Drugmakers actually sell their products for about half off list price.

The answer is that there is a big difference between “list prices” for pharmaceutical drugs and “net prices” that are actually paid to the manufacturer in the United States.

Unbeknown to the general public, drug manufacturers actually sell their products for about half-off their list price.

Across five drug companies that publicly reported 2019 list and net price changes for their U.S. product portfolios - Eli Lilly, Janssen, Merck, Novartis, and Sanofi - the weighted average brand-name portfolio had list-price discounts of -44% to -57%. The unweighted average discount off list was 51%, i.e., half price.

And discounts from list prices have been deepening. According to Merck’s 2019 US Pricing Transparency Report, average discount rate went from 27% in 2010 to 44% in 2019 – a 60% increase. The drugmaker did increase prices in 2020 on about 15 drugs, including diabetes medicines Januvia and Janumet, mostly around 5%. The list price of its top-selling cancer immunotherapy Keytruda was increased by 1.5%.

Drugmakers earn substantially less revenue than a drug's list prices imply. A drug’s net price equals its list price minus all rebates, discounts, and fees. These explain why net drug prices can decline even as list prices continue to grow in America.