The Truth About the Drug Companies 
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20 y
3,387
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The Truth About the Drug Companies
By Marcia Angell
1.
Every day Americans are subjected to a barrage of advertising by the pharmaceutical industry. Mixed in with the pitches for a particular drug—usually featuring beautiful people enjoying themselves in the great outdoors—is a more general message. Boiled down to its essentials, it is this: "Yes, prescription drugs are expensive, but that shows how valuable they are. Besides, our research and development costs are enormous, and we need to cover them somehow. As 'research-based' companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care. You are the beneficiaries of this ongoing achievement of the American free enterprise system, so be grateful, quit whining, and pay up." More prosaically, what the industry is saying is that you get what you pay for.
Is any of this true? Well, the first part certainly is. Prescription drug costs are indeed high—and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999).[1] Drugs are the fastest-growing part of the health care bill—which itself is rising at an alarming rate. The increase in drug spending reflects, in almost equal parts, the facts that people are taking a lot more drugs than they used to, that those drugs are more likely to be expensive new ones instead of older, cheaper ones, and that the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.
Before its patent ran out, for example, the price of Schering-Plough's top-selling allergy pill, Claritin, was raised thirteen times over five years, for a cumulative increase of more than 50 percent—over four times the rate of general inflation.[2] As a spokeswoman for one company explained, "Price increases are not uncommon in the industry and this allows us to be able to invest in R&D."[3] In 2002, the average price of the fifty drugs most used by senior citizens was nearly $1,500 for a year's supply. (Pricing varies greatly, but this refers to what the companies call the average wholesale price, which is usually pretty close to what an individual without insurance pays at the pharmacy.)
Paying for prescription drugs is no longer a problem just for poor people. As the economy continues to struggle, health insurance is shrinking. Employers are requiring workers to pay more of the costs themselves, and many businesses are dropping health benefits altogether. Since prescription drug costs are rising so fast, payers are particularly eager to get out from under them by shifting costs to individuals. The result is that more people have to pay a greater fraction of their drug bills out of pocket. And that packs a wallop.
Many of them simply can't do it. They trade off drugs against home heating or food. Some people try to string out their drugs by taking them less often than prescribed, or sharing them with a spouse. Others, too embarrassed to admit that they can't afford to pay for drugs, leave their doctors' offices with prescriptions in hand but don't have them filled. Not only do these patients go without needed treatment but their doctors sometimes wrongly conclude that the drugs they prescribed haven't worked and prescribe yet others—thus compounding the problem.
The people hurting most are the elderly. When Medicare was enacted in 1965, people took far fewer prescription drugs and they were cheap. For that reason, no one thought it necessary to include an outpatient prescription drug benefit in the program. In those days, senior citizens could generally afford to buy whatever drugs they needed out of pocket. Approximately half to two thirds of the elderly have supplementary insurance that partly covers prescription drugs, but that percentage is dropping as employers and insurers decide it is a losing proposition for them. At the end of 2003, Congress passed a Medicare reform bill that included a prescription drug benefit scheduled to begin in 2006, but as we shall see later, its benefits are inadequate to begin with and will quickly be overtaken by rising prices and administrative costs.
For obvious reasons, the elderly tend to need more prescription drugs than younger people—mainly for chronic conditions like arthritis, diabetes, high blood pressure, and elevated cholesterol. In 2001, nearly one in four seniors reported that they skipped doses or did not fill prescriptions because of the cost. (That fraction is almost certainly higher now.) Sadly, the frailest are the least likely to have supplementary insurance. At an average cost of $1,500 a year for each drug, someone without supplementary insurance who takes six different prescription drugs—and this is not rare—would have to spend $9,000 out of pocket. Not many among the old and frail have such deep pockets.
Furthermore, in one of the more perverse of the pharmaceutical industry's practices, prices are much higher for precisely the people who most need the drugs and can least afford them. The industry charges Medicare recipients without supplementary insurance much more than it does favored customers, such as large HMOs or the Veterans Affairs (VA) system. Because the latter buy in bulk, they can bargain for steep discounts or rebates. People without insurance have no bargaining power; and so they pay the highest prices.
In the past two years, we have started to see, for the first time, the beginnings of public resistance to rapacious pricing and other dubious practices of the pharmaceutical industry. It is mainly because of this resistance that drug companies are now blanketing us with public relations messages. And the magic words, repeated over and over like an incantation, are research, innovation, and American. Research. Innovation. American. It makes a great story.
But while the rhetoric is stirring, it has very little to do with reality. First, research and development (R&D) is a relatively small part of the budgets of the big drug companies—dwarfed by their vast expenditures on marketing and administration, and smaller even than profits. In fact, year after year, for over two decades, this industry has been far and away the most profitable in the United States. (In 2003, for the first time, the industry lost its first-place position, coming in third, behind "mining, crude oil production," and "commercial banks.") The prices drug companies charge have little relationship to the costs of making the drugs and could be cut dramatically without coming anywhere close to threatening R&D.
Second, the pharmaceutical industry is not especially innovative. As hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH). The great majority of "new" drugs are not new at all but merely variations of older drugs already on the market. These are called "me-too" drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, we now have six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, and the newest, Crestor) on the market to lower cholesterol, all variants of the first. As Dr. Sharon Levine, associate executive director of the Kaiser Permanente Medical Group, put it,
If I'm a manufacturer and I can change one molecule and get another twenty years of patent rights, and convince physicians to prescribe and consumers to demand the next form of Prilosec, or weekly Prozac instead of daily Prozac, just as my patent expires, then why would I be spending money on a lot less certain endeavor, which is looking for brand-new drugs?[4]
Third, the industry is hardly a model of American free enterprise. To be sure, it is free to decide which drugs to develop (me-too drugs instead of innovative ones, for instance), and it is free to price them as high as the traffic will bear, but it is utterly dependent on government-granted monopolies—in the form of patents and Food and Drug Administration (FDA)–approved exclusive marketing rights. If it is not particularly innovative in discovering new drugs, it is highly innovative— and aggressive—in dreaming up ways to extend its monopoly rights.
And there is nothing peculiarly American about this industry. It is the very essence of a global enterprise. Roughly half of the largest drug companies are based in Europe. (The exact count shifts because of mergers.) In 2002, the top ten were the American companies Pfizer, Merck, Johnson & Johnson, Bristol-Myers Squibb, and Wyeth (formerly American Home Products); the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place).[5] All are much alike in their operations. All price their drugs much higher here than in other markets.
Since the United States is the major profit center, it is simply good public relations for drug companies to pass themselves off as American, whether they are or not. It is true, however, that some of the European companies are now locating their R&D operations in the United States. They claim the reason for this is that we don't regulate prices, as does much of the rest of the world. But more likely it is that they want to feed on the unparalleled research output of American universities and the NIH. In other words, it's not private enterprise that draws them here but the very opposite—our publicly sponsored research enterprise.
Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself. (Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions.)
If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), "It's not like buying a car or tennis shoes or peanut butter." People need to know that there are some checks and balances on this industry, so that its quest for profits doesn't push every other consideration aside. But there aren't such checks and balances.
2.
What does the eight-hundred-pound gorilla do? Anything it wants to.
