Rethinking drug pricing: lessons for Kazakhstan

The pharmaceutical industry is not just about selling pills. It is a global investment system where every dollar spent signals the future of medicine. When patients in the United States pay more than twice as much for drugs as those in Europe or Asia, they are not only covering their own treatment. They are effectively financing the development of new medicines that later benefit millions of people worldwide. This is not about “corporate greed” or “American inefficiency.” It is an economic mechanism that makes innovation possible.

Pharmaceutical breakthroughs are a form of global public good. Just like defense or street lighting, their benefits extend beyond those who pay for them. Once a new molecule is discovered, the knowledge cannot be locked away. Patents only delay free access, but eventually generics spread it across the globe. The key question, then, is: who should pay to create this public good?

The numbers leave no doubt: the United States is carrying most of the load.

Unlike most countries, where governments negotiate and cap prices, the U.S. lets the market set them. Drug companies bargain directly with insurers, and for decades the government has avoided direct price controls. The Hatch-Waxman Act of 1984cemented this model. It granted pharmaceutical firms temporary monopolies through patents, letting them charge higher prices to recover research costs. Once patents expire, generics enter the market and prices collapse. But the first years of sales are crucial. They generate the quasi-rents – revenues above production costs that repay billions spent on research and failed trials.

The cost of bringing a new drug to market exceeds $3 billion. This figure includes lab research, preclinical and clinical trials that can stretch over a decade, regulatory approvals, marketing, doctor education, manufacturing, and distribution. And only 1 out of 10 candidate drugs succeeds. The other nine fail, but their costs must be covered by the one that makes it through. That is why drug prices are never just about manufacturing costs. They reflect the entire innovation pipeline – including failures.

According to RAND, U.S. brand-name drug prices are 2.3 times higher than the OECD average. But these higher prices fund global R&D. NBER estimates that the U.S. contributes $289–326 billion annually to pharmaceutical innovation. All other OECD countries combined contribute only $106–164 billion. That means America shoulders 66–73% of the global total.

Per capita numbers highlight the gap. In the U.S., each person effectively contributes $884–998 per year to pharmaceutical innovation. In Germany, the figure is 200–250; in Japan, 227–318; in the U.K., 160–180; in Canada, 209–286; in Switzerland, 264–354. In Mexico, Turkey, or Chile, it is less than 50. Americans invest nearly a thousand dollars per person, while most countries contribute just a fraction of that.

This imbalance mirrors military alliances. Large nations bear the burden, smaller ones free-ride. The U.S. is the locomotive. Japan, Germany, Switzerland, Canada, and the U.K. are mid-level contributors. Developing economies are passengers. Yet it is not pure free-riding. Many countries do pay more than production costs – typically 1.8–3 times higher. But it still falls short of the level needed for optimal global investment.

Economic models explain why. The Nash non-cooperative model shows that when countries act alone, each minimizes its spending, assuming others will pay. The result: underfunding. Value-based pricing links prices to health outcomes, but in practice, many countries still push prices close to cost. The bargaining model accounts for negotiations, where companies refuse to sell at very low prices but accept rates below monopoly levels. No matter the model, the outcome is the same: global pharmaceutical R&D remains underfunded.

And yet, the benefits are undeniable. Between 1990 and 2015, pharmaceutical innovation accounted for up to 35% of increased life expectancy in the U.S.. Every new drug benefits not only the country that pays for it but the world at large. Still, even U.S. spending is below potential. Americans value a year of quality-adjusted life (QALY) at over $200,000, while the average cost of innovative drugs is below $40,000 per QALY. In other words, the world is still investing less than it should.

This creates a political dilemma for America. On one side, it finances most global innovation. On the other, domestic frustration with high drug prices is growing. Insurers shift costs to premiums, patients struggle with affordability, politicians push for reform. But sharp price cuts would trigger a fall in global R&D. That means fewer new drugs, slower innovation, and worse health outcomes worldwide.

The U.S. is caught between being the world’s benefactor and its own citizens’ critic.

For Kazakhstan, this global reality has a direct lesson. Our domestic pharmaceutical market is small, heavily regulated, and priced at the lowest levels possible. This eases the burden on households but makes the market deeply unattractive for global pharma. No company invests in innovation where there is no return. That is why Kazakhstan receives new drugs late – and sometimes not at all.

To change course, the country must take bold steps:

1. Raise market value. Prices should not be locked at bare minimums. A sustainable margin is needed to attract developers.

2. Adopt value-based pricing. Pay more for truly innovative drugs that bring measurable health benefits, while keeping basic drugs affordable.

3. Develop clinical trial infrastructure. Kazakhstan could become a testing hub for Central Asia with simplified regulations, tax incentives, and university partnerships.

4. Build local R&D centers. This requires investor incentives, stable pricing policies, and integration with global research networks.

5. Position as a regional pharma hub. With the right policies, Kazakhstan could serve not only its own market but also neighbors, leveraging geography as an advantage.

6. Shift public perception. Higher drug prices are often seen as purely negative. But they are also an investment in the future. Cheap markets do not drive innovation. To ensure access to cutting-edge medicine tomorrow, the country must invest today.

The conclusion is clear. Kazakhstan must stop being a free rider and join the ranks of innovation donors. That means raising drug prices, adopting value-based pricing, building infrastructure, and becoming a regional hub. A cheap market will never attract R&D. Innovation follows investment. If Kazakhstan wants a healthier population, longer life expectancy, and a place in the global pharmaceutical landscape, it must rethink its pricing policy.