The Drug Profiteers

By Kelly Hearn, AlterNet. Posted August 13, 2004.

Faced with exorbitant prescription drug prices and contemptible marketing tactics, the American public seems to be swinging back against major drug companies. Marcia Angell, for two decades the Editor-in-Chief of The New England Journal of Medicine, is contributing boldly to that fight with a front row expose of Big Pharma’s excesses and neglects. In a disturbing new book, Angell, now a Senior Lecturer in Social Medicine at Harvard Medical School, spotlights the dubious tactics that garnered big drug companies an estimated $400 billion in worldwide sales in 2002.

Once tapped by Time magazine as one of America’s 25 most influential people, Angell uses her penetrating new work, The Truth About the Drug Companies: How They Deceive Us and What To Do About It, to propose reforms that could bring the megacolossal industry under control. Angell’s book will be published by Random House later this month. She talked with AlterNet about the excesses of the drug companies, the failure of the government to rein them in and about what it will take to turn things around.

Drug companies claim that high drug prices are needed to offset research and development (R&D) costs. You point out that this isn't particularly true in part because of the industry's reliance on so-called "me too" drugs. Can you explain?

A "me too" drug is a drug that's a minor variation of a drug already on the market. Most of what big drug companies turn out are "me too" drugs. There are, for example, six statin drugs on the market. These are cholesterol-lowering drugs of the Lipitor type. Lipitor wasn't the first statin. The first statin to come on the market was called Mevacor. It had such a large potential market that other companies realized that rejiggering the molecule a bit would allow them to have a share of this very large market. Lipitor is now the best-selling drug in the world. But it is a "me too" drug.

Likewise, your analysis of SEC documents revealed that R&D for many companies is a rather mysterious budget category that could include what some would consider to be marketing programs. How do R&D expenditures generally rank when compared to expenditures for marketing and administration costs? And to profits?

The pharmaceutical industry talks a lot about how much R&D costs. But the R&D is consistently less than big companies make in profits and far less than what they spend on something they usually call "marketing and administration." Companies vary a little in the name for this but it's a big category that includes all kinds of promotional activities plus administrative costs like executive salaries, legal fees and so forth. This is by far the largest part of their budgets, usually somewhere from two to two-and-a-half times what they spend on R&D.

Medicare was enacted in 1965 with no provision for outpatient prescription drug benefits for seniors. You point out that drugs were cheaper, people took fewer drugs and seniors could afford to buy what they needed. Today, because many seniors don't have supplemental insurance or collective bargaining power, prices are highest for the people who most need drugs. Will the recent Medicare reforms help?

The Medicare drug benefit that was just passed in late 2003 will do very little to help senior citizens because it specifically prohibits Medicare from bargaining with drug companies for lower prices. All large private insurers already do this. So do some government programs such as the Veterans Affairs (VA) system. Medicare would be the biggest purchaser of all. It would have enormous bargaining power. The pharmaceutical industry did not want that to happen and they made sure it would be explicitly prohibited. And it was. What we are left with is a drug benefit that is inadequate to begin with. It has this huge donut hole for example. As prices increase at the rate they are now, and they'll probably increase at least that fast, [the benefit] will quickly be washed out by rising prices.

Are there other potential reforms waiting in the wings?

There are some. The most important reform in my view would be for the Food and Drug Administration (FDA) to require that new drugs be tested – not against placebos, but against older treatments already on the market for the same condition. If that were required, most new drugs, which are "me too" drugs, wouldn't be approved. That's because there's no reason to think they are better. By default, that would force the industry to put some real R&D efforts into genuinely important novel drugs. They wouldn't get away with this gigantic "me-too" industry.

Kelly Hearn is a correspondent for The Christian Science Monitor and a former science and technology writer for UPI. Based in Washington DC and Telluride, CO, he is currently investigating the political influence of major pharmaceutical companies.

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