What's true of the eight-hundred-pound gorilla is true of the colossus that is the pharmaceutical industry. It is used to doing pretty much what it wants to do. The watershed year was 1980. Before then, it was a good business, but afterward, it was a stupendous one. From 1960 to 1980, prescription drug sales were fairly static as a percent of US gross domestic product, but from 1980 to 2000, they tripled. They now stand at more than $200 billion a year.[6] Of the many events that contributed to the industry's great and good fortune, none had to do with the quality of the drugs the companies were selling.
The claim that drugs are a $200 billion industry is an understatement. According to government sources, that is roughly how much Americans spent on prescription drugs in 2002. That figure refers to direct consumer purchases at drugstores and mail-order pharmacies (whether paid for out of pocket or not), and it includes the nearly 25 percent markup for wholesalers, pharmacists, and other middlemen and retailers. But it does not include the large amounts spent for drugs administered in hospitals, nursing homes, or doctors' offices (as is the case for many cancer drugs). In most analyses, they are allocated to costs for those facilities.
Drug company revenues (or sales) are a little different, at least as they are reported in summaries of corporate annual reports. They usually refer to a company's worldwide sales, including those to health facilities. But they do not include the revenues of middlemen and retailers.
Perhaps the most quoted source of statistics on the pharmaceutical industry, IMS Health, estimated total worldwide sales for prescription drugs to be about $400 billion in 2002. About half were in the United States. So the $200 billion colossus is really a $400 billion megacolossus.
The election of Ronald Reagan in 1980 was perhaps the fundamental element in the rapid rise of big pharma—the collective name for the largest drug companies. With the Reagan administration came a strong pro-business shift not only in government policies but in society at large. And with the shift, the public attitude toward great wealth changed. Before then, there was something faintly disreputable about really big fortunes. You could choose to do well or you could choose to do good, but most people who had any choice in the matter thought it difficult to do both. That belief was particularly strong among scientists and other intellectuals. They could choose to live a comfortable but not luxurious life in academia, hoping to do exciting cutting-edge research, or they could "sell out" to industry and do less important but more remunerative work. Starting in the Reagan years and continuing through the 1990s, Americans changed their tune. It became not only reputable to be wealthy, but something close to virtuous. There were "winners" and there were "losers," and the winners were rich and deserved to be. The gap between the rich and poor, which had been narrowing since World War II, suddenly began to widen again, until today it is a chasm.
The pharmaceutical industry and its CEOs quickly joined the ranks of the winners as a result of a number of business-friendly government actions. I won't enumerate all of them, but two are especially important. Beginning in 1980, Congress enacted a series of laws designed to speed the translation of tax-supported basic research into useful new products—a process sometimes referred to as "technology transfer." The goal was also to improve the position of American-owned high-tech businesses in world markets.
The most important of these laws is known as the Bayh-Dole Act, after its chief sponsors, Senator Birch Bayh (D-Ind.) and Senator Robert Dole (R-Kans.). Bayh-Dole enabled universities and small businesses to patent discoveries emanating from research sponsored by the National Institutes of Health, the major distributor of tax dollars for medical research, and then to grant exclusive licenses to drug companies. Until then, taxpayer-financed discoveries were in the public domain, available to any company that wanted to use them. But now universities, where most NIH-sponsored work is carried out, can patent and license their discoveries, and charge royalties. Similar legislation permitted the NIH itself to enter into deals with drug companies that would directly transfer NIH discoveries to industry.
Bayh-Dole gave a tremendous boost to the nascent biotechnology industry, as well as to big pharma. Small biotech companies, many of them founded by university researchers to exploit their discoveries, proliferated rapidly. They now ring the major academic research institutions and often carry out the initial phases of drug development, hoping for lucrative deals with big drug companies that can market the new drugs. Usually both academic researchers and their institutions own equity in the biotechnology companies they are involved with. Thus, when a patent held by a university or a small biotech company is eventually licensed to a big drug company, all parties cash in on the public investment in research.
These laws mean that drug companies no longer have to rely on their own research for new drugs, and few of the large ones do. Increasingly, they rely on academia, small biotech startup companies, and the NIH for that.[7] At least a third of drugs marketed by the major drug companies are now licensed from universities or small biotech companies, and these tend to be the most innovative ones.[8] While Bayh-Dole was clearly a bonanza for big pharma and the biotech industry, whether its enactment was a net benefit to the public is arguable.
The Reagan years and Bayh-Dole also transformed the ethos of medical schools and teaching hospitals. These nonprofit institutions started to see themselves as "partners" of industry, and they became just as enthusiastic as any entrepreneur about the oppor-tunities to parlay their discoveries in-to financial gain. Faculty researchers were encouraged to obtain patents on their work (which were assigned to their universities), and they shared in the royalties. Many medical schools and teaching hospitals set up "technology transfer" offices to help in this activity and capitalize on faculty discoveries. As the entrepreneurial spirit grew during the 1990s, medical school faculty entered into other lucrative financial arrangements with drug companies, as did their parent institutions.
One of the results has been a growing pro-industry bias in medical research —exactly where such bias doesn't belong. Faculty members who had earlier contented themselves with what was once referred to as a "threadbare but genteel" lifestyle began to ask themselves, in the words of my grandmother, "If you're so smart, why aren't you rich?" Medical schools and teaching hospitals, for their part, put more resources into searching for commercial opportunities.
Starting in 1984, with legislation known as the Hatch-Waxman Act, Congress passed another series of laws that were just as big a bonanza for the pharmaceutical industry. These laws extended monopoly rights for brand-name drugs. Exclusivity is the lifeblood of the industry because it means that no other company may sell the same drug for a set period. After exclusive marketing rights expire, copies (called generic drugs) enter the market, and the price usually falls to as little as 20 percent of what it was.[9] There are two forms of monopoly rights—patents granted by the US Patent and Trade Office (USPTO) and exclusivity granted by the FDA. While related, they operate somewhat independently, almost as backups for each other. Hatch-Waxman, named for Senator Orrin Hatch (R-Utah) and Representative Henry Waxman (D-Calif.), was meant mainly to stimulate the foundering generic industry by short-circuiting some of the FDA requirements for bringing generic drugs to market. While successful in doing that, Hatch-Waxman also lengthened the patent life for brand-name drugs. Since then, industry lawyers have manipulated some of its provisions to extend patents far longer than the lawmakers intended.
In the 1990s, Congress enacted other laws that further increased the patent life of brand-name drugs. Drug companies now employ small armies of lawyers to milk these laws for all they're worth—and they're worth a lot. The result is that the effective patent life of brand-name drugs increased from about eight years in 1980 to about fourteen years in 2000.[10] For a blockbuster—usually defined as a drug with sales of over a billion dollars a year (like Lipitor or Celebrex or Zoloft)—those six years of additional exclusivity are golden. They can add billions of dollars to sales—enough to buy a lot of lawyers and have plenty of change left over. No wonder big pharma will do almost anything to protect exclusive marketing rights, despite the fact that doing so flies in the face of all its rhetoric about the free market.
