The Truth About Drug Companies

[Guest guest]

http://www.motherjones.com/news/qa/2004/09/09_401.html

 

The Truth About Drug Companies

 

The author calls the pharmaceutical industry a “vast

marketing machine” that thrives on monopoly rights and

public-sponsored research but produces few innovative

drugs.

 

Marcia Angell

Interviewed By Peter Meredith

 

September 7, 2004

 

The high price of prescription drugs has put -- and

kept -- U.S. pharmaceutical companies in the news

recently, but Dr. Marcia Angell argues that problems

with the industry run even deeper. In her new book,

The Truth About Drug Companies: How They Deceive Us

and What to Do About It (reviewed in the current issue

of Mother Jones), the former editor of the New England

Journal of Medicine contends that the industry has

become a marketing machine that produces few

innovative drugs and is dependent on monopoly rights

and public-sponsored research.

 

Angell disputes the industry’s reputation as an

“engine of innovation,” arguing that the top U.S. drug

makers spend 2.5 times as much on marketing and

administration as they do on research. At least a

third of the drugs marketed by industry leaders were

discovered by universities or small biotech companies,

writes Angell, but they’re sold to the public at

inflated prices. She cites Taxol, the cancer drug

discovered by the National Institutes of Health, but

sold by Bristol-Myers Squibb for $20,000 a year,

reportedly 20 times the manufacturing cost. The

company agreed to pay the NIH only 0.5 percent in

royalties for the drug.

 

The majority of the new products the industry puts

out, says Angell, are “me-too” drugs, which are almost

identical to current treatments but “no better than

drugs already on the market to treat the same

condition.” Around 75 percent of new drugs approved by

the FDA are me-too drugs. They can be less effective

than current drugs, but as long as they’re more

effective than a placebo, they can get the regulatory

green light.

 

Finally, Angell attacks major pharmaceutical industry

-- whose top ten companies make more in profits than

the rest of the Fortune 500 combined -- for using

“free market” rhetoric while opposing competition at

all costs. She discusses Prisolec maker Astra-Zeneca,

which filed multiple lawsuits against generic drug

makers to prevent them from entering the market when

the company’s exclusive marketing rights expired. The

company “obtained a patent on the idea of combining

Prilosec with antibiotics, then argued that a generic

drug would infringe on that patent because doctors

might prescribe it with an antibiotic.”

 

Angell, who is a doctor and a lecturer at Harvard

Medical School, wants to see the industry reformed.

She recently sat down with MotherJones.com to talk

about how to “ensure that we have access to good drugs

at reasonable prices and that the reality of this

industry is finally brought into line with its

rhetoric.”

 

MotherJones.com: Pharmaceutical companies say higher

prices are necessary to pay for heavy R & D investment.

 

Marcia Angell:These companies are justifying extremely

high prices by saying they need this money to cover

their high R & D costs, and they’re very innovative, and

that we should be willing to spend the money in return

for the innovation. In the book, I question those

premises. I say that, yes, they spend a lot on R & D,

but still they make more in profits, and they spend

two to two-and-a-half times as much on what they call

“marketing and administration.” If you want to argue

that they need the high prices to cover R & D, it would

make more sense to argue that they need the high

prices even more to cover their marketing costs. I

just want to put that in perspective. Also, their

profits are enormously high. Until last year, [they

were] the number one industry in the U.S. in terms of

profits. In 2002, the top 10 American [pharmaceutical]

companies in the Fortune 500 made 17 percent of their

sales in profits, whereas they spent only 14 percent

on R & D. The median for the other Fortune 500 companies

was between 3 percent of sales. So, you can’t make an

argument that they’re just eking out a living, just

managing to cover their R & D costs.

 

MJ.com: Your numbers for how much companies spend to

bring drugs to market are very different from the

industry’s. How come?

