The Real Drug Lords - Aug.13,2002

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http://www.alternet.org/print.html?StoryID=13831

The Real Drug LordsWayne M. O'Leary, Progressive Populist

August 13, 2002

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Early December of last year provided evidence of why we need a genuine drug war

-- one that targets not medical-marijuana users but America's pharmaceutical

companies (a.k.a. " Big Pharma " ), the nation's true drug lords.

 

The evidence concerned the Bristol-Myers Squibb Company, maker of the diabetes

drug Glucophage, which was engaged in an ultimately unsuccessful PR campaign to

have its patent on the popular medication extended so as to prevent comparable

generics, which would sell for less, from entering the marketplace. Reports

indicate that Bristol-Myers Squibb's effort, aimed at securing a favorable

congressional vote for extension, cost the corporation $250,000 in political

donations to the Republican party, but did convince Representative Dick Armey of

Texas, the House majority leader, to champion its cause.

 

If the Bristol-Myers Squibb example is not sufficiently convincing, here's

another, more recent indicator of undue drug-company influence peddling. In

April of this year, according to the New York Times, the White House, acting at

the behest of the pharmaceutical industry, dropped the expected nomination of

Dr. Alastair Wood of Vanderbilt University to be head of the Federal Drug

Administration (FDA). Dr. Wood's offense: He was a recognized expert on drug

safety who threatened to be " too zealous " in regulating Big Pharma's products.

The good doctor had intimated he would more aggressively monitor drugs already

on the market, a suggestion that under his leadership, the FDA might actually do

its job as a public watchdog; that was clearly unacceptable to the industry, and

in matters pharmaceutical, the industry rules.

 

One more example of Big Pharma's hardball tactics: Last year, Maine and Vermont

were taken to court by Pharmaceutical Research and Manufacturers of America

(PhRMA), the drug industry's leading trade organization. The two states, it

seems, had the temerity to legislate prescription-drug programs aimed at

lowering prices for low- and middle-income people through negotiated

bulk-purchase discounts. The Vermont law has been successfully overturned by

PhRMA's lawyers; Maine's legislation remains, for now, in legal limbo.

 

What's behind this coordinated, industry-wide resistance to change is simple

economics: a desire to maintain the lucrative status quo and protect profits.

And no industry has more to protect than Big Pharma. In 2001, says Fortune

magazine, America's pharmaceutical companies collectively ranked first in return

on revenues (18.5%), first in return on assets (16.3%), and first in return on

shareholders' equity (32.2%); median figures for the rest of the Fortune 500

were 3.3, 2.4, and 10.4%, respectively. The top 14 drug firms, Fortune reports,

brought in a spectacular $215 billion last year and made a combined profit of

$38 billion; their median return to investors was a tidy 14%.

 

This is nothing new. According to Public Citizen's Congress Watch, the drug

industry has been the most remunerative in the US for the past decade, chalking

up annual profits three times those of any other American industry. It's been so

for most of the 20th century; in 1961, a congressional subcommittee chaired by

Sen. Estes Kefauver, D-Tenn., found that pharmaceutical makers had a higher rate

of return for the previous five years than any other industry, doubling the

average for the nation's manufacturing sector as a whole. The only change that's

taken place since then has been a growth in the disparity; Big Pharma, its

coffers swollen from the start, has been getting richer year by year and decade

by decade.

 

Consumers, naturally, are paying the price. They're paying it at the drug

counter, where prescription costs have risen by 10% in each of the past two

years (to $50 on average) and are expected to jump by over 12% in 2002; they're

also paying in increased health-insurance premiums, which rose by an average 11%

last year due largely (says the Kaiser Family Foundation) to the rising expense

of prescription drugs, which now account for almost a fifth of all health-care

costs nationwide. Some of this can be blamed on steady increases in what drug

companies charge for existing drugs, and some of it on greater reliance on drugs

by physicians, but the single biggest factor (40% of the rise, according to the

Kaiser Foundation) is the recent introduction of new, more expensive drugs.

 

During the 1990s, overall wholesale drug prices rose at an average rate of 7% a

year, with some new miracle cures carrying price tags in the thousands of

dollars for an individual patient's annual supply. At the retail level, this has

been particularly hard on senior citizens, who statistically purchase 18

prescriptions per year. Typical seniors now spend a third of their fixed yearly

incomes on prescriptions, and according to an ABC News report increased numbers

are involuntarily returning to work in order to meet their drug bills.