As their profits skyrocketed during the 1980s and 1990s, so did the political power of drug companies. By 1990, the industry had assumed its present contours as a business with unprecedented control over its own fortunes. For example, if it didn't like something about the FDA, the federal agency that is supposed to regulate the industry, it could change it through direct pressure or through its friends in Congress. The top ten drug companies (which included European companies) had profits of nearly 25 percent of sales in 1990, and except for a dip at the time of President Bill Clinton's health care reform proposal, profits as a percentage of sales remained about the same for the next decade. (Of course, in absolute terms, as sales mounted, so did profits.) In 2001, the ten American drug companies in the Fortune 500 list (not quite the same as the top ten worldwide, but their profit margins are much the same) ranked far above all other American industries in average net return, whether as a percentage of sales (18.5 percent), of assets (16.3 percent), or of shareholders' equity (33.2 percent). These are astonishing margins. For comparison, the median net return for all other industries in the Fortune 500 was only 3.3 percent of sales. Commercial banking, itself no slouch as an aggressive industry with many friends in high places, was a distant second, at 13.5 percent of sales.[11]
In 2002, as the economic downturn continued, big pharma showed only a slight drop in profits—from 18.5 to 17.0 percent of sales. The most startling fact about 2002 is that the combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion).[12] In 2003 profits of the Fortune 500 drug companies dropped to 14.3 percent of sales, still well above the median for all industries of 4.6 percent for that year. When I say this is a profitable industry, I mean really profitable. It is difficult to conceive of how awash in money big pharma is.
Drug industry expenditures for research and development, while large, were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profits but something usually called "marketing and administration"—a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade.[13] Note that this is two and a half times the expenditures for R&D.
These figures are drawn from the industry's own annual reports to the Securities and Exchange Commission (SEC) and to stockholders, but what actually goes into these categories is not at all clear, because drug companies hold that information very close to their chests. It is likely, for instance, that R&D includes many activities most people would consider marketing, but no one can know for sure. For its part, "marketing and administration" is a gigantic black box that probably includes what the industry calls "education," as well as advertising and promotion, legal costs, and executive salaries—which are whopping. According to a report by the non-profit group Families USA, the for-mer chairman and CEO of Bristol-Myers Squibb, Charles A. Heimbold Jr., made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. The chairman of Wyeth made $40,521,011, exclusive of his $40,629,459 in stock options. And so on.[14]
3.
If 1980 was a watershed year for the pharmaceutical industry, 2000 may very well turn out to have been another one—the year things began to go wrong. As the booming economy of the late 1990s turned sour, many successful businesses found themselves in trouble. And as tax revenues dropped, state governments also found themselves in trouble. In one respect, the pharmaceutical industry is well protected against the downturn, since it has so much wealth and power. But in another respect, it is peculiarly vulnerable, since it depends on employer-sponsored insurance and state-run Medicaid programs for much of its revenues. When employers and states are in trouble, so is big pharma.
And sure enough, in just the past couple of years, employers and the private health insurers with whom they contract have started to push back against drug costs. Most big managed care plans now bargain for steep price discounts. Most have also instituted three-tiered coverage for prescription drugs—full coverage for generic drugs, partial coverage for useful brand-name drugs, and no coverage for expensive drugs that offer no added benefit over cheaper ones. These lists of preferred drugs are called formularies, and they are an increasingly important method for containing drug costs. Big pharma is feeling the effects of these measures, although not surprisingly, it has become adept at manipulating the system—mainly by inducing doctors or health plans to put expensive, brand-name drugs on formularies.
State governments, too, are looking for ways to cut their drug costs. Some state legislatures are drafting measures that would permit them to regulate prescription drug prices for state employees, Medicaid recipients, and the uninsured. Like managed care plans, they are creating formularies of preferred drugs. The industry is fighting these efforts—mainly with its legions of lobbyists and lawyers. It fought the state of Maine all the way to the US Supreme Court, which in 2003 upheld Maine's right to bargain with drug companies for lower prices, while leaving open the details. But that war has just begun, and it promises to go on for years and get very ugly.
Recently the public has shown signs of being fed up. The fact that Americans pay much more for prescription drugs than Europeans and Canadians is now widely known. An estimated one to two million Americans buy their medicines from Canadian drugstores over the Internet, despite the fact that in 1987, in response to heavy industry lobbying, a compliant Congress had made it illegal for anyone other than manufacturers to import prescription drugs from other countries.[15] In addition, there is a brisk traffic in bus trips for people in border states, particularly the elderly, to travel to Canada or Mexico to buy prescription drugs. Their resentment is palpable, and they constitute a powerful voter block—a fact not lost on Congress or state legislatures.
The industry faces other, less familiar problems. It happens that, by chance, some of the top-selling drugs —with combined sales of around $35 billion a year—are scheduled to go off patent within a few years of one another.[16] This drop over the cliff began in 2001, with the expiration of Eli Lilly's patent on its blockbuster antidepressant Prozac. In the same year, AstraZeneca lost its patent on Prilosec, the original "purple pill" for heartburn, which at its peak brought in a stunning $6 billion a year. Bristol-Myers Squibb lost its best-selling diabetes drug, Glucophage. The unusual cluster of expirations will continue for another couple of years. While it represents a huge loss to the industry as a whole, for some companies it's a disaster. Schering-Plough's blockbuster allergy drug, Claritin, brought in fully a third of that company's revenues before its patent expired in 2002.[17] Claritin is now sold over the counter for much less than its prescription price. So far, the company has been unable to make up for the loss by trying to switch Claritin users to Clarinex—a drug that is virtually identical but has the advantage of still being on patent.
Even worse is the fact that there are very few drugs in the pipeline ready to take the place of blockbusters going off patent. In fact, that is the biggest problem facing the industry today, and its darkest secret. All the public relations about innovation is meant to obscure precisely this fact. The stream of new drugs has slowed to a trickle, and few of them are innovative in any sense of that word. Instead, the great majority are variations of oldies but goodies—"me-too" drugs.
Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other seventy-one drugs approved that year were variations of old drugs or deemed no better than drugs already on the market. In other words, they were me-too drugs. Seven of seventy-eight is not much of a yield. Furthermore, of those seven, not one came from a major US drug company.[18]
For the first time, in just a few short years, the gigantic pharmaceutical industry is finding itself in serious difficulty. It is facing, as one industry spokesman put it, "a perfect storm." To be sure, profits are still beyond anything most other industries could hope for, but they have recently fallen, and for some companies they fell a lot. And that is what matters to investors. Wall Street doesn't care how high profits are today, only how high they will be tomorrow. For some companies, stock prices have plummeted. Nevertheless, the industry keeps promising a bright new day. It bases its reassurances on the notion that the mapping of the human genome and the accompanying burst in genetic research will yield a cornucopia of important new drugs. Left unsaid is the fact that big pharma is depending on government, universities, and small biotech companies for that innovation. While there is no doubt that genetic discoveries will lead to treatments, the fact remains that it will probably be years before the basic research pays off with new drugs. In the meantime, the once-solid foundations of the big pharma colossus are shaking.
The hints of trouble and the public's growing resentment over high prices are producing the first cracks in the industry's formerly firm support in Washington. In 2000, Congress passed legislation that would have closed some of the loopholes in Hatch-Waxman and also permitted American pharmacies, as well as individuals, to import drugs from certain countries where prices are lower. In particular, they could buy back FDA-approved drugs from Canada that had been exported there. It sounds silly to "reimport" drugs that are marketed in the United States, but even with the added transaction costs, doing so is cheaper than buying them here. But the bill required the secretary of health and human services to certify that the practice would not pose any "added risk" to the public, and secretaries in both the Clinton and Bush administrations, under pressure from the industry, refused to do that.