 

MA:The industry arrives at that $802 million [per

drug] figure by looking at a tiny handful of the most

costly drugs. Those are drugs that were developed

entirely in-house, and that are new molecular

entities. That’s a very tiny handful of the drugs that

come to market each year. They’re the most expensive

drugs. Second, even for those drugs, they come up with

a figure of $403 million per highly selected drug.

They then double that to $802 million simply by adding

in what they call the “opportunity costs” — what they

could have made if they’d spent the same money on

investments. Third, the figure is inflated by not

including the tax deductions and tax credits. They get

very large tax deductions and credits. So the figure

is highly inflated. That gets buried in the reporting

of it. When you hear the figure, you hear it given

with the implication that for any random new drug,

that’s what it costs to develop it. And that’s just

simply not so.

 

MJ.com: In your book, you charge that even some of

what the industry calls R & D is actually marketing. Can

you elaborate on that?

 

MA: Well, no one knows for sure what goes into the R & D

budget, because the companies aren’t telling. It’s

been estimated that about a quarter of it is spent on

Phase IV clinical trials, many of which are just

excuses to pay doctors to prescribe the drug. They

don’t yield any real scientific information. But no

one knows for sure.

 

MJ.com: So should the pharmaceutical industry be

making its books public?

 

MA: Yes, because it’s an industry that is so dependent

on the public for special favors. This industry,

despite its free-market rhetoric, is on welfare

big-time. It lives on taxpayer-funded research to a

very great extent, and it lives on government-granted

monopoly rights in the form of patents and

FDA-conferred exclusivity. An industry that is so

beholden to the public has some obligation in return.

That includes opening their books. We ought to know

more about their business. We ought to know whether

the claims they make can really be justified.

 

MJ.com:Why should the industry have to open its books

— or be asked to charge less for its products, for

that matter — when other industries aren’t held to

those standards?

 

MA: The public is absolutely dependent on this

industry for drugs that people need to take for their

health and even their lives. So, I think there are

some special obligations.

 

MJ.com: In the past you’ve written that “there can be

no better example of something that does not belong in

the market [than prescription drugs],” but you don’t

address that in the current book. Do you still think

so?

 

MA: I don’t think I’ve ever said that they should come

off the market, but there need to be reforms that

accomplish several things. [Pharmaceutical companies]

have too much influence over the education of

physicians in this country. They have too much control

over the evaluation of their own products, and that’s

a conflict of interest. I think the industry needs to

be regulated, but I’ve never suggested taking it out

of the market altogether. It’s now a funny mix of free

enterprise and welfare. On the one hand, it is free to

choose to make whatever drugs it wants to make. If it

wants to make one more me-too drug, it’s free to do

that instead of making an antibiotic that may really

be needed. It’s free to charge whatever the market

will bear in this country. And at the same time, it

claims all sorts of special favors. It claims that

Americans should not be allowed to purchase drugs in

any other country. It claims the right to license

taxpayer-funded research. It not only claims the right

to very long patents, but extends them in all kinds of

quite dubious ways. Now, this is hardly free

enterprise.

 

MJ.com: In terms of licensing drugs from

publicly-funded institutions, how much do companies

generally pay? Is it relative to how much they charge?

 

MA: I don’t know. I know in the case of Taxol, it was

very little. In general, when companies license a drug

from universities, it’s not all that much compared

with the profits. They’re licensing now from small

biotechs as well. The industry likes to portray itself

as the engine of innovation, but in fact its major

products are me-too drugs—minor variations of drugs

already on the market. For example, we have six

cholesterol-lowering statins on the market right now;

we have five SSRI anti-depressants; we have nine ACE

inhibitors to treat high blood pressure. If you look

at the top-selling drugs on the market right now, most

of them are me-too drugs, and the original of these

drugs came on the market back in the ‘80s, or even

earlier. The companies have been stringing out

variations on the themes ever since. The original

drugs were usually based on government university

research.

 

MJ.com: Regarding me-too drugs, can’t one make the

argument that there should be as many different

variations of a drug as possible on the market?

Shouldn’t the market decide?

