Guest guest Posted August 2, 2003 Report Share Posted August 2, 2003 http://www.cancer-coverup.com/newsletter/print-version/prescription-drug-costs_0\ 8-2002.asp THE RISING TIDE OF PRESCRIPTION DRUG COSTS: A CORPORATE CON JOB Over the past half-decade, Americans have reeled under the relentless assault of ever-higher prescription drug costs. For senior citizens - who purchase 42% of all prescription drugs - the burden has been particularly onerous, at times leaving them the untenable choice of either buying food or medicine. But there is more underlying the problem than just higher prices. At its core, the problem is symptomatic of a change in the way medicine is practiced in the United States - a change that is driven by the greed of multinational pharmaceutical giants. A change that more and more looks for answers in the form of a pill. The effects of this change are all too evident in healthcare cost statistics. In 2001, retail spending on prescription drugs rose by 17.1%, far outpacing other categories of healthcare costs. This was the fourth 15%-plus increase in as many years To put this in dollar terms, total spending on prescription drugs in the United States came to a whopping $154 billion in 2001, a $22.5 billion increase over the previous year. This figure is nearly double the $78.9 billion Americans spent on prescription drugs in 1997, and more than three times the $50.3 billion spent in 1993. Some fear that rising prescription drug costs may bankrupt the U.S. healthcare system. But solving the problem may be as complex as the factors that created it. FACTORS DRIVING SPIRALING PRESCRIPTION DRUG COSTS There are actually three principle factors underlying the dramatic increase in prescription drug spending. The first, and most obvious cause for the increased spending, of course, are higher prices. The average price of a prescription was $49.84 in 2001, a 10.1% increase over 2000. By comparison, overall consumer prices rose just 2.8% for the same period. Between 1999 and 2000, the increase was 9.4%, again far outpacing inflation. But it was not price alone that caused the huge increase in outlays for prescription drugs. While the increase in drug prices accounted for 37% of the overall growth of spending on prescription drugs, another important factor was the kind of drug prescribed. There has been a marked trend towards prescribing newer, more costly drugs, driven to no small degree by aggressive pharmaceutical company marketing. Consumers increasingly are asking their doctors to prescribe drugs they see advertised, and doctors giving in to pressure from their patients are complying with their requests. One study found that roughly 26% of patients visiting their doctors ask about an advertised drug. The same study found that 81% of the time, the doctors prescribe the requested medication. The reason this is important is that newer drugs are more costly than older ones. Indeed, the average price of a drug approved prior to 1992 was $30.47 in 2000, whereas the average for drugs approved after 1992 $71.49. This is not to say that the new formulations are necessarily better - they are just newer. In 2001, this " shift " in the nature of drugs prescribed accounted for 24% of the overall increase in outlays. But even these higher prices were not the most important factor. Fully 39% of the increase in spending on pharmaceuticals is a result of more prescriptions being written. In 1985, doctors wrote an average of 109 prescriptions for every 100 office visits. By 1999, that figure rose to 146 prescriptions per 100 office visits. The impact of this trend on the total number of prescriptions written is dramatic. In 1992, physicians wrote some 1.9 billion prescriptions for various pharmaceutical products. By 2001 that figure had increased to 3.1 billion a rise of more than 63%. This year the number of prescriptions written may be double the 1992 level. Indeed, at the current growth rate, it is expected that total U.S. spending for prescription drugs will reach $366 billion by the year 2010. That would be more than double the current level, and more than 4.6 times the amount spent in 1992. But why are so many more prescriptions being written? Is it a matter of new medical breakthroughs that permit us to treat previously incurable diseases? Is some sort of hidden epidemic being treated? Is the best interest of the patient driving the change? The answer to all these questions, of course, is a simple no. What is actually driving increased spending on prescription drugs is an aggressive, diverse and highly successful campaign by the multinational pharmaceutical industry to enhance its bottom line. More important, rather than being in the best interest of patients, it may actually be causing them harm. The campaign is taking place across a number of fronts, but the most insidious may be the manipulation of the so-called " standard of care. " STANDARD OF CARE In every jurisdiction in America, physicians operate under what are termed " standards of care. " These are guidelines that describe the appropriate treatment regimens for various medical conditions. The standards of care are established by specialty medical associations - the professional organizations certify a doctor's competence to practice a particular medical specialty and are often based on federal recommendations. Violations of standards of care are considered malpractice and open any physician who fails to follow them to