The industry is also being hit with a tidal wave of government investigations and civil and criminal lawsuits. The litany of charges includes illegally overcharging Medicaid and Medicare, paying kickbacks to doctors, engag-ing in anticompetitive practices, colluding with generic companies to keep generic drugs off the market, illegally promoting drugs for unapproved uses, engaging in misleading direct-to-consumer advertising, and, of course, covering up evidence. Some of the settlements have been huge. TAP Phar- maceuticals, for instance, paid $875 million to settle civil and criminal charges of Medicaid and Medicare fraud in the marketing of its prostate cancer drug, Lupron.[19] All of these efforts could be summed up as increasingly desperate marketing and patent games, activities that always skirted the edge of legality but now are sometimes well on the other side.
How is the pharmaceutical industry responding to its difficulties? One could hope drug companies would decide to make some changes—trim their prices, or at least make them more equitable, and put more of their money into trying to discover genuinely innovative drugs, instead of just talking about it. But that is not what is happening. Instead, drug companies are doing more of what got them into this situation. They are marketing their me-too drugs even more relentlessly. They are pushing even harder to extend their monopolies on top-selling drugs. And they are pouring more money into lobbying and political campaigns. As for innovation, they are still waiting for Godot.
The news is not all bad for the industry. The Medicare prescription drug benefit enacted in 2003, and scheduled to go into effect in 2006, promises a windfall for big pharma since it for-bids the government from negotiating prices. The immediate jump in pharmaceutical stock prices after the bill passed indicated that the industry and investors were well aware of the windfall. But at best, this legislation will be only a temporary boost for the industry. As costs rise, Congress will have to reconsider its industry-friendly decision to allow drug companies to set their own prices, no questions asked.
This is an industry that in some ways is like the Wizard of Oz—still full of bluster but now being exposed as something far different from its image. Instead of being an engine of innovation, it is a vast marketing machine. Instead of being a free market success story, it lives off government-funded research and monopoly rights. Yet this industry occupies an essential role in the American health care system, and it performs a valuable function, if not in discovering important new drugs at least in developing them and bringing them to market. But big pharma is extravagantly rewarded for its relatively modest functions. We get nowhere near our money's worth. The United States can no longer afford it in its present form.
Clearly, the pharmaceutical industry is due for fundamental reform. Reform will have to extend beyond the industry to the agencies and institutions it has co-opted, including the FDA and the medical profession and its teaching centers. In my forthcoming book, The Truth About the Drug Companies, I discuss the major reforms that will be necessary.
For example, we need to get the industry to focus on discovering truly innovative drugs instead of turning out me-too drugs (and spending billions of dollars to promote them as though they were miracles). The me-too business is made possible by the fact that the FDA usually approves a drug only if it is better than a placebo. It needn't be better than an older drug already on the market to treat the same condition; in fact, it may be worse. There is no way of knowing, since companies generally do not test their new drugs against older ones for the same conditions at equivalent doses. (For obvious reasons, they would rather not find the answer.) They should be required to do so.
The me-too market would collapse virtually overnight if the FDA made approval of new drugs contingent on their being better in some important way than older drugs already on the market. Probably very few new drugs could meet that test. By default, then, drug companies would have to concentrate on finding truly innovative drugs, and we would finally find out whether this much-vaunted industry is turning out better drugs. A welcome by-product of this reform is that it would also reduce the incessant and enormously expensive marketing necessary to jockey for position in the me-too market. Genuinely important new drugs do not need much promotion (imagine having to advertise a cure for cancer).
A second important reform would be to require drug companies to open their books. Drug companies reveal very little about the most crucial aspects of their business. We know next to nothing about how much they spend to bring each drug to market or what they spend it on. (We know that it is not $802 million, as some industry apologists have recently claimed.) Nor do we know what their gigantic "marketing and administration" budgets cover. We don't even know the prices they charge their various customers. Perhaps most important, we do not know the results of the clinical trials they sponsor—only those they choose to make public, which tend to be the most favorable findings. (The FDA is not allowed to reveal the results it has.) The industry claims all of this is "proprietary" information. Yet, unlike other businesses, drug companies are dependent on the public for a host of special favors—including the rights to NIH-funded research, long periods of market monopoly, and multiple tax breaks that almost guarantee a profit. Because of these special favors and the importance of its products to public health, as well as the fact that the government is a major purchaser of its products, the pharmaceutical industry should be regarded much as a public utility.
These are just two of many reforms I advocate in my book. Some of the others have to do with breaking the dependence of the medical profession on the industry and with the inappropriate control drug companies have over the evaluation of their own products. The sort of thoroughgoing changes required will take government action, which in turn will require strong public pressure. It will be tough. Drug companies have the largest lobby in Washington, and they give copiously to political campaigns. Legislators are now so beholden to the pharmaceutical industry that it will be exceedingly difficult to break its lock on them.
But the one thing legislators need more than campaign contributions is votes. That is why citizens should know what is really going on. Contrary to the industry's public relations, they don't get what they pay for. The fact is that this industry is taking us for a ride, and there will be no real reform without an aroused and determined public to make it happen.
Notes
[1] There are several sources of statistics on the size and growth of the industry. One is IMS Health (www.imshealth.com ), a private company that collects and sells information on the global pharmaceutical industry. See
http://www.imshealth.com/ims/portal/front/articleC/0,2777,6599_3665_41336931,00.html
for the $200 billion figure. For further sources on this and other matters, see my book The Truth About the Drug Companies: How They Deceive Us and What to Do About It (to be published in August by Random House), from which this article is drawn.[2] For a full picture of the special burden of rising drug prices on senior citizens, see Families USA, "Out-of-Bounds: Rising Prescription Drug Prices for Seniors" ( http://www.familiesusa.org/site/PageServer?pagename=Publications_Reports ).
[3] Sarah Lueck, "Drug Prices Far Outpace Inflation," The Wall Street Journal, July 10, 2003, p. D2.
[4] On ABC Special with Peter Jennings, "Bitter Medicine: Pills, Profit, and the Public Health," May 29, 2002.
[5] For the top ten companies and their recent mergers as of 2003, see http://www.oligopolywatch.com/2003/05/25.html
[6] These figures come from the US Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group, Baltimore, Maryland. They were summarized in Cynthia Smith, "Retail Prescription Drug Spending in the National Health Accounts," Health Affairs, January– February 2004, p. 160.
[7] For excellent summaries of public contributions to drug company research, see Public Citizen Congress Watch, "Rx R&D Myths: The Case Against the Drug Industry's R&D 'Scare Card,'" July 2001 ( http://www.citizen.org ); and NIHCM, "Changing Patterns of Pharmaceutical Innovation," May 2002 ( http://www.nihcm.org ).
[8] This is probably an underestimate. One source that indicates it is at least this is CenterWatch,
http://www.centerwatch.com , a private company owned by Thomson Medical Economics, which provides information to the clinical trial industry. See An Industry in Evolution, third edition, edited by Mary Jo Lamberti (CenterWatch, 2001), p. 22.[9] Families USA, "Out-of-Bounds: Rising Prescription Drug Prices for Seniors."