 

MA: We have an FDA because what drugs to sell isn’t

something for the markets alone to decide. It’s also a

technical decision that requires scientific evidence.

The companies don’t want to provide that evidence.

They don’t test their me-too drugs against other

me-too drugs at comparable doses for the same

conditions. The companies also make the case that

there need to be several me-too drugs on the market

because if one doesn’t work, maybe another one will.

But until they test that, it’s just an assertion. They

don’t test their me-too drugs in people who have not

done well with an earlier drug of the same class. They

have to do that in order to prove that assertion. I

suspect that in most cases, a second drug will not

work any better, since me-too drugs are so similar,

but no one can know until it’s tested.

 

MJ.com: Speaking of the FDA, you characterize the

agency as one that facilitates new drugs, rather than

regulating them. To what degree is the agency

controlled by the industry it’s supposed to regulate?

 

MA: Too much. The FDA now gets “user fees” from drug

companies—about a half a million dollars for any drug

that the FDA reviews. Those user fees are small for

the companies, but it’s a substantial part of the FDA

budget. In fact, it’s more than half [the budget for]

the Center for Disease Evaluation and Research, which

is responsible for approving new drugs. In return, the

FDA is supposed to review drugs faster.

 

MJ.com: So you would propose getting rid of those user

fees?

 

MA: Absolutely. I think that the FDA should be funded

adequately by taxpayers, and it should see taxpayers

as the “users.” It should not be funded by the

industry it’s supposed to be regulating.

 

MJ.com: One of the changes you propose in this book is

that the NIH -- and not drug companies -- be

responsible for clinical research. But you propose

that drug companies help pay the NIH to do this.

Couldn’t this lead to a similar problem?

 

MA: No, because instead of paying user fees by drug,

companies would be levied a very small percentage of

their revenues. It wouldn’t be tied to research on any

particular drug. This would be only for clinical

trials, not the early development stage. The NIH would

put out contracts to universities and medical centers

to actually design and carry out the clinical trials,

but the NIH would have oversight.

 

MJ.com: FDA commissioner Lester Crawford recently

warned against buying drugs from Canada, citing

potential terrorist threat if drugs are tampered with.

Is there a valid concern there?

 

MA: There’s no reason to think that drugs that are

imported from Canada are any more likely to be unsafe

than drugs that one gets right here. In fact, the

cases of counterfeiting that I know of have all

occurred in this country. So there’s some reason to

think that maybe it’s safer to get your drugs from

Canada [laughs]. The drugs that an American would

purchase from Canada are going to be the drugs that

they ordinarily pay much more for here—that is,

FDA-approved drugs. They’re not going to be buying

just something in a bottle; they’re going to be buying

FDA-approved drugs that were shipped to Canada from

European and American companies which have

manufacturing plants all over the world. We have to

remember that drugs are crossing borders all the time.

Pfizer, for example, said on its website last year

that it had 60 manufacturing plants in 32 countries.

That right there constitutes a lot of borders. There’s

nothing about the Canadian border that’s going to

render these drugs poison. It’s a scare tactic. What

the industry does not want people to realize is the

great price disparities between the United States and

every other advanced country.

 

MJ.com: In the past, you’ve criticized the U.S. health

care system, saying that “if we had set out to design

the worst system we could imagine, we couldn’t have

imagined one as bad as this.” Do you still believe

that?

 

MA: The market-based pharmaceutical industry is one

problem in the larger problem of a market-based health

care system. We spend twice as much per person on

health care as the average of all the other advanced

countries, and that gap is growing. Yet, we get less

for our money. We have over 40 million people with no

insurance at all. Most of the rest of us are

under-insured. The usual indices of health, like life

expectancy and infant mortality, are toward the bottom

in the U.S. compared with other advanced countries.

So, something’s wrong, and it’s the system. A

market-based system distributes health care as a

commodity according to the ability to pay, instead of

as a social service distributed according to need.