both civil and criminal liability. They therefore are taken very seriously. The trouble is that most of the panels that establish standards of care for each specialty are comprised of physicians who have ties to the pharmaceutical industry. They rely on the industry for research grants, honoraria, consulting contracts and other substantial financial benefits. As a result, the influence of " Big Pharma " on these panels is pervasive. A telling example of how these panels can manipulate standards of care to benefit their pharmaceutical company patrons is found in the recent change in standards of care for managing cholesterol. CHANGING THE RULES TO BENEFIT THE BOTTOM LINE In 1993, federal guidelines were established for managing cholesterol. A key element of these guidelines was the determination that patients with cholesterol levels above 200 should make dietary and lifestyle changes to reduce their cholesterol level below that figure. These included reducing the overall level of fat in their diet to no more than 30% and reducing the level of saturated fat to no more than 10%. It also recommended increasing the intake of soluble fats. If a patient's cholesterol was above 300, the guidelines recommended placing them on cholesterol-lowering drugs. Even these guidelines, however, were flawed. In focusing on the total cholesterol level, the guidelines ignored the fact that the ratio of LDL, or so-called " bad " cholesterol to HDL, or " good " cholesterol was the real measure of a healthy cholesterol level. In fact if the HDL level was too low, even if overall cholesterol levels were low as well, the patient still faced an increased risk of heart disease. Under the 1993 guidelines, 52 million Americans would fall under the category that required dietary changes and 13 million would require cholesterol-lowering drugs. Last year, however, the National Institutes of Health issued recommendation that the guidelines for management of cholesterol be revised. The panel recommended changing the dietary guidelines for patients with elevated cholesterol by reducing the permissible amount of saturated fat in the diet to 7% while raising the overall permissible level of fat to 35%. Most important, however, the panel recommended that cholesterol-lowering drugs be administered to patients with levels above 200 rather than 300. The impact of this change was stunning. Under the new guidelines rather than 13 million Americans being candidates for cholesterol-lowering drugs, 36 million - three times as many - would now require drug therapy. The windfall " Big Pharma " will reap from the change is almost beyond imagining. On average a prescription for a cholesterol-lowering drug cost $88 in 2001. This comes to $1,046 per year. That means that if all 23 million candidates are put on these products, sales will jump by roughly $24.3 billion annually! While this may be a blessing for " Big Pharma, " it may be a curse for the patients. Most cholesterol-lowering drugs are from the so-called " statin " family. Roughly 25% of all individuals taking statin drugs experience some degree of side effects - many of them serious. Among the most common are muscle weakness (sometimes quite pronounced) or cramps and muscle degeneration. But more serious side effects including liver or kidney failure are also possible. As a result, individuals on statin drugs are required to take liver function tests on a regular basis. Moreover, they will have to do so for the rest of their lives, since as a general rule, once a patient is placed on cholesterol-lowering drugs, they remain on them forever. But what if a doctor doesn't want to subject a patient with marginally high cholesterol levels to the risks statin drugs pose? They really don't have a choice! The guidelines say drugs are appropriate if the level is above 200, so at 201 you get medication whether you and your doctor think you need it or not! If the doctor doesn't write the prescription, he literally is in danger of losing his license! It's not just in regard to cholesterol levels that " Big Pharma " and Big Medicine " have been able to manipulate standards. Think for a moment about the " obesity epidemic " you hear so much about. According to the " experts " 81% - that's right, 81% of Americans are overweight! This is up from 58% just a little more than a decade ago. How could this be? Have we all spent the last ten years pigging out on McDonald's? Worse, fully one third of us are defined as obese! If you think something must be wrong - you're right. The alarms about obesity are based in the notion that four out of five Americans have a body mass index (BMI) above 25, indicating that they are overweight. What they don't tell you, however, is that a few years back, they changed the chart, moving the acceptable body mass to a lower point. With this one stroke of the pen millions of Americans who were considered within a healthy weight range were suddenly overweight! Suddenly they needed special counseling, doctors supervision and, of course, weight loss drugs like Fen-Phen or now, Meridian. The other thing they fail to acknowledge is that BMI is not a reliable measure of actual body fat. For example, heavily muscled individuals, such as body builders, have high BMIs because muscle weighs more than fat. People who are large-boned can also have a higher than average BMI. Also, genetics play a role. Some people naturally have more body fat than others, and live perfectly