 

There's a rationale for all this, of course. The drug companies claim that the

astronomical prices they charge are absolutely necessary for " research and

development " -- for inventing and perfecting new medicines and bringing them to

market. Interference with this process by such means as tighter drug

regulations, government price controls, patent reform, or group price

negotiations will, they argue, bring catastrophe in the form of an end to

pharmaceutical breakthroughs beneficial to the public, killing, in effect, the

golden goose.

 

To hedge its bets, Big Pharma has reinforced its research rationale with direct

political action. During the 1999-2000 election cycle, reports Public Citizen,

the drug industry employed 625 lobbyists (the most for any special interest) at

a cost of $177 million and spent an additional $85 million on campaign

contributions and issue ads to guarantee itself a friendly hearing in the

nation's capital. Nevertheless, it is the superficially plausible and

oft-repeated R & D rationale, accepted by many, that forms Big Pharma's real

bulwark against reform and preserves its morally questionable rates of profit.

For that reason, the R & D argument begs further analysis.

 

The drug industry's chief intellectual defense for its pricing policies quickly

dissolves under careful scrutiny. The notion, first of all, that pharmaceutical

firms are plowing their vast profits back into public-spirited research is

simply a myth; annual returns to their shareholders alone are sufficient to

puncture that balloon. Furthermore, as a variety of news sources have reported

in recent months, between a third and half of all US drug research is actually

carried out with tax dollars through the National Institutes of Health (NIH), a

federal agency under the Department of Health and Human Services based in

Bethesda, Maryland. The rights to NIH research results are then routinely

transferred to a private company for a drug's final development and marketing.

At some point, the FDA gives its stamp of approval.

 

Drugs initially created at government expense later earn private distributors

profits that climb into the billions. One such example, cited by drug-industry

critic Merrill Goozner of New York University, is the cancer drug Taxol, a

product of the NIH-affiliated National Cancer Institute; it is now a staple of

the Bristol-Myers Squibb line. In effect, the public paid twice, once in taxes

to fund the drug's research and again in inflated prescription costs to

aggrandize the company.

 

 

 

The pharmaceutical industry's well-oiled propaganda machine, programmed to

justify high prices, has long denied the crucial role played in drug creation by

the public sector, a role that extends back at least half a century. World War

II saw government labs take the lead in the practical development of

antibacterial sulfa drugs and penicillin, used to prevent infection from combat

wounds, and synthetics, such as Atabrine, a substitute for quinine in the

treatment of malaria. Private industry played a complementary but decidedly

subordinate role.

 

Drugmaker Pfizer, for instance, didn't invent the antibiotic penicillin that

eventually made it rich beyond its dreams, but it did find a way to mass-produce

the drug in usable form. That, in a nutshell, is the contribution to

pharmacology made by America's private-sector drug lords; they rarely do the

pure, painstaking scientific research that leads to discoveries, concentrating

instead on processing, packaging, mass-producing, and marketing the discoveries

of others. This qualitative difference is nowhere to be seen in their corporate

advertising, however. There, private, for-profit labs are portrayed as

responsible for the critical breakthroughs that improve the quality of life.

 

The truth is mostly the reverse. Data submitted to the Joint Economic Committee

of Congress by the National Bureau of Economic Research reveals that public

research, not private, led to 15 of the 21 most therapeutically valuable drugs

introduced between 1965 and 1992, and other studies done in the 1990s suggest

that only a minority of important drug discoveries in recent years -- estimates

range from 17% to 40% -- were the result of commercial research. Those new cures

were instead the product of the federal National Institutes of Health (NIH),

either the " intramural " (or in-house) research performed by NIH scientists,

which accounts for 10% of the agency's $20 billion annual budget, or the

" extramural " research contracted out through NIH grants to universities, medical

and pharmacy schools, nonprofit foundations, and private laboratories, which

accounts for most of the rest.