[10] Public Citizen Congress Watch, "Rx R&D Myths."
[11] "The Fortune 500," Fortune, April 15, 2002, p. F26.
[12] Public Citizen Congress Watch, "Drug Industry Profits: Hefty Pharmaceutical Company Margins Dwarf Other Industries," June 2003 ( http://www.citizen.org/documents/Pharma_Report.pdf ). The data are drawn mainly from the Fortune 500 list in Fortune, April 7, 2003, and drug company annual reports.
[13] Henry J. Kaiser Family Foundation, "Prescription Drug Trends," November 2001 ( http://www.kff.org).
[14] FamiliesUSA, "Profiting from Pain: Where Prescription Drug Dollars Go," July 2002 (
http://www.familiesusa.org/site/DocServer/PReport.pdf?docID=249 ).[15] Patricia Barry, "More Americans Go North for Drugs," AARP Bulletin, April 2003, p. 3.
[16] Chandrani Ghosh and Andrew Tanzer, "Patent Play," Forbes, September 17, 2001, p. 141.
[17] Gardiner Harris, "Schering-Plough Is Hurt by Plummeting Pill Costs," The New York Times, July 8, 2003, p. C1.
[18] For key information about the numbers and kinds of drugs approved each year, see the Web site of the US Food and Drug Administration (FDA), http://www.fda.gov/cder/rdmt/pstable.htm
[19] Alice Dembner, "Drug Firm to Pay $875M Fine for Fraud," The Boston Globe, October 4, 2001, p. A13.
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The Other Drug War, An Interview wit... LCD
20 y
2,287
This is a reply to # 422,833The Other Drug War
An Interview with Marcia Angell, the former editor in chief of The New England Journal of Medicine.
http://www.pbs.org/wgbh/pages/frontline/shows/other/interviews/angell.html
After a period where health care costs flattened, they're going up sharply. Why is the pharmaceutical sector [of health care costs] rising the fastest?
There are a couple of reasons. One [is] price inflation. The price for the top-selling drugs now averages about $100 for a month's prescription of that drug. It's well over $1,000 a year. The price per drug is increasing about three times the rate of inflation. So one is just prices.
The other is, through advertising and PR and marketing, consumers are being switched or preferentially led to take newly patented high-price drugs rather than generic drugs that might be just as effective. So the kinds of drugs that are being used are the high-priced drugs.
Third is just the increased volume of use. More people are taking more drugs. This too is a part of promotion and marketing. For all of life's discontents, according to the pharmaceutical industry, there is a drug and you should take it. Then for the side effects of that drug, then there's another drug, and so on. So we're all taking more drugs, and more expensive drugs.
Who's most affected by this price inflation and increased drug costs?
The sick and the helpless are those who are most affected by this price inflation. That is, if you have good insurance that would pay for a prescription drug benefit -- and fewer and fewer of us do have such insurance -- but if you do have that insurance, the HMO through which you have the insurance will bargain for price discounts from the drug companies, get them somewhat cheaper -- in fact, a lot cheaper. You will have to pay less in out-of-pocket contributions.
But for those who are not well insured for prescription drug costs, they're pretty much left on their own. These are mainly Medicare recipients who have no supplementary insurance. Medicare, through historical accident, really, does not pay for outpatient prescription drugs. So Medicare recipients have to pay out of pocket, unless they have supplemental insurance.
Not only do they have to pay out of pocket, but they're likely to be taking more drugs. So if you just look at the price of one of the top selling drugs -- $1200 per year -- and you look at older patients and seniors, who may be taking five or six of these drugs, you can see that they're up to many thousands a year. These are the most vulnerable people. They pay twice as much for drugs, on average, as will insured younger people who get their drugs through HMOs.
People who are covered have no idea what drugs actually cost. Seniors are one of the few groups who actually know the market price.
That's right. They're the ones who are complaining the loudest, and they should. The rest of us are still, to some extent, cushioned from the realities of this incredible price gouging that's going on by the pharmaceutical industry. We're still cushioned to some extent, but that is going to be less and less. We're going to see our insurers paying just a defined contribution, and we will have to make up the rest, or dropping prescription drug benefits altogether. So we too will find out about this very shortly.
Some seniors in border states notice that drugs are cheaper in Canada, and they actually go and get them. What does that tell us about the two systems?
Well, the United States is the only advanced country that permits the pharmaceutical industry to charge exactly what the market will bear, whatever it wants. The other advanced countries in Europe and Canada have some form of price control, either mandatory volume discounts or some way of limiting price. So on average, Canada spends half of what we spend for the exact same drugs. Half.
So if you live on a border state and you can make a bus trip to Canada and have a prescription, you can -- particularly if you're a senior citizen who has to pay for drugs out of pocket, and have to take a lot of them -- you can do very well by taking that bus trip to Canada.
One argument [is that] he Canadians don't invent the drugs. They're parasitic on our R&D. It's unfair.
In fact, the pharmaceutical industry is what's parasitic on publicly funded research. The pharmaceutical industry likes to depict itself as a research-based industry, as the source of innovative drugs. Nothing could be further from the truth. This is their incredible PR and their nerve.
In fact, if you look at where the original research comes from on which new drugs are based, it tends to be from the NIH [National Institutes of Health], from the academic medical centers, and from foreign academic medical centers. Studies of this, looking at the seminal research on which drug patents are based, have found that about 15 percent of the basic research papers, reporting the basic research, came from industry. That's just 15 percent.
The other 85 percent came from NIH-supported work carried out in American academic medical centers. In one study, 30 percent came from foreign academic medical centers. So what we know about the numbers indicates that the foreign academic medical centers are responsible for more new drug discoveries than the industry itself.
[What is] the profitability of this industry, compared to other American industries?
Numero uno. The pharmaceutical industry is stunningly, staggeringly profitable. The 10 drug companies on the Fortune 500 list last year took in net profits of 18.5 percent on sales. That's 18.5 percent. That is stunning. The median for the other industries on the Fortune 500 list was a little over 3 percent, 3.3 percent of sales. This has been the case for the last 20 years; this is not just a fluke of last year. Year after year after year, the pharmaceutical industry has led all other industries in profits. ...
The drug companies make the case that their prices are so high, and that total expenditures are so high, because their R&D costs are very high, as though they were just eking out, just barely managing to survive. But what we can see is that their profits are very much higher than their R&D costs, and therefore they could spend more on R&D if they wanted, and still have plenty of profits left over.
They are numero uno in R&D as well, aren't they?
Their R&D costs are very high, in absolute terms. But in relative terms, they're quite small, that is, relative to their other expenditures and to their profits. The drug companies spend on average, by their own figures, last year, 15 percent to 17 percent on R&D. That's a lot of money. There's no question that that's a lot of money. But their profits are higher. Their profits are 18.5 percent. That's higher than their R&D.
What's really interesting is what they spend on marketing and administration, by their own figures, on average 35 percent. That's over twice as much as what they spend on R&D. So if they point to their R&D costs as some sort of justification for the high prices, what on earth can they say about their marketing costs, which are over twice that much?
Marketing and administration?