Yet, there’s an inverse relationship between one’s

ability to pay for health care and one’s medical

needs. The situation gets crazier when you allow

competing, investor-owned insurance companies to

insure Americans, because they have learned that the

best way to compete is to keep costs down by skimping

on health services. We have the only health care

system on the world that’s based on dodging sick

people. [insurers] do everything they can to avoid

covering people at high risk of getting ill, and when

they do get ill, [companies] fight paying for it. They

exclude certain expensive conditions as much as

possible. They pass those costs back to the patient or

another insurer. And that takes a lot of paperwork,

and a lot of overhead.

 

MJ.com: In the book, you mention that every other

developed nation regulates prescription drug prices—

 

MA: Yes, but they have different ways of doing it. If

you look at Canada, it’s a very mild form of

regulation, really. They have a national board, and

when a me-too drug comes on the market, they say it

can’t be priced any higher than the highest-priced

drug for that condition already on the market. Nor can

it be priced any higher than the median in seven

advanced countries, and these countries include the

U.S. Then they say the prices cannot rise any faster

than the inflation rate. So, that’s not too onerous.

Drug companies make profits in Canada.

 

MJ.com: Is that an example of a system you’d like to

see in the U.S.?

 

MA: Yes. Importing drugs from Canada is not a very

sensible solution, because Canada can’t possibly

supply the U.S., and the drug companies are now

retaliating against Canada and squeezing their

supplies. So, importation is not a long-term solution.

It’s just a symptom of the real problem of

price-gouging in this country. We should be looking at

the Canadian system, and maybe import that rather than

importing the drugs.

 

MJ.com: Realistically, do you think a system of price

controls like that could ever be instituted in the

U.S.?

 

MA: Well, something’s going to have to happen, because

there’s no one around any longer who can afford the

drug company prices. Not only are individuals having

problems, but states are having problems. They feel

these prices through the Medicaid system. The federal

government is going to find that this fairly

open-ended Medicare drug benefit is going to be

completely outpaced by the rising prices.

 

MJ.com: If pharmaceutical manufacturers were forced to

lower prices, couldn’t it backfire if they cut back on

research as a result, rather than marketing?

 

MA: Well, they might choose to do that, but they

wouldn’t have to. They could cut their marketing

instead, or they could cut into their profits. Their

R & D very often comes from the NIH or other publicly

sponsored research. Most of their R & D expenditures go

for clinical testing after the creative work is

already done. This is true for the most innovative

drugs, as well as for cancer and HIV/AIDS drugs.

 

MJ.com: You say that there’s “palpable” discontent

among seniors and others about drug prices. Do you see

this as having an effect on the problems you described

in the book?

 

MA: I think that there are political effects, and I

think that’s what you’re seeing right now with the

importation issue. Congress has passed a law saying

that you can import drugs from Canada, but that the

administration must certify that it not add any risks.

Both the Clinton and Bush administrations have refused

to do that. It’s giving Congress an opportunity to

play both sides of the street.

 

MJ.com: Given that Congress is torn between seniors

and the pharmaceutical lobby, do you think change will

ever occur?

 

MA: I think that the public doesn’t seem to be buying

the argument that drugs from Canada are dangerous. If

it comes down to choosing between the money that the

money that drug companies provide and the votes that

citizens provide, I think members of Congress are

going to go with votes. That’s what I hope will

happen.

 

MJ.comIn the conclusion of the book, you stress that

citizens should grill their doctors regarding drugs

they’re prescribing. Why do you recommend that type of

action most heavily?

 

MA: The other reforms will take time, but in the

meantime, doctors are too willing to provide drugs for

very minor conditions. Those drugs are too often the

very most expensive, heavily advertised, me-too drugs.

I think that patients have to get a little savvier

about that. Instead of just grabbing that sample and

thinking they’ve gotten something for free, they ought

to think about what it means. Nearly every drug has

side effects. I do think that we are an overmedicated

society.

.. What do you think?

 

Peter Meredith is an editorial fellow at Mother Jones