You're treating this as if it's a question of "fairness" to the drug companies, and it's not about that at all. If you could drive drug company profits to $0 with no collateral effects, it'd be unambiguously the right thing to do.
The question is, though, what does that do to the market? If you're an investor that has a billion dollars lying around, do you put it into drug development or social media? Both are highly risky, but the former is burdened by a regulatory regime that thinks companies in that sector should just "scrape by," while the latter has unlimited upside.
You're basically sending a signal to the market that the more valuable your business is to society, the less money you're going to make from engaging in it. That's ass backwards.
> Seriously, if drug companies were making a net loss in European and other countries, they'd just stop supplying in those countries and subsequently enjoy higher profits
They continue to sell in European countries because they don't make a marginal loss there. But if their revenue levels in the U.S. were at the level they are in Europe, they absolutely could not justify their enormous fixed costs.
> And prices the US pay are in no way related to what other countries pay: it's simply a function of market power and being in a much weaker bargaining position.
It's true that drug companies are in a much weaker bargaining position in European countries, but only because European governments exercise seller-side market power to artificially drive prices below what they would be in a market with many buyers and many sellers.
> I realise Pfizer (net income: $7.74 billion) and Merck & Co (net income: $4.44 billion)
Fun fact: Facebook's net income is about 30% higher than Pfizer's even though its total revenue is only about half. Obviously Facebook's product is much more valuable to the world and should be incentivized accordingly.