Marketing and administration, yes. One of the problems with talking about the R&D cost and the marketing cost and the profits, and the way the pharmaceutical industry does business, is that they're very secretive about the details. You can't get at exactly what the details are. But you can get close enough. You can infer from certain things.
The major drug companies, in general, combine marketing with administrative costs. So in their annual reports and in their SEC filings, they will give total expenditures for something they call "marketing administration." The indications are that the lion's share of that is for marketing. One company, one of the major companies, does break it down, does separate out marketing from administration. That company attributes 35 percent to marketing, 6 percent to administration.
If you then also look at how the employees are apportioned, by their own figures, over a third of their employees are in marketing -- not marketing administration, but marketing. So I think it's safe to conclude that somewhere on the order of 30 percent -- over twice the R&D costs -- are marketing.
Your contention is this slightly skewed picture is partly responsible for the lack of truly innovative drugs that we've seen lately, and the proliferation of "me too" drugs?
... The drug companies have found that the best way to make money at low cost is by turning out drugs that are imitations of other companies' blockbusters. A blockbuster is commonly accepted to be a drug that sells more than a billion dollars in a year. So they've found that the best way to make money is by imitating other companies' blockbusters, or by imitating their own blockbusters -- making a new version of their own blockbuster, when the first one is going off patent and they want to have one with a longer patent life. That's what they have been turning all of their efforts to now.
Innovation comes mainly from NIH-supported research in academic medical centers. The drug companies do almost no innovation now. It's just turning out one more drug that's similar to a blockbuster. These are called copycat drugs, or "me too" drugs. That's their major business now.
It's very hard to launch a "me too" or copycat drug, because you have to convince doctors and the public that they are somehow different and better from all of the other copycat drugs already on the market. So that's why their marketing costs have to be so high. ...
To get a "me too" past the FDA doesn't require that they prove it better than something on the market?
By law, a drug company cannot market drugs unless those drugs are approved by the FDA. The FDA approves the drugs if the manufacturers have shown, through clinical trials, that they're reasonably safe and effective. But here's the catch: To show that drugs are effective, the manufacturers only have to compare them, usually, with a placebo -- that is, with a sugar pill. So all they're required to do is show that this new drug is better than nothing. They are not required to show that it's better than other drugs already on the market for the same condition.
That's why there are so many "me too" drugs on the market. There's no comparison with older drugs. There's no comparison with generic drugs. The last thing the companies want to do is have a head-to-head comparison with similar drugs already on the market.
If theirs was better, they would want one, wouldn't they?
How will they know that it's better until they test it? Then they take the real risk that it will turn out to be worse. So what we have now is a blizzard of "me too" drugs, copycat drugs, that may be worse than the drugs already on the market, that may actually be worse than generics. There's no reason to think that they're better, and they could be worse. They could have more side effects. There is no way to know that, because the FDA does not require that a new copycat drug be compared with the older drug already on the market.
So they use this marketing budget to try and--
That's right. If the drug company produced a cure for AIDS or a cure for cancer, you wouldn't need a big marketing budget. The world would beat a path to its door. You have to have a huge marketing budget to convince the public that Nexium is better than Prilosec. That takes a great marketing budget. So that's where these marketing expenditures are going.
Now, the FDA itself categorizes the drugs that it reviews as either likely to be an improvement over drugs already on the market -- and they get what's called a priority review -- or as unlikely to be an improvement over whatever is already on the market -- that is, it's likely to be no better than what's already out there.
The number that are categorized as "likely to be an improvement" by the FDA has been going down and down and down. Last year, 2001, only 66 drugs were newly approved. Only 66 out of this whole gigantic industry, and that too has been going down. And of those 66, only 10 were classified as likely to be an improvement over whatever was already on the market. The other 56 were all "me too" drugs. That's pathetic, really, 10 out of 66 likely to be an improvement.
Until recently, marketing was done ... directly to physicians, which still is the largest part of the marketing budget. But in 1997, the FDA permitted direct-to-consumer advertising. Talk about the significance of that.
Direct-to-consumer advertising was always allowed, but only under certain conditions. Those conditions were that the company advertising the drug had to say what the side effects were; had to, in some detail, spell out what the risks of the drug were as well as the benefits.
In 1997, that was changed. Now drug companies don't have to spell out the risks. All they have to do is refer the viewer or the listener or the reader to where they might go if they want to [to find about] out about risks. "Go to your doctor. Tell your doctor you have kidney disease or liver disease," [which is] something you would hope that your doctor would already know. But that's what they say at the end of ads. Or "Here's an 800 number." So they don't have to, when they're advertising drugs, say, "And, oh, incidentally, this may cause bone marrow suppression, or a rash, or it may ruin your liver." They don't have to say that anymore.
So that created a huge opening for direct-to-consumer advertising, which coincides with the age of the consumer. The consumer, for various reasons, is now more of an active participant in his or her health care. So suddenly you had all of these ads that don't go through the side effects in any detail, or the risks in any detail -- that now account for about $3 billion of pharmaceutical expenditures.
But they still refer the patient to go see the doctor. So why should this distort [the market]?
Well, because it is the age of consumerism. It convinces consumers that they need drugs that they might not need, that they need some drugs at all. ...
There is this kind of marketing that is designed to convince people that they need pills. It's designed to convince them that they need particular pills that happen to be more expensive, or just going on patent rather than coming off. Then, armed with this feeling, the consumer goes to the physician, who often just prescribes the pills. It's a buyer's market here. Doctors don't want to lose patients. They don't want to say no to patients. They're, in some sense, too busy to say no to patients. They are forced to see more and more patients more and more rapidly. It's faster to write out a prescription than it is to try to talk with patient and convince the patient that he or she may have been manipulated by these ads.
In addition, the doctors themselves are manipulated by the same ads, and also by what amounts to bribery from the drug companies. The drug companies turn up. They have $8 billion worth of free samples that they give to doctors. The doctors hand out the free samples to patients. It makes the doctor look good. The patient has free samples. But both the doctor and the patient, from that point on, are hooked on that particular drug. And believe me, it's not going to be a generic, and it's not going to be a drug that's just going off patent. It is going to be a new, newly patented, high-price drug. So in a sense, both the doctors and the consumers are sucked into a sort of "bait and switch," because sooner or later they will have to pay for[that drug.]
Doctors are supposed to be the informed actors in this picture. Isn't it a flaw that they're so easy to manipulate?
It certainly is. If I sound easy on the doctors, I don't mean to be easy on the doctors, because in the last analysis, it's the doctor who writes the prescription. That's why the drug companies spend so much time and so much of their marketing expenditures on the doctors. That's where the action is. Yes, [the companies] spend a lot of money on consumer ads. They spend an awful lot of money on Congress, on lobbying, on political campaigns. But the lion's share of their attempts to manipulate the situation goes to the doctors, because they are the ones who write the prescriptions.
They do this in part by perpetrating a gigantic fiction, and that fiction is that somehow they are not only in the business of selling drugs, but they are also in the medical education business and the medical research business. Now, that's nonsense. Their investors expect them to make as high profits as they possibly can. They are investor-owned businesses and their fiduciary responsibility is to their investors, which means selling drugs.
