The Real Drug Lords

By Wayne M. O'Leary, Progressive Populist. Posted August 13, 2002.

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.

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