healthy normal lives. This information of course doesn't sell prescription drugs or other medical services, so you'll seldom hear it mentioned. As with cholesterol levels, however, if doctors fail to act to treat " obese " patients may be violating standards of practice and leaving themselves open to liability. But it isn't just licensing boards and regulatory agencies that put pressure on doctors to write prescriptions. As mentioned earlier, it's often the patients themselves who pressure doctors in response to the proliferation of medical advertising. AN AD BLITZKRIEG If it seems like every time you turn on the TV you see a new drug ad, you may be right. Since the FDA first permitted so-called " Direct to Consumer " or " DTC " advertising by pharmaceutical firms, spending on ads to push pills has skyrocketed, rising from $1.1 billion in 1997 to $2.8 billion last year! Of that amount, roughly 60% or almost $1.7 billion was spent on television ads. When you look at some of the most heavily promoted drugs, the extent of the effort becomes clear. Take for example, the arthritis painkiller Vioxx. In 2000, Merck, the manufacturer of Vioxx spent over $161 million to promote the drug. Compare that figure with some other familiar products: Dell Computer spent $160 million to advertise all of its products. Budweiser spent $146 million to advertise Budweiser beer. PepsiCo spent $125 million to advertise Pepsi Cola. Nike spent $78.2 million to advertise its running shoes. Campbell's Soup spent $58 million to advertise all of its products. And that's just one drug. Other examples include: $108 million to advertise Prilosec. $100 million to advertise Claritin. $92 million to advertise Paxil. $91 million to advertise Zocor. $90 million to advertise Viagra. $79 million to advertise Celebrex. $78 million to advertise Flonase. $67 million to advertise Allegra. $65 million to advertise Meridia. In fact, 15 of the 50 most heavily promoted drugs spent more than Campbell's Soup promoting their product. What is particularly ironic is that two of the most heavily advertised drugs, Vioxx and Celebrex are promoted largely on the basis of being safer than other, older alternatives. A just-released study, however, suggests that these so-called " Cox-2 Inhibitors " may in fact have more serious side effects than the drugs they were intended to replace. Yet DTC ads consumers rely on for their information about Vioxx and Celebrex continue to tout them as safer. The failure of Merck and Pharmacia to accurately portray the risks and benefits of their product in DTC ads should come as no surprise. In 2000 an official of the FDA testified before Congress that between 1997 and 2000, the FDA has issued 45 " notices of violation " and three warning letters to companies concerning their television ads, and 44 notices of violation and one warning letter concerning print ads. Most of these letters concerned either overstated claims, or failures to warn consumers of potential risks. What the FDA official failed to ad was that nothing was done to punish the offenders - even where they had repeatedly committed the same offense. But DTC advertising is only part of the total. Overall, drug companies spent $15.7 billion on advertising in 2000, twice as much as they spent on pharmaceutical research. For example: Merck and Co. allocated 15% of its revenues to advertising and just 6% to research. Pfizer allocated 39% to advertising and 15% to research. Bristol-Myers Squibb allocated 30% to advertising and 11% to research. Pharmacia Corporation allocated 37% to advertising and 15% to research. Abbott Labs allocated 21% to advertising and 10% to research. American Home products allocated 38% to advertising and 13% to research. Eli Lily allocated 30% to advertising and 19% to research. Schering-Plough allocated 36% to advertising and 14% to research. Allergan Inc. allocated 42% to advertising and 13% to research. BEYOND DIRECT TO CONSUMER ADS But the lion's share of promotional dollars was still focused on doctors. A survey of 2,068 doctors by the Kaiser family Foundation found that 61% had received trips, tickets or free meals from pharmaceutical companies. Fully 92% had received free drug samples. Another study of physicians in Maryland indicated that 37% had received some form of compensation from a drug company. Sometimes, however, there is much more than a free meal involved. Just-released court documents from a lawsuit allege that sales representatives of Warner-Lambert participated in a program that paid physicians to allow them to review patient charts and make recommendations concerning what medications the patients should receive. The purpose of the program was to develop so-called " off label " uses for a drug called Neurotin. Neurotin had been developed and was approved as a treatment for epilepsy. Warner-Lambert wanted to increase the market for its product. According to the court documents, Warner-Lambert sales reps convinced doctors to use Neurotin for everything from pain to bipolar disorders to attention deficit disorder in children. The only trouble was that Neurotin was ineffective as a treatment for many of these conditions and in some cases could actually make them worse. Doctors were paid $350 for each day they allowed the Warner-Lambert rep into their examination room. They were also hired as consultants, paid to give speeches or to write journal articles (in some cases just to put their names on