But they have managed to make a lot of people believe that they are also somehow educating them about drugs. That can't be. It's as though you look to beer companies to educate you about alcoholism. There is a conflict of interest there. Drug companies might educate you about drugs as long as they're talking about the benefits, but are they doing to talk about the down side? Are they going to say to a bunch of doctors, or patients, "Our drug isn't really very good; the other company makes a better drug?" No. It simply doesn't happen. It can't happen. But doctors pretend to believe that they're in the education business, because they both benefit from this. ...
Why doesn't the medical leadership do something about this? Why doesn't the AMA have their own objective data on drugs? Why are doctors so easy to corrupt?
Well, I wouldn't say they're any easier [than] anybody else. But they're no less easy, either. ...
The other thing I want to say is, the academic medical centers are abdicating their responsibility to teach pharmacology. There is very little teaching that goes on in medical schools now about drugs, about their down sides as well as their benefits, about classes of drugs, about cost-effective prescribing of drugs. To a large extent, the academic medical centers, the medical schools, have abdicated this and left that to the drug companies to do. They permit drug company representatives, salespeople, pretty much unfettered access to medical students, to interns and residents in hospitals. The salespeople are wandering the halls of almost every major hospital in this country, handing out freebies to the young doctors, telling them all about their new drugs, which, the evidence shows, the young doctors pretty quickly respond to and prescribe. And the medical centers stand back and let that happen.
Counter arguments. Drug companies argue that a big reason more money is spent on drugs than in the past is increased utilization.
There's no question that the increasing use of drugs is one reason for the increase in expenditures. There's no question about that. Pricing is only part of it. It's also the increased use, and some of these drugs are indeed great advances that probably do keep people out of the hospital or spare them surgery. But most of those were the result of NIH-funded research.
The "me too" drugs, I'm not at all convinced that they are a success story. There is no question that they are heavily promoted by the drug industry. The drug industry does not say, "You probably don't need these drugs." The drug industry says, "Yes, go out and ask your doctor about this drug." So I find that an odd sort of argument for them to make, that they're really trying to discourage the use of drugs.
They say R&D is enormously lengthy and expensive because the attrition rate is incredibly high.
Yes, it is. It is true that only a handful of the drugs that start out in testing make it through to FDA approval. That's one reason that the drug companies are turning their efforts to "me too" drugs, where you just have to twiddle a molecule a little bit to make essentially the same drug, or make the same drug for a slightly different use. ...
Isn't it unfair to single out the pharmaceutical companies? Surely there's a lot of waste and inefficiency in the rest of medicine.
There certainly is. The pharmaceutical industry isn't the only place where there's waste and inefficiency and profiteering. That happens in much of the rest of the health care industry. I think that drugs are perhaps on the front burner when we think about the exorbitant costs of our health care system, because it's here that the costs are rising faster than ever. It's here that there's so much distortion about what's actually going on. It's here that people are feeling it more, because Medicare recipients don't have any benefits for outpatient drug costs.
Companies argue it's important to keep this a largely private market to protect innovation, and that's why drug companies in other countries are less innovative. Over half of all drugs are produced here.
This is like Holy Roman Empire: It's not holy, it's not Roman, it's not an empire. This question has many of the same problems. Almost every element of what you just said is wrong. Let's look at the big drug companies first. Of the 10 top drug companies, five are European and five are American. Their innovation is much the same. Their turnout of new drugs is much the same. Their marketing budgets are much the same. Their profits are much the same. This, in fact, is a global industry.
All of them have the lion's share of their sales here, because prices are so much higher in the United States than they are in Europe and Canada. So it's sort of good public relations to portray themselves as quintessentially American businesses. They're not. Even in countries where there are price controls, these companies are doing extremely well. So that's the first thing that's wrong with your question.
The second is the implication that these are innovative businesses. They are not innovative businesses. They are giant marketing and PR machines that turn out predominantly "me too" drugs, and whose truly innovative drugs are based mainly on taxpayer-funded work. So they are not innovative. ...
What is going on here, when the pharmaceutical industry insists that they should be essentially left alone, is a threat. It's a threat to the American public. They are saying, "Don't mess with us. Do nothing about our obscene profits. Do nothing about these unsustainable increases in prices, or else we will not give you your miracle cures." Well, guess what? They're not getting them the miracle cures in the first place. But that is their very successful PR pitch. "We are the source of all miracles. Don't mess with us." ...
One thing that is insufficiently appreciated, because it's disguised by the drug industry's public relations, is the degree to which they are dependent on the government. They like to portray themselves as a sort of model of American free enterprise and ingenuity. Nothing could be further from the truth. They are an exemplar of free enterprise, only in the sense that they are free to charge whatever the market will bear in this country, and that they are free to decide what drugs they want to turn out. They would rather turn out another baldness drug than a drug that affects the Third World, or even a vaccine for Americans. So they are free, in that sense. They are free to charge what they want. They're free to decide what they're going to turn out.
But they are not an exemplar of free enterprise, when you look at the fact that they are utterly dependent on congressional favors and government-granted monopolies in the form of patents and FDA exclusive marketing rights. Patents are usually given for 20 years from the time you file that patent. During that time, it's illegal for any other company to sell the same drug. The FDA also has another form of exclusive marketing rights, and may approve a new use. They will give the drug a certain length of time that it can be sold without fear of any competition.
It used to be, about 20 years ago, that the time that a drug company had a monopoly was limited to the time of the patent minus the time it took for clinical testing, because that's usually done after the patent is issued and the time it took for the FDA to approve the drug. So in practice, the time that a company had to market a brand name drug free of any competition amounted to about eight years. Seventeen years in those days was the length of the patent, minus the time it took for clinical trials and FDA approval. That time is now about doubled. The patent life is now about 20 years. The time for clinical testing and for FDA approval is shorter. There are a number of maneuvers, thanks to an industry-friendly Congress, that allow them to stretch the patent life longer.
So now drug companies probably have on the order of 13-14 years to sell their brand-name drugs without fear of competition. After the exclusive marketing rights expire, then what's called generic drugs can enter the market. These are simply copies made by other companies. They have to be identical in terms of their effectiveness. The FDA does see they're identical. But they don't have to go through all the research costs. So after the patent has expired or the other exclusive marketing rights have expired, then generics can get into the market. As soon as generics get into the market, the prices drop steeply, on average to about 20 percent, one-fifth of what they were before.
So you can see that for a drug company that has a blockbuster -- that is, a drug that makes a billion a year -- everything depends on extending their right to market that exclusively, without generic competition. ... There are many, many ways to do that now. This is where, in my opinion, the industry's true innovative genius, lies -- in the multiple ways in which their legions of lawyers can extend the period of exclusive marketing and keep generics off the market.
If they've been successful with the federal government, they now face the states. If a state brought in price control -- this is now in the Supreme Court -- would the sky fall for drug innovation?
No, because they don't do much now. Drug innovation would come from the same place it comes from now. You know, this is a drug company choice, to concentrate on "me too" drugs and to rely on getting its innovative drugs from the academic medical centers. This is the choice that they make.
Might you be less willing to look at a more risky prospect if you had smaller profits, if we had Canadian-style prices?
