pharmaceutical innovation while ensuring that lifesaving medications remain accessible to those who need them. This balance is not unique to the United States but represents a global challenge that will require coordinated international approaches, evidence-based policymaking, and a willingness to learn from the diverse experiences of different healthcare systems worldwide.
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