articles that were prepared by ghost writers) and paid to recruit patients for clinical trials. Even if the drug wasn't effective for many of the disorders the physicians were prescribing it to treat, the sales program proved very effective. In 2000 78% of all prescriptions written for Neurotin were " off-label. " More important, because of the widespread off-label use sales of the drug were increasing 50% per year. Dr. Jonathan Spom of NIH told the New York Times " Neurotin is being used like water for disorders where there is not much evidence that it is effective. " " Big Pharma's " defenders would likely argue that what happened with Neurotin was an aberration, not likely to be repeated. Unfortunately this is not the case. For example Takeda Chemical Industries and Abbott Laboratories joint venture, TAP Pharmaceutical Productions recently had to pay $875 million to settle civil and criminal charges stemming from a scheme that defrauded Medicare and Medicaid of millions of dollars. The way the scam worked was that TAP sales personnel would give doctors free samples of its drug, Leuprorelin (known as Lupron in the U.S.). The TAP personnel would then help the doctors get reimbursements for the drug's retail cost - even though they had paid nothing for it. Since each dose costs hundreds of dollars, it proved highly lucrative for the physicians involved. Of course, once a patient was started on Lupron with the free sample, they would generally continue to take the drug generating thousands of dollars in sales annually for each patient. Free drugs were not the only inducement TAPS employees offered. They also provided " educational grants, " free trips, free medical equipment and a host of other gifts. Although in this case, as with Neurotin, the corruption was eventually discovered, the real question is in how many instances has it gone undetected? A FATALLY FLAWED SYSTEM In the end, the rapid rise in pharmaceutical costs is in actuality a symptom of a more fundamental problem: the unprecedented control " Big Pharma " and " Big Medicine " exert over healthcare in the United States. Their ability to manipulate every aspect of healthcare from research institutions to regulatory bodies to even the individual doctor's office is evidence that the system itself is inherently flawed. If allowed to continue unchecked, what little remaining freedom we have regarding our health care choices will soon be lost. The time has come for each of us to stand up and be counted before it is too late. In the movie " Wall Street " corporate raider Gordon Gekko proclaims " Greed is good! " much to the chagrin of his young protégé. Gekko's rapacious avarice however, pales in comparison with the real-life acquisitiveness of Big Pharma's multinational drug behemoths. In a time of stagnant growth for most industries, pharmaceutical firms are again posting record profits. Indeed, their return on investment - around 18.5 percent - is from three to five times the average of other industrial sectors. Taken together, the over $20 billion drug companies earned last year is more that the total of the airline, entertainment, construction and railroad industries combined. Of course, whenever their profits are questioned, the drug companies are quick to say they are necessary to fund research. Otherwise, Big Pharma asserts, we would never have the miracle cures for life-threatening disease created in their laboratories. On the surface if makes sense, except for one thing: it's all a lie. WHAT CONSTITUTES A " NEW " DRUG? The convoluted and often confusing way in which the FDA defines what constitutes a new drug lies at the heart of the corporate research con. The FDA has three broad categories under which it approves pharmaceutical products. The first of these are drugs classified as so-called " new molecular entities, " or " NMEs. " These NMEs are drugs contain an active ingredient that has never been approved by the FDA for the U.S. market. In other words, it is " new " in the common usage of the word. A study by the National Institute for Health Care Management (NIHCM) reviewed FDA drug approvals during the twelve-year period between 1989 and 2000. It found that only 35 percent of the drugs approved by the agency were new molecular entities. The second category encompasses what are termed " incrementally modified " drugs, or " IMDs. " These are drugs that rely on an active ingredient that is already approved by the FDA for the U.S. market, or a closely related chemical derivative of that ingredient that has been modified by the manufacturer. Because the provisions of the 1984 Hatch-Waxman Act allow drug companies to obtain a three-year extension on patent protection for incrementally modified drugs, Big Pharma often makes minor modifications in order to keep generic versions of popular products off the market. The NIHCM study found that fully 54 percent of FDA drug approvals during the period reviewed were for IMDs. The third category is so-called " other " approvals which includes drugs already approved for use in the United States. This category is actually used for generic drugs. The purpose of this category is to ensure that a generic drug really is identical to its brand-name alternative. Between 1989 and 2000, 11 percent of drug approvals were in the " other " category. So, at best only a little more than a third of the drugs approved during the twelve-year period were really " new. " But there is an even more