That is not the case that the large drug companies sell for distribution + manufacturing cost. If that were the case, drugs would be essentially free in the rest of the world and they most certainly are not for brand names. In Canada the government sets the price. Here's a chart that's still relevant that shows prices in US/Canada/Mexico: http://cummings.house.gov/pdf/intl.pdf
The drug companies convince foreign governments to let them charge more because they say it costs a lot to develop the drugs. Other countries pay too. The US isn't the only one.
Obviously they're making a profit too. My point was that they determine prices for most of the world on a mass-production manufacturing basis, while for the US they also include recovering the research and testing costs. That's why we get charged more. (That, and because most of the drug costs are hidden behind the insurance system which helps them get away with this practice.)
"The drug companies convince foreign governments to let them charge more because they say it costs a lot to develop the drugs."
It's kind of funny that they say that, since they're effectively heavily subsidized by the US government -- because virtually all of the basic research in the US (and in the world) is funded by the US government. Pharmaceutical companies get to use the fruits of all that basic research for free.
Even accepting the premise that drug companies are dependent on all the basic research, it's but a tiny fraction of what goes into making an actual drug. Just because you know the basic biological reasons for a disease doesn't mean squat to making a chemical entity that you can give to a human being. The whole process of designing something that has actual efficacy while at the same time not injuring the patient is extremely expensive and difficult science and it almost never is done in an academic setting.
"it's but a tiny fraction of what goes into making an actual drug"
I think it's the other way around. To make drugs you have to know chemistry and biology (not to mention the dependence on various tools and techniques which have their origins in various materials sciences, electronics, math, statistics, etc), sciences which were and still are almost entirely based on and advanced by basic research. Without this knowledge, these tools, and these techniques the pharmacutical industry would be nowhere. Furthermore, many commercial drugs are based directly on discoveries made by researchers working in university settings and funded by the US government.
Of course, after all of that, the drug companies still do their own research and pay various fees to get the drugs on the market. So it's not like they contribute nothing to the process -- and obviously the process is still very expensive. But it doesn't erase the fact that the entire pharmaceutical industry is still effectively heavily subsidized by the US government.
Having spent over 8 years doing drug R&D I can tell you that it is most certainly not the other way around. The specific kind of chemistry you need to develop a drug (a discipline known as medicinal chemistry) is exclusively practiced inside pharmaceutical companies. The academic research in the field is paltry. Without a compound, all e basic bio in the world is useless.
By your logic though, aren't all technology companies subsidized by the federal government? Don't companies like Intel and IBM use various discoveries from academia to make their products? Aren't all software companies essentially benefitting from government funded research into computer networking, language design, etc... Where do you draw the line?
"Having spent over 8 years doing drug R&D I can tell you that it is most certainly not the other way around. The specific kind of chemistry you need to develop a drug (a discipline known as medicinal chemistry) is exclusively practiced inside pharmaceutical companies."
You still have to know basic organic and inorganic chemistry, and math and statistics. All fields to which the pharmaceutical industry contributes absolutely nothing.
"Without a compound, all e basic bio in the world is useless."
But many of the compounds pharmaceutical companies use are based directly and indirectly on breakthroughs in basic research. And that doesn't even begin to scratch the surface of the debt the pharmaceutical industry owes to the fundamental understanding of the human body (and that of animals) that came from basic research.
"By your logic though, aren't all technology companies subsidized by the federal government?"
Absolutely. There's a huge debt corporations the world over owe to the fruits of research funded almost exclusively by the government.
Some generic drugs cost literally pennies: http://en.wikipedia.org/wiki/Generic_drug#Economics
The drug companies convince foreign governments to let them charge more because they say it costs a lot to develop the drugs. Other countries pay too. The US isn't the only one.