Big drug companies want us to believe soaring drug prices are necessary to cover their research and development (R&D) costs—a claim that implies they spend most of their money on R&D, and after they pay for it, they have only modest profits left over. Curtailing prices, they say, would choke off R&D and stifle innovation.
The following 14 key facts show an industry very different from the one depicted in Big Pharma’s public relations—and each problem can be remedied by congressional action.
The pharmaceutical industry claims to be a “high-risk” business, but year after year, drug companies stack up some of the largest profits of any industry in the nation. In 2004, the top nine U.S. drug companies—those listed on the Fortune 500—made a median profit margin of 16 percent of revenues, compared with 5.2 percent for the other Fortune 500 industries. Consumers pay for these enormous profits, while employers who provide good health benefits find it increasingly difficult to do so.
Big drug companies spend far less on research and development than on marketing (despite their denials). According to their own figures, the top U.S. drug companies last year spent only 15 percent of revenues on R&D but 32 percent on marketing and administration (of which the lion’s share went to marketing). The industry claims to spend $802 million to bring each new drug to market, yet independent analysis shows the true figure is a small fraction of that.
The pharmaceutical industry portrays itself as a model of American free enterprise, but in fact, Big Pharma is utterly dependent on government-funded research and government-granted monopoly rights and other special favors.
The industry claims to be innovative, yet only a small fraction of its drugs can be classified as original. The U.S. Food and Drug Administration (FDA) determined nearly 80 percent of drugs approved in the past seven years were no better than those already on the market. Some 70 percent were old drugs in slightly new forms.
The industry’s principal output is minor variations or combinations of old drugs—“me-too” drugs. These drugs cash in on already established, lucrative markets. For example, the world’s top-selling drug, Pfizer’s Lipitor, is the fourth of six cholesterol-lowering drugs of the same type.
New drugs are not required to improve on old ones, and there’s usually no way to know whether they do. Although the FDA must test drugs before they are marketed, they don’t need to be compared with similar drugs already on the market. The FDA only requires they be reasonably safe and better than nothing—a low standard indeed. This loophole in FDA regulations opens the door for an unlimited number of me-too drugs, which are easier to develop than innovative drugs.
Drug companies often promote diseases to fit drugs, instead of the reverse. By using direct-to-consumer ads to persuade essentially healthy people they have medical conditions that need ongoing treatment, they increase their share of an untapped market.
Even while the pharmaceutical industry turns out families of me-too drugs for relatively mild conditions in affluent people, it pays almost no attention to serious diseases, such as malaria, affecting impoverished people. It also gives short shrift to less profitable drugs, so there now are shortages of some vaccines and life-saving drugs.
The industry’s most innovative and key drugs stem from research done at government or university labs, usually in the public domain. Even within me-too families, the original drug typically is based on government-funded research, often done decades ago. So consumers pay twice for their drugs—once for research, and then at the drugstore.
Drug companies have enormous control over clinical trials. They design studies that increase the likelihood of favorable results—something that’s very easy to do—or they suppress unfavorable results, providing reason to believe that much of the published research on prescription drugs is biased.
Big Pharma significantly influences what doctors are taught about drugs and what they prescribe. The companies support most medical conferences and education courses and deploy armies of sales representatives to visit doctors and teaching hospitals to tout their wares and hand out free samples and other gifts. There is ample evidence this huge investment in medical “education” pays off when doctors write prescriptions. It also creates an unhealthy sense of entitlement in young doctors and increases drug prices.
The pharmaceutical industry has an iron grip on Congress and the White House. With the largest lobby in Washington, D.C., the industry employs more lobbyists than there are Congress members. Over the past two decades, Congress has enacted laws that ensure windfall profits to the pharmaceutical industry, all at public expense. For example, the Medicare prescription drug benefit, passed in 2003 and set to go into effect next year, specifically prohibits Medicare from negotiating prices.
The division of the FDA that approves new drugs receives half its support from drug companies in return for quick reviews. That means the FDA is dependent on the industry it’s supposed to regulate and spends more on rushing drugs to market than making sure they’re safe. The FDA’s advisory committee members also are on the industry’s payroll because many members work as drug company consultants.
The United States is the only advanced nation that does not regulate drug costs in some way, and other countries spend only about half as much for the same brand-name drugs as Americans. Although these countries require reasonable pricing in return for patent protection, drug companies do not sell at a loss. As for importing drugs from Canada, there’s no evidence that it’s an unsafe practice, but it would make more sense to adopt a similar system for negotiating prices than to import drugs.
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Dr. Marcia Angell is author of The Truth About Drug Companies: How They Deceive Us and What to Do About It (Random House) and former Editor-in-Chief of the New England Journal of Medicine. A member of Harvard Medical School's Department of Social Medicine, Angell was named one of the 25 most influential people in America by Time magazine.