important element in to consider. In addition to distinguishing among drugs on the basis of their chemical make-up, the FDA also differentiates among them according to their putative value as either " priority " drugs or " standard " drugs. Being classified as a " priority " drug qualifies the applicant for an expedited " fast track " review - often saving years of delay, and greatly enhancing the value of a patent. There are four ways a drug can receive the coveted " priority " status for its review: It is more effective the diagnosis, treatment or prevention of disease than existing alternatives. It has substantial reduced side effects, or eliminates them entirely in comparison with existing alternatives. It has enhanced patient compliance - in other words patients are more likely to take it. Compliance is a major concern with many drugs. It is shown to be safe and effective for a new sub-population of patients - for example it could be used by children where other alternatives could not. Looking at the FDA guidelines for " priority " approvals it would be easy to assume that any new molecular entity given a " priority " review represented a real therapeutic breakthrough of some kind. This assumption, however, would be false. Because the guidelines are broadly interpreted, in many instances drugs that offer only marginal improvements in safety or effectiveness are able to qualify for " priority " review. For example, the anti-inflammatory drugs Celebrex and Vioxx both were given " priority " reviews. Both of these products are what are called " non-steriodal anti-inflammatory drugs " or NSAIDS. While many other NSAIDS such as ibuprofen (Advil) and naproxen (Alleve) were already on the market, the manufacturers claimed that their products had fewer side effects - particularly gastrointestinal bleeding - even though they were not more effective. Both of these drugs became hugely successful. In 2001 Celebrex generated $3.1 billion in worldwide sales and Vioxx sales topped $2.6 billion. Ironically, recent studies concerning these two drugs show that they are not safer than the older, cheaper existing alternatives. Rather, the research presented to support this claim had been manipulated to make it appear that they were. Both Celebrex and Vioxx represent examples of an increasingly common practice: the development of " me-too " drugs. The market for analgesics (pain medications) is about TEN BILLION dollars a year in the United States alone. As the Baby Boom generation ages, the incidence of inflammatory diseases such as arthritis will dramatically increase, and therefore this figure can only grow. Drug companies know that a new analgesic has the potential to be a " blockbuster. " As a result, the competition among pharmaceutical giants to come up with new and more profitable analgesics is intense. But the practice of developing " me-too " drugs is not limited to analgesics. There has also been a rush to develop products for other crowded markets such as antihistamines, drugs to reduce stomach acid and oral diabetes medications. Indeed, the increasing dominance of " me-too " drugs is evident in the ratio of " standard " drug approvals to " priority " approvals. Bear in mind that drugs undergoing the " standard " approval process are ones that cannot demonstrate a significant improvement over existing medications. They are by and large " me-too " drugs. For the entire twelve-year period between 1989 and 2000, 24 percent of all drug approvals by the FDA fell into the " priority " category while 76 percent were " standard. " Even more remarkable, however, is the fact that between 1995 and 2000, the proportion of " standard " applications rose to 88 percent. Even these figures, however overstate the amount of innovation that actually took place. The NIHCM review found that on close analysis, only 3 percent of the drugs approved between 1995 and 2000 offered new clinical benefits. And don't forget, that figure includes Celebrex and Vioxx! The dominance of " me-too " drugs, however, is not the only problem with the drug approval process. An even more insidious problem is the manner in which Big Pharma manipulates the system to artificially extend the life of its patents. In many instances, the applications for approval as an incrementally modified drug (IMD) is little more than a device to extend patent protection on a popular drug beyond the seventeen years allowed by law. Take for example the antiulcerant drug Prilosec. Prilosec has been a blockbuster for its manufacturer AstraZeneca with over $3.7 billion in U.S. sales and global sales of $6 billion last year. It is the most widely sold pharmaceutical product in the world. AstraZeneca's patent on Prilosec expired on October 5, 2001 opening the door to generic manufacturers. To cushion the blow, the company had introduced Nexium, which is the same medication, but is taken weekly instead of daily. But it did something else as well. AstraZeneca began a series of legal maneuvers to keep generics off the market suing all ten companies that had expressed an interest in such a product. It claimed that the patents on other ingredients - including inactive ingredients - were still in force making any attempt to produce a generic version patent infringement. AstraZeneca claims that these secondary patents extend its exclusive right to produce the drug to 2007. It also has filed a series of complaints with the FDA claiming that the generic