 

If drug-company money is not going into pure drug research, then, where (other

than to stockholders) is it going? The pharmaceutical lobby PhRMA claims its

member firms sank $26 billion into R & D in 2000, slightly more than the NIH, but

industry analyst Merrill Goozner maintains that probably half of the total went

to develop " me-too " drugs, copycat versions of cures competing manufacturers

were successfully marketing, or slightly altered versions of drugs already in a

company's repertoire that could qualify for new (in effect, extended) patent

monopolies. Goozner's charge is supported by a study emanating from the National

Institute for Health Care Management, which shows that only 15% of new drugs

approved by the FDA from 1989 to 2000 could be called " highly innovative " ; the

rest were simply modifications of older drugs with expiring patents.

 

Even bogus research on me-too drugs (a term coined by Sen. Kefauver during his

pioneering industry hearings of 1959-61) accounts for only a small portion of

total drug-company expense budgets. Kefauver discovered that just 6% of

pharmaceutical revenues were going toward research during his time, a figure

that had inched up to 13% by 1996, but only because the pressures of patent

protection instigated an acceleration in chemical retooling. If only a fraction

of Big Pharma's total expenditures are funding drug research of any kind, pure

or derivative, what's left after production costs and salaries is drug

promotion, and it should come as no surprise that promotion -- selling and

advertising -- is where the money is spent.

 

Forty years ago, Sen. Kefauver found that advertising actually outstripped

research by four to one in dollars allocated by private drugmakers; it was, he

revealed, the single largest item of overhead for the major pharmaceutical firms

next to actual production, swallowing 25% of their operational outlays. Little

has changed since the Kefauver days to alter established trends; between 1996

and 2000, reports the health-care information firm IMS Health, the US drug

industry expended $54.5 billion on product promotion, or nearly $14 billion a

year -- substantially more than for serious research. In addition to the

traditional marketing ploys used for decades -- visits to doctors by the

industry's approximately 55,000 drug representatives, mailings of brochures and

samples, advertisements in medical journals, and exhibits and proselytizing

" educational programs " at medical conventions -- recent years have seen vast

sums spent on television ads aimed directly at health-care consumers.

 

These marketing techniques, most especially the increased dollars spent on TV

commercials, are the real cause of high drug prices; the industry's much-vaunted

research spending pales by comparison. And the reason Big Pharma has that

advertising money available to spend is the monopoly position it finds itself in

by virtue of exclusive patents. The United States is the only major country that

allows the private inventor of a drug or medicine to patent the discovery, even

if it was made with the help of a public grant, and to retain exclusive rights

to its production and sale, thereby avoiding competition. This is the primary

reason why American drug prices are double (or more) those of Canada, Japan, and

Europe at the retail level, and also why newly patented drugs for ailments like

arthritis are 10 times more costly in the domestic market than older, off-patent

medications.

 

Until relatively recently, US drug patents applied for 17 years, allowing a

total market monopoly for that period. In the early 1960s, Sen. Kefauver

proposed reducing this to a three-year monopoly followed by a 14-year licensing

period during which competitors could gain production rights in exchange for

royalty payments. He was denied his reform, and, incredibly, Congress in 1994

extended the long-standing 17-year patents to 20 years, giving an added lease on

life to drug monopolists. The battle isn't over, however. Within the past year,

organizations like Seniors USA have begun calling for a 10-year maximum patent

life for drug discoveries made with private funds and the entire elimination of

patents for drugs developed with public monies, in order to force down prices.

 

A multiplicity of other solutions to the existing American drug-price dilemma,

aimed mostly at seniors, have been offered: government vouchers, drug discount

cards, a prescription benefit under Medicare. All are inadequate and would only

shift the burden of payment without reducing basic prices. The real answer lies

in two alternative directions: (1) serious patent reform to limit the monopoly

status conferred on new drugs and their manufacturers, and (2) direct drug-price

regulation of the sort routinely employed in most civilized countries.

 

Despite the refrain that price controls never work, they have been successfully

imposed on pharmaceuticals by the Canadian government since 1987. Empowering

direct price negotiations by the Medicare program is one form of regulation that

could be easily implemented. The drug industry's fond belief that its high

administered prices are deserved simply because of the importance of its

products to the public is a defunct idea that should have long since been

interred. Estes Kefauver said it best over a generation ago: " The justification

of high price in terms of value to the public is the ideology of monopoly. "

 

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