I would hope, if there's some price control, and that price control includes some limitation on the use of "me too" drugs -- that is, a formulary -- that this would redirect the R&D efforts of the drug companies toward trying to discover and develop important new drugs, and not "me too" drugs. I think that that could be one result. It's not going to hurt the drug companies in terms of their profitability. Because the profits are so large, there's a lot of room there. If they stopped with the "me too" drugs, their marketing costs could be much less, and that's an even bigger source of savings.
The problem -- and this is an interesting thing -- the problem is not how profitable is the industry, in a sense. It's how much are the profits are increasing, because that's what investors want. The investment market is an odd thing. It doesn't look at what the profits are making. It looks at, "Are they more than they were yesterday? Can I sell my stock for more than I just bought it for?" So in a sense, investors say to the drug companies, "What have you done for me today? Never mind that you pulled in last year 18.5 percent of your sales in net profits. Never mind that. What's it going to be this year?"
Of course, no industry can keep climbing like that. They can't, and they haven't, in the last couple of years. They can't keep going up in these astonishing, stunning profits. It can't be done. But it shows how responding to their investors can, in a sense, put them between a rock and a hard place, and distort what they call innovation, so that it's the very opposite. It's less risky to make an empty "me too" drug than it is an innovative drug.
The states, [such as] Oregon, are talking about a functional marketplace. When we buy cars, we can go to Consumer Reports. Why can't we rely on drug companies for objective information? Why is it left to state and federal governments to fill in this gap?
You have a lot of stuff mixed up in that question. You have the research, and you have the states versus the federals. I'm going to have to break these down.
The state governments, as you say, are faced with a swelling Medicaid budget, and they have to balance their budget. Much of the swelling Medicaid cost represents the increase in drug expenditures. So they're well nigh desperate to get some handle on drug costs, and they're going at it in two different ways.
One, they're looking at the pricing. They're essentially pulling together the Medicaid patients and the uninsured, and in some cases, I believe, the Medicare population, who have no supplementary drug insurance, because ultimately the states are going to have to pay for this. So they're pulling them together in one population, and making the argument that they should be able to bargain with the drug companies for volume discounts, in much the same way that the Veterans' Affairs system does, or that the large HMOs do. They bargain for discounts. So the states are saying, "We ought to be able to do that, too." So that's one thing. They're looking at prices.
But they're also looking at "me too" drugs. They're saying, "Why should we pay for newly patented, brand name, 'me too' drugs, when there's no evidence that they're any better than generic drugs or older brand name drugs that are going to go off patent soon? Why should we do that?" So they're looking at what's called formularies, lists of drugs for various conditions, that are the most cost-effective drugs. They're saying, "We'll pay for these drugs. But we won't pay for the more expensive drugs, brand-name drugs, for which there's no evidence of increased effectiveness." They are the two ways in which the states are moving. ...
But in terms of the formularies to limit drugs to those that have been found safe and effective compared to things already on the market, it seems to me that the fundamental place to do that is in the FDA. The FDA should change its policy -- and this would probably take some enabling legislation from Congress. Instead of allowing drugs to be approved on the basis that they are better than sugar pills, they should be required to make the companies show how they compare with drugs already on the market. And until that happens, I don't think we'll truly get a handle on "me too" drugs.
So even before they're released there should be a higher standard of efficacy?
Absolutely. There's no standard now. It just has to be better than nothing. It has to be shown to be safer or more effective or substantially more convenient, or in some way an improvement over similar drugs already on the market, or generic drugs already on the market.
Who's going to do this job? Why isn't the medical leadership more involved in this? Why should it be left to state legislatures?
The problem is this: In the academic medical centers, the medical schools, the teaching hospitals, almost all of the NIH-funded research is basic research, the fundamental mechanisms of disease, early stage research. The research that looks at drugs, that evaluates drugs, clinical trials in human subjects, is funded mostly by the pharmaceutical industry, and they attach strings to that funding.
One string -- it isn't explicitly stated as such, but it is in fact a string -- is "Don't look at our new drug compared with other older drugs in the same family. Look at it either compared with placebos, or sugar pills, or look at it compared with a drug for maybe the same condition but of a different class, a completely different class. Or we're not going to give you the money for these studies."
That in fact is what happens. You see study after study that is really set up, designed by the company, to show what they want to find. The studies that do compare drugs head to head, a new drug with older drugs of the same class, are often funded by the NIH. The NIH does fund some clinical trials.
It's essential that it comes from an independently funded source, to be credible?
Well, it doesn't have to be from an independently funded source. It has to be designed; the data have to be collected; it has to be interpreted; the publication has to be independent. The funding can come from the company. I think it should. It always did -- but without the strings attached.
Now the companies design the studies in such a way that it's tilted toward their new product. They often keep the data, assert ownership of the data. They often write the papers. Maybe the author then signs off on the paper. They interpret the data. They analyze the data. So there are a lot of strings attached now, such that the drug company is intimately involved with the evaluation of its own products. There's an astonishing conflict of interest there, but it goes on. The medical centers, they want the funding, and so they sit still for this.
If we did have effective head-to-head studies for drugs, could we save a lot of money?
We could save an awful lot of money. The FDA itself indicates that 56 of the 66 newly approved drugs last year were "me too" drugs. If each of these drugs had to be compared with the best of its class already on the market, I would imagine that most of them would never reach the market. Nor would you see this constant marketing of drugs that are just like other drugs. ...
Do we as consumers have to play a role in evaluating treatments? We've so far been protected, with insurance, from the costs of procedures.
Well, I have mixed feelings about that. I'm very wary of any kind of scheme in the health care system that requires individuals to feel the pain of paying for the illness as well as the pain of enduring the illness. That seems to be a double burden. It seems to me that any decent society takes care of sick people, and that we should do the same thing. So I would hate to see consumers be forced to calculate, particularly sick and poor people, whether they can afford a drug they need. The issue is: Do they need it?
I think there, if you had formularies -- and these were done independently, and drugs were not added to that formulary unless there was clear scientific evidence that they were better than something already on the formulary -- if that were done, then I would not object to consumers having to pay extra for those drugs that didn't make it to the formulary. I think that would be fine. But they shouldn't have to pay for anything on the formulary.
Why shouldn't the drug companies be able to charge whatever the market will bear? Every other industry does. Why a different standard?
Well, there are a couple of reasons. One, drugs can be vital to people's health and even to their lives. If people are forced to forego those drugs, or, as many Medicare recipients do, play those drugs out by taking them in half doses, or sharing them with their spouse, or taking the drugs instead of paying for food or heat, then that is simply not right -- for people to be denied a vital thing so that drug companies can make higher profits.
Second, other companies are not living off of government-granted monopolies. General Motors does not have a government-granted monopoly on its cars. Toothpaste, there's not a government-granted monopoly. So the pharmaceutical industry enjoys great public support, not only in terms of patents and exclusive marketing rights, but also in terms of huge tax breaks -- this industry pays less than other industries in taxes -- and also in the R&D subsidization through NIH-funded research. So, in two ways, it's not like other industries.
http://www.pbs.org/wgbh/pages/frontline/shows/other/interviews/angell.html
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- Pharmaceutical conspiracy letti04
20 y
2,435
This is a reply to # 422,833Thank you for the information. I only hope this will inspire consumers and the health insurance companies to act and stop the abuse. I have made my attorney general aware of my case and do encourage everyone to write to their attorney general to look into this matter of importants.
Letti
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