version planned for the U.S. market is not identical to its formulation, and therefore should not be approved. The manufacturer of the generic version, Andrx, disputes this assertion. While every manufacturer does not fight as vigorously as AstraZeneca, it is a common practice for them to " tweak " a product in order to gain longer patent exclusivity. Even where such exclusivity on the original product is not possible, drug company salesmen are often able to convince doctors that the " new " product is better and to shift their patients to the new formulation. The result is higher costs to consumers. To illustrate, the total increase in pharmaceutical spending between 1995 and 2000 was roughly $44 billion. Out of this total, $29.3 billion was for " me-too " drugs either as new formulations of existing products or copycat products that offered no therapeutic advantage! Some might argue that the emphasis on " blockbuster " and copycat " me-to " drugs is unsurprising. After all, pharmaceutical companies are in business to make a profit and that's where the profit lies. Besides, they might argue, such products provide the capital needed to conduct research to develop drugs that do treat life-threatening illnesses such as cancer and AIDS. It all sounds reasonable. The only trouble is, more often than not, it's not " Big Pharma " that's footing the research bill. It's the taxpayer. TAXPAYER SUBSIDIES OF DRUG RESEARCH Whenever the subject of drug research comes up, the lobbyists for " Big Pharma " are quick to assert that it now costs $802 million dollars to win approval of a new drug. These enormous costs, they argue are why drug company profits have to be so high. Without them there might never be new treatments for cancer, AIDS and a host of other terrible diseases. What they don't say, however, is that the $802 million figure is derived in a way that defies any reasonable accounting standard and that in a vast majority of the cases what was spent on research came largely from the government! To illustrate, of the 77 anticancer drugs approved between 1949 and 1996, 50 - that's right 50 - were the product of an investigational new drug application sponsored by the National Cancer Institute (NCI). Included among them were such widely used drugs as Taxol, Zoladex and Interleukin-2. But it's not just cancer drugs that benefit from government largesse. A study funded by the National Institutes of Health found that the agency had " played a critical role " in the development of the top five selling drugs of 1995. These included such familiar products as the antidepressant Prozac, the antiulcerant Zantac, the herpes drug Zovarix and the antihypertensives Capoten and Vasotec. In another case, NIH provided Colombia University with a $4 million grant that led to the development of Xalatan, a medicine to treat glaucoma. The University sold the patent rights to the drug to the Multinational Drug Giant Pharmacia for $150,000. In 1999, the most recent year for which figures are available, Xalatan generated $507 million in sales revenues for Pharmacia. Moreover, the raid on U.S. taxpayers isn't limited to domestic firms. A drug used to treat Multiple Sclerosis called Copaxone was developed with the assistance of some $5 million in NIH and FDA money and then licensed to Teva Pharmaceutical Industries, an Israeli manufacturer. In the first three quarters of 2000, the company had sales totaling some $175 million for the drug. To its credit, Teva has said it would be willing to reimburse the taxpayer investment in Copaxone's development, something U.S. firms have failed to do. One of the most outrageous examples of corporate abuse of taxpayer subsidies is found in the drug Taxol. Taxol is used to treat various forms of cancer including ovarian cancer. By January of 1991, research on it progressed sufficiently that it was in Phase III government-sponsored clinical trials. At this point, the huge multinational drug company Bristol-Myers Squibb (BMS) entered the picture signing a cooperative research and development agreement (CRADA) with the NCI. Just under two years later, on December 29,1992, Taxol was approved for the treatment of ovarian cancer, with receiving the license to manufacture it. BMS, however, did not know how to make the drug, and as a result subcontracted the manufacturing to Hauser Chemical, the company that had been manufacturing Taxol for the government-sponsored trials. As of 2000, BMS was selling a 300-milligram vial of Taxol for $1826.25. In that same year, BMS sold almost $1.6 billion of the product. BMS claims that it spent $1 billion developing Taxol, yet it only took part in the final stages of the drug's development. According to the National Cancer Institute, its cost for running a phase III trial was between $3,861 and $6,202 per patient. In order to spend the amount it claimed BMS would have had to enroll over 166,000 patients in the Taxol trial! But that's not all. As it turns out, BMS applied for it's approval for Taxol under the Orphan Drug Act, indicating it was to be used to treat Karposi's Sarcoma, a rare form of cancer at that time. As a result, it was able to take a 50 percent tax credit for all R & D expenses related to Taxol. And where does the $1 billion figure come from? Creative accounting that would make an Enron executive blush with shame! BMS includes items like the cost of building a factory to manufacture Taxol and various expenditures for market research in its total. Most important, it also includes so-called opportunity cost - the cost of not having the money it spends on research available for other purposes - and uses a highly inflated rate of return to calculate that cost. Indeed, it is just such questionable arithmetic that is the basis of the $802 million figure " Big Pharma " claims is the average cost of bringing a drug to market. BIG PHARMA'S NEVER-NEVER LAND MATH So how does " Big Pharma " come up with its $802 million total? The figure comes from a Tufts University study funded by; you guessed it, " Big Pharma. " The calculations used to reach that total are truly amazing. The first step was to inflate the basic figure by over100 percent. Now, most people believe that an expense is incurred when you actually spend money. Not so in the Never-Never Land of " Big Pharma " accounting. Over half of the $802 million ($403 million) is the so-called " opportunity cost " referred to above. So the actual amount of cash that's involved is really $399 million. Arriving at an opportunity cost of that magnitude means that the researcher estimated the company could earn between 9 percent and 15 percent (net) by investing in, say, corporate bonds. The only trouble is that corporate bond rates are under 7 percent and other investment current opportunities have similarly anemic returns. But that's not the end of the story. The Tuft's analysis fails to take into account the benefits of research and development tax credits and deductions. Tax deductions reduce the NET cost by at least 34 percent, and if the Orphan Drug tax credit is applied (as it often is) that reduces the cost by half. Using the more conservative 34 percent allowance for tax benefits, the adjusted cost of new drug development is $240 million, not $802 million! That's still a pretty big number, but it still doesn't tell the whole story. In creating the base figure, the Tufts researcher estimated that clinical trials would constitute the largest portion of R & D costs. That's fair enough. However, the figure used as a cost for clinical trials was $282 million. An estimate by the Congressional Research Service (CRS) placed the cost of clinical trials required to bring a drug to market at $75 million, or roughly a quarter the Tufts estimate. Moreover, the CRS estimated was based on actual data from NCI cooperative research trials - real world numbers, not some Never-Never Land fabrications. And even that isn't the end of the story. The CRS estimate assumes that one entity pays all of the costs associated with bringing a drug to market. As the statistics on government involvement in cancer drug development indicate, however, that circumstance rarely exists. Rather, much of the research, especially the early, high-risk Phase I and Phase II clinical trials are most often conducted under government sponsorship. It is only after it has been established that a drug is safe and to some degree effective that " Big Pharma " enters the picture. This means that the degree of risk in completing the research has been greatly if not entirely reduced. Remember blockbuster drugs from AZT to Zantac to Prozac all began with government research - research that lined the pockets of " Big Pharma " at taxpayer expense. And what return has the taxpayer realized for the billions of dollars spent each year on medical research? Last year a total of $27 million in royalties were paid to NIH - from all sources, not just drug patents. The question is, can this hemorrhage of taxpayer dollars be stopped? If the recent experience at the Department of Energy is any example, the answer is an emphatic yes! THE DEPARTMENT OF ENERGY'S RESEARCH POLICY It has often been argued that the federal government is the only entity capable of taking on the often high-risk basic science research that leads to real breakthroughs. This argument is not without merit. Many types of basic research are costly and lack immediate commercial potential. The Department of Energy (DOE) along with its predecessors going back to the Manhattan Project has had long experience in dealing with this dilemma. It often funds projects aimed at providing the basic research for new energy technologies, and once that research is completed turns over the results to private firms for commercialization. In so doing, however, DOE has a long-standing policy of requiring companies that avail themselves of DOE-developed technologies to pay a substantial royalty on any commercial products that result. These royalties reimburse the taxpayer for their investment. There is no reason why pharmaceutical firms could not follow the same model. In the case of pharmaceutical research, the monies could even be earmarked to a fund that would be used to conduct further basic research, taking the burden off the back of the taxpayer. Although this idea has frequently been raised in Congress, it has always failed to win approval - in no small degree because " Big Pharma " maintains an army of lobbyists in Washington. In fact there are nearly two Drug Lobbyists for every Member of Congress. Perhaps the only way it will ever change is for average citizens to speak out and call for an end to " Big Pharma's " raid on the treasury. Until they do, the multi-national drug companies will continue to follow Gordon Gekko's precept : " Greed is Good. " Quote Link to comment Share on other